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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[FEE REQUIRED]
For the fiscal year ended August 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period _____________________ to _____________________
Commission File No. 0-7570
CANANDAIGUA WINE COMPANY, 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.)
116 Buffalo Street, Canandaigua, New York 14424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 394-7900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock (Par Value $.01 Per Share)
(Title of Class)
Class B Common Stock (Par Value $.01 Per Share)
(Title of Class)
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 Registration was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of November 22, 1995, was $495,411,365.
The number of shares outstanding with respect to each of the classes of common
stock of the Registrant, as of November 22, 1995, is as follows:
Number of Shares Outstanding
Class as of November 22, 1995
Class A Common Stock, Par Value $.01 Per Share 16,246,046
Class B Common Stock, Par Value $.01 Per Share 3,365,958
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's proxy statement to be issued for the annual meeting of
stockholders to be held January 18, 1996 is incorporated by reference in Part
III.
PART I
Item 1. Business
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 Report have been obtained
from the following industry and government publications: Wines & Vines; The
Gomberg-Fredrikson Report; Jobson's Liquor Handbook; Jobson's Wine Handbook;
Neilsen Wine Scan; Jobson's Beer Handbook; Jobson's Handbook Advance; The U.S.
Wine Market: Impact Databank Review and Forecast; The U.S. Beer Market: Impact
Databank Review and Forecast; Beer Marketer's Insights; Beer Industry Update;
and U.S. Department of the Treasury Statistical Releases for the period January
through December, 1994. The Company has not independently verified this data.
References to market share data are based on unit volume.
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 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 supplier of distilled spirits and the fifth largest importer of
beers 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: Inglenook, Almaden, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James, Deer Valley and Dunnewood
. Sparkling Wines: Cook's, J. Roget, Great Western and Taylor
. Dessert Wines: Richards Wild Irish Rose, Cisco and Taylor
. Imported Beer: Corona, St. Pauli Girl, Modelo Especial and Tsingtao
. Distilled Spirits: Fleischmann's, Barton, Mr. Boston, Canadian LTD, Ten
High, Montezuma, Inver House and Monte Alban
Based on available industry data, the Company believes it has a 20% share
of the wine market, a 12% share of the imported beer market and an 8% share of
the distilled spirits market in the United States. Within the wine market, the
Company believes it has a 28% share of the non-varietal table wine market, an
11% share of the varietal table wine market, a 49% share of the dessert wine
market and a 31% 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, Inglenook and
Almaden, 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,
Fleischmann's, the fourth largest blended whiskey and domestically bottled gin,
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 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 $906.5
million in fiscal 1995. Through these acquisitions, the Company acquired strong
market positions in the growing beverage alcohol product categories of varietal
table wine and imported beer. The Company ranks second and fifth in the varietal
table wine and imported beer categories, respectively. From 1991 through 1994,
industry shipments of varietal table wine and imported beer have grown 41% and
32%, 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 Distilleries ("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"). With
the Barton Acquisition, the Company acquired distribution rights with respect to
the Corona, St. Pauli Girl, and other imported beer brands; the Barton, Ten
High, Montezuma, and other distilled spirits brands; and related facilities and
assets. 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. ("Heublein") (the
"Almaden/Inglenook Acquisition"). On September 1, 1995, the Company acquired the
Mr. Boston, Canadian LTD, Skol, Old Thompson, Kentucky Tavern, Glenmore and di
Amore distilled spirits brands; the rights to the Fleischmann's and Chi Chi's
distilled spirits brands under long term license agreements; the U.S. rights to
the Inver House, Schenley and El Toro distilled spirits brands; and related
facilities and assets from United Distillers Glenmore, Inc. and certain of its
North American affiliates (collectively, "UDG") (the "UDG Acquisition"). See
"Recent Acquisitions."
The Company's business strategy is to continue to strengthen its market
position in each of its principal product categories. 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.
RECENT ACQUISITIONS
The Barton Acquisition. On June 29, 1993, the Company acquired all of the
outstanding shares of capital stock of Barton. Barton was the eighth largest
supplier of distilled spirits and fifth largest importer of beer in the United
States. 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 Vintners Acquisition. On October 15, 1993, the Company acquired
substantially all of the assets of Vintners, and assumed 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, Deer Valley, St. Regis (non-alcoholic) and
Great Western brands and related facilities.
The Almaden/Inglenook Acquisition. On August 5, 1994, the Company acquired
the Inglenook and Almaden 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.
As a result of the Almaden/Inglenook Acquisition, the Company 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. 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 enables the Company to achieve significant cost
savings through the consolidation of its California winery operations.
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.
Following the Almaden/Inglenook Acquisition, the Company has restructured
its California winery operations (the "Restructuring Plan"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
footnotes to the financial statements included in this Report.
The UDG Acquisition. On September 1, 1995, the Company acquired from UDG
the Mr. Boston, Canadian LTD, Skol, Old Thompson, Kentucky Tavern, Glenmore and
di Amore distilled spirits brands; the rights to the Fleischmann's and Chi Chi's
distilled spirits brands under long term license agreements; the U.S. rights to
Inver House, Schenley and El Toro distilled spirits brands; and inventories and
other related assets. The UDG Acquisition also included two of UDG's production
facilities, one located in Owensboro, Kentucky, and the other located in Albany,
Georgia. In addition, the transaction included multiyear agreements under which
UDG will supply the Company with bulk whisky and the Company will supply UDG
with services including continued packaging of various UDG brands not acquired
by the Company.
The UDG Acquisition doubled the Company's market share in the U.S.
distilled spirits category, making it the fourth largest distilled spirits
supplier in the United States. As a result of the UDG Acquisition, the Company
entered the profitable cordial and liqueur categories. In connection with the
UDG Acquisition, the Company did not hire any UDG sales, general or
administrative personnel. Therefore, the Company intends to add personnel in
marketing and administration and is significantly increasing its spirits field
sales force. The Company expects that the UDG Acquisition will enable the
Company to realize economies of scale in the purchasing of packaging and other
raw materials and services and to capitalize on strong wholesaler relationships.
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 certain 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
certain markets, retailers. From 1978 through 1994, the overall per capita
consumption of beverage alcohol products in the United States has generally
declined. However, consumption of table wine, and in particular varietal table
wine, and imported beer, has increased during the period.
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, 1994:
- ----------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Domestic Table Wines (a) (b) 284,808 285,282 308,169 300,953 307,221
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Domestic Dessert Wines (a) (c) 45,197 35,181 32,449 29,698 27,672
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Domestic Sparkling Wines (a) 25,410 24,386 23,794 23,600 22,845
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Imported Beer (d) 121,014 109,212 114,590 127,418 144,527
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Distilled Spirits (e) 159,190 147,025 148,017 144,162 140,504
- ----------------------------------------------------------------------------------------------------------------------
- -----------------------------
(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 1990 to 1994, shipments of domestic table wines increased at an
average compound annual rate of 2%. 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 1994, domestic table wine shipments increased
by 2% when compared to 1993. This improvement has been attributed to increased
shipments of varietal table wines. Based on shipments of California table wines,
which constituted approximately 91% of the total domestically produced table
wine market in 1994, shipments of varietal wines have grown at an average
compound annual rate of 12% since 1990, with shipments in the first half of 1995
increasing 12% over the prior year. In contrast, shipments of non-varietal table
wines have generally declined over the same period. The Company believes that
the trends in table wine consumption reflect a general change in consumer
preference from non-varietal to varietal table wines. For the first half of
calendar 1995, shipments of California table wines increased 3% over the same
period in 1994. Shipments of imported table wines have increased from 52.6
million gallons in 1990 to 58.6
million gallons in 1994. Imported table wines constituted 13% of the United
States table wine market in 1994.
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. In 1994, shipments of domestic dessert
wines decreased 7% over 1993. During the period from 1990 to 1994, shipments of
domestic dessert wines declined at an average compound annual rate of 12%.
Shipments of dessert wines continued to decline during the first half of 1995 as
compared to the first half of 1994 as is evidenced by a 7% decline during this
period in shipments of California dessert wines. Dessert wine consumption in the
United States has been declining for many years reflecting the impact of an
increase in federal excise taxes in 1991 and a general shift in consumer
preferences to table and sparkling wines.
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 3% from 1990 to 1994; with shipments of domestic sparkling wines also
declining 3% in 1994 as compared to 1993. Shipments of California sparkling
wines, which constituted 86% of the domestically produced sparkling wine market
in 1994, declined by 2% during the first half of 1995 as compared to the first
half of 1994. The decline in sparkling wine consumption is believed to reflect
continuing concerns about drinking and driving, as a large part of sparkling
wine consumption occurs outside the home at social gatherings and restaurants.
Imported Beer. Shipments of imported beers have increased at an average
compound annual rate of 5% from 1990 to 1994. Shipments of Mexican beers in 1994
increased 16% over 1993. During the twelve months ended August 31, 1995 as
compared to the corresponding period in 1994, shipments of Mexican beers
increased 21% as compared to an increase of 4% for the entire imported beer
category. Shipments of imported beers, as a percentage of the United States beer
market, increased to 6% in 1994 from 5% in 1993. Imported beers, along with
microbreweries and super-premium priced domestic beers, are generally priced
above the leading domestic premium brands.
Distilled Spirits. Shipments of distilled spirits in the United States
declined at an average compound annual rate of 3% from 1990 to 1994. 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 per 750 ml. bottle being referred to as price value products and
those selling for over $7.00 per 750 ml. bottle being referred to as premium
products.
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 net sales (in thousands) and unit volumes (in
thousands of gallons) 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 1993, 1994 and 1995 fiscal years.
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL
WINES NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Company(a) $254,379 41,373 $245,083 36,613 $209,957 35,481
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Vintners(b) 157,706 24,868 125,923 20,461 141,790 20,949
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Almaden/ 233,408 45,029 237,853 46,269 251,779 45,000
Inglenook(c)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total $645,493 111,270 $608,859 103,343 $603,526 101,430
- ---------------------------------------------------------------------------------------------------------------------------
-----------------------------
(a) Data for fiscal years ended August 31, 1993, 1994 and 1995. The data for
the Company's fiscal years ended August 31, 1994, and August 31, 1995, exclude
the net sales for the brands and other products acquired in the Vintners
Acquisition and the Almaden/Inglenook Acquisition.
(b) 1993 data is for the fiscal year ended July 31, 1993, and 1994 and 1995
data is for the twelve months ended August 31, 1994, and August 31, 1995.
(c) 1993 data is for the fiscal year ended September 30, 1993, and 1994 and
1995 data is for the twelve months ended August 31, 1994, and August 31, 1995.
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 1994 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 1993, 1994 and 1995 fiscal years:
1993 1994 1995
- --------------------------------------------------------------------------------
TABLE WINES VOLUME VOLUME VOLUME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Non-varietal 56,696 52,610 47,774
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Varietal 12,499 12,794 16,344
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total (a) 69,195 65,404 64,118
- --------------------------------------------------------------------------------
- ----------------------------------
(a) Excludes sales of wine coolers but includes sales of wine in bulk.
The Company's table wine brands include:
Inglenook: The fifth largest selling table wine brand and the seventh
largest varietal wine in the United States with a significant restaurant and bar
presence.
Almaden: The sixth 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.
Paul Masson: The eleventh largest selling table wine brand in the
United States. Paul Masson is offered in all major varietal and non-varietal
product categories in a full range of sizes.
Taylor California Cellars: The eighteenth largest domestic selling
table wine brand in the United States. This brand 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: 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
has been expanding its distribution of 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: Unit volumes of this varietal wine from California's North
Coast region have also increased significantly. This brand is marketed at the
lower end of the premium price category.
Unit volume sales of non-varietal table wines acquired in the Vintners and
Almaden/Inglenook Acquisitions have declined, while varietal table wines,
including those acquired by the Company have increased. The Company believes
that these trends in the consumption of table wines reflect a general change in
consumer preference from non-varietal wines to varietal table wines.
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 sauvignon and merlot. The Company owns the
Marcus James brand and contracts for its production in Brazil.
Partager: A popularly priced table wine with both varietal and
non-varietal products. The Company owns the Partager brand and has contracted
for its production in France. The Company is converting the Partager brand to
Chilean wine to take advantage of lower costs.
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.
The Company's unit volume sales of imported wine increased steadily from
1.5 million gallons in fiscal 1993 to 2.0 million gallons in fiscal 1995. This
improvement is attributable primarily to increased sales of the Marcus James
varietal wine brand.
Dessert Wines. With the exception of the premium priced dessert wine brands
acquired in the Vintners Acquisition, the Company markets its dessert wines in
the lower end of the popularly priced category. The popularly priced category
represented approximately 89% of the dessert wine market in calendar 1994. Sales
of dessert wines comprised 8% of the Company's total revenues during the fiscal
year ended August 31, 1995. 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
1993, 1994 and 1995 fiscal years:
1993 1994 1995
VOLUME VOLUME VOLUME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DESSERT WINES 13,878 12,037 10,962
- --------------------------------------------------------------------------------
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 third 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: Premium dessert wines, including port and sherry.
The Company's unit volumes 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 21%
from fiscal 1993 through fiscal 1995.
Sparkling Wines. The Company markets substantially all of its sparkling
wines in the popularly priced segment, which constituted approximately 46% of
the domestic sparkling wine market in calendar 1994. The table below sets forth
the unit volumes (in thousands of gallons) for the domestic sparkling wines sold
by the Company and under domestic sparkling wine brands acquired in the Vintners
Acquisition and the Almaden/Inglenook Acquisition for the 1993, 1994 and 1995
fiscal years:
1993 1994 1995
VOLUME VOLUME VOLUME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPARKLING WINES 7,555 7,353 6,500
- --------------------------------------------------------------------------------
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 fourth largest selling domestic sparkling wine in the
United States, priced slightly below Cook's.
Great Western: A premium priced champagne.
Taylor: A premium priced champagne.
Codorniu: The second largest Spanish sparkling wine imported in the
United States, sold in the premium price category. The Company sells this brand
under a distribution agreement.
Jacques Bonet: A sparkling wine priced in the economy segment, this
product appeals to restaurants and caterers.
The Company's unit volumes of sparkling wine have declined over the last
three years. The decline can be attributed to a general decline in sparkling
wine consumption in the United States. The Company's unit volume sales of
sparkling wine brands (including the brands acquired from Vintners and Heublein)
have decreased 14% from fiscal 1993 through fiscal 1995.
Grape Juice Concentrate. As a related 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. The
Company believes that it is the leading grape juice concentrate producer in the
United States. Sales of grape juice concentrate accounted for 12% of the
Company's net sales for its fiscal year ended 1993. 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 Acquisition for the 1993, 1994 and 1995 fiscal years:
1993 1994 1995
VOLUME VOLUME VOLUME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GRAPE JUICE CONCENTRATE 13,351 11,826 11,017
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Wine Products 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 fifth largest marketer of imported beers in the
United States. The Company distributes four of the top 20 imported beer brands
in the United States: Corona, St. Pauli Girl, Modelo Especial and Tsingtao. The
table below sets forth the net sales (in thousands) and unit volumes (in
thousands of cases) for the beer sold by Barton for the years ended August 31,
1993, 1994 and 1995:
1993 1994 1995
- --------------------------------------------------------------------------------------------------------------------------
NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
$158,359 12,422 $173,883 14,100 $216,159 17,471
- --------------------------------------------------------------------------------------------------------------------------
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 fifteenth 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 and is growing in the United States with 1995 shipments into the United
States increasing by 38% over 1994 shipments in the same period.
