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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 31, 2002
------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ----------------------
COMMISSION FILE NUMBER 001-08495
CONSTELLATION BRANDS, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 16-0716709
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
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(Address of principal executive offices) (Zip Code)
(585) 218-3600
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding with respect to each of the classes of common
stock of Constellation Brands, Inc., as of June 30, 2002, is set forth below:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 77,249,552
Class B Common Stock, Par Value $.01 Per Share 12,095,990
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
May 31, February 28,
2002 2002
----------- ------------
(unaudited)
ASSETS
-------
CURRENT ASSETS:
Cash and cash investments $ 6,564 $ 8,961
Accounts receivable, net 420,853 383,922
Inventories, net 767,722 777,586
Prepaid expenses and other current assets 64,905 60,779
----------- -----------
Total current assets 1,260,044 1,231,248
PROPERTY, PLANT AND EQUIPMENT, net 580,211 578,764
GOODWILL 707,050 668,083
INTANGIBLE ASSETS, net 379,996 425,987
OTHER ASSETS 169,133 165,303
----------- -----------
Total assets $ 3,096,434 $ 3,069,385
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 32,335 $ 54,775
Current maturities of long-term debt 84,053 81,609
Accounts payable 155,469 153,433
Accrued excise taxes 46,129 60,238
Other accrued expenses and liabilities 280,911 245,155
----------- -----------
Total current liabilities 598,897 595,210
----------- -----------
LONG-TERM DEBT, less current maturities 1,279,183 1,293,183
----------- -----------
DEFERRED INCOME TAXES 146,804 163,146
----------- -----------
OTHER LIABILITIES 62,459 62,110
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at May 31, 2002,
and February 28, 2002 - -
Class A Common Stock, $.01 par value-
Authorized, 120,000,000 shares;
Issued, 80,015,854 shares at
May 31, 2002, and 79,309,174 shares at
February 28, 2002 800 793
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 14,601,990 shares at
May 31, 2002, and 14,608,390 shares
at February 28, 2002 146 146
Additional paid-in capital 439,888 431,216
Retained earnings 629,588 592,219
Accumulated other comprehensive loss (27,940) (35,222)
----------- -----------
1,042,482 989,152
----------- -----------
Less-Treasury stock-
Class A Common Stock, 2,895,526 shares at
May 31, 2002, and February 28, 2002, at cost (31,159) (31,159)
Class B Convertible Common Stock, 2,502,900 shares
at May 31, 2002, and February 28, 2002, at cost (2,207) (2,207)
----------- -----------
(33,366) (33,366)
----------- -----------
Less-Unearned compensation-restricted stock awards (25) (50)
----------- -----------
Total stockholders' equity 1,009,091 955,736
----------- -----------
Total liabilities and stockholders' equity $ 3,096,434 $ 3,069,385
=========== ===========
The accompanying notes are an integral part of these statements.
1
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Three Months Ended May 31,
----------------------------------
2002 2001
----------- -----------
(unaudited) (unaudited)
GROSS SALES $ 859,011 $ 788,880
Less - Excise taxes (210,070) (193,664)
----------- -----------
Net sales 648,941 595,216
COST OF PRODUCT SOLD (473,667) (442,541)
----------- -----------
Gross profit 175,274 152,675
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (89,309) (82,752)
----------- -----------
Operating income 85,965 69,923
EQUITY IN EARNINGS OF JOINT VENTURE 2,739 -
INTEREST EXPENSE, net (27,141) (30,185)
----------- -----------
Income before income taxes 61,563 39,738
PROVISION FOR INCOME TAXES (24,194) (15,895)
----------- -----------
NET INCOME $ 37,369 $ 23,843
=========== ===========
SHARE DATA:
Earnings per common share:
Basic $ 0.42 $ 0.29
=========== ===========
Diluted $ 0.40 $ 0.28
=========== ===========
Weighted average common shares outstanding:
Basic 88,845 82,508
Diluted 92,353 85,051
SUPPLEMENTAL DATA RESTATED FOR EFFECT OF
SFAS NO. 142:
Adjusted operating income $ 85,965 $ 76,277
=========== ===========
Adjusted net income $ 37,369 $ 28,116
=========== ===========
Adjusted earnings per common share - basic $ 0.42 $ 0.34
=========== ===========
Adjusted earnings per common share - diluted $ 0.40 $ 0.33
=========== ===========
The accompanying notes are an integral part of these statements.
2
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months Ended May 31,
----------------------------------
2002 2001
------------ ------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 37,369 $ 23,843
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of property, plant and equipment 14,384 14,005
Amortization of intangible assets and other assets 1,465 7,920
Deferred tax provision 1,354 -
Loss on sale of assets 916 920
Stock-based compensation expense 25 25
Amortization of discount on long-term debt 14 135
Equity in earnings of joint venture (2,739) -
Change in operating assets and liabilities, net of effects
from purchases of businesses:
Accounts receivable, net (32,522) (39,164)
Inventories, net 8,993 18,800
Prepaid expenses and other current assets (3,512) (3,387)
Accounts payable (174) 21,251
Accrued excise taxes (14,452) (11,706)
Other accrued expenses and liabilities 33,725 4,919
Other assets and liabilities, net (2,495) (2,964)
------------ ------------
Total adjustments 4,982 10,754
------------ ------------
Net cash provided by operating activities 42,351 34,597
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,342) (10,838)
Payment of accrued earn-out amount (804) -
Purchases of businesses, net of cash acquired - (328,783)
Proceeds from sale of assets 633 368
------------ ------------
Net cash used in investing activities (12,513) (339,253)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments of) proceeds from notes payable (22,560) 21,162
Principal payments of long-term debt (18,957) (1,974)
Payment of issuance costs of long-term debt (4) (1,014)
Proceeds from equity offering, net of fees - 139,878
Exercise of employee stock options 8,816 4,797
------------ ------------
Net cash (used in) provided by financing activities (32,705) 162,849
------------ ------------
Effect of exchange rate changes on cash and cash investments 470 (126)
------------ ------------
NET DECREASE IN CASH AND CASH INVESTMENTS (2,397) (141,933)
CASH AND CASH INVESTMENTS, beginning of period 8,961 145,672
------------ ------------
CASH AND CASH INVESTMENTS, end of period $ 6,564 $ 3,739
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired $ - $ 368,632
Liabilities assumed - (39,347)
------------ ------------
Cash paid - 329,285
Less - cash acquired - (502)
------------ ------------
Net cash paid for purchases of businesses $ - $ 328,783
============ ============
The accompanying notes are an integral part of these statements.
3
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2002
1) MANAGEMENT'S REPRESENTATIONS:
The consolidated financial statements included herein have been prepared by
Constellation Brands, Inc. and its subsidiaries (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
applicable to quarterly reporting on Form 10-Q and reflect, in the opinion of
the Company, all adjustments necessary to present fairly the financial
information for the Company. All such adjustments are of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted as permitted by such rules and
regulations. These consolidated financial statements and related notes should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 2002. Results of operations for interim periods are not
necessarily indicative of annual results.
Certain February 28, 2002, balances have been reclassified to conform to
current year presentation.
2) ACCOUNTING CHANGES:
Effective March 1, 2002, the Company completed its adoption of Statement of
Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations," resulting in a reclassification of $47.0 million of previously
identified separable intangible assets to goodwill and an elimination of $16.7
million of deferred tax liabilities previously associated with those intangible
assets with a corresponding deduction from goodwill. The adoption of SFAS No.
141 did not have any other material impact on the Company's financial
statements.
Effective March 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes Accounting Principles Board
Opinion No. 17, "Intangible Assets." Under SFAS No. 142, goodwill and indefinite
lived intangible assets are no longer amortized but are reviewed at least
annually for impairment. Separable intangible assets that are not deemed to have
an indefinite life will continue to be amortized over their useful lives. Upon
adoption of SFAS No. 142, the Company determined that certain of its intangible
assets met the criteria to be considered indefinite lived and, accordingly,
ceased their amortization effective March 1, 2002. These intangible assets
consisted principally of trademarks. Intangible assets determined to have a
finite life, primarily distribution agreements, continue to be amortized over
their estimated useful lives which were not modified as a result of adopting
SFAS No. 142. Nonamortizable intangible assets will be tested for impairment in
accordance with the provisions of SFAS No. 142 and amortizable intangible assets
will be tested for impairment in accordance with the provisions of SFAS No. 144
(as defined below). Note 5 provides a summary of intangible assets segregated
between amortizable and nonamortizable amounts.