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. The Company operates the Stevens Point Brewery, a regional brewer
located in Wisconsin, which produces Point Special among other brands.
Net sales and unit volumes of the Company's beer brands have grown
during the previous three fiscal years primarily as a result of the increased
sales of Corona and the Company's other Mexican beer brands.
Distilled Spirits. The Company is the fourth largest supplier 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 net sales (in thousands) and unit volumes (in thousands of 9-liter cases)
for the distilled products case goods sold by Barton for the years ended August
31, 1993, 1994 and 1995, and the unit volumes (in thousands of 9-liter cases)
and net sales (in thousands) for the brands and products acquired in the UDG
Acquisition for the year ended December 31, 1993, and for the twelve months
ended August 31, 1994 and 1995:
1993 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
NET SALES VOLUME NET SALES VOLUME NET SALES VOLUME
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Barton (a) $82,270 5,529 $81,367 5,370 $81,011 5,503
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
UDG (b) $111,676 6,443 $101,916 4,941 $92,136 5,013
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total $193,946 11,972 $183,283 10,311 $173,147 10,516
- ---------------------------------------------------------------------------------------------------------------------------
- -----------------------------
(a) Data for the fiscal years ended August 31, 1993, 1994 and 1995.
(b) 1993 data is for the fiscal year ended December 31, 1993, and 1994 and 1995
data is for the twelve months ended August 31, 1994 and 1995.
The Company's leading distilled spirits brands include:
Fleischmann's Vodka, Gin and Preferred: The fourth largest blended
whiskey and domestically bottled gin.
Barton Gin and Vodka: The fifth largest domestically bottled gin and the
fifth largest domestically bottled vodka.
Mr. Boston: An internationally recognized name with a full line of
spirits, including cordials, cocktails, flavored brandies, gin and vodka.
Canadian LTD: The fifth largest domestically bottled Canadian whisky.
Ten High Bourbon: One of the leading bourbon brands in the United
States.
Montezuma: This brand is the second largest selling tequila in the
United States.
Inver House: The fifth largest domestically bottled Scotch whisky.
Monte Alban: A premium priced product which the Company believes is the
largest selling mezcal in the United States.
Other products include Skol Vodka, Gin and Rum; Crystal Palace Gin and
Vodka; Glenmore spirits; Chi Chi's cocktails; Lauder's, House of Stuart and
Highland Mist Scotch whiskies; Old Thompson, Kentucky Gentleman, Kentucky
Tavern, Very Old Barton and Tom Moore bourbon whiskeys; di Amore liqueurs;
Schenley spirits; 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 48% of the
distilled spirits market in calendar 1994.
Although net sales and unit volumes of the Company's distilled spirits
brands were flat over the periods presented, there have been increases in sales
of certain product types. Unit volumes of vodka and tequila have increased while
Scotch and bourbon have experienced decreases in unit volume.
During the period from 1993 to 1995, the brands acquired in the UDG
Acquisition declined in excess of industry rates. The Company believes that
these declines resulted from non- competitive retail pricing and promotional
activities. The Company is implementing pricing and promotional activities which
it expects will reduce the rate of decline by the end of the Company's 1996
fiscal year.
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 twelve month
periods ended August 31, 1993, 1994 and 1995 of $10.6 million, $7.0 million and
$5.8 million, respectively. The Company expects contract production services to
increase significantly in fiscal 1996 as a result of the UDG Acquisition.
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
separate sales divisions: a beer division, a spirits division and a wine
division. The Company believes that the organization of its sales force into
separate divisions positions it to maintain a high degree of focus on each of
its principal product categories. Gross sales to the Company's largest
wholesaler, Southern Wine and Spirits, represented 10.6% and 12.3% of the
Company's gross sales for the fiscal year ended 1995 and 1994.
The Company's 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 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 and distilled spirits products are sold under a number
of trademarks. Most of these trademarks are owned by the Company.
The Company also produces and sells wines and distilled spirits products
under exclusive license or distribution agreements. Significant Agreements
include: a long term license agreement with Nabisco Brands Company for a term
which expires in 2008 and which automatically renews for successive additional
20 year terms unless cancelled by the Company for the Fleischmann's spirits
brands; a long term license agreement with Hiram Walker & Sons, Inc. for a term
which expires in 2116 for the Ten High, Crystal Palace, Northern Light and
Imperial Spirits brands; and a long term license agreement with The B.
Manischewitz Company for a term which expires in 2042 for the Manischewitz brand
of kosher wines.
The Company also has other less significant license and distribution
agreements related to the sale of wine and distilled spirits with terms of
various durations.
All of the Company's imported beer products are marketed and sold pursuant
to exclusive distribution agreements with the suppliers of these products. These
agreements have terms that vary and prohibit the Company from importing other
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 agreement. 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. These agreements may be terminated prior to their
expiration dates or the Company will have no right to renew these agreements at
the expiration of their terms if the Company fails to meet certain performance
criteria. The Company believes it is currently in compliance with its
distribution agreement for its Mexican beers. From time to time, the Company has
failed, and may in the future fail, to satisfy certain performance criteria in
its distribution agreements. However, given the Company's long term
relationships with its suppliers, the Company does not believe that these
agreements will be terminated for such reasons.
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 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 and The Wine Group
in the wine category, Van Munching & Co., Molson Breweries USA and Guinness in
the imported beer category, 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 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 and Albany,
Georgia facilities, the Company produces all of the neutral grain spirits and
whiskeys 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 neutral grain spirits used by
it in the production of gin and vodka for sale outside of Georgia, and other
spirits products, 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 and PET bottles and other materials, such as
caps, corks, capsules, labels and cardboard cartons in the bottling and
packaging of its products. Glass bottle costs are one of the largest components
of the Company's cost of product sold. The glass bottle industry is highly
concentrated with only a small number of producers. The Company has
traditionally obtained, and continues to obtain, its glass requirements from a
limited number of producers. The Company has not experienced difficulty in
satisfying its requirements with respect to any of the foregoing and considers
its sources of supply to be adequate. However, the inability of any of the
Company's glass bottle suppliers to satisfy the Company's requirements could
adversely affect the Company's operations.
Most of the Company's annual grape requirements are satisfied by purchases
from each year's harvest, which normally begins in August and runs through
October. During the 1995 grape growing season, there were industry shortages of
a number of grape varieties due largely to growing demand for certain types of
wine such as Cabernet Sauvignon, Merlot, White Zinfandel and Chardonnay.
Although grape costs declined during the prior two years, the increased demand
for certain grape varieties caused grape prices to increase significantly in
1995 over 1994. Because new vineyards can take three to four years to become
productive, the Company anticipates that the demand for some grape varieties
will continue to exceed supply and that certain grape prices will increase for
the 1996 grape harvest. The Company believes that it has adequate sources of
grape supplies to meet its sales expectation for fiscal 1996. However, in the
event demand for certain wine products exceeds expectations for fiscal 1996, the
Company could experience shortages.
The Company owns no vineyards in California and purchases grapes from over
900 independent growers principally in the San Joaquin Valley and Monterey
regions of California and in New York State. The Company enters into written
purchase agreements with a majority of these growers on a year-to-year basis.
However, in connection with the Vintners Acquisition and the Almaden/Inglenook
Acquisition, the Company acquired certain long term grape purchase contracts. In
addition, the Company's negligible purchases of grapes from the Napa Valley and
related regions minimize its exposure to phylloxera and other agricultural
risks. However, phylloxera in these regions has caused certain wineries to
increase their purchases of grapes from the San Joaquin and Monterey regions.
The Company is currently considering the purchase of vineyards to supplement its
grape supply.
The distilled spirits manufactured by the Company require various
agricultural products, neutral grain spirits and bulk spirits. The Company
fulfills its requirements through purchases from various sources, through
contractual arrangements and through purchases on the open market. The Company
believes that adequate supplies of the aforementioned products are available at
the present time.
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.
EMPLOYEES
The Company had approximately 2,150 full-time employees at the end of
fiscal 1995, as compared to 2,650 employees at the end of fiscal 1994. The net
reduction of 500 employees was due primarily to the consolidation of a number of
wine production facilities, both in California and in New York. Subsequent to
the UDG Acquisition, the Company has approximately 2,400 full-time employees,
approximately 1,000 of whom are covered by collective bargaining agreements.
Additional workers may be employed by the Company during the grape crushing
season. The Company considers its employee relations to be good.
Item 2. Properties
The Company currently operates 13 wineries, three distilling and bottling
plants, two bottling plants 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; the Monterey Cellars winery in Gonzales, California; the
distilling and bottling facility located in Bardstown, Kentucky; and the
bottling facility located in Owensboro, Kentucky.
In New York, the Company operates three wineries located in Canandaigua,
Naples and Batavia. The lease for the Hammondsport, New York winery facility,
entered into in connection with the Vintners Acquisition, expired in April 1995.
Production at this facility was consolidated at the Company's other New York
wineries.
The Company currently operates 10 winery facilities in California. The
Mission Bell winery is a crushing, wine production, bottling and distribution
facility and a grape juice concentrate production facility. The Mission Bell
winery has absorbed the production of the Central Cellars winery, which has been
closed and is expected to be sold. The Monterey Cellars winery is a crushing,
wine production and bottling facility. As part of the Restructuring Plan, during
fiscal 1995, substantially all of the branded wine bottling operations at the
Monterey Cellars winery, where Paul Masson and Taylor California Cellars were
bottled, were moved to the Mission Bell winery. The other wineries operated in
California are located in Escalon, Lodi, McFarland, Madera, Fresno and Ukiah.
The Escalon facility is operated under a long term lease with an option to buy.
The Company operates five facilities that produce, bottle and store
distilled spirits. It owns production, bottling and storage facilities in
Bardstown, Kentucky, and Atlanta and Albany, Georgia, and operates bottling
plants in Owensboro, Kentucky and Carson, California, which is near Los Angeles.
The Carson plant is operated under a management contract, which is scheduled to
expire on December 31, 1997, subject to a one year extension at the option of
the plant lessor. 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 Bardstown facility
distills, bottles and warehouses whiskey for the Company's account and on a
contractual basis for other participants in the industry. The Owensboro facility
bottles and warehouses whiskey for the Company's account and performs contract
bottling. The Company also owns production plants in Atlanta and Albany,
Georgia, which produce vodka, gin and blended whiskeys.
The Company owns a brewery in Stevens Point, Wisconsin where it produces
and bottles Point beer and contract brews and packages for a variety of brewing
and other food and beverage industry members. In addition, the Company owns and
maintains its corporate headquarters in Canandaigua, New York, and leases office
space in Chicago, Illinois for its Barton headquarters.
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 Amended Credit Facility (as defined below in Item 7 of this Report
under "Financial Liquidity and Capital Resources").
Item 3. Legal Proceedings
The Company and its subsidiaries are subject to litigation from time to
time in the ordinary course of business. Although the amount of any liability
with respect to such litigation cannot be determined, in the opinion of
management, such liability will not have a material adverse effect on the
Company's financial condition 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 subsequently came under
investigation in connection with providing "free goods" to retailers in
violation of New Jersey beverage alcohol laws. A proposed consent order has been
received from the appropriate regulatory agency by the Company which would, when
finalized, fully resolve the matter without any material effect on the Company.
On November 13, 1995, a purported stockholder of the Company filed a class
action in the United States District Court for the Southern District of New
York, Ventry, et al. v. Canandaigua Wine Company, Inc., et al. (the "Ventry
Class Action"). On November 16, 1995 another purported stockholder of the
Company filed a class action in the United States District Court for the
Southern District of New York, Brickell Partners, et al. v. Canandaigua Wine
Company, Inc., et al. (the "Brickell Class Action" and together with the Ventry
Class Action, the "Class Actions"). The defendants in the Class Actions are the
Company, Richard Sands and Lynn K. Fetterman. The Class Actions assert
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder and seek to recover damages in an unspecified
amount which allegedly the class members sustained by purchasing the Company's
common stock at artificially inflated prices. The complaints in the Class
Actions allege that the Company's public documents and statements were
materially incomplete and, as a result, misleading.
The Class Actions were filed after the Company announced its results of
operations for the year ended August 31, 1995 on November 9, 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Fiscal Year Ended August 31, 1995 Compared to Fiscal Year Ended
August 31, 1994" included in this Report. These results were below the
expectations of analysts and on November 10, 1995 the price of the Company's
Class A common stock fell approximately 38% and the price of the Company's Class
B common stock fell approximately 30%.
The Company believes that the Class Actions are without merit and
intends to vigorously defend the Class Actions.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information with respect to the executive
officers of the Company:
NAME AGE OFFICE HELD
Marvin Sands 71 Chairman of the Board
Richard Sands 44 President and Chief Executive Officer
Robert Sands 37 Executive Vice President, General Counsel and Secretary
Ellis M. Goodman 58 Executive Vice President of the Company
and Chief Executive Officer of Barton Incorporated
Lynn K. Fetterman 48 Senior Vice President and Chief Financial Officer
Daniel C. Barnett 45 Senior Vice President and President of Wine Division
Bertram E. Silk 63 Senior Vice President
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. In January 1995, he was appointed Secretary of the Company. 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.
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. (predecessor to Barton Incorporated) since 1982.
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 ten 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.
Daniel C. Barnett joined the Company during November 1995 as its Senior
Vice President and President of the Wine Division. From July 1994 to October
1995, Mr. Barnett served as President and Chief Executive Officer of Koala
Springs International, a juice beverage company. Prior to that, from
April 1991 to June 1994, Mr. Barnett was Vice President and General Manager of
Nestle USA's beverage businesses. From October 1988 to April 1991, he was
President of Weyerhaeuser's baby diaper division.
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.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Class A Common Stock and Class B Common Stock are quoted on
the Nasdaq National Market under the symbols "WINEA" and "WINEB", respectively.
The following table sets forth for the periods indicated the high and low sales
prices of the Class A Common Stock and the Class B Common Stock as reported on
the Nasdaq National Market.
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A STOCK
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1994
High Low High Low
- --------------------------------------------------------------------------------------------------------------------------------
1st Quarter $34.25 $29.75 $25.75 $21.00
- --------------------------------------------------------------------------------------------------------------------------------
2nd Quarter $40.50 $33.25 $32.00 $25.50
- --------------------------------------------------------------------------------------------------------------------------------
3rd Quarter $44.75 $33.50 $30.50 $20.25
- --------------------------------------------------------------------------------------------------------------------------------
4th Quarter $48.00 $40.50 $30.75 $22.25
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
CLASS B STOCK
- --------------------------------------------------------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1994
High Low High Low
- --------------------------------------------------------------------------------------------------------------------------------
1st Quarter $34.50 $30.50 $25.375 $20.50
- --------------------------------------------------------------------------------------------------------------------------------
2nd Quarter $40.00 $33.00 $32.50 $25.625
- --------------------------------------------------------------------------------------------------------------------------------
3rd Quarter $45.50 $35.25 $30.00 $25.00
- --------------------------------------------------------------------------------------------------------------------------------
4th Quarter $47.75 $43.00 $32.00 $25.00
- --------------------------------------------------------------------------------------------------------------------------------
At November 22, 1995 the number of holders of record of Class A Common
Stock and Class B Common Stock of the Company were 1,268 and 370, respectively.
The Company's policy is to retain all of its earnings to finance the
development and expansion of its business, and the Company has not paid any cash
dividends since its initial public offering in 1973. In addition, the Company's
current bank credit agreement prohibits and the Company's indenture for its 8
3/4% Senior Subordinated Notes due 2003 restricts the payment of cash dividends.
Item 6. Selected Financial Data
YEARS ENDED AUGUST 31,
----------------------------------------------------------------------------------
1991 1992 1993 1994 1995
(in thousands, except per share data)
Sales:
Gross, including excise taxes $212,637 $305,118 $389,417 $861,059 $1,185,074
Less-excise taxes (36,078) (59,875) (83,109) (231,475) (278,530)
------- ------- ------- -------- ---------
Net sales 176,559 245,243 306,308 629,584 906,544
Cost of product sold (131,064) (174,686) (214,931) (447,211) (653,811)
------- ------- ------- -------- ---------
Gross profit 45,495 70,557 91,377 182,373 252,733
Selling, general and
administrative expenses (30,184) (46,491) (59,983) (121,388) (159,196)
Nonrecurring restructuring expense - - - (24,005) (2,238)
------- ------- ------- -------- ---------
Operating income 15,311 24,066 31,394 36,980 91,299
Interest income 955 328 147 311 520
Interest expense (4,586) (6,510) (6,273) (18,367) (25,121)
------- ------- ------- -------- ---------
Income before provision
for income taxes 11,680 17,884 25,268 18,924 66,698
Provision for federal and state
income taxes (3,970) (6,528) (9,664) (7,191) (25,678)
------- ------- ------- -------- ---------
Net income $7,710 $11,356 $15,604 $11,733 $41,020
======= ======= ======= ======== ==========
Net income per common share:
Primary $0.84 $1.08 $1.30 $0.74 $2.14
======= ======= ======= ======== ==========
Fully diluted $ - $1.01 $1.20 $0.74 $2.13
======= ======= ======= ======== ==========
Total assets $147,207 $217,835 $355,182 $826,562 $785,921
======= ======= ======= ======== ==========
Long-term debt $62,278 $61,909 $108,303 $289,122 $198,859
======= ======= ======= ======== ==========
For fiscal years ended August 31, 1995, 1994 and 1993, see Management's
Discussion and Analysis of Financial Condition and Results of Operations under
Item 7 of this Report and Notes to Consolidated Financial Statements as of
August 31, 1995 under Item 8 of this Report.
Per share amounts have been appropriately adjusted to reflect the Company's
three-for-two stock splits declared on September 26, 1991 and June 1, 1992.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations of the Company
The Company has realized significant growth in sales and profitability over
recent years primarily as a result of acquisitions. The Company acquired the
outstanding capital stock of Barton on June 29, 1993, the assets of Vintners on
October 15, 1993 and the Almaden/Inglenook Product Lines on August 5, 1994. The
Company's results of operations for the 1994 fiscal year include the results of
operations of Vintners from October 15, 1993, the date of the Vintners
Acquisition, until the end of the period, and the results of operations of the
Almaden/Inglenook Product Lines from August 5, 1994, the date of the
Almaden/Inglenook Acquisition, until the end of the period.
On September 1, 1995, the Company acquired the Mr. Boston, Canadian LTD,
Skol, Old Thompson, Kentucky Tavern, Glenmore and di Amore distilled spirits
brands; the U.S. rights to the Inver House, Schenley and El Toro distilled
spirits brands; the rights to the Fleischmann's and Chi Chi's distilled spirits
brands under long term license agreements; related inventories and other assets;
and two production facilities located in Owensboro, Kentucky and Albany,
Georgia. In addition, the transaction included multiyear agreements under which
UDG will supply Barton with bulk whisky and Barton will supply UDG with services
including continued packaging of various UDG brands. Also, in addition to the
assets acquired in the transaction, at closing, Barton purchased from UDG
certain brandy inventories and packaging supplies related to the contract
production arrangements with UDG. The Company financed the UDG Acquisition
through an amendment to its Credit Facility (as defined below), primarily
through an increase in its Term Loan facility under the Credit Facility. The UDG
Acquisition is significant to the Company and will have a material impact on the
Company's future results of operations. The UDG Acquisition has significantly
strengthened the Company's position in the United States distilled spirits
industry. As a result of the UDG Acquisition the Company's distilled spirits
market share doubled and the Company entered the profitable cordial and liqueur
categories.
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:
Year Ended August 31,
1993 1994 1995
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Product sold 70.2 71.0 72.1
----- ----- -----
Gross profit 29.8 29.0 27.9
Selling, general and administrative expenses 19.6 19.3 17.6
Nonrecurring restructuring expenses - 3.8 0.2
----- ----- -----
Operating income 10.2 5.9 10.1
Interest expense, net 1.9 2.9 2.7
----- ----- -----
Income before provision for income taxes 8.3 3.0 7.4
Provision for federal and state income taxes 3.2 1.1 2.9
----- ----- -----
Net income 5.1% 1.9% 4.5%
===== ===== =====
Fiscal Year Ended August 31, 1995 Compared to Fiscal Year Ended August 31, 1994
Net Sales
Net sales for the 1995 fiscal year increased to $906.5 million from $629.6
million for the fiscal year ended August 31, 1994, an increase of $276.9
million, or approximately 44.0%. This increase resulted from the inclusion of
(i) $234.7 million of net sales of products acquired in the Almaden/Inglenook
Acquisition; (ii) an overall increase of $25.8 million in net sales of Company
products, excluding the impact of the net sales of products that were acquired
during fiscal 1994; and (iii) an additional $16.4 million of net sales of
Vintners' products resulting from inclusion of these products in the Company's
portfolio for the entire first quarter of fiscal 1995 versus only six weeks in
the first quarter of fiscal 1994. Excluding the impact of the additional six
weeks of net sales of Vintners' products during the first quarter of fiscal 1995
and all of the net sales resulting from the Almaden/Inglenook Acquisition during
the 1995 fiscal year, the Company's net sales increased 4.1% as compared to the
fiscal year ended August 31, 1994. This was principally due to increased net
sales of imported beer brands and varietal table wines.
For purposes of computing the net sales and unit volume comparative data
below, sales of products acquired in the Vintners and Almaden/Inglenook
Acquisitions have been included in the entire period for the fiscal year ended
August 31, 1995 and included for the same period during the fiscal year ended
August 31, 1994, part of which was prior to the Vintners Acquisition and the
Almaden/Inglenook Acquisition.
The table below sets forth the net sales (in thousands) and unit volumes
(in thousands) for the branded beverage alcohol products, branded wine products,
each category of branded wine products, beer and spirits brands sold by the
Company for the 1995 and 1994 fiscal years:
Fiscal Year 1995 compared to Fiscal Year 1994
Net Sales Unit Volume(1)
% Increase % Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
---- ---- ---------- ---- ---- ----------
Branded Beverage Alcohol
Products $795,290 $750,180 6.0% 50,547 47,688 6.0%
Branded Wine Products $487,101 $486,838 0.1% 28,019 28,657 (2.2%)
Non-varietal wines $223,391 $234,541 (4.8%) 14,577 15,594 (6.5%)
Varietal wines $128,679 $106,559 20.8% 6,032 4,943 22.0%
Dessert wines $68,094 $71,320 (4.5%) 4,474 4,794 (6.7%)
Sparkling wines $66,937 $74,418 (10.1%) 2,936 3,326 (11.7%)
Beer $216,159 $173,883 24.3% 17,471 14,100 23.9%
Spirits $81,011 $81,368 (0.4%) 4,654 4,591 1.4%
(1) Unit volumes for wine products are in thousands of cases, for beer in
thousands of cases and for spirits in thousands of cases.
Net sales and unit volume of the Company's branded beverage alcohol
products for the fiscal year ended August 31, 1995 each increased 6.0% as
compared to the fiscal year ended August 31, 1994. This increase was principally
due to increased net sales and unit volume of the Company's imported beer brands
and varietal table wine brands.
Net sales and unit volume of the Company's branded wine products for fiscal
1995 increased 0.1% and decreased 2.2%, respectively, as compared to fiscal
1994. These results were primarily due to lower non-varietal table wine,
sparkling wine and dessert wine sales offset by improved varietal wine sales.
The Company's results were also negatively affected by a backlog in fulfilling
orders at the end of fiscal 1995 due to production and shipment delays
associated with the relocation of West Coast bottling operations to the
Company's Mission Bell winery under the Restructuring Plan. The Company expects
the backlog to be substantially eliminated in the first quarter fiscal 1996. The
Company is also in the process of increasing prices on selected branded wine
products during fiscal 1996 in response to increased grape costs associated with
the 1995 harvest and to phase out introductory pricing on recently introduced
line extensions of varietal wine products.
Net sales and unit volume of the Company's non-varietal table wine brands
for fiscal 1995 declined 4.8% and 6.5%, respectively, as compared to fiscal
1994. The Company believes these declines are consistent with a general decline
in the consumption of non-varietal table wine products, reflecting changing
consumer preferences toward varietal table wines.
Net sales and unit volume of the Company's varietal table wine brands for
fiscal 1995 increased 20.8% and 22.0%, respectively, as compared to fiscal 1994,
primarily from increased sales of most of the Company's varietal table wine
brands. These increases reflect the continuation of the Company's strategy to
expand distribution into new markets and increase penetration of existing
markets primarily through line extensions and promotional activities. As part of
this strategy, the Company also offered certain new and existing products at
highly competitive prices.
Net sales and unit volume of the Company's dessert wine brands for fiscal
1995 decreased 4.5% and 6.7%, respectively, compared to fiscal 1994. The Company
believes those declines are consistent with a general decline in consumption of
dessert wines. Declines in the Company's beverage dessert wines were partially
offset by growth in higher priced traditional dessert wines such as port and
sherry.
Net sales and unit volume of the Company's sparkling wine brands for fiscal
1995 declined 10.1% and 11.7%, respectively, compared to fiscal 1994. These
declines were primarily the result of strong competition and weak consumer
demand for sparkling wine.
Net sales and unit volume of the Company's beer brands for fiscal 1995
increased 24.3% and 23.9%, respectively, compared to fiscal 1994. These
increases resulted primarily from increased sales of the Company's Corona brand
and its other Mexican beer brands. The Company does not anticipate that sales
of imported beers will continue to grow at such rates.
Net sales and unit volume of the Company's spirits brands for fiscal 1995
decreased 0.4% and increased 1.4%, respectively, compared to fiscal 1994. The
unit volume growth is due to increased shipments of vodka, tequila and brandy.
Gross Profit
Gross profit for the fiscal year ended August 31, 1995 increased to $252.7
million from $182.4 million for the fiscal year ended August 31, 1994, an
increase of $70.3 million, or approximately 38.6%. This increase resulted from
the inclusion of the Almaden/Inglenook Product Lines with those of the Company,
and to a lesser extent from increased sales of imported beer brands and the
inclusion of Vintners' product lines with those of the Company. The Company's
gross profit as a percentage of net sales decreased to 27.9% for the fiscal year
ended August 31, 1995 from 29.0% for the fiscal year ended August 31, 1994. The
Company's gross profit percentage decreased as a result of the inclusion of
operations acquired in the Almaden/Inglenook Acquisition, which had a lower
gross profit percentage
than the remainder of the Company's operations, and reduced gross profit
percentages on sales of certain of the Company's table wine brands in fiscal
1995 as compared to fiscal 1994.
The cost of grapes, a major component of the Company's raw materials for
its winemaking, increased significantly for the 1995 harvest compared with the
1994 harvest, and is expected to further increase in the 1996 harvest. The
Company uses the last in, first out (LIFO) method of valuing its inventories.
The increased grape costs associated with the 1995 grape harvest will therefore
increase the Company's costs of goods sold beginning in the first quarter of
fiscal 1996. As a result, gross profit margins for the Company's wine business
could be adversely affected during fiscal 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal year ended
August 31, 1995 increased to $159.2 million from $121.4 million for the fiscal
year ended August 31, 1994, an increase of $37.8 million, or approximately
31.1%. This increase primarily resulted from the additional expenses associated
with the sales and marketing of the products acquired in the Almaden/Inglenook
Acquisition, and to a lesser extent higher advertising and promotion expenses
associated with certain wine brands. As a percentage of net sales, selling,
general and administrative expenses decreased to 17.6% for fiscal 1995 as
compared to 19.3% for fiscal 1994 as a result of increased economies of scale.
Nonrecurring Restructuring Expenses
In fiscal 1995 the Company incurred a nonrecurring restructuring charge of
$2.2 million related to its Restructuring Plan which reduced net income per
share by $0.07 on a fully diluted basis as compared to a nonrecurring
restructuring charge of $24 million in fiscal 1994, also related to the
Restructuring Plan, which reduced net income per share by $0.91 on a fully
diluted basis. (See "Financial Liquidity and Capital Resources" and the
footnotes to the financial statements included in this Report.)
Interest Expense, Net
Net interest expense increased $6.5 million to $24.6 million in the fiscal
year ended August 31, 1995, as compared to the fiscal year ended August 31,
1994. The increase is primarily due to borrowings related to the Vintners and
Almaden/Inglenook Acquisitions.
Net Income
Net income for the fiscal year ended August 31, 1995 increased to $41.0
million from $11.7 million for the fiscal year ended August 31, 1994, an
increase of $29.3 million, or approximately 249.6%. Fully diluted earnings per
share increased to $2.13 in the fiscal year ended August 31, 1995 from $0.74 in
the fiscal year ended August 31, 1994, a 187.8% improvement.
Excluding the impact of the nonrecurring restructuring expenses, net income
was $42.4 million in fiscal 1995 as compared to $26.6 million in fiscal 1994.
This represents an improvement in net income of $15.8 million or 59.4%.
Excluding the
impact of the nonrecurring restructuring expenses, fully diluted earnings per
common share increased to $2.20 from $1.65, an increase of 33.3%. These
increases were due to the contribution of the Almaden and Inglenook brands and
other products acquired in the Almaden/Inglenook Acquisition and increased sales
of imported beer brands.
Fiscal Year Ended August 31, 1994 Compared to Fiscal Year Ended August 31, 1993
Net Sales
Net sales for the Company's 1994 fiscal year increased to $629.6 million
from $306.3 million for the fiscal year ended August 31, 1993, an increase of
$323.3 million, or approximately 106%. The increase resulted from the inclusion
of (i) an additional 10 months of Barton's net sales during the fiscal year
ended August 31, 1994, amounting to $210.6 million, as compared to two months of
Barton's net sales in the same period a year ago, (ii) $119.2 million of net
sales of Vintners' products from October 15, 1993, the date of the Vintners
Acquisition and (iii) $17.1 million of net sales of products acquired in the
Almaden/Inglenook Acquisition from August 5, 1994, the date of the
Almaden/Inglenook Acquisition. Excluding the impact of the Acquisitions, the
Company's net sales decreased $23.5 million, or 9.2%, 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 below, sales of branded wine
products acquired in the Vintners and Almaden/Inglenook Acquisitions have been
included in the fiscal year ended August 31, 1994, from the acquisition dates
through August 31, 1994, and included for the same periods during the fiscal
year ended August 31, 1993, prior to both acquisitions. Further, sales of
branded products acquired in the Barton Acquisition have been included for the
entire fiscal year ended August 31, 1994, and included for the same period
during the fiscal year ended August 31, 1993, ten months of which were prior to
the Barton Acquisition.