The Company has completed its impairment testing for nonamortizable
intangible assets pursuant to the requirements of SFAS No. 142. No instances of
impairment were noted during this process.
The Company expects to complete the transitional impairment test for
goodwill by the end of the six month period ended August 31, 2002, pending
completion of the fair value measurement of the Company's reporting units. The
Company is currently assessing the financial impact of this provision of SFAS
No. 142 on its financial statements.
4
The following table presents earnings and earnings per share information
for the comparative quarters as if the nonamortization provisions of SFAS No.
142 had been applied as of March 1, 2001:
For the Three Months
Ended May 31,
------------------------
2002 2001
---------- ----------
(in thousands, except per share data)
Reported net income $ 37,369 $ 23,843
Add back: amortization of goodwill - 4,078
Add back: amortization of intangibles
reclassified to goodwill - 536
Add back: amortization of indefinite lived
intangible assets - 1,740
Less: income tax effect - (2,081)
---------- ----------
Adjusted net income $ 37,369 $ 28,116
========== ==========
BASIC EARNINGS PER COMMON SHARE:
Reported net income $ 0.42 $ 0.29
Add back: amortization of goodwill - 0.05
Add back: amortization of intangibles
reclassified to goodwill - 0.01
Add back: amortization of indefinite lived
intangible assets - 0.02
Less: income tax effect - (0.03)
---------- ----------
Adjusted net income $ 0.42 $ 0.34
========== ==========
DILUTED EARNINGS PER COMMON SHARE:
Reported net income $ 0.40 $ 0.28
Add back: amortization of goodwill - 0.05
Add back: amortization of intangibles
reclassified to goodwill - -
Add back: amortization of indefinite lived
intangible assets - 0.02
Less: income tax effect - (0.02)
---------- ----------
Adjusted net income $ 0.40 $ 0.33
========== ==========
The changes in the carrying amount of goodwill for the three months ended
May 31, 2002, are as follows:
Popular
and Imported U.K.
Premium Beer and Brands and Fine
Wine Spirits Wholesale Wine Consolidated
---------- ---------- ---------- ---------- ------------
(in thousands)
Balance, February 28, 2002 $ 226,798 $ 105,680 $ 143,321 $ 192,284 $ 668,083
Intangible assets reclassified to
goodwill at March 1, 2002 - 40,030 6,946 - 46,976
Elimination of deferred tax
liabilities - (14,611) (2,084) - (16,695)
Purchase accounting allocations 5,558 - - (2,035) 3,523
Foreign currency translation
adjustments - 527 3,832 - 4,359
Other 804 - - - 804
---------- ---------- ---------- ---------- ------------
Balance, May 31, 2002 $ 233,160 $ 131,626 $ 152,015 $ 190,249 $ 707,050
========== ========== ========== ========== ============
Effective March 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS
5
No. 144 supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," for the disposal of a
segment of a business (as previously defined in that Opinion). The adoption of
SFAS No. 144 did not have a material impact on the Company's financial
statements.
Effective March 1, 2002, the Company adopted EITF Issue No. 01-09 ("EITF
No. 01-09"), "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)" which codified various issues
related to the income statement classification of certain promotional payments
under EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," EITF
Issue No. 00-22, "Accounting for 'Points' and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to
Be Delivered in the Future," and EITF Issue No. 00-25, "Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the Vendor's Products."
EITF No. 01-09 addresses the recognition, measurement and income statement
classification of consideration given by a vendor to a customer (including both
a reseller of the vendor's products and an entity that purchases the vendor's
products from a reseller). EITF No. 01-09, among other things, requires that
certain consideration given by a vendor to a customer be characterized as a
reduction of revenue when recognized in the vendor's income statement. The
Company previously reported such costs as selling, general and administrative
expenses. As a result of adopting EITF No. 01-09 on March 1, 2002, the Company
has restated net sales, cost of product sold, and selling, general and
administrative expenses for the three months ended May 31, 2001. Net sales were
reduced by $46.9 million, cost of product sold was increased by $2.4 million,
and selling, general and administrative expenses were reduced by $49.3 million.
This reclassification did not effect operating income or net income.
3) ACQUISITIONS:
On March 5, 2001, in an asset acquisition, the Company acquired several
well-known premium wine brands, including Vendange, Nathanson Creek, Heritage,
and Talus, working capital (primarily inventories), two wineries in California,
and other related assets from Sebastiani Vineyards, Inc. and Tuolomne River
Vintners Group (the "Turner Road Vintners Assets"). The purchase price of the
Turner Road Vintners Assets, including assumption of indebtedness of $9.4
million, was $289.8 million. The acquisition was financed by the proceeds from
the sale of the February 2001 Senior Notes and revolving loan borrowings under
the senior credit facility. The Turner Road Vintners Assets acquisition was
accounted for using the purchase method; accordingly, the acquired net assets
were recorded at fair market value at the date of acquisition. Based upon the
final appraisal, the excess of the purchase price over the fair market value of
the net assets acquired (goodwill), $147.3 million, is no longer being
amortized, but will be tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. The results of operations of the Turner
Road Vintners Assets are reported in the Popular and Premium Wine segment and
have been included in the Consolidated Statements of Income since the date of
acquisition.
On March 26, 2001, in an asset acquisition, the Company acquired certain
wine brands, wineries, working capital (primarily inventories), and other
related assets from Corus Brands, Inc. (the "Corus Assets"). In this
acquisition, the Company acquired several well-known premium wine brands
primarily sold in the northwestern United States, including Covey Run, Columbia,
Ste. Chapelle and Alice White. The purchase price of the Corus Assets, including
assumption of indebtedness (net of cash acquired) of $3.0 million, was $52.3
million plus an earn-out over six years based on the performance of the brands.
As of May 31, 2002, the Company has paid an earn-out in the amount of $0.8
million. In connection with the transaction, the Company also entered into
long-term grape supply agreements with affiliates of Corus Brands, Inc. covering
more than 1,000 acres of Washington and Idaho vineyards. The acquisition was
6
financed with revolving loan borrowings under the senior credit facility. The
Corus Assets acquisition was accounted for using the purchase method;
accordingly, the acquired net assets were recorded at fair market value at the
date of acquisition. Based upon the final appraisal, the excess of the purchase
price over the fair market value of the net assets acquired (goodwill), $48.9
million, is no longer being amortized, but will be tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. The results of
operations of the Corus Assets are reported in the Popular and Premium Wine
segment and have been included in the Consolidated Statements of Income since
the date of acquisition.
On July 2, 2001, the Company acquired all of the outstanding capital stock
of Ravenswood Winery, Inc. ("Ravenswood"). Ravenswood produces, markets and
sells super-premium and ultra-premium California wine, primarily under the
Ravenswood brand name. The preliminary purchase price of Ravenswood, including
assumption of indebtedness of $2.9 million, was $151.8 million. The purchase
price is subject to final closing adjustments which the Company does not expect
to be material. The purchase price was financed with revolving loan borrowings
under the senior credit facility. The Ravenswood acquisition was accounted for
using the purchase method; accordingly, the acquired net assets were recorded at
fair market value at the date of acquisition, subject to final appraisal. The
excess of the purchase price over the estimated fair market value of the net
assets acquired (goodwill), $96.9 million, is not amortizable and will be tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. The Ravenswood acquisition was consistent with the Company's strategy of
further penetrating the higher gross profit margin super-premium and
ultra-premium wine categories. The results of operations of Ravenswood are
reported in the Fine Wine segment and have been included in the Consolidated
Statements of Income since the date of acquisition.