Net sales and unit volume of the Company's branded beverage alcohol
products for the fiscal year ended August 31, 1994 have increased 0.7% and 1.1%,
respectively, as compared to the same period a year ago. This increase was
principally due to increased net sales and unit volume of the Company's imported
beer brands and, to a lesser extent, increased net sales and unit volume of the
Company's varietal table wine brands.
Net sales and unit volume of the Company's branded wine products for the
fiscal year ended August 31, 1994 declined 4.6% and 6.0%, 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 fiscal year ended August 31, 1994 increased 2.3% and 6.4%, respectively,
reflecting increases in substantially all of the Company's varietal table wine
brands except for varietal table wine brands acquired from Vintners which
declined 13.2% and 3.1%, 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 4.8% and 5.8%, respectively, principally due to lower sales of
non-varietal table wine brands acquired from Vintners. Net sales and unit volume
of sparkling wine brands each decreased 2.1% in the fiscal year ended August 31,
1994, versus the same period a year ago. This was principally due to a general
decline in most of the Company's sparkling wine brands with the exception of J.
Roget. Net sales and unit volume of the Company's dessert wine brands were down
11.1% and 13.2%, respectively, in the fiscal year ended August 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. For the fiscal year ended August 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 and remained flat, respectively, in
the fiscal year ended August 31, 1994, versus the same period a year ago.
Net sales and unit volume of the Company's beer brands for the fiscal year
ended August 31, 1994 increased by 12.9% and 13.3%, respectively, when compared
to net sales and unit volume of these beer brands with respect to the same
period a year ago, part of 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
fiscal year ended August 31, 1994 were down 1.5% and up 0.4%, respectively, as
compared to net sales and unit volume of these spirits case goods with respect
to the same period a year ago, part of which was prior to the Barton
Acquisition. This decrease in net sales was primarily due to lower net sales of
the Company's aged whiskeys (i.e., Canadian, bourbon and Scotch whiskeys), which
was partially offset by increased net sales of the Company's blended whiskey,
tequila and liqueur brands.
Gross Profit
Gross profit increased to $182.4 million in the fiscal year ended August
31, 1994, from $91.4 million in the fiscal year ended August 31, 1993, an
increase of $91.0 million, or approximately 100%. This increase in gross profit
resulted from the inclusion of the operations of Barton, Vintners and the
Almaden/Inglenook Product Lines with those of the Company. Gross profit as a
percentage of net sales decreased to 29.0% in the fiscal year ended August 31,
1994, from 29.8% in the fiscal year ended August 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 $121.4 million in
the fiscal year ended August 31, 1994, from $60.0 million in the fiscal year
ended August 31, 1993, an increase of $61.4 million, or approximately 102%. 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 the Company owned prior to the
Barton and Vintners Acquisitions.
Nonrecurring Restructuring Expenses
As a result of the Restructuring Plan, the Company recorded a restructuring
charge in the fourth quarter of fiscal 1994 which reduced after-tax income for
fiscal 1994 by $14.9 million, or $0.91 per share on a fully diluted basis. See
"Financial Liquidity and Capital Resources" and the footnotes to the financial
statements included in this Report.
Interest Expense, Net
Interest expense, net increased to $18.1 million in the fiscal year ended
August 31, 1994, from $6.1 million in the fiscal year ended August 31, 1993, an
increase of $12.0 million. The increase resulted primarily from borrowings
related to the Barton, Vintners and Almaden/Inglenook Acquisitions.
Net Income
Net income decreased to $11.7 million in the fiscal year ended August 31,
1994, from $15.6 million in the fiscal year ended August 31, 1993, a decrease of
$3.9 million, or approximately 24.8%. The decrease in net income resulted
primarily from the restructuring charge of $24 million which reduced after-tax
net income by $14.9 million. Exclusive of the impact of the restructuring
charge, net income increased 71% to $26.6 million, or $1.65 of fully diluted
earnings per common share, compared with net income of $15.6 million or $1.20 of
fully diluted earnings per common share in fiscal 1993. See "Nonrecurring
Restructuring Expenses" and "Financial Liquidity and Capital Resources."
Financial Liquidity and Capital Resources
General
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventory of raw materials, inventories in process 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 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.
Fiscal Year 1995 Cash Flows
Operating Activities
Net cash provided by operating activities in fiscal 1995 was $73.3 million,
compared to $27.2 million in fiscal 1994 or an increase of 170%, primarily due
to increased net income, adjusted for non-cash items. In addition, lower
inventories and accounts receivable, which were partially offset by lower
accounts payable and accrued expenses, also contributed to operating cash flows.
Inventories declined as a result of implementation of strategies designed to
lower inventory levels while accounts receivable were lower primarily due to an
improved rate of collection. Accounts payable and accrued expenses declined as a
result of the lower inventory levels and lower accruals resulting primarily from
the cancellation of certain adverse grape contracts in fiscal 1995.
Investing Activities and Financing Activities
Capital expenditures for fiscal 1995 were $37.1 million, an increase of
$29.3 million as compared to fiscal 1994, which included $19.1 million of
capital expenditures related to the Restructuring Plan. In addition, the Company
paid $28.3 million in fiscal 1995 relating to Earn-Out payments (as defined
below) to the former Barton stockholders, as compared to $4.0 million in fiscal
1994.
Notes Payable were $19.0 million at August 31, 1994 and increased in fiscal
1995 by $50.1 million for seasonal working capital needs, capital expenditures
and the Earn-Out payments. These borrowings were then repaid in full by the
application of $22.1 million from the proceeds of the Company's November 18,
1994 sale of 3 million shares of its Class A Common Stock to the public at a
price of $33.50 per share in simultaneous United States and international
offerings (the "Offerings") and $47.0 million from the proceeds of additional
Term Loan borrowings.
Debt, other than Notes Payable, was $320.1 million at August 31, 1994, and
decreased $92.1 million in fiscal 1995, due to scheduled debt repayments of
$27.9 million, prepayment of $112.0 million of the Term Loan, of which $82.0
million represented a portion of the proceeds from the Offerings, offset by
additional Term Loan borrowings of $47.0 million under the Credit Facility and
other borrowings of $0.8 million.
The Company's Credit Facility
During fiscal 1994 the Company, its principal operating subsidiaries, and a
syndicate of 21 banks for which The Chase Manhattan Bank (NA) ("Chase") acts as
agent, entered into a Second Amendment and Restatement dated as of August 5,
1994 of Amendment and Restatement of Credit Agreement dated June 29, 1993 (the
"Credit Facility"). On August 31, 1995 the Credit Facility provided for (i) a
$91.0 million Term Loan facility ("Term Loans"), (ii) a $185.0 million Revolving
Loan facility ("Revolving Loans"), and (iii) a $25 million Irrevocable Standby
Letter of Credit ( the "Barton Letter of Credit") related to the Barton
Acquisition Earn-Out payments (as defined below). As of August 31, 1995 the
Company had under the Credit Facility outstanding Term Loans of $91.0 million;
no outstanding Revolving Loans, undrawn Revolving Letters of Credit of $4.7
million and the undrawn $25.0 million Barton Letter of Credit. At August 31,
1995 the Company had $172.5 million available to be drawn in Revolving Loans.
On September 1, 1995 the Company and a syndicate of 20 banks (the
"Syndicate Banks"), which were substantially the same banks that participated in
the Credit Facility, entered into a Third Amended and Restated Credit Agreement
(the "Amended Credit Facility"). The Amended Credit Facility provides for (i) a
$246 million Term Loan facility due in August 2001, (ii) a $185 million
Revolving Loan facility which expires in June 2001 and (iii) the existing $25
million standby irrevocable Barton Letter of Credit, which expires in December,
1996.
The Revolving Loans and the Term Loan at the Company's option, can be
either a base rate loan or a Eurodollar rate loan. In addition, the Revolving
Loans can be a money market loan. A base rate loan bears interest at the rate
per annum equal to the higher of (1) the federal funds rate for such day plus
1/2 of 1%, or (2) the Chase prime commercial lending rate. A Eurodollar rate
loan bears interest at LIBOR plus a margin of .75%. The interest rate margin for
Eurodollar rate loans may be decreased by up to .25% or increased by up to .5%
depending on the Company's debt coverage ratio (as defined in the Amended Credit
Facility). The interest rate on a money market loan is determined by a
competitive bid process among the Syndicate Banks.
On September 1, 1995 the Company borrowed an additional $155,000,000
through the Term Loan facility to finance the UDG Acquisition. As of November
22, 1995 the Company had outstanding Term Loans in a principal amount of $246.0
million bearing interest at 6.6% with quarterly principal payments of $10.0
million commencing on December 15, 1995 and a final payment of $16.0 million in
August 2001. The Company may prepay the principal of the Term Loans and the
Revolving Loans at its discretion and must prepay the principal with 65% of its
annual excess cash flow, proceeds from the sale of certain assets and the net
proceeds of any issuance of equity.
The $185 million Revolving Loan 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 $12.0 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 of November 22, 1995 there were outstanding
Revolving Loans of $95.0 million bearing interest at 6.6%, undrawn Revolving
Letters of Credit of $4.7 million and $85.3 million available to be drawn in
Revolving Loans. The proceeds from the $95.0 million increase in the Revolving
Loans since August 31, 1995 were used to fund the purchase of grapes during the
1995 grape harvest and are expected to be repaid with cash from operating
activities. The Revolving Loans are required to be prepaid in such amounts that,
for a period of thirty 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 $50.0
million.
The Barton Letter of Credit is an existing letter of credit currently
issued in the face amount of $25.0 million. This amount represents the full
amount committed under the Amended Credit Facility. On January 1, 1996, the face
amount of the Barton Letter of Credit will be reduced to $15 million and 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.
Each of the Company's operating subsidiaries has guaranteed, jointly and
severally, the Company's obligations under the Amended Credit Facility. The
Syndicate Banks have been given security interests in substantially all of the
assets of the Company and its subsidiaries. The Company and its subsidiaries are
subject to customary secured lending covenants including those restricting
additional liens, the incurrence of additional indebtedness, the sale of assets,
the payment of dividends, transactions with affiliates, the making of certain
investments and certain other fundamental changes. The Company and its
subsidiaries are also required to maintain a minimum level of interest rate
protection instruments and the following financial covenants above specified
levels: debt coverage ratio; tangible net worth; fixed charges ratio; and
operating cash flow to interest expense. Among the most restrictive covenants
contained in the Amended Credit Facility, 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 for the most recent four quarter periods.
Senior Subordinated Notes
In connection with the Vintners Acquisition, the Company borrowed $130
million under a subordinated bank loan. The Company repaid the subordinated bank
loan in December, 1993 from the proceeds of the sale of its $130 million 8.75%
Senior Subordinated Notes due 2003 (the "Notes") together with Revolving Loan
borrowing. The Notes are due in 2003 with 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 Amended Credit Facility. The Notes are guaranteed, on a senior
subordinated basis, by substantially all of the Company's operating
subsidiaries.
Payments to Former Barton Stockholders
Pursuant to the Barton Acquisition, the Company is obligated to make
payments of up to an aggregate amount of $57.3 million to the former Barton
stockholders (the "Barton Stockholders") which payments are payable over a
three-year period ending November 29, 1996 (the "Earn-Out"). The first payment
to the Barton Stockholders of $4.0 million was made on December 31, 1993 and the
second payment of $28.3 million was made 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 funded this payment through
Revolving Loans under its then existing bank Credit Facility. The third payment
of $10 million due November 30, 1995 has been accrued at August 31, 1995 and
will be funded through Revolving Loans. The final remaining payment is
contingent upon Barton achieving certain targets for earnings before interest
and taxes in fiscal 1996 and is to be made in an amount up to $15.0 million by
November 29, 1996. Such payment obligations are
fully secured by the Company's standby irrevocable letter of credit under the
Amended Credit Facility (i.e., 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 contingencies have
been satisfied and will be allocated based upon the fair market value of the
underlying assets. As a result, as the Earn-Out payments are made, depreciation
and amortization expense will increase in the future over the remaining useful
lives of these assets.
Vintners Holdback
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 although such firm has not yet been selected by the parties. 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.
Restructuring Plan
As a result of the Restructuring Plan, the Company incurred an after-tax
restructuring charge in the fourth quarter of fiscal 1994 of $14.9 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 did not involve cash
expenditures. During 1995, the implementation of the Restructuring Plan required
net cash expenditures of approximately $28.2 million, including $19.1 million
for capital expenditures. These expenditures were funded through cash provided
by operating activities or through the Credit Facility.
Other
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 1996 fiscal year. During the last three fiscal years,
the Company has not incurred, nor does it expect to incur in its 1996 fiscal
year, any material expenditures related to remediation of previously
contaminated sites or other non-recurring environmental matters.
The Company believes that cash provided by operating activities 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 Amended Credit Facility and cash provided by operating
activities will provide adequate resources to satisfy its working capital,
liquidity and anticipated capital expenditure requirements for at least the next
four fiscal quarters.
Item 8. Financial Statements and Supplementary Data
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND
SUPPLEMENTARY SCHEDULES
AUGUST 31, 1995
Page
The following information is presented in this report:
Report of Independent Public Accountants................................
Consolidated Balance Sheets - August 31, 1995 and 1994..................
Consolidated Statements of Income for the years ended
August 31, 1995, 1994 and 1993......................................
Consolidated Statements of Changes in Stockholders' Equity
for the years ended August 31, 1995, 1994 and 1993..................
Consolidated Statements of Cash Flows for the years ended
August 31, 1995, 1994 and 1993......................................
Notes to Consolidated Financial Statements..............................
Selected Financial Data - Five-Year Summary.............................
Selected Quarterly Financial Information (Unaudited)....................
Schedules I through V are not submitted because they are not applicable or not
required under the rules of Regulation S-X.
Individual financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company and no subsidiary included in the
consolidated financial statements has minority equity interest and/or noncurrent
indebtedness, not guaranteed by the Registrant, in excess of 5% of total
consolidated assets.
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, 1995
and 1994, 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, 1995. These financial statements and supplementary schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
supplemental schedules 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements and supplementary schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic financial statements. These schedules have
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Rochester, New York ARTHUR ANDERSEN LLP
November 5, 1995
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
AUGUST 31,
1995 1994
---- ----
(in thousands)
--------------
CURRENT ASSETS:
Cash and cash investments $ 4,180 $ 1,495
Accounts receivable, net 115,448 122,124
Inventories, net 256,811 301,053
Prepaid expenses and other current assets 25,070 29,377
----------------------- ----------------
Total current assets 401,509 454,049
PROPERTY, PLANT AND EQUIPMENT, NET 217,505 194,283
OTHER ASSETS 166,907 178,230
----------------------- ----------------
Total assets $ 785,921 $ 826,562
======================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $ 19,000
Current maturities of long-term debt 29,133 31,001
Accounts payable 62,091 75,506
Accrued federal and state excise taxes 15,633 16,657
Other accrued expenses and liabilities 67,896 96,061
----------------------- ----------------
Total current liabilities 174,753 238,225
----------------------- ----------------
LONG - TERM DEBT, less current maturities 198,859 289,122
----------------------- ----------------
DEFERRED INCOME TAXES 49,827 43,774
----------------------- ----------------
OTHER LIABILITIES 10,600 51,248
----------------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, $ .01 par value- Authorized, 60,000,000 shares; Issued,
17,400,082 shares in 1995
and 13,832,597 shares in 1994 174 138
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,996,683 shares in 1995 and 4,015,776 shares in 1994 40 40
Additional paid-in capital 219,894 113,348
Retained earnings 139,278 98,258
----------------------- ----------------
359,386 211,784
----------------------- ----------------
Less-Treasury stock-
Class A Common Stock, 1,186,655 shares in 1995
and 1,215,296 in 1994, at cost (5,297) (5,384)
Class B Convertible Common Stock, 625,725 shares in
1995 and 1994, at cost (2,207) (2,207)
----------------------- ----------------
(7,504) (7,591)
----------------------- ----------------
Total stockholders' equity 351,882 204,193
----------------------- ---------------
Total liabilities and stockholders' equity $ 785,921 $ 826,562
======================= ================
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended August 31,
----------------------
1995 1994 1993
---- ---- ----
(in thousands, except share data)
GROSS SALES $1,185,074 $861,059 $389,417
Less - Excise taxes (278,530) (231,475) (83,109)
----------- ---------- ----------
Net sales 906,544 629,584 306,308
COST OF PRODUCT SOLD (653,811) (447,211) (214,931)
----------- ---------- ----------
Gross profit 252,733 182,373 91,377
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (159,196) (121,388) (59,983)
NONRECURRING
RESTRUCTURING EXPENSES (2,238) (24,005) -
----------- ---------- ----------
Operating income 91,299 36,980 31,394
INTEREST INCOME 520 311 147
INTEREST EXPENSE (25,121) (18,367) (6,273)
----------- ---------- ----------
Income before provision for federal
and state income taxes 66,698 18,924 25,268
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (25,678) (7,191) (9,664)
----------- ---------- ----------
NET INCOME $ 41,020 $ 11,733 $ 15,604
=========== ========== ==========
SHARE DATA:
Net income per common and common equivalent share:
Primary $2.14 $.74 $1.30
=========== ========== ==========
Fully diluted $2.13 $.74 $1.20
=========== ========== ==========
Weighted average shares outstanding:
Primary 19,147,935 15,783,583 11,963,652
Fully diluted 19,296,269 16,401,598 15,203,114
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Class A Class B Additional
FOR THE YEARS ENDED Common Common Paid-In Retained Treasury
AUGUST 31, 1995, 1994 AND 1993 Stock Stock Capital Earnings Stock Total
- ------------------------------ ----- ----- ------- -------- ----- -----
(in thousands, except share data)
BALANCE, August 31, 1992 $ 96 $ 41 $ 32,338 $ 70,921 $ (7,847) $ 95,549
Conversion of 1,165 Class B Convertible
Common shares to Class A Common shares - - - - - -
Issuance of 1,000,000 Class A Common shares 10 - 13,584 - - 13,594
Conversion of 7% Convertible debentures to
Class A Common shares - - 976 - - 976
Employee stock purchase of 21,071 treasury
shares - - 266 - 64 330
Issuance of 4,104 treasury shares to stock
incentive plan - - 38 - 13 51
Net income for fiscal 1993 - - - 15,604 - 15,604
--------- -------- -------- ---------- -------- ------------
BALANCE, August 31, 1993 106 41 47,202 86,525 (7,770) 126,104
Conversion of 52,800 Class B Convertible
Common shares to Class A Common shares 1 (1) - - - -
Conversion of 7% Convertible debentures
to Class A Common shares 31 - 58,925 - - 58,956
To write-off unamortized deferred financing
costs on debentures converted, net of
amortization - - (1,569) - - (1,569)
To write-off interest accrued on debentures,
net of tax effect - - 850 - - 850
Employee stock purchase of 58,955 treasury
shares - - 878 - 179 1,057
To record exercise of 2,250 Class A stock
options - - 10 - - 10
To record 500,000 Class A stock options
related to the Vintners Acquisition - - 4,210 - - 4,210
To record 600,000 Class A stock options
related to the Almaden/Inglenook asset
purchase - - 2,842 - - 2,842
Net income for fiscal 1994 - - - 11,733 - 11,733
---------- ----------- ----------- ------------ ---------- --------------
BALANCE, August 31, 1994 138 40 113,348 98,258 (7,591) 204,193
Conversion of 19,093 Class B Convertible
Common shares to Class A Common shares - - - - - -
Issuance of 3,000,000 Class A Common shares 30 - 90,353 - - 90,383
Exercise of 432,067 Class A stock options
related to the Vintners Acquisition 5 - 13,013 - - 13,018
Employee stock purchase of 28,641 treasury
shares - - 546 - 87 633
To record exercise of 114,075 Class A stock
options 1 - 1,324 - - 1,325
To record tax benefit on stock options exercised - - 1,251 - - 1,251
To record tax benefit on disposition of
employee stock purchases - - 59 - - 59
Net income for fiscal 1995 - - - 41,020 - 41,020
----------- ----------- ----------- ------------ ---------- --------------
BALANCE, August 31, 1995 $ 174 $ 40 $ 219,894 $ 139,278 $ (7,504) $ 351,882
=========== =========== =========== ============ ========== ==============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31,
------------------------------
1995 1994 1993
---- ---- ----
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 41,020 $ 11,733 $ 15,604
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment 15,568 10,534 7,389
Amortization of intangible assets 5,144 3,281 1,286
Deferred tax provision (benefit) 19,232 (4,319) 1,028
Gain on sale of property, plant and equipment (33) -- (524)
Accrued interest on converted debentures, net of taxes -- 161 --
Restructuring charges - fixed asset write-down (2,050) 13,935 --
Change in assets and liabilities, net of effects from purchases of businesses:
Accounts receivable, net 7,392 (17,946) (5,761)
Inventories, net 41,528 784 8,966
Prepaid expenses (3,884) 1,703 (8,571)
Accounts payable (13,415) 2,680 (18,948)
Accrued federal and state excise taxes (1,025) 4,405 845
Other accrued expenses and liabilities (20,784) 4,023 6,687
Other (15,375) (3,795) 911
--------- --------- ---------
Net cash provided by operating activities 73,318 27,179 8,912
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 1,336 -- 1,337
Purchases of property, plant and equipment, net of minor disposals (37,121) (7,853) (6,949)
Payment of accrued earn-out amounts (28,300) (4,000) --
Purchases of businesses, net of cash acquired -- 3 8,710
Purchase of brands -- (5,100) --
--------- --------- ---------
Net cash (used in) provided by investing activities (64,085) (16,950) 3,098
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) of notes payable, short-term borrowings 50,100 (2,035) (9,835)
Principal payments of long-term debt (57,906) (6,856) (981)
Payment of fees for subordinated notes offering -- (4,624) --
Repayment of notes payable from proceeds of Term Loan (47,000) -- --
Proceeds of Term Loan, long-term debt 47,000 -- --
Repayment of notes payable from equity offering proceeds (22,100) -- --
Repayment of Term Loan from equity offering proceeds, long-term debt (82,000) -- --
Proceeds from employee stock purchases 633 1,056 330
Exercise of employee stock options 1,325 10 --
Proceeds from equity offering, net 103,400 -- --
Fractional shares paid for debenture conversions -- (3) --
--------- --------- ---------
Net cash used in financing activities (6,548) (12,452) (10,486)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 2,685 (2,223) 1,524
CASH AND CASH INVESTMENTS, beginning of year 1,495 3,718 2,194
--------- --------- ---------
CASH AND CASH INVESTMENTS, end of year $ 4,180 $ 1,495 $ 3,718
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the fiscal year for:
Interest $ 25,082 $ 14,727 $ 5,910
========= ========= =========
Income taxes $ 11,709 $ 15,751 $ 5,670
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired $ -- $ 428,442 $ 135,280
Liabilities assumed -- 153,827 52,851
--------- --------- ---------
Cash paid -- 274,615 82,429
Less - Amounts borrowed -- (276,860) (68,835)
Less - Issuance of Class A Common Stock -- -- (13,594)
Less - Issuance of Class A Common Stock options -- (7,052) --
Add - Receivable from Seller -- 9,297 --
--------- --------- ---------
Net cash paid for acquisitions $ -- $ -- $ --
========= ========= =========
Accrued Earn-Out Amounts $ 10,000 $ 28,300 $ 4,000
========= ========= =========
Issuance of Class A Common Stock for conversion of debentures $ -- $ 58,960 $ 976
========= ========= =========
Write-off of unamortized deferred financing costs on debentures $ -- $ 1,569 $ --
========= ========= =========
Write-off unpaid accrued interest on debentures through conversion date $ -- $ 1,371 $ --
========= ========= =========
Issuance of treasury shares to stock incentive plan $ -- $ -- $ 51
========= ========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of business-
Canandaigua Wine Company, Inc. and its subsidiaries (the Company) operates in
the beverage alcohol industry. The Company is a producer and supplier of wines,
an importer and producer of beers and distilled spirits and a producer and
supplier of grape juice concentrate in the United States. It maintains a
portfolio of over 125 national and regional brands of beverage alcohol which are
distributed by over 1,000 wholesalers throughout the United States and selected
international markets. Its beverage alcohol brands are marketed in five general
categories: table wines, sparkling wines, dessert wines, imported beer and
distilled spirits.
Principles of consolidation -
The consolidated financial statements of the Company include the accounts of
Canandaigua Wine Company, Inc. and its subsidiaries, all of which are
wholly-owned. All intercompany accounts and transactions have been eliminated.
Management's use of estimates and judgment -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
Cash investments -
Cash investments consist of money market funds that are stated at cost, which
approximates market value. These investments amounted to approximately
$2,462,000 and $10,000 at August 31, 1995 and 1994, respectively.
Fair Value of Financial Instruments -
To meet the reporting requirements of Statement of Financial Accounting
Standards No. 107 ("Disclosures About Fair Value of Financial Instruments"), the
Company calculates the fair value of financial instruments and includes this
additional information in the notes to the financial statements when the fair
value is different than the book value of those financial instruments. When the
fair value is equal to the book value, no additional disclosure is made. The
Company uses quoted market prices whenever available to calculate these fair
values. When quoted market prices are not available, the Company uses standard
pricing models for various types of financial instruments (such as forwards,
options, swaps, etc.) which take into account the present value of estimated
future cash flows.
Interest rate futures and currency forward contracts -
From time to time, the Company enters into interest rate futures and a variety
of currency forward contracts in the management of interest rate risk and
foreign currency transaction exposure. 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. Discounts or premiums on forward
contracts are recognized over the life of the contract.
Inventories -
Inventories are valued at the lower of cost (computed in accordance with the
last-in, first-out (LIFO) or first-in, first-out (FIFO) methods) or market. The
percentage of inventories valued using the LIFO method
is 94% and 95% at August 31, 1995 and August 31, 1994, respectively. Replacement
cost of the inventories determined on a FIFO basis is approximately
$240,895,000 and $289,209,000 at August 31, 1995 and 1994, respectively. At
August 31, 1995 and 1994, the net realizable value of the Company's inventories
was in excess of $256,811,000 and $301,053,000, respectively.
A substantial portion of barreled whiskey and brandy will not be sold within one
year because of the duration of the aging process. All barreled whiskey and
brandy are classified as in process inventories and are included in current
assets, in accordance with industry practice. The Company's bulk wine
inventories are also classified as in process inventories.
Warehousing, insurance, ad valorem taxes and other carrying charges applicable
to barreled whiskey and brandy held for aging are included in inventory costs.
Elements of cost include materials, labor and overhead and consist of the
following at August 31:
1995 1994
---- ----
(in thousands)
Raw materials and supplies $ 19,753 $ 34,545
Wines and distilled spirits in process 174,399 200,679
Finished case goods 62,659 65,829
-------------- --------------
$ 256,811 $ 301,053
============== ==============
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 and losses are included as a component of
operating income.
Depreciation -
Depreciation is computed primarily using the straight-line method over the
following estimated useful lives:
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.
Other assets -
Other assets, which consist of goodwill, distribution rights, agency license
agreements, trademarks, deferred financing costs, cash surrender value of
officers' life insurance and other amounts, are stated at cost, net of
accumulated amortization. Amortization is calculated on a straight-line or
effective interest basis over periods ranging from five to forty years. At
August 31, 1995, the weighted average of the remaining useful lives of these
assets was approximately thirty-five years. The face value of the officers' life
insurance policies totaled $2,852,000 in both 1995 and 1994.
Income taxes -
The Company uses the liability method of accounting for income taxes. The
liability method accounts for deferred income taxes by applying statutory rates
in effect at the balance sheet date to the difference between the financial
reporting and tax basis of assets and liabilities.
Environmental -
Environmental expenditures that relate to current operations are expensed 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 31, 1995 and 1994, liabilities for environmental costs totaled $550,000
and $100,000, respectively, and are recorded in other accrued liabilities.
Common stock -
The Company has two classes of common stock: Class A Common Stock and Class B
Convertible Common Stock. Class B Convertible Common Stock shares are
convertible into shares of Class A Common Stock on a one-to-one basis at any
time at the option of the holder. Holders of Class B Convertible Common Stock
are entitled to ten votes per share. Holders of Class A Common Stock are
entitled to only one vote per share but are entitled to a cash dividend premium.
If the Company pays a cash dividend on Class B Convertible Common Stock, each
share of Class A Common Stock will receive an amount at least ten percent
greater than the amount of the cash dividend per share paid on Class B
Convertible Common Stock. In addition, the Board of Directors may declare and
pay a dividend on Class A Common Stock without paying any dividend on Class B
Convertible Common Stock.
Net income per common and common equivalent share -
Primary net income per common and common equivalent share is based on the
weighted average number of common and common equivalent shares (stock options
determined under the treasury stock method) outstanding during the year for
Class A Common Stock and Class B Convertible Common Stock. Fully diluted
earnings per common and common equivalent share assumes the conversion of the 7%
convertible subordinated debentures under the "if converted method" and assumes
exercise of stock options using the treasury stock method.
Other -
Certain fiscal 1994 and 1993 balances have been reclassified to conform with
current year presentation.
2. ACQUISITIONS:
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 former
Barton stockholders (the Selling Stockholders), the Company acquired from the
Selling Stockholders all of the outstanding shares of the capital stock of
Barton (the Barton Acquisition), 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 7),
through $18,835,000 of revolving loans under the Company's Credit Agreement (see
Note 7) 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 were delivered to the Selling Stockholders and 571,429 were delivered
into escrow to secure the Selling Stockholders' indemnification obligations to
the Company. The 571,429 shares were released from escrow and delivered to the
Selling Stockholders in fiscal 1995.
The Earn-Out Amounts consist of four payments scheduled to be made over a three
year period ending November 29, 1996. The first payment of $4,000,000 was
required to be made to the Selling Stockholders upon satisfaction of certain
performance goals. These goals were satisfied and this payment was accrued at
August 31, 1993 and was made on December 31, 1993. The second payment of
$28,300,000 was accrued at August 31, 1994 and was made on December 30, 1994, as
a result of satisfaction of certain performance goals and achievement of targets
for earnings before interest and taxes at August 31, 1994. The third payment of
$10,000,000 has been accrued at August 31, 1995 and will be made to the Selling
Stockholders on November 30, 1995, as a result of the achievement of targets for
earnings before interest and taxes at August 31, 1995. The remaining payment of
up to $15,000,000 is contingent upon Barton achieving and exceeding certain
targets for earnings before interest and taxes and is to be made by November 29,
1996. Such payment obligations are secured by the Company's standby irrevocable
letter of credit (see Note 7) 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 Earn-Out Amounts have been and 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 and allocated based upon the fair market value of the underlying
assets.