The following table summarizes the estimated fair values of the Ravenswood
assets acquired and liabilities assumed at the date of acquisition. The Company
is in the process of obtaining third-party valuations of certain assets; thus,
the allocation of the purchase price is subject to refinement which the Company
does not expect to be material. Estimated fair values at July 2, 2001, are as
follows:
Current assets $ 38,044
Property, plant and equipment 14,994
Other assets 353
Trademarks 45,000
Goodwill 96,913
---------
Total assets acquired 195,304
Current liabilities 14,019
Long-term liabilities 32,347
---------
Total liabilities assumed 46,366
---------
Net assets acquired $ 148,938
=========
The trademarks are not subject to amortization. None of the goodwill is
expected to be deductible for tax purposes.
The following table sets forth the unaudited historical and unaudited pro
forma results of operations of the Company for the three months ended May 31,
2002 and May 31, 2001, respectively. The unaudited pro forma results of
operations for the three months ended May 31, 2001, gives effect to the
acquisitions of the Turner Road Vintners Assets, the Corus Assets and Ravenswood
as if they occurred on March 1, 2001. The unaudited pro forma results of
operations are presented after giving effect to certain adjustments for
depreciation, amortization of goodwill, interest expense on the acquisition
financing and related income tax effects. The unaudited pro forma results of
operations are based upon currently available information and upon certain
assumptions that the Company believes are reasonable under the circumstances.
The unaudited pro forma results of operations do not purport to present what the
Company's results of operations would actually have been if the aforementioned
7
transactions had in fact occurred on such date or at the beginning of the period
indicated, nor do they project the Company's financial position or results of
operations at any future date or for any future period.
For the Three Months
Ended May 31,
----------------------
2002 2001
---------- ----------
(in thousands, except per share data)
Net sales $ 648,941 $ 606,090
Income before income taxes $ 61,563 $ 37,100
Net income $ 37,369 $ 22,261
Earnings per common share:
Basic $ 0.42 $ 0.27
========== ==========
Diluted $ 0.40 $ 0.26
========== ==========
Weighted average common shares outstanding:
Basic 88,845 82,508
Diluted 92,353 85,051
4) INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with
the first-in, first-out method) or market. Elements of cost include materials,
labor and overhead and consist of the following:
May 31, February 28,
2002 2002
----------- ------------
(in thousands)
Raw materials and supplies $ 34,007 $ 34,126
In-process inventories 499,920 524,373
Finished case goods 233,795 219,087
----------- ------------
$ 767,722 $ 777,586
=========== ============
5) INTANGIBLE ASSETS:
The major components of intangible assets are:
May 31, 2002 February 28, 2002
------------------------ -----------------------
Gross Net Gross Net
Carrying Carrying Carrying Carrying
Amount Amount Amount Amount
---------- ---------- ---------- ----------
(in thousands)
Amortizable intangible assets:
Distribution agreements $ 10,158 $ 5,578 $ 10,158 $ 5,960
Other 4,049 887 4,049 1,067
---------- ---------- ---------- ----------
Total $ 14,207 6,465 $ 14,207 7,027
========== ==========
Nonamortizable intangible assets:
Trademarks 353,041 351,707
Distributor and agency
relationships 20,458 60,488
Other 32 6,765
---------- ----------
Total 373,531 418,960
---------- ----------
Total intangible assets $ 379,996 $ 425,987
========== ==========
The difference between the gross carrying amount and net carrying amount
for each item presented is attributable to accumulated amortization.
Amortization expense for intangible assets was
8
$0.6 million for the three months ended May 31, 2002. Estimated amortization
expense for each of the five succeeding fiscal years is as follows:
(in thousands)
2003 $ 2,249
2004 $ 1,625
2005 $ 1,427
2006 $ 1,361
2007 $ 365
6) INVESTMENT IN JOINT VENTURE:
On July 31, 2001, the Company and BRL Hardy Limited completed the formation
of Pacific Wine Partners LLC ("PWP"), a joint venture owned equally by the
Company and BRL Hardy Limited. The Company and PWP are parties to the following
agreements: crushing, wine production, bottling, storage, and related services
agreement; inventory supply agreement; sublease and assumption agreements
pertaining to certain vineyards, which agreements include a market value
adjustment provision; and a market value adjustment agreement relating to a
certain vineyard lease held by PWP. As of May 31, 2002, amounts related to the
above agreements were not material.
On October 16, 2001, the Company announced that PWP completed the purchase
of certain assets of Blackstone Winery, including the Blackstone brand and the
Codera wine business in Sonoma County ("the Blackstone Assets"). The purchase
price of the Blackstone Assets was $138.0 million and was financed equally by
the Company and Hardy. The Company used revolving loan borrowings under its
senior credit facility to fund the Company's portion of the transaction.
As of May 31, 2002, the Company's investment balance, which is accounted
for under the equity method, was $113.3 million and is included on the
Consolidated Balance Sheets in other assets. The carrying amount of the
investment is less than the Company's equity in the underlying net assets of PWP
by $4.1 million. This amount is included in earnings as the assets are used by
PWP.
7) EARNINGS PER COMMON SHARE:
Basic earnings per common share exclude the effect of common stock
equivalents and are computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflect the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assume the exercise of stock options
using the treasury stock method.
The computation of basic and diluted earnings per common share is as
follows:
For the Three Months
Ended May 31,
----------------------
2002 2001
-------- --------
(in thousands, except per share data)
Income applicable to common shares $ 37,369 $ 23,843
-------- --------
Weighted average common shares
outstanding - basic 88,845 82,508
Stock options 3,508 2,543
-------- --------
Weighted average common shares
outstanding - diluted 92,353 85,051
======== ========
EARNINGS PER COMMON SHARE - BASIC $ 0.42 $ 0.29
======== ========
EARNINGS PER COMMON SHARE - DILUTED $ 0.40 $ 0.28
======== ========
9
Stock options to purchase 2.8 million shares of Class A Common Stock at a
weighted average price per share of $17.74 were outstanding during the three
months ended May 31, 2001, but were not included in the computation of the
diluted earnings per common share because the stock options' exercise price was
greater than the average market price of the Class A Common Stock for the
period.
8) COMPREHENSIVE INCOME:
Comprehensive income consists of net income, foreign currency translation
adjustments, net unrealized gains or losses on derivative instruments and
minimum pension liability adjustments. The reconciliation of net income to
comprehensive income is as follows:
For the Three Months
Ended May 31,
--------------------
2002 2001
-------- --------
(in thousands)
Net income $ 37,369 $ 23,843
Other comprehensive income, net of tax:
Foreign currency translation adjustments 7,688 (4,314)
Cash flow hedges:
Net derivative gains, net of tax effect
of $0 and $79, respectively - 172
Reclassification adjustments, net of tax
effect of $10 and $103, respectively (16) (229)
-------- --------
Net cash flow hedges (16) (57)
Minimum pension liability adjustment, net of tax
effect of $260 and $0, respectively (390) -
-------- --------
Total comprehensive income $ 44,651 $ 19,472
======== ========
Accumulated other comprehensive loss includes the following components:
For the Three Months Ended May 31, 2002
------------------------------------------------------
Foreign Net Minimum Accumulated
Currency Unrealized Pension Other
Translation Gains on Liability Comprehensive
Adjustments Derivatives Adjustment Loss
----------- ----------- ---------- -------------
(in thousands)
Balance, February 28, 2002 $ (35,243) $ 21 $ - $ (35,222)
Current-period change 7,688 (16) (390) 7,282
----------- ----------- ---------- -------------
Balance, May 31, 2002 $ (27,555) $ 5 $ (390) $ (27,940)
=========== =========== ========== =============
9) CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
The following information sets forth the condensed consolidating balance
sheets of the Company as of May 31, 2002, and February 28, 2002, and the
condensed consolidating statements of income and cash flows for the three months
ended May 31, 2002 and 2001, for the Company, the parent company, the combined
subsidiaries of the Company which guarantee the Company's senior notes and
senior subordinated notes ("Subsidiary Guarantors") and the combined
subsidiaries of the Company which are not Subsidiary Guarantors, primarily
Matthew Clark, which is included in the U.K. Brands and Wholesale segment
("Subsidiary Nonguarantors"). The Subsidiary Guarantors are wholly owned and the
guarantees are full, unconditional, joint and several obligations of each of the
Subsidiary Guarantors. Separate financial statements for the Subsidiary
Guarantors of the Company are not presented because the Company has determined
that such financial statements would not be material to investors. The
Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of
the Company, other than Matthew Clark, the Company's Canadian subsidiary and
certain other subsidiaries which individually, and in the aggregate, are
inconsequential. The accounting policies of the parent company, the Subsidiary
10
Guarantors and the Subsidiary Nonguarantors are the same as those described for
the Company in the Summary of Significant Accounting Policies in Note 1 to the
Company's consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2002, and include the
accounting changes described in Note 2 herein. There are no restrictions on the
ability of the Subsidiary Guarantors to transfer funds to the Company in the
form of cash dividends, loans or advances.