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 $1,959,000 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 January 1995, Barton
paid approximately $840,000 to participants which included $403,000 relating to
the satisfaction of requirements for releasing stock from escrow and will pay
$403,000 on November 30, 1995. In the event the maximum payments are received
under the Stock Purchase Agreement, the participants will receive an additional
$1,296,000 in connection therewith. At August 31, 1995 and 1994, $581,000 and
$554,000, respectively, has been accrued under the Phantom Stock Plan.
The Barton 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 $62,390,000 and an additional deferred tax liability of
$29,321,000 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 Statements of Income since the date of the
acquisition.
Vintners -
On October 15, 1993, the Company acquired substantially all 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). 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 leased from Vintners the Hammondsport
winery in Hammondsport, New York. The lease was for a period of 18 months from
the date of the Vintners Acquisition. The lease expired during fiscal 1995.
The aggregate purchase price of $148,900,000 (the Cash Consideration) is
subject to adjustment based upon the determination of the Final Net Current
Asset Amount (as defined below). In addition, the Company incurred $8,961,000 of
direct acquisition and financing costs. The Company also delivered options to
Vintners and Household Commercial of California, Inc., one of Vintners' lenders,
to purchase an aggregate of 500,000 shares (the Vintners 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. On November 18,
1994, 432,067 of the Vintners Option Shares were exercised (see Note 10).
The Cash Consideration was funded by the Company pursuant to (i) approximately
$12,600,000 of Revolving Loans under the Credit Facility of which $11,200,000
funded the Cash Consideration and $1,400,000 funded the payment of direct
acquisition costs; (ii) an accrued liability of approximately $7,700,000 for the
holdback described below; and (iii) the $130,000,000 Subordinated Loan (see Note
7).
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 $2,800,000 of the Cash Consideration into an escrow
pending consent of both parties for its release. 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 August 31, 1995, 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 excess of the purchase price over the estimated fair market
value of the net assets acquired (goodwill), $44,151,000, is being amortized on
a straight-line basis over forty years. The results of operations of Vintners
have been included in the Consolidated Statements of Income since the date of
the acquisition.
Almaden/Inglenook -
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, Inc. (Heublein) (the Almaden/Inglenook Acquisition). 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.
The aggregate consideration for the acquired brands and other assets consisted
of $130,600,000 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 200,000 and 400,000 options have been
recorded at $5.83 and $4.19 per share, respectively, based upon an independent
appraisal, and $2,842,000 has been reflected as a component of additional
paid-in capital. 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 Note 7).
The cash purchase price was subject to adjustment based upon the determination
of the Final Net Asset Amount as defined in the Asset Purchase Agreement; and,
based upon the final closing statement delivered to the Company by Heublein, was
reduced by $9,297,000 which was paid to the Company in November 1994.
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 Almaden/Inglenook Acquisition was accounted for using the purchase method;
accordingly, the Almaden/Inglenook assets were recorded at fair market value at
the date of acquisition. During fiscal 1995, the Company terminated certain of
its long-term grape contracts acquired in connection with the Almaden/Inglenook
Acquisition. As a result, the estimated loss reserve at the date of acquisition
was reduced by approximately $23,751,000, with a corresponding reduction in
goodwill (see Note 11). The excess of purchase price over the estimated fair
market value of the net assets acquired (goodwill), $24,028,000, is being
amortized on a straight-line basis over forty years. The results of operations
of Almaden/Inglenook have been included in the Consolidated Statements of Income
since the date of the acquisition.
The following table sets forth the audited results of operations of the Company
for the year ended August 31, 1995 as compared to the unaudited pro forma
results of operations of the Company for the year ended August 31, 1994. The
fiscal 1994 unaudited pro forma results of operations gives effect to the
Almaden/Inglenook Acquisition and the Vintners Acquisition as if they occurred
on September 1, 1993. The unaudited pro forma results of operations is 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 is 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 does not purport to represent what the Company's results of
operations would actually have been if the aforementioned transactions in fact
had occurred on such date or to project the Company's financial position or
results of operations at any future date or for any future period.
For the Years Ended
-------------------
August 31, 1995 August 31, 1994
--------------- ---------------
(Actual) (Pro Forma)
(audited) (unaudited)
(in thousands, except share data)
Net sales $ 906,544 $ 876,359
Income from continuing operations $ 66,698 $ 23,949
Net income $ 41,020 $ 14,280
Share data:
Net income per common share:
Primary $2.14 $.90
Fully diluted $2.13 $.90
Weighted average shares outstanding:
Primary 19,147,935 15,783,583
Fully diluted 19,296,269 16,401,598
3. PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows at August
31:
1995 1994
---- ----
(in thousands)
Land $ 15,257 $ 13,814
Buildings and improvements 65,084 62,440
Machinery and equipment 197,266 168,222
Motor vehicles 5,204 2,552
Construction in progress 12,171 8,989
-------------------- --------------------
294,982 256,017
Less - Accumulated depreciation (77,477) (61,734)
-------------------- --------------------
$ 217,505 $ 194,283
==================== ====================
4. OTHER ASSETS:
The major components of other assets are as follows at August 31:
1995 1994
---- ----
(in thousands)
Goodwill $ 70,141 $ 88,459
Distribution rights, agency license
agreements and trademarks 83,536 72,970
Other 23,187 22,296
----------------- ---------------------
176,864 183,725
Less - Accumulated amortization (9,957) (5,495)
----------------- ---------------------
$ 166,907 $ 178,230
================= =====================
5. OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows at August 31:
1995 1994
---- ----
(in thousands)
Accrued Earn-Out Amounts $ 10,000 $ 28,300
Accrued loss on noncancelable grape contracts 10,862 14,410
Other 47,034 53,351
----------------- ------------------
$ 67,896 $ 96,061
================= ==================
6. OTHER LIABILITIES:
The major components of other liabilities are as follows at August 31:
1995 1994
---- ----
(in thousands)
Accrued loss on noncancelable grape contracts $ 7,374 $ 48,254
Other 3,226 2,994
------------------ ------------------
$ 10,600 $ 51,248
================== ==================
7. BORROWINGS:
Borrowings consist of the following at August 31:
1995 1994
-------------------------------- --------
Current Long-term Total Total
------- --------- --------- ---------
Notes Payable: (in thousands)
- -------------
Senior Credit Facility:
Revolving Credit Loans $ -- $ -- $ -- $ 19,000
========= ========= ========= =========
Long-term Debt:
- --------------
Senior Credit Facility:
Term loan, variable rate, original proceeds $224,000, due
in installments through September 1998 $ 28,000 $ 63,000 $ 91,000 $ 177,000
Senior Subordinated Notes:
8.75% redeemable after December 15, 1998, due 2003 -- 130,000 130,000 130,000
Capitalized Lease Agreements:
Capitalized facility and equipment leases at interest rates ranging from 8.9%
to 11.5%, due in monthly installments
through fiscal 1997 695 643 1,338 2,292
Industrial Development Agencies:
7.50% 1980 issue, original proceeds $2,370, due in annual
installments of $118 through fiscal 1999 118 474 592 592
Other Long-term Debt:
Loans payable - 5% secured by cash surrender value of
officers' life insurance policies -- 967 967 967
Notes payable at prime, due September 1996 -- 3,775 3,775 8,632
Promissory note at prime rate, due in equal yearly
installments through fiscal 1996 320 -- 320 640
--------- --------- --------- ---------
$ 29,133 $ 198,859 $ 227,992 $ 320,123
========= ========= ========= =========
Senior credit facility -
The Company and a syndicate of 20 banks (the Syndicate Banks) for which The
Chase Manhattan Bank, N.A. acts as agent, entered into a Second Amendment and
Restatement (as amended) dated as of August 5,
1994 of Amendment and Restatement of Credit Agreement dated June 29, 1993 (the
Credit Facility). At August 31, 1995, the Credit Facility provides for (i) a
$91,000,000 Term Loan (the Term Loan) facility due in September 1998, (ii) a
$185,000,000 Revolving Credit (the Revolving Credit Loans) facility, which
expires in June 2000 and (iii) a $25,000,000 Letter of Credit (Barton Letter of
Credit) facility related to the stockholder contingent payments incurred with
the Barton Acquisition. The Company had outstanding Term Loan borrowings of
$91,000,000 and $177,000,000 at August 31, 1995 and August 31, 1994,
respectively. At August 31, 1995, the interest rate on the Term Loan was 6.6%.
All Revolving Credit Loans were repaid as of August 31, 1995, and the Company
had $19,000,000 of borrowings under this facility at August 31, 1994. During
fiscal 1995, the Company borrowed an additional $47,000,000 on the Term Loan and
used the proceeds to repay a portion of the outstanding balance on the Revolving
Credit Loans. In addition, the Company prepaid $82,000,000 of the Term Loan from
the proceeds of the Stock Offering (see Note 10). The Term Loans borrowed under
the Credit Facility may be either base rate loans or Eurodollar 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 a margin of 1.00% and 1.25% at August 31, 1995 and August
31, 1994, respectively. The interest rate margin for Eurodollar rate loans may
be increased by up to 0.5% and decreased by up to 0.125%, depending on the
Company's debt coverage ratio (as defined by the Credit Facility) and long-term
senior secured securities' ratings. The principal of the Term Loan is to be
repaid in thirteen quarterly installments of $7,000,000. The Company may prepay
the principal of the Term Loan and the Revolving Credit Loans at its discretion
and must prepay the principal with 65% of its annual excess cash flow, as
defined in the Credit Facility, with proceeds from the sale of certain assets in
excess of $10,000,000 and the first $60,000,000 of the net proceeds from any
issuance of equity plus 50% of any net proceeds in excess of $60,000,000 (see
Note 10). These prepayments must be first applied against regular payments due
with respect to the Term Loans in their inverse order of maturity until the Term
Loans are fully retired and any further prepayments will be applied to reduce
the outstanding Revolving Credit Loans.
The $185,000,000 Revolving Credit Loans available under the Credit Facility may
be utilized by the Company either in the form of Revolving Credit Loans or as
revolving letters of credit up to a maximum of $12,000,000. At August 31, 1995
and 1994, the Company had available to be drawn Revolving Credit Loans of
$172,461,000 and $163,753,000, respectively. As with Term Loans, Revolving
Credit Loans may be either base rate loans or Eurodollar rate loans. For 30
consecutive days at any time during the last two quarters of each fiscal year,
the aggregate outstanding principal amount of Revolving Credit Loans combined
with revolving letters of credit cannot exceed $50,000,000.
The Syndicate Banks have been given security interests in substantially all of
the assets of the Company including mortgage liens on certain real property. The
Credit Facility requires the Company to meet certain covenants and provides for
restrictions on mergers, consolidations and sales of assets, payment of
dividends, incurring of other debt, liens or guarantees and the making of
investments. The primary financial covenants as defined in the Credit Facility
require the maintenance of minimum defined tangible net worth, a debt to cash
flow coverage ratio, a fixed charges ratio, maximum capital expenditures,
interest coverage ratio and current ratio minimums. Among the most restrictive
covenants contained in the Credit Facility is a requirement to maintain a fixed
charges ratio of not less than 1.0 at the last day of each fiscal quarter.
The Revolving Credit Loans require commitment fees totaling .375% per annum on
the daily average unused balance. Commitment fees totaled approximately
$635,000, $223,000 and $228,000 in fiscal 1995, 1994 and 1993, respectively.
At August 31, 1995, the Company maintains in accordance with the Senior Credit
Facility an interest rate cap agreement, in an amount equal to $68,000,000,
which protects the Company against three-month London Interbank Offered Rates
exceeding 8.75% per annum and expires in September 1996.
Senior subordinated notes -
During fiscal 1994, the Company borrowed $130,000,000 under a senior
subordinated loan agreement (the Subordinated Loan). The Company repaid the
Subordinated Loan in December 1993 from the proceeds from the $130,000,000
Senior Subordinated Notes (the Notes) offering together with revolving loan
borrowings. The Notes are due in 2003 with 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 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 all of the Company's
significant operating subsidiaries.
The Trust 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.
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 were 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.
During fiscal 1993, an aggregate principal amount of $976,000 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 had until November 19, 1993 to convert their debentures to
common stock; any debentures remaining unconverted after that date would 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 debenture holders upon conversion. Accrued interest of approximately
$1,370,000, net of the related tax effect of $520,000, 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 the leases and the
related facilities. These transactions have been treated as capital leases with
the related assets acquired to date of $10,731,000 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, 1995 and
1994 is approximately $9,109,000 and $8,456,000, 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.
Debt payments -
Principal payments required under long-term debt obligations during the next
five fiscal years are as follows:
Year Ending August 31:
-----------------------
(in thousands)
1996 $ 29,132
1997 32,536
1998 28,119
1999 7,119
2000 119
Thereafter 130,967
------------------
$ 227,992
==================
8. INCOME TAXES:
Deferred income taxes are provided to reflect the effect of temporary
differences primarily related to: (i) using FIFO basis to value certain
inventories for income tax purposes and the LIFO basis for financial reporting
purposes; (ii) the use of accelerated depreciation methods for income tax
purposes and the straight-line method for financial reporting purposes; (iii)
differences in the treatment of advertising expense and other accruals for
financial reporting and income tax purposes; and (iv) differences between the
financial reporting and tax basis of assets and liabilities.
The provision for federal and state income taxes consists of the following for
the years ended August 31:
1995
--------------------------------------------
(in thousands)
State &
Federal Local Total 1994 1993
------- ----- ----- ---- ----
Current income tax provision $ 4,619 $ 1,827 $ 6,446 $ 11,510 $ 8,636
Deferred income tax provision (benefit) 17,375 1,857 19,232 (4,319) 1,028
------ ----- ------ ------ -----
$ 21,994 $ 3,684 $ 25,678 $ 7,191 $ 9,664
====== ===== ====== ===== =====
The components of the deferred income tax (benefit) provision are as follows for
the years ended August 31:
1995 1994 1993
---- ---- ----
(in thousands)
Accelerated tax depreciation and amortization $ 10,089 $ 4,610 $ 758
LIFO reserve 1,871 1,306 (202)
Prepaid advertising 792 258 701
Inventory 5,163 (2,186) (249)
Restructuring costs 3,144 (8,843) -
Other accruals (1,827) 536 20
------------- ------------ -----------
$ 19,232 $ (4,319) $ 1,028
============= ============ ===========
The deferred tax provision has been increased by approximately $45,000 and
$235,000 in fiscal 1994 and 1993, respectively, for the impact of the change in
the federal statutory rate.
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:
1995 1994 1993
--------------------------- --------------------------- --------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------------- ------------- ------------- ------------ ----------- -------
(in thousands)
Computed "expected" tax provision $ 23,344 35.0 % $ 6,623 35.0 % $ 8,758 34.7 %
State and local income taxes, net of
federal income tax benefit 2,395 3.6 644 3.4 870 3.4
Miscellaneous items, net (61) (0.1) (76) (0.4) 36 0.1
-------- --- -------- --- -------- ---
$ 25,678 38.5 % $ 7,191 38.0 % $ 9,664 38.2 %
======== ==== ======== ==== ======== ====
Deferred tax liabilities (assets) are comprised of the following at August 31:
1995 1994
---- ----
(in thousands)
Depreciation & amortization $ 55,015 $ 40,152
LIFO reserve 4,644 2,672
Prepaid advertising 3,107 2,281
Restructuring costs (6,133) (9,482)
Inventory 1,718 (3,734)
Other accruals (5,027) 2,511
-------------- -------------
$ 53,324 $ 34,400
============== =============
9. PROFIT SHARING RETIREMENT PLANS AND RETIREMENT SAVINGS PLAN:
The Company's profit sharing retirement plans, which cover substantially all
employees, provide for contributions by the Company in such amounts as the Board
of Directors may annually determine and for voluntary contributions by
employees. The plans have qualified as tax-exempt under the Internal Revenue
Code and conform with the Employee Retirement Income Security Act of 1974.
Company contributions to the plans, including the Barton plan described below,
were $3,830,000, $3,414,000, and $1,290,000 in fiscal 1995, 1994 and 1993,
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 pretax 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 $281,000, $207,000, and $131,000
in fiscal 1995, 1994 and 1993, respectively.
In connection with the Barton Acquisition, the Company assumed Barton's profit
sharing plan which covers all salaried employees of Barton. The amount of
Barton's contribution is at the discretion of its Board of Directors, subject to
limitations of the plan. Contribution expense was $1,430,000 in fiscal 1995,
$1,395,000 in fiscal 1994 and $230,000 from the date of acquisition to August
31, 1993.
10. STOCKHOLDERS' EQUITY:
Stock option and stock appreciation right plan -
Canandaigua Wine Company, Inc. has in place a Stock Option and Stock
Appreciation Right Plan (the Plan). Under the Plan, non-qualified stock options
and incentive stock options may be granted to purchase and stock appreciation
rights may be granted with respect to, in the aggregate, not more than 3,000,000
shares of the Company's Class A Common Stock. Options and stock appreciation
rights may be issued to employees, officers, or directors of the Company.
Non-employee directors are eligible to receive only non-qualified stock options
and stock appreciation rights. The option price of any incentive stock option
may not be less than the fair market value of the shares on the date of grant.
The exercise price of any non-qualified stock option must equal or exceed 50% of
the fair market value of the shares on the date of grant. Options are
exercisable as determined by the Compensation Committee of the Board of
Directors. Changes in the status of the Plan during fiscal 1995, 1994 and 1993
are summarized as follows:
1995 1994 1993
---- ---- ----
Options outstanding at beginning of year 563,500 452,375 154,125
Options granted 289,000 125,000 316,750
Options exercised (114,075) (2,250) -
Options forfeited (4,500) (11,625) (18,500)
------ ------- -------
Options outstanding at end of year 733,925 563,500 452,375
======= ======= =======
Number of options at end of year:
Exercisable 39,675 2,250 -
Available for grant 2,070,125 2,359,125 1,484,125
Price range of options:
Granted during year $33.25-44.75 $22.25-30.25 $11.50- 18.375
Outstanding at end of year $ 4.44-44.75 $ 4.44-30.25 $ 4.44-18.375
Exercised during the year $ 4.44-24.25 $4.44 -
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 1995, 1994 and 1993, employees purchased 28,641 shares, 58,955
shares and 21,071 shares, respectively.
Common stock -
At August 31, 1995, there were 16,213,427 shares of Class A Common Stock and
3,370,958 shares of Class B Convertible Common Stock outstanding, net of
treasury stock.
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.
Stock offering -
During November 1994, the Company completed a public offering and sold 3,000,000
shares of its Class A Common Stock (the Stock Offering), resulting in net
proceeds to the Company of approximately $95,515,000 after underwriters'
discounts and commissions and expenses. In connection with the offering, 432,067
of the Vintners Option Shares were exercised and the Company received proceeds
of $7,885,000. Under the terms of the amended Credit Agreement, approximately
$82,000,000 was used to repay a portion of the Term Loan under the Company's
Credit Facility. The balance of net proceeds was used to repay Revolving Credit
Loans under the Credit Facility.
11. COMMITMENTS AND CONTINGENCIES:
Operating leases -
Future payments under noncancelable operating leases having initial or remaining
terms of one year or more are as follows:
Year Ending August 31:
---------------------
(in thousands)
1996 $ 1,103
1997 1,078
1998 900
1999 755
2000 694
Thereafter 2,934
--------
$ 7,464
========
Rental expense was approximately $4,193,000 in fiscal 1995, $3,318,000 in fiscal
1994 and $1,841,000 in fiscal 1993.
Purchase commitments and contingencies -
The Company has three agreements with certain suppliers to purchase blended
Scotch whisky through December 31, 1999. The purchase prices under the
agreements are denominated in British pounds sterling and based upon exchange
rates at August 31, 1995, the Company's aggregate future obligation will be
approximately $696,000 to $873,000 for the contract expiring on December 31,
1995 and approximately $12,417,000 to $15,607,000 for the contracts expiring
through December 31, 1999.
The Company has an agreement to purchase Canadian blended whisky through
February 1997 at a purchase price of approximately $4,344,000. The Company also
has an agreement to purchase Canadian new distillation whisky (including dumping
charges) of approximately $8,434,000 through December 31, 2002.
All of the Company's imported beer products are marketed and sold pursuant
to exclusive distribution agreements from the suppliers of these products. The
agreements have terms that vary and require compliance with certain terms and
conditions. 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. The remaining agreements expire
through the year 2003. Prior to their expiration, these agreements may be
terminated if the Company fails to meet certain performance criteria. At August
31, 1995, the Company believes it is in compliance with its agreement to
distribute Corona and its other Mexican beer brands. The Company has failed, and
may in the future fail, to satisfy certain performance criteria in its
distribution agreements. However, given the Company's long-term relationships
with its suppliers, the Company does not believe that these agreements will be
terminated for such reasons.
In connection with the Vintners Acquisition and the Almaden/Inglenook
Acquisition, the Company assumed purchase 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 ten years. The actual tonnage and price of grapes
that must be purchased by the Company will vary each year depending on certain
factors, including weather, time of harvest, overall market conditions and the
agricultural practices and location of the growers and suppliers under contract.
The Company purchased $88,100,000 and $25,167,000 of grapes under these
contracts during fiscal 1995 and fiscal 1994, respectively. Based on current
production yields and published grape prices, the Company estimates that the
aggregate purchases under these contracts over the remaining term of the
contracts will be approximately $457,500,000. During fiscal 1994, in connection
with the Vintners Acquisition and the Almaden/Inglenook Acquisition, the Company
established a reserve for the estimated loss on these firm purchase commitments
of approximately $62,664,000. During fiscal 1995, the reserve was used to reduce
current grape purchases to market value and to reflect termination payments to
cancel contracts with certain growers and adjustments to goodwill. The remaining
reserve for the estimated loss on the remaining contracts is approximately
$18,236,000 at August 31, 1995.
The Company's aggregate obligations under grape crush and processing contracts
will be approximately $8,028,000 over the remaining term of the contracts which
expire through fiscal 1997.
Currency forward contracts -
At August 31, 1994, the Company has open currency forward contracts to purchase
German marks of $6,674,000 and British pounds of $579,000, both of which matured
within 12 months; their fair market values, based upon August 31, 1994 market
exchange rates, were $7,382,000 and $614,000, respectively. At August 31, 1995
there were no currency forward contracts outstanding.
Employment contracts -
The Company has employment contracts with certain of its executive officers and
certain other management personnel with remaining terms ranging up to five
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 compensation and severance, excluding incentive bonuses,
was approximately $5,493,000 as of August 31, 1995, of which approximately
$2,468,000 is accrued in other liabilities as of August 31, 1995.
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.
12. 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. Gross sales to the five largest wholesalers of the
Company represented 21.6%, 23.7% and 25.1% of the Company's gross sales for the
fiscal years ended August 31, 1995, 1994 and 1993, respectively. Gross sales to
the Company's largest wholesaler represented 10.6% and 12.3% of the Company's
gross sales for the fiscal years ended August 31, 1995 and 1994; no single
wholesaler was responsible for greater than 10% of gross sales during the fiscal
year ended August 31, 1993. Gross 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.
13. RESTRUCTURING PLAN:
The Company provided for costs to restructure the operations of its California
wineries (the Restructuring Plan) in the fourth quarter of fiscal 1994. Under
the Restructuring Plan, all bottling operations at the Central Cellars winery in
Lodi, California and substantially all of the branded wine bottling operations
at the Monterey Cellars winery in Gonzales, California were moved to the Mission
Bell winery located in Madera, California. The Monterey Cellars winery will
continue to be used as a crushing, winemaking and contract bottling facility.
The Central Cellars winery was closed in the fourth quarter of fiscal 1995 and
is expected to be sold. In fiscal 1994, the Restructuring Plan reduced income
before taxes and net income by approximately $24,005,000 and $14,883,000,
respectively, or $.91 per share on a fully diluted basis. Of the total pretax
charge in fiscal 1994, approximately $16,481,000 was to recognize estimated
losses associated with the revaluation of land, buildings and equipment related
to facilities described above, to their estimated net realizable value; and
approximately $7,524,000 relates to severance and other benefits associated with
the elimination of 260 jobs. In fiscal 1995, the Restructuring Plan reduced
income before income taxes and net income by approximately $2,238,000 and
$1,376,000, respectively, or $.07 per share on a fully diluted basis. Of this
total pretax charge in fiscal 1995, $4,288,000 relates to equipment relocation
and employee hiring and relocation costs, offset by a decrease of $2,050,000 in
the valuation reserve as compared to the prior year, primarily related to the
land, buildings and equipment at the Central Cellars winery. This decrease in
the valuation reserve was based upon a bona fide purchase offer which was
accepted by the Company subsequent to year-end. The Company expended
approximately $19,071,000 in fiscal 1995 for capital expenditures to expand
storage capacity and install certain relocated equipment. As of August 31, 1995,
employment has been reduced by 161 jobs. As of August 31, 1995 and 1994, the
Company had accrued approximately $4,251,000 and $9,106,000, respectively,
relating to the Restructuring Plan.
14. ACCOUNTING PRONOUNCEMENTS:
In March 1995, Statement of Financial Accountings Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of," was issued. This statement requires companies to
review long-lived assets, including certain intangibles and goodwill, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company will be required
to adopt SFAS No. 121 in fiscal 1997. The Company believes the effect of
adoption will not be material.
In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Stock-Based Compensation," was issued. This statement encourages
companies to use the fair value based method to measure compensation cost, which
is then recognized over the service period (usually the vesting period).
Companies which continue to measure compensation cost using the intrinsic value
method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees," will be required to disclose pro forma net income and, if presented,
earnings per share as if the fair value based method had been applied. The
Company will be required to adopt SFAS No. 123 on a prospective basis beginning
in fiscal 1997. The Company believes that adoption of this statement could have
a material impact but such impact is dependent upon future stock option
activity.
15. SUBSEQUENT EVENT:
UDG Acquisition -
On September 1, 1995, the Company through its wholly-owned subsidiary, Barton
Incorporated, acquired certain of the assets of United Distillers Glenmore, Inc.
and certain of its North American affiliates (collectively, UDG) (the UDG
Acquisition). The acquisition was made pursuant to an Asset Purchase Agreement
dated August 29, 1995 (the Purchase Agreement) entered into between Barton and
UDG. The acquisition included Skol, Mr. Boston, Canadian LTD, Old Thompson,
Kentucky Tavern, Glenmore and di Amore distilled spirits brands; rights to the
Fleischmann's and Chi Chi's distilled spirits brands under long term license
agreements; the U.S. rights to Inver House, Schenley and El Toro distilled
spirits brands; and related inventories and other assets. The acquisition also
included two of UDG's production facilities; one located in Owensboro, Kentucky
and the other located in Albany, Georgia (the Plants). In addition, pursuant to
the Purchase Agreement, the parties entered into multiyear agreements under
which Barton will (i) purchase various bulk distilled spirits brands from UDG
and (ii) provide packaging services for certain of UDG's distilled spirits
brands as well as warehousing services.
The consideration for the acquisition consisted of cash of approximately
$144,300,000 (the Closing Amount) which represented the estimated book value of
the plants, manufacturing equipment, prepaid expenses and inventory (the
Tangibles) and the consideration for the brands. The cash purchase price was
reduced by approximately $3,289,000 based upon a subsequent adjustment to the
Closing Amount (the Amended Closing Amount). The Purchase Agreement provides for
a Closing Adjustment to the Amended Closing Amount, which Closing Adjustment
will be paid by Barton or UDG as appropriate.
The following table sets forth the unaudited pro forma consolidated results of
operations of the Company for the year ended August 31, 1995 after giving effect
to the UDG Acquisition as if it had occurred on September 1, 1994. The unaudited
pro forma consolidated 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 pro
forma consolidated results of operations are based upon currently available
information and upon certain assumptions that the Company believes reasonable
under the circumstances. The pro forma consolidated results of operations 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 the results of operations at any
future date or for any future period.
For the Year Ended
August 31, 1995
(in thousands, except share and per share data)
Net sales $ 998,679
Income from continuing operations $ 107,129
Net income $ 45,793
Share and per share data:
Net income per common share:
Primary $ 2.39
Fully diluted $ 2.37
Weighted average shares outstanding:
Primary 19,147,935
Fully diluted 19,296,269
Amended credit agreement -
In connection with the UDG Acquisition, the Company amended its Credit Facility
(the Amended Credit Facility) effective September 1, 1995. The Amended Credit
Facility provides for (i) a $246,000,000 Term Loan facility which expires August
2001; (ii) a $185,000,000 Revolving Credit facility which expires June 2001; and
(iii) the previously existing $25,000,000 irrevocable Barton Letter of Credit
related to the contingent payments incurred with the Barton Acquisition. The
Company borrowed an additional $155,000,000 on September 1, 1995 on the Term
Loan facility and used the proceeds in connection with the UDG Acquisition.
The Amended Credit Facility includes the following changes: (i) the margin on
Eurodollar rate loans changed to 0.75% and may be decreased by up to 0.25% or
increased by up to 0.5%, depending on the Company's debt coverage ratio; (ii)
the Term Loan is to be repaid in twenty-three quarterly installments of
$10,000,000 each beginning December 15, 1995, with a final quarterly payment of
$16,000,000; and (iii) certain fees, covenants and restrictions have been
eliminated or reflect more favorable terms including lower commitment fees,
elimination of restrictions on capital expenditures and reduced restrictions on
investments and the sale of assets. In addition, the amended Revolving Credit
facility under the Amended Credit Facility provides for money market loans in
addition to the base rate and Eurodollar loan options. The interest rate on
money market loans is determined through a competitive bidding process among the
Syndicate Banks.
Legal matters -
In November 1995, the Company and certain of its officers were named as
defendants in two separate complaints filed by certain shareholders who claim to
represent a class of shareholders alleging that the defendants violated the
federal securities laws. The complaints allege that the Company's public
documents and statements were materially incomplete and as a result misleading
and that the class members purchased the Company's common stock at artificially
inflated prices in reliance thereon and were thereby damaged. The Company
believes that the litigation is without merit and intends to defend it
vigorously. This litigation has just been commenced and the amount of alleged
damages, if any, cannot be quantified, nor can the outcome of this litigation be
predicted. Accordingly, management cannot determine whether the ultimate
resolution of this litigation could have a material adverse effect on the
Company's financial position and results of operations.