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
---------- ----------- ------------- ------------ ------------
(in thousands)
Condensed Consolidating Balance Sheet
- -------------------------------------
at May 31, 2002
- ---------------
Current assets:
Cash and cash investments $ - $ 5,703 $ 861 $ - $ 6,564
Accounts receivable, net 63,824 178,944 178,085 - 420,853
Inventories, net 17,239 610,315 140,285 (117) 767,722
Prepaid expenses and other
current assets 6,025 42,106 16,774 - 64,905
Intercompany (payable) receivable (81,910) 24,463 57,447 - -
--------- ----------- ------------- ------------ ------------
Total current assets 5,178 861,531 393,452 (117) 1,260,044
Property, plant and equipment, net 36,658 352,435 191,118 - 580,211
Investments in subsidiaries 2,436,441 565,875 - (3,002,316) -
Goodwill 51,172 492,422 163,456 - 707,050
Intangible assets, net 10,992 317,571 51,433 - 379,996
Other assets 21,791 117,307 30,035 - 169,133
---------- ----------- ------------- ------------ ------------
Total assets $ 2,562,232 $ 2,707,141 $ 829,494 $ (3,002,433) $ 3,096,434
=========== =========== ============= ============ ============
Current liabilities:
Notes payable $ 27,500 $ - $ 4,835 $ - $ 32,335
Current maturities of long-term debt 74,337 3,669 6,047 - 84,053
Accounts payable 26,940 46,318 82,211 - 155,469
Accrued excise taxes 6,927 20,800 18,402 - 46,129
Other accrued expenses and liabilities 82,014 75,321 123,576 - 280,911
----------- ----------- ------------- ------------ ------------
Total current liabilities 217,718 146,108 235,071 - 598,897
Long-term debt, less current maturities 1,265,745 13,336 102 - 1,279,183
Deferred income taxes 40,488 74,793 31,523 - 146,804
Other liabilities 504 37,249 24,706 - 62,459
Stockholders' equity:
Class A and class B common stock 946 6,434 64,867 (71,301) 946
Additional paid-in capital 439,888 1,220,932 436,466 (1,657,398) 439,888
Retained earnings 629,705 1,209,075 64,542 (1,273,734) 629,588
Accumulated other comprehensive
income (loss) 629 (786) (27,783) - (27,940)
Treasury stock and other (33,391) - - - (33,391)
----------- ----------- ------------- ------------ ------------
Total stockholders' equity 1,037,777 2,435,655 538,092 (3,002,433) 1,009,091
----------- ----------- ------------- ------------ ------------
Total liabilities and
stockholders' equity $ 2,562,232 $ 2,707,141 $ 829,494 $ (3,002,433) $ 3,096,434
=========== =========== ============= ============ ============
11
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
---------- ----------- ------------- ------------ ------------
(in thousands)
Condensed Consolidating Balance Sheet
- -------------------------------------
at February 28, 2002
- --------------------
Current assets:
Cash and cash investments $ 838 $ 2,084 $ 6,039 $ - $ 8,961
Accounts receivable, net 86,315 166,875 130,732 - 383,922
Inventories, net 17,662 631,050 128,934 (60) 777,586
Prepaid expenses and other
current assets 7,148 40,364 13,267 - 60,779
Intercompany (payable) receivable (64,061) (288) 64,349 - -
----------- ----------- ------------- ------------ ------------
Total current assets 47,902 840,085 343,321 (60) 1,231,248
Property, plant and equipment, net 36,834 354,431 187,499 - 578,764
Investments in subsidiaries 2,404,282 558,263 - (2,962,545) -
Goodwill 51,172 462,676 154,235 - 668,083
Intangible assets, net 11,016 361,039 53,932 - 425,987
Other assets 22,598 111,892 30,813 - 165,303
----------- ----------- ------------- ------------ ------------
Total assets $ 2,573,804 $ 2,688,386 $ 769,800 $ (2,962,605) $ 3,069,385
=========== =========== ============= ============ ============
Current liabilities:
Notes payable $ 50,000 $ - $ 4,775 $ - $ 54,775
Current maturities of long-term debt 71,953 3,542 6,114 - 81,609
Accounts payable 34,590 50,425 68,418 - 153,433
Accrued excise taxes 12,244 37,033 10,961 - 60,238
Other accrued expenses and liabilities 94,067 51,250 99,838 - 245,155
----------- ----------- ------------- ------------ ------------
Total current liabilities 262,854 142,250 190,106 - 595,210
Long-term debt, less current maturities 1,278,834 14,237 112 - 1,293,183
Deferred income taxes 39,022 91,963 32,161 - 163,146
Other liabilities 476 38,174 23,460 - 62,110
Stockholders' equity:
Class A and class B common stock 939 6,434 64,867 (71,301) 939
Additional paid-in capital 431,216 1,220,917 436,466 (1,657,383) 431,216
Retained earnings 592,279 1,176,931 56,930 (1,233,921) 592,219
Accumulated other comprehensive
income (loss) 1,600 (2,520) (34,302) - (35,222)
Treasury stock and other (33,416) - - - (33,416)
----------- ----------- ------------- ------------ ------------
Total stockholders' equity 992,618 2,401,762 523,961 (2,962,605) 955,736
----------- ----------- ------------- ------------ ------------
Total liabilities and
stockholders' equity $ 2,573,804 $ 2,688,386 $ 769,800 $ (2,962,605) $ 3,069,385
=========== =========== ============= ============ ============
Condensed Consolidating Statement of Income
- -------------------------------------------
for the Three Months Ended May 31, 2002
- ---------------------------------------
Gross sales $ 175,739 $ 471,808 $ 273,411 $ (61,947) $ 859,011
Less - excise taxes (32,732) (105,383) (71,955) - (210,070)
----------- ----------- ------------- ------------ ------------
Net sales 143,007 366,425 201,456 (61,947) 648,941
Cost of product sold (112,982) (257,633) (164,942) 61,890 (473,667)
----------- ----------- ------------- ------------ ------------
Gross profit 30,025 108,792 36,514 (57) 175,274
Selling, general and administrative
expenses (23,376) (41,458) (24,475) - (89,309)
----------- ----------- ------------- ------------ ------------
Operating income 6,649 67,334 12,039 (57) 85,965
Equity in earnings of
subsidiary/joint venture 32,144 10,351 - (39,756) 2,739
Interest expense, net 2,053 (28,574) (620) - (27,141)
----------- ----------- ------------- ------------ ------------
Income before income taxes 40,846 49,111 11,419 (39,813) 61,563
Provision for income taxes (3,420) (16,967) (3,807) - (24,194)
----------- ----------- ------------- ------------ ------------
Net income $ 37,426 $ 32,144 $ 7,612 $ (39,813) $ 37,369
=========== =========== ============= ============ ============
12
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
---------- ----------- ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Income
- -------------------------------------------
for the Three Months Ended May 31, 2001
- ---------------------------------------
Gross sales $ 175,119 $ 438,431 $ 242,648 $ (67,318) $ 788,880
Less - excise taxes (30,388) (102,215) (61,061) - (193,664)
----------- ----------- ------------- ------------ ------------
Net sales 144,731 336,216 181,587 (67,318) 595,216
Cost of product sold (112,487) (248,875) (148,505) 67,326 (442,541)
----------- ----------- ------------- ------------ ------------
Gross profit 32,244 87,341 33,082 8 152,675
Selling, general and administrative
expenses (22,689) (38,120) (21,943) - (82,752)
----------- ----------- ------------- ------------ ------------
Operating income 9,555 49,221 11,139 8 69,923
Equity in earnings of
subsidiary/joint venture 17,970 6,329 - (24,299) -
Interest expense, net (5,365) (23,539) (1,281) - (30,185)
----------- ----------- ------------- ------------ ------------
Income before income taxes 22,160 32,011 9,858 (24,291) 39,738
Benefit from (provision for)
income taxes 1,675 (14,041) (3,529) - (15,895)
----------- ----------- ------------- ------------ ------------
Net income $ 23,835 $ 17,970 $ 6,329 $ (24,291) $ 23,843
=========== =========== ============= ============ ============
Condensed Consolidating Statement of Cash Flows
- -----------------------------------------------
for the Three Months Ended May 31, 2002
- ---------------------------------------
Net cash provided by (used in) operating
activities $ 25,951 $ 18,151 $ (1,751) $ - $ 42,351
Cash flows from investing activities:
Purchases of property, plant and
equipment (1,409) (7,245) (3,688) - (12,342)
Other - (404) 233 - (171)
----------- ----------- ------------- ------------ ------------
Net cash used in investing activities (1,409) (7,649) (3,455) - (12,513)
----------- ----------- ------------- ------------ ------------
Cash flows from financing activities:
Net repayments of notes payable (22,500) - (60) - (22,560)
Principal payments of long-term debt (17,989) (733) (235) - (18,957)
Payment of issuance costs of
long-term debt (4) - - - (4)
Exercise of employee stock options 8,816 - - - 8,816
----------- ----------- ------------- ------------ ------------
Net cash used in financing activities (31,677) (733) (295) - (32,705)
----------- ----------- ------------- ------------ ------------
Effect of exchange rate changes on
cash and cash investments 6,297 (6,150) 323 - 470
----------- ----------- ------------- ------------ ------------
Net (decrease) increase in cash
and cash investments (838) 3,619 (5,178) - (2,397)
Cash and cash investments, beginning
of period 838 2,084 6,039 - 8,961
----------- ----------- ------------- ------------ ------------
Cash and cash investments, end of
period $ - $ 5,703 $ 861 $ - $ 6,564
=========== =========== ============= ============ ============
13
Parent Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
---------- ----------- ------------- ------------ ------------
(in thousands)
Condensed Consolidating Statement of Cash Flows
- -----------------------------------------------
for the Three Months Ended May 31, 2001
- ---------------------------------------
Net cash provided by operating
activities $ 30,101 $ 1,758 $ 2,738 $ - $ 34,597
Cash flows from investing activities:
Purchases of businesses, net of
cash acquired (329,284) 501 - - (328,783)
Purchases of property, plant and
equipment (985) (6,881) (2,972) - (10,838)
Other - 224 144 - 368
----------- ----------- ------------- ------------ ------------
Net cash used in investing activities (330,269) (6,156) (2,828) - (339,253)
----------- ----------- ------------- ------------ ------------
Cash flows from financing activities:
Proceeds from equity offering, net
of fees 139,878 - - - 139,878
Net proceeds from notes payable 20,000 - 1,162 - 21,162
Exercise of employee stock options 4,797 - - - 4,797
Principal payments of long-term debt (599) (315) (1,060) - (1,974)
Payment of issuance costs of
long-term debt (1,014) - - - (1,014)
----------- ----------- ------------- ------------ ------------
Net cash provided by (used in)
financing activities 163,062 (315) 102 - 162,849
----------- ----------- ------------- ------------ ------------
Effect of exchange rate changes on
cash and cash investments (4,998) 5,043 (171) - (126)
----------- ----------- ------------- ------------ ------------
Net (decrease) increase in cash
and cash investments (142,104) 330 (159) - (141,933)
Cash and cash investments, beginning
of period 142,104 3,239 329 - 145,672
----------- ----------- ------------- ------------ ------------
Cash and cash investments, end of
period $ - $ 3,569 $ 170 $ - $ 3,739
=========== =========== ============= ============ ============
10) BUSINESS SEGMENT INFORMATION:
The Company reports its operating results in five segments: Popular and
Premium Wine (branded popular and premium wine and brandy, and other, primarily
grape juice concentrate and bulk wine); Imported Beer and Spirits (primarily
imported beer and distilled spirits); U.K. Brands and Wholesale (branded wine,
cider and bottled water, and wholesale wine, cider, distilled spirits, beer and
soft drinks); Fine Wine (primarily branded super-premium and ultra-premium wine)
and Corporate Operations and Other (primarily corporate related items). Segment
selection was based upon internal organizational structure, the way in which
these operations are managed and their performance evaluated by management and
the Company's Board of Directors, and the availability of separate financial
results. The accounting policies of the segments are the same as those described
for the Company in the Summary of Significant Accounting Policies in Note 1 to
the Company's consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2002, and include the
accounting changes described in Note 2 herein. The Company evaluates performance
based on operating income of the respective business units.
14
Segment information is as follows:
For the Three Months
Ended May 31,
--------------------------
2002 2001
----------- -----------
(in thousands)
Popular and Premium Wine:
- -------------------------
Net sales:
Branded:
External customers $ 146,753 $ 147,074
Intersegment 2,849 1,745
----------- -----------
Total Branded 149,602 148,819
----------- -----------
Other:
External customers 10,649 13,549
Intersegment 3,224 3,689
----------- -----------
Total Other 13,873 17,238
----------- -----------
Net sales $ 163,475 $ 166,057
Operating income $ 16,869 $ 15,395
Equity in earnings of joint venture $ 2,739 $ -
Long-lived assets $ 194,056 $ 230,260
Investment in joint venture $ 113,259 $ -
Total assets $ 1,069,617 $ 966,466
Capital expenditures $ 3,195 $ 1,489
Depreciation and amortization $ 6,084 $ 8,116
Imported Beer and Spirits:
- --------------------------
Net sales:
Beer $ 198,440 $ 173,462
Spirits 72,013 68,271
----------- -----------
Net sales $ 270,453 $ 241,733
Operating income $ 54,421 $ 44,051
Long-lived assets $ 78,727 $ 78,136
Total assets $ 727,608 $ 734,345
Capital expenditures $ 1,908 $ 2,924
Depreciation and amortization $ 2,572 $ 4,762
U.K. Brands and Wholesale:
- --------------------------
Net sales:
Branded:
External customers $ 54,576 $ 53,104
Intersegment 86 102
----------- -----------
Total Branded 54,662 53,206
Wholesale 132,134 115,006
----------- -----------
Net sales $ 186,796 $ 168,212
Operating income $ 10,263 $ 8,853
Long-lived assets $ 139,948 $ 140,710
Total assets $ 636,007 $ 622,334
Capital expenditures $ 2,696 $ 2,030
Depreciation and amortization $ 3,501 $ 4,673
15
For the Three Months
Ended May 31,
--------------------------
2002 2001
----------- -----------
(in thousands)
Fine Wine:
- ----------
Net sales:
External customers $ 34,378 $ 24,750
Intersegment 378 102
----------- -----------
Net sales $ 34,756 $ 24,852
Operating income $ 11,706 $ 7,048
Long-lived assets $ 159,457 $ 129,499
Total assets $ 632,456 $ 396,209
Capital expenditures $ 4,369 $ 3,969
Depreciation and amortization $ 2,654 $ 3,223
Corporate Operations and Other:
- -------------------------------
Net sales $ - $ -
Operating loss $ (7,294) $ (5,424)
Long-lived assets $ 8,023 $ 4,465
Total assets $ 30,746 $ 20,339
Capital expenditures $ 174 $ 426
Depreciation and amortization $ 1,038 $ 1,151
Intersegment eliminations:
- --------------------------
Net sales $ (6,539) $ (5,638)
Consolidated:
- -------------
Net sales $ 648,941 $ 595,216
Operating income $ 85,965 $ 69,923
Equity in earnings of joint venture $ 2,739 $ -
Long-lived assets $ 580,211 $ 583,070
Investment in joint venture $ 113,259 $ -
Total assets $ 3,096,434 $ 2,739,693
Capital expenditures $ 12,342 $ 10,838
Depreciation and amortization $ 15,849 $ 21,925
11) ACCOUNTING PRONOUNCEMENTS:
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 ("SFAS No. 143"), "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. The Company is required to adopt
SFAS No. 143 for fiscal years beginning March 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 143 on its financial statements.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS No. 145"), "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds Statement of Financial Accounting Standards
No. 4 ("SFAS No. 4"), "Reporting Gains and Losses from Extinguishment of Debt,"
Statement of Financial Accounting Standards No. 44, "Accounting for Intangible
Assets of Motor Carriers," and Statement of Financial Accounting Standards No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." In
addition, SFAS No. 145 amends Statement of Financial Accounting Standards No.
13, "Accounting for Leases," to eliminate an inconsistency between required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Lastly, SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical
16
corrections, clarify meanings, or describe their applicability under changed
conditions. The Company is required to adopt the provisions related to the
rescission of SFAS No. 4 for fiscal years beginning March 1, 2003. All other
provisions of SFAS No. 145 were adopted on March 1, 2002. The adoption of the
applicable provisions of SFAS No. 145 did not have a material impact on the
Company's financial statements. The adoption of the remaining provisions will
result in a reclassification of the extraordinary loss related to the
extinguishment of debt recorded in the fourth quarter of the fiscal year ended
February 28, 2002 ($1.6 million, net of income taxes), to increase nonoperating
expense ($2.6 million) and to decrease the provision for income taxes ($1.0
million).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
- ------------
The Company is a leader in the production and marketing of beverage alcohol
brands in North America and the United Kingdom. As the second largest supplier
of wine, the second largest marketer of imported beer and the third largest
supplier of distilled spirits, the Company is the largest single-source supplier
of these products in the United States. In the United Kingdom, the Company is a
leading marketer of wine, the second largest producer and marketer of cider and
a leading independent drinks wholesaler.
The Company reports its operating results in five segments: Popular and
Premium Wine (branded popular and premium wine and brandy, and other, primarily
grape juice concentrate and bulk wine); Imported Beer and Spirits (primarily
imported beer and distilled spirits); U.K. Brands and Wholesale (branded wine,
cider and bottled water, and wholesale wine, cider, distilled spirits, beer and
soft drinks); Fine Wine (primarily branded super-premium and ultra-premium wine)
and Corporate Operations and Other (primarily corporate related items).
During April 2002, the Board of Directors of the Company approved a
two-for-one stock split of both the Company's Class A Common Stock and Class B
Common Stock, which was distributed in the form of a stock dividend on May 13,
2002, to stockholders of record on April 30, 2002. Pursuant to the terms of the
stock dividend, each holder of Class A Common Stock received one additional
share of Class A stock for each share of Class A stock held, and each holder of
Class B Common Stock received one additional share of Class B stock for each
share of Class B stock held. All share and per share amounts in this Quarterly
Report on Form 10-Q are adjusted to give effect to the common stock split.
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended May 31, 2002 ("First Quarter 2003"), compared to the three months
ended May 31, 2001 ("First Quarter 2002"), and (ii) financial liquidity and
capital resources for First Quarter 2003. This discussion and analysis should
be read in conjunction with the Company's consolidated financial statements and
notes thereto included herein and in the Company's Annual Report on Form 10-K
for the fiscal year ended February 28, 2002 ("Fiscal 2002").
As discussed in Note 2 to the financial statements, the Company adopted
SFAS No. 142 and EITF No. 01-09 on March 1, 2002.
ACQUISITIONS IN FISCAL 2002
On July 2, 2001, the Company acquired all of the outstanding capital stock
of Ravenswood Winery, Inc. ("Ravenswood"), a leading premium wine producer based
in Sonoma, California. Ravenswood produces, markets and sells super-premium and
ultra-premium California wine primarily
17
under the Ravenswood brand name. The vast majority of the wine Ravenswood
produces and sells is red wine, including the number one super-premium Zinfandel
in the United States. The results of operations of Ravenswood are reported in
the Fine Wine segment and have been included in the consolidated results of
operations of the Company since the date of acquisition.
On March 26, 2001, in an asset acquisition, the Company acquired certain
wine brands, wineries, working capital (primarily inventories), and other
related assets from Corus Brands, Inc. (the "Corus Assets"). In this
acquisition, the Company acquired several well-known premium wine brands
primarily sold in the northwestern United States, including Covey Run, Columbia,
Ste. Chapelle and Alice White. In connection with the transaction, the Company
also entered into long-term grape supply agreements with affiliates of Corus
Brands, Inc. covering more than 1,000 acres of Washington and Idaho vineyards.
The results of operations of the Corus Assets are reported in the Popular and
Premium Wine segment and have been included in the consolidated results of
operations of the Company since the date of acquisition.
On March 5, 2001, in an asset acquisition, the Company acquired several
well-known premium wine brands, including Vendange, Nathanson Creek, Heritage,
and Talus, working capital (primarily inventories), two wineries in California,
and other related assets from Sebastiani Vineyards, Inc. and Tuolomne River
Vintners Group (the "Turner Road Vintners Assets"). The results of operations
of the Turner Road Vintners Assets are reported in the Popular and Premium Wine
segment and have been included in the consolidated results of operations of the
Company since the date of acquisition.
JOINT VENTURE
On July 31, 2001, the Company and BRL Hardy Limited completed the formation
of Pacific Wine Partners LLC ("PWP"), a joint venture owned equally by the
Company and BRL Hardy Limited. On October 16, 2001, the Company announced that
PWP completed the purchase of certain assets of Blackstone Winery, including the
Blackstone brand and the Codera wine business in Sonoma County.
The investment in PWP is accounted for using the equity method;
accordingly, the results of operations of PWP since July 31, 2001, have been
included in the equity in earnings of joint venture line in the Consolidated
Statements of Income of the Company.
18
RESULTS OF OPERATIONS
- ---------------------
FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for First Quarter 2003 and First Quarter 2002.
First Quarter 2003 Compared to First Quarter 2002
-------------------------------------------------
Net Sales
-------------------------------------------------
%Increase/
2003 2002 (Decrease)
---------- ---------- ----------
Popular and Premium Wine:
Branded:
External customers $ 146,753 $ 147,074 (0.2)%
Intersegment 2,849 1,745 63.3 %
---------- ----------
Total Branded 149,602 148,819 0.5 %
---------- ----------
Other:
External customers 10,649 13,549 (21.4)%
Intersegment 3,224 3,689 (12.6)%
---------- ----------
Total Other 13,873 17,238 (19.5)%
---------- ----------
Popular and Premium Wine net sales $ 163,475 $ 166,057 (1.6)%
---------- ----------
Imported Beer and Spirits:
Imported Beer $ 198,440 $ 173,462 14.4 %
Spirits 72,013 68,271 5.5 %
---------- ----------
Imported Beer and Spirits net sales $ 270,453 $ 241,733 11.9 %
---------- ----------
U.K. Brands and Wholesale:
Branded:
External customers $ 54,576 $ 53,104 2.8 %
Intersegment 86 102 (15.7)%
---------- ----------
Total Branded 54,662 53,206 2.7 %
Wholesale 132,134 115,006 14.9 %
---------- ----------
U.K. Brands and Wholesale net sales $ 186,796 $ 168,212 11.0 %
---------- ----------
Fine Wine:
External customers $ 34,378 $ 24,750 38.9 %
Intersegment 378 102 270.6 %
---------- ----------
Fine Wine net sales $ 34,756 $ 24,852 39.9 %
---------- ----------
Corporate Operations and Other $ - $ - N/A
---------- ----------
Intersegment eliminations $ (6,539) $ (5,638) 16.0 %
---------- ----------
Consolidated Net Sales $ 648,941 $ 595,216 9.0 %
========== ==========
Net sales for First Quarter 2003 increased to $648.9 million from $595.2
million for First Quarter 2002, an increase of $53.7 million, or 9.0%.
Popular and Premium Wine
------------------------
Net sales for the Popular and Premium Wine segment for First Quarter 2003
decreased to $163.5 million from $166.1 million for First Quarter 2002, a
decrease of $2.6 million, or (1.6)%. This decrease resulted primarily from
declines in the Company's grape juice concentrate and bulk businesses partially
offset by a slight increase in branded sales from sales of higher priced premium
wines.
19
Imported Beer and Spirits
-------------------------
Net sales for the Imported Beer and Spirits segment for First Quarter 2003
increased to $270.5 million from $241.7 million for First Quarter 2002, an
increase of $28.7 million, or 11.9%. This increase resulted primarily from a
14.4% increase in imported beer sales, with volume growth exceeding the price
increase on the Company's Mexican beer portfolio, which took effect in First
Quarter 2003. Additionally, spirits sales increased 5.5% resulting primarily
from a favorable mix towards higher priced products, particularly tequila. The
Company believes that the volume growth of its Mexican beer portfolio for the
quarter was the result of wholesalers replenishing inventories due to the
healthy depletion and heavy retail promotion prior to and during the initial
stages of the price increase. While the longer-term impact of the price increase
is difficult to determine at this time, the Company believes that near-term
Mexican beer sales volume may be adversely impacted as the new pricing is fully
reflected at the retail level and as the wholesalers and retailers more closely
manage their inventories.
U.K. Brands and Wholesale
-------------------------
Net sales for the U.K. Brands and Wholesale segment for First Quarter 2003
increased to $186.8 million from $168.2 million for First Quarter 2002, an
increase of $18.6 million, or 11.0%. This increase resulted primarily from a
16.7% volume increase in wholesale sales due to the addition of new accounts and
increased average delivery sizes. Additionally, branded sales increased 2.7%
with an increase in wine and ready-to-drink sales being partially offset by a
decrease in cider sales.
Fine Wine
---------
Net sales for the Fine Wine segment for First Quarter 2003 increased to
$34.8 million from $24.9 million for First Quarter 2002, an increase of $9.9
million, or 39.9%. This increase resulted primarily from $11.9 million of sales
of the acquired brands from the Ravenswood acquisition, completed in July 2001.
This increase was partially offset by an 8.0% decrease in Fine Wine's base
business, which followed a robust fourth quarter of fiscal 2002 with lower
volume in First Quarter 2003.
GROSS PROFIT
The Company's gross profit increased to $175.3 million for First Quarter
2003 from $152.7 million for First Quarter 2002, an increase of $22.6 million,
or 14.8%. The dollar increase in gross profit resulted from higher beer sales,
the addition of Ravenswood and a favorable mix of spirit sales towards higher
margin products, particularly tequila. As a percent of net sales, gross profit
increased to 27.0% for First Quarter 2003 versus 25.7% for First Quarter 2002
primarily attributable to the favorable mix of spirit sales towards higher
margin products, sales of higher margin Ravenswood brands and the growth in the
Mexican beer portfolio.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $89.3 million for
First Quarter 2003 from $82.8 million for First Quarter 2002, an increase of
$6.6 million, or 7.9%. The Company adopted SFAS No. 142 on March 1, 2002 and
accordingly, stopped amortizing goodwill and other indefinite lived intangible
assets. Excluding $6.4 million of amortization expense from First Quarter 2002,
the Company's selling, general and administrative expenses increased $12.9
million, or 16.9%. The dollar increase in selling, general and administrative
expenses resulted primarily from higher beer advertising costs and increased
personnel costs to support the Company's growth. Selling, general and
administrative expenses as a percent of net sales decreased to 13.8% for First
Quarter 2003 as compared to 13.9% for
20
First Quarter 2002. Excluding amortization expense in First Quarter 2002,
selling, general and administrative expenses as a percent of net sales increased
to 13.8% for First Quarter 2003 as compared to 12.8% for First Quarter 2002.
This increase was primarily due to (i) the percent increase in the Imported Beer
and Spirits segment's advertising costs was greater than the percent increase in
the Imported Beer and Spirits segment's net sales and (ii) the percent increase
in general and administrative expenses supporting the Company's growth in the
Imported Beer and Spirits segment, U.K. Brands and Wholesale segment and
Corporate Operations and Other segment grew at a faster rate than the increase
in the respective segment's net sales.
OPERATING INCOME
The following table sets forth the operating income/(loss) (in thousands of
dollars) by operating segment of the Company for First Quarter 2003 and First
Quarter 2002.
First Quarter 2003 Compared to First Quarter 2002
-------------------------------------------------
Operating Income/(Loss)
-------------------------------------------------
2003 2002 %Increase
-------- -------- ---------
Popular and Premium Wine $ 16,869 $ 15,395 9.6 %
Imported Beer and Spirits 54,421 44,051 23.5 %
U.K. Brands and Wholesale 10,263 8,853 15.9 %
Fine Wine 11,706 7,048 66.1 %
Corporate Operations and Other (7,294) (5,424) 34.5 %
-------- --------
Consolidated Operating Income $ 85,965 $ 69,923 22.9 %
======== ========
As a result of the above factors, consolidated operating income increased
to $86.0 million for First Quarter 2003 from $69.9 million for First Quarter
2002, an increase of $16.0 million, or 22.9%. Excluding amortization expense for
First Quarter 2002, operating income for Popular and Premium Wine, Imported Beer
and Spirits, U.K. Brands and Wholesale and Fine Wine would have been $17.2
million, $46.1 million, $10.3 million and $8.1 million, respectively. Further,
consolidated operating income would have been $76.3 million.
INTEREST EXPENSE, NET
Net interest expense decreased to $27.1 million for First Quarter 2003 from
$30.2 million for First Quarter 2002, a decrease of $3.0 million, or (10.1)%.
The decrease resulted from both a decrease in the average interest rate and a
decrease in the average borrowings for the period.
NET INCOME
As a result of the above factors, net income increased to $37.4 million for
First Quarter 2003 from $23.8 million for First Quarter 2002, an increase of
$13.5 million, or 56.7%. Excluding amortization expense and the associated
income tax benefit for First Quarter 2002, net income increased $9.3 million, or
32.9%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for First Quarter 2003
were $104.6 million, an increase of $12.7 million over EBITDA of $91.8 million
for First Quarter 2002. EBITDA should not be construed as an alternative to
operating income or net cash flow from operating activities and should not be
construed as an indication of operating performance or as a measure of
liquidity.
21
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations, except during the annual fall
grape harvests when the Company has relied on short-term borrowings. The annual
grape crush normally begins in August and runs through October. The Company
generally begins purchasing grapes in August with payments for such grapes
beginning to come due in September. The Company's short-term borrowings to
support such purchases generally reach their highest levels in November or
December. Historically, the Company has used cash flow from operating
activities to repay its short-term borrowings. The Company will continue to use
its short-term borrowings to support its working capital requirements. The
Company believes that cash provided by operating activities and its financing
activities, primarily short-term borrowings, will provide adequate resources to
satisfy its working capital, liquidity and anticipated capital expenditure
requirements for both its short-term and long-term capital needs.
FIRST QUARTER 2003 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities for First Quarter 2003 was $42.4
million, which resulted from $52.8 million in net income adjusted for noncash
items, less $10.4 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from a seasonal increase in accounts receivable and decreases
in accrued salaries and accrued excise taxes, offset by increases in accrued
advertising, income taxes payable, and accrued interest.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for First Quarter 2003 was $12.5
million, which resulted primarily from $12.3 million of capital expenditures.
Net cash used in financing activities for First Quarter 2003 was $32.7
million resulting primarily from $22.6 million of net revolving loan payments
under the senior credit facility and $19.0 million of principal payments of
long-term debt partially offset by $8.8 million of proceeds from employee stock
option exercises.
DEBT
Total debt outstanding as of May 31, 2002, amounted to $1,396.0 million, a
decrease of $34.0 million from February 28, 2002. The ratio of total debt to
total capitalization decreased to 58.0% as of May 31, 2002, from 59.9% as of
February 28, 2002.
SENIOR CREDIT FACILITY
As of May 31, 2002, under its senior credit facility, the Company had
outstanding term loans of $264.7 million bearing a weighted average interest
rate of 4.0%, $27.5 million of revolving loans bearing a weighted average
interest rate of 3.2%, undrawn revolving letters of credit of $13.2 million, and
$259.3 million in revolving loans available to be drawn.
22
SENIOR NOTES
As of May 31, 2002, the Company had outstanding $200.0 million aggregate
principal amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes").
The Senior Notes are currently redeemable, in whole or in part, at the option of
the Company.
As of May 31, 2002, the Company had outstanding (pound) 1.0 million ($1.5
million) aggregate principal amount of 8 1/2% Series B Senior Notes due November
2009 (the "Sterling Series B Senior Notes"). In addition, as of May 31, 2002,
the Company had outstanding (pound) 154.0 million ($223.6 million, net of $0.5
million unamortized discount) aggregate principal amount of 8 1/2% Series C
Senior Notes due November 2009 (the "Sterling Series C Senior Notes"). The
Sterling Series B Senior Notes and Sterling Series C Senior Notes are currently
redeemable, in whole or in part, at the option of the Company.
Also, as of May 31, 2002, the Company had outstanding $200.0 million
aggregate principal amount of 8% Senior Notes due February 2008 (the "February
2001 Senior Notes"). The February 2001 Senior Notes are currently redeemable,
in whole or in part, at the option of the Company.
SENIOR SUBORDINATED NOTES
As of May 31, 2002, the Company had outstanding $200.0 million aggregate
principal amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "Senior
Subordinated Notes"). The Senior Subordinated Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after March 1,
2004.
Also, as of May 31, 2002, the Company had outstanding $250.0 million
aggregate principal amount of 8 1/8% Senior Subordinated Notes due January 2012
(the "January 2002 Senior Subordinated Notes"). The January 2002 Senior
Subordinated Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after January 15, 2007. The Company may also redeem up
to 35% of the January 2002 Senior Subordinated Notes using the proceeds of
certain equity offerings completed before January 15, 2005.
ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 ("SFAS No. 143"), "Accounting for
Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. The Company is required to adopt
SFAS No. 143 for fiscal years beginning March 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 143 on its financial statements.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS No. 145"), "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds Statement of Financial Accounting Standards
No. 4 ("SFAS No. 4"), "Reporting Gains and Losses from Extinguishment of Debt,"
Statement of Financial Accounting Standards No. 44, "Accounting for Intangible
Assets of Motor Carriers," and Statement of Financial Accounting Standards No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." In
addition, SFAS No. 145 amends Statement of Financial Accounting Standards No.
13, "Accounting for Leases," to eliminate an inconsistency between required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions.
23
Lastly, SFAS No. 145 also amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The Company is required to adopt the
provisions related to the rescission of SFAS No. 4 for fiscal years beginning
March 1, 2003. All other provisions of SFAS No. 145 were adopted on March 1,
2002. The adoption of the applicable provisions of SFAS No. 145 did not have a
material impact on the Company's financial statements. The adoption of the
remaining provisions will result in a reclassification of the extraordinary loss
related to the extinguishment of debt recorded in the fourth quarter of the
fiscal year ended February 28, 2002 ($1.6 million, net of income taxes), to
increase nonoperating expense ($2.6 million) and to decrease the provision for
income taxes ($1.0 million).
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements are
subject to a number of risks and uncertainties, many of which are beyond the
Company's control, that could cause actual results to differ materially from
those set forth in, or implied by, such forward-looking statements. All
statements other than statements of historical facts included in this Quarterly
Report on Form 10-Q, including statements regarding the Company's future
financial position and prospects, are forward-looking statements. All
forward-looking statements speak only as of the date of this Quarterly Report on
Form 10-Q. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. For risk factors associated with the Company and its
business, which factors could cause actual results to differ materially from
those set forth in, or implied by, the Company's forward-looking statements,
reference should be made to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Information about market risks for the three months ended May 31, 2002,
does not differ materially from that discussed under Item 7A in the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 2002.
24
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) See Index to Exhibits located on Page 27 of this Report.
(b) The following Reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended May 31, 2002:
(i) Form 8-K dated April 4, 2002. This Form 8-K reported
information under Items 4 and 7.
(ii) Form 8-K dated April 10, 2002. This Form 8-K reported
information under Item 5 and included (i) the Company's
Condensed Consolidated Balance Sheets as of February 28,
2002 and February 28, 2001; (ii) the Company's Condensed
Consolidated Statements of Income for the three months ended
February 28, 2002 and February 28, 2001; and (iii) the
Company's Condensed Consolidated Statements of Income for
the year ended February 28, 2002 and February 28, 2001.
(iii) Form 8-K/A dated April 4, 2002. This Form 8-K/A reported
information under Items 4 and 7.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSTELLATION BRANDS, INC.
Dated: July 15, 2002 By:/s/ Thomas F. Howe
--------------------------------------
Thomas F. Howe, Senior Vice President,
Controller
Dated: July 15, 2002 By:/s/ Thomas S. Summer
--------------------------------------
Thomas S. Summer, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
26
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1 Asset Purchase Agreement dated as of February 21, 1999 by and among
Diageo Inc., UDV Canada Inc., United Distillers Canada Inc. and the
Company (filed as Exhibit 2 to the Company's Current Report on Form
8-K dated April 9, 1999 and incorporated herein by reference).
2.2 Stock Purchase Agreement, dated April 21, 1999, between Franciscan
Vineyards, Inc., Agustin Huneeus, Agustin Francisco Huneeus,
Jean-Michel Valette, Heidrun Eckes-Chantre Und Kinder
Beteiligungsverwaltung II, GbR, Peter Eugen Eckes Und Kinder
Beteiligungsverwaltung II, GbR, Harald Eckes-Chantre, Christina
Eckes-Chantre, Petra Eckes-Chantre and Canandaigua Brands, Inc. (now
known as Constellation Brands, Inc.) (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K dated June 4, 1999 and
incorporated herein by reference).
2.3 Stock Purchase Agreement by and between Canandaigua Wine Company, Inc.
(a wholly-owned subsidiary of the Company) and Moet Hennessy, Inc.
dated April 1, 1999 (filed as Exhibit 2.3 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 31, 1999 and
incorporated herein by reference).
2.4 Purchase Agreement dated as of January 30, 2001, by and among Sebastiani
Vineyards, Inc., Tuolomne River Vintners Group and Canandaigua Wine
Company, Inc. (a wholly-owned subsidiary of the Company) (filed as
Exhibit 2.5 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 2001 and incorporated herein by reference).
2.5 First Amendment to Purchase Agreement and Pro Forma Closing Balance
Sheet, dated as of March 5, 2001, by and among Sebastiani Vineyards,
Inc., Tuolomne River Vintners Group and Canandaigua Wine Company, Inc.
(filed as Exhibit 2.5 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2001 and incorporated herein by
reference).
2.6 Second Amendment to Purchase Agreement, dated as of March 5, 2001, by
and among Sebastiani Vineyards, Inc., Tuolomne River Vintners Group and
Canandaigua Wine Company, Inc. (filed as Exhibit 2.6 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
2001 and incorporated herein by reference).
2.7 Agreement and Plan of Merger by and among Constellation Brands, Inc., VVV
Acquisition Corp. and Ravenswood Winery, Inc. dated as of April 10, 2001
(filed as Exhibit 2.5 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 31, 2001 and incorporated herein by
reference).
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2000 and incorporated herein by reference).
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 2000 and
incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
Not applicable.
27
(10) MATERIAL CONTRACTS.
Not applicable.
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(99) ADDITIONAL EXHIBITS.
Not applicable.
28