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(In thousands, except per share data)
QUARTER ENDED 11/30/94 2/28/95 5/31/95 8/31/95 YEAR
Net sales $243,542 $210,943 $222,770 $229,289 $906,544
Gross profit 69,160 57,631 63,262 62,680 252,733
Net income 10,332 9,988 10,637 10,063 41,020
Earnings per share:
Primary .61 .50 .53 .50 2.14
Fully diluted .61 .50 .53 .50 2.13
QUARTER ENDED 11/30/93 2/28/94 5/31/94 8/31/94 YEAR
Net sales $154,485 $140,031 $154,223 $180,845 $629,584
Gross profit 44,655 41,668 42,775 53,275 182,373
Net income 5,653 5,741 6,655 (6,316) 11,733
Earnings per share:
Primary .40 .35 .41 (.39) .74
Fully diluted .37 .35 .41 (.38) .74
QUARTER ENDED 11/30/92 2/28/93 5/31/93 8/31/93 YEAR
Net sales $71,109 $58,782 $60,495 $115,922 $306,308
Gross profit 21,537 17,693 18,411 33,737 91,378
Net income 3,604 2,952 3,391 5,657 15,604
Earnings per share:
Primary .31 .25 .29 .45 1.30
Fully diluted .28 .24 .27 .41 1.20
The accompanying notes to consolidated financial statements are an integral
part of this schedule.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item (except for the information regarding
executive officers required by Item 401 of Regulation S-K which is included in
Part I hereof in accordance with General Instruction G(3)) is incorporated
herein by reference to the Company's proxy statement to be issued in connection
with the Annual Meeting of Stockholders of the Company to be held on January 18,
1996 under the heading "Nomination and Election of Directors," which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on January 18, 1996, under the
heading "Executive Compensation," which proxy statement will be filed within 120
days after the end of the Company's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on January 18, 1996, under the
headings "Beneficial Ownership" and "Nomination and Election of Directors,"
which proxy statement will be filed within 120 days after the end of the
Company's fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on January 18, 1996, under the
heading "Executive Compensation," which proxy statement will be filed within 120
days after the end of the Company's fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company
are submitted herewith: Report of Independent Public Accountants
Consolidated Balance Sheets - August 31, 1995, 1994 and 1993
Consolidated Statements of Income for the years ended
August 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for
the years ended August 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
August 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial information is submitted
herewith:
Selected Financial Data -- Five-Year Summary
Selected Quarterly Financial Information (Unaudited)
All other schedules are not submitted because they are not applicable or not
required under Regulation S-X or because the required information is included in
the financial statements or notes thereto.
Individual financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company and no subsidiary included in the
consolidated financial statements has minority
equity interests and/or non-current indebtedness, not guaranteed by the
Registrant, in excess of 5% of total consolidated assets.
3. Exhibits required to be filed by Item 601 of Regulation S-K
The following exhibits are filed herewith or incorporated
herein by reference, as indicated:
2.1 Asset Purchase Agreement dated August 2, 1991 between the
Registrant and Guild Wineries and Distilleries, as assigned to an acquiring
subsidiary (filed as Exhibit 2(a) to the Registrant's Report on Form 8-K dated
October 1, 1991 and incorporated herein by reference).
2.2 Stock Purchase Agreement dated April 27, 1993 among the
Registrant, Barton Incorporated and the stockholders of Barton Incorporated,
Amendment No. 1 to Stock Purchase Agreement dated May 3, 1993, and Amendment No.
2 to Stock Purchase Agreement dated June 29, 1993 (filed as Exhibit 2(a) to the
Registrant's Current Report on Form 8-K dated June 29, 1993 and incorporated
herein by reference).
2.3 Asset Sale Agreement dated September 14, 1993 between the
Registrant and Vintners International Company, Inc. (filed as Exhibit 2(a) to
the Registrant's Current Report on Form 8-K dated October 15, 1993 and
incorporated herein by reference).
2.4 Amendment dated as of October 14, 1993 to Asset Sale
Agreement dated as of September 14, 1993 by and between Vintners International
Company, Inc. and the Registrant (filed as Exhibit 2(b) to the Registrant's
Current Report on Form 8-K dated October 15, 1993 and incorporated herein by
reference).
2.5 Amendment No. 2 dated as of January 18, 1994 to Asset Sale
Agreement dated as of September 14, 1993 by and between Vintners International
Company, Inc. and the Registrant (filed as Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1994 and
incorporated herein by reference).
2.6 Asset Purchase Agreement dated August 3, 1994 between the
Registrant and Heublein, Inc. (filed as Exhibit 2(a) to the Registrant's Current
Report on Form 8-K dated August 5, 1994 and incorporated herein by reference).
2.7 Amendment dated November 8, 1994 to Asset Purchase
Agreement between Heublein, Inc. and Registrant (filed as Exhibit 2.2 to the
Registrant's Registration Statement on Form S-3 (Amendment No. 2) (Registration
No. 33-55997) filed with the Securities and Exchange Commission on November 8,
1994 and incorporated herein by reference).
2.8 Amendment dated November 18, 1994 to Asset Purchase
Agreement between Heublein, Inc. and the Registrant (filed as Exhibit 2.8 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended August 31,
1994 and incorporated herein by reference).
2.9 Asset Purchase Agreement among Barton Incorporated (a
wholly-owned subsidiary of the Registrant), United Distillers Glenmore, Inc.,
Schenley Industries Inc., Medley Distilling Company, United Distillers
Manufacturing, Inc., and The Viking Distillery, Inc., dated August 29, 1995
(filed as Exhibit 2(a) to the Registrant's Current Report on Form 8-K, dated
August 29, 1995 and incorporated herein by reference).
3.1 Restated Certificate of Incorporation of the Company
(filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1993 and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (filed as
Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 (Registration
No. 33-56557) and incorporated herein by reference).
4.1 Specimen of Certificate of Class A Common Stock of the
Company (filed as Exhibit 1.1 to the Registrant's Registration Statement on Form
8-A dated April 28, 1992 and incorporated herein by reference).
4.2 Specimen of Certificate of Class B Common Stock of the
Company (filed as Exhibit 1.2 to the Registrant's Registration Statement on Form
8-A dated April 28, 1992 and incorporated herein by reference).
4.3 Indenture dated as of December 27, 1993 among the
Registrant, its Subsidiaries and Chemical Bank (filed as Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended November
30, 1993 and incorporated herein by reference).
4.4 First Supplemental Indenture dated as of August 3, 1994
among the Registrant, Canandaigua West, Inc. and Chemical Bank (filed as Exhibit
4.5 to the Registrant's Registration Statement on Form S-8 (Registration No.
33-56557) and incorporated herein by reference).
4.5 Second Supplemental Indenture dated August 25, 1995,
among the Registrant, V Acquisition Corp. (a Subsidiary of the Registrant now
known as The Viking Distillery, Inc.) and Chemical Bank (filed herewith).
10.1 The Canandaigua Wine Company, Inc. Stock Option and Stock
Appreciation Right Plan (filed as Appendix B of the Company's Definitive Proxy
Statement dated December 23, 1987 and incorporated herein by reference).
10.2 Amendment No. 1 to the Canandaigua Wine Company, Inc.
Stock Option and Stock Appreciation Right Plan (filed as Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1992
and incorporated herein by reference).
10.3 Amendment No. 2 to the Canandaigua Wine Company, Inc.
Stock Option and Stock Appreciation Right Plan (filed as Exhibit 28 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended November
30, 1992 and incorporated herein by reference).
10.4 Amendment No. 3 to the Canandaigua Wine Company, Inc.
Stock Option and Stock Appreciation Right Plan (filed as Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended August 31,
1993 and incorporated herein by reference).
10.5 Amendment No. 4 to the Canandaigua Wine Company, Inc.
Stock Option and Stock Appreciation Right Plan (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended November
30, 1993 and incorporated herein by reference).
10.6 Amendment No. 5 to the Canandaigua Wine Company, Inc.
Stock Option and Stock Appreciation Right Plan (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended February
28, 1994 and incorporated herein by reference).
10.7 Amendment No. 6 to the Canandaigua Wine Company, Inc.
Stock Option and Stock Appreciation Right Plan (filed herewith).
10.8 Employment Agreement between Barton Incorporated and
Ellis M. Goodman dated as of October 1, 1991 as amended by Amendment to
Employment Agreement between Barton Incorporated and Ellis M. Goodman dated as
of June 29, 1993 (filed as Exhibit 10.5 to the Registrant's Annual Report on
Form
10-K for the fiscal year ended August 31, 1993 and
incorporated herein by reference).
10.9 Barton Incorporated Management Incentive Plan (filed as
Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
10.10 Ellis M. Goodman Split Dollar Insurance Agreement (filed
as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by reference).
10.11 Barton Brands, Ltd. Deferred Compensation Plan (filed as
Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
10.12 Marvin Sands Split Dollar Insurance Agreement (filed as
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended August 31, 1993 and incorporated herein by reference).
10.13 Amendment and Restatement dated as of June 29, 1993 of
Credit Agreement among the Registrant, its subsidiaries and certain banks for
which The Chase Manhattan Bank (National Association) acts as agent (filed as
Exhibit 2(b) to the Registrant's Current Report on Form 8-K dated June 29, 1993
and incorporated herein by reference).
10.14 Amendment No. 1 dated as of October 15, 1993 to
Amendment and Restatement dated as of June 29, 1993 of Credit Agreement among
the Registrant, its subsidiaries and certain banks for which The Chase Manhattan
Bank (National Association) acts as agent (filed as Exhibit 2(c) to the
Registrant's Current Report on Form 8-K dated October 15, 1993 and incorporated
herein by reference).
10.15 Senior Subordinated Loan Agreement dated as of October
15, 1993 among the Registrant, its subsidiaries and certain banks for which The
Chase Manhattan Bank (National Association) acts as agent (filed as Exhibit 2(d)
to the Registrant's Current Report on Form 8-K dated October 15, 1993 and
incorporated herein by reference).
10.16 Second Amendment and Restatement dated as of August 5,
1994 of Amendment and Restatement of Credit Agreement dated as of June 29, 1993
among the Registrant, its subsidiaries and certain banks for which The Chase
Manhattan Bank (National Association) acts as agent (filed as Exhibit 2(b) to
the Registrant's Current Report on Form 8-K dated August 5, 1994 and
incorporated herein by reference).
10.17 Amendment No. 1 (dated as of August 5, 1994) to Second
Amendment and Restatement dated as of August 5, 1994 of Amendment and
Restatement of Credit Agreement dated as of June 29, 1993 among the Registrant,
its subsidiaries and certain banks for which The Chase Manhattan Bank (National
Association) acts as agent (filed as Exhibit 10.16 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1994 and incorporated
herein by reference).
10.18 Third Amended and Restated Credit Agreement between the
Registrant, its principal operating subsidiaries, and certain banks for which
The Chase Manhattan Bank (National Association) acts as Administrative Agent,
dated as of September 1, 1995 (filed as Exhibit 2(b) to the Registrant's Current
Report on Form 8-K, dated August 29, 1995 and incorporated herein by reference).
11.1 Statement of Computation of Per Share Earnings (filed
herewith).
21.1 Subsidiaries of Registrant (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed with the Securities and Exchange
Commission during the fourth quarter of the Company's 1995 fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CANANDAIGUA WINE COMPANY, INC.
Dated: November 29, 1995 By: /s/ Richard Sands
--------------------------------
Richard Sands,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Richard Sands /s/ Lynn K. Fetterman
- ------------------------------- --------------------------------------------
Richard Sands, President, Chief Lynn K. Fetterman, Senior Vice President and
Executive Officer and Director Chief Financial Officer (Principal Financial
(Principal Executive Officer) and Principal Accounting Officer)
Dated: November 29, 1995 Dated: November 29, 1995
/s/ Marvin Sands /s/ Robert Sands
- ----------------------------------- -------------------------------------------
Marvin Sands, Chairman of the Board Robert Sands, Director
Dated: November 29, 1995 Dated: November 29, 1995
/s/ George Bresler /s/ Ellis M. Goodman
- ----------------------------------- -------------------------------------------
George Bresler, Director Ellis M. Goodman, Director
Dated: November 29, 1995 Dated: November 29, 1995
/s/ James A. Locke, III /s/ Bertram E. Silk
- ----------------------------------- -------------------------------------------
James A. Locke, III, Director Bertram E. Silk, Director
Dated: November 29, 1995 Dated: November 29, 1995
/s/ Sir Harry Solomon
- -----------------------------------
Sir Harry Solomon, Director
Dated: November 29, 1995
INDEX TO EXHIBITS
Exhibit No.
2.1 Asset Purchase Agreement dated August 2, 1991 between the Registrant
and Guild Wineries and Distilleries, as assigned to an acquiring subsidiary
(filed as Exhibit 2(a) to the Registrant's Report on Form 8-K dated October 1,
1991 and incorporated herein by reference).
2.2 Stock Purchase Agreement dated April 27, 1993 among the Registrant,
Barton Incorporated and the stockholders of Barton Incorporated, Amendment No. 1
to Stock Purchase Agreement dated May 3, 1993, and Amendment No. 2 to Stock
Purchase Agreement dated June 29, 1993 (filed as Exhibit 2(a) to the
Registrant's Current Report on Form 8-K dated June 29, 1993 and incorporated
herein by reference).
2.3 Asset Sale Agreement dated September 14, 1993 between the Registrant and
Vintners International Company, Inc. (filed as Exhibit 2(a) to the Registrant's
Current Report on Form 8-K dated October 15, 1993 and incorporated herein by
reference).
2.4 Amendment dated as of October 14, 1993 to Asset Sale Agreement dated as
of September 14, 1993 by and between Vintners International Company, Inc. and
the Registrant (filed as Exhibit 2(b) to the Registrant's Current Report on Form
8-K dated October 15, 1993 and incorporated herein by reference).
2.5 Amendment No. 2 dated as of January 18, 1994 to Asset Sale
Agreement dated as of September 14, 1993 by and between Vintners International
Company, Inc. and the Registrant (filed as Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1994 and
incorporated herein by reference).
2.6 Asset Purchase Agreement dated August 3, 1994 between the Registrant and
Heublein, Inc. (filed as Exhibit 2(a) to the Registrant's Current Report on Form
8-K dated August 5, 1994 and incorporated herein by reference).
2.7 Amendment dated November 8, 1994 to Asset Purchase Agreement
between Heublein, Inc. and Registrant (filed as Exhibit 2.2 to the Registrant's
Registration Statement on Form S-3 (Amendment No. 2) (Registration No. 33-55997)
filed with the Securities and Exchange Commission on November 8, 1994 and
incorporated herein by reference).
2.8 Amendment dated November 18, 1994 to Asset Purchase Agreement between
Heublein,Inc. and the Registrant (filed as Exhibit 2.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1994 and
incorporated herein by reference).
2.9 Asset Purchase Agreement among Barton Incorporated (a wholly-owned
subsidiary of the Registrant), United Distillers Glenmore, Inc., Schenley
Industries Inc., Medley Distilling Company, United Distillers Manufacturing,
Inc., and The Viking Distillery, Inc., dated August 29, 1995 (filed as Exhibit
2(a) to the Registrant's Current Report on Form 8-K, dated August 29, 1995 and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the fiscal year ended August
31, 1993 and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (filed as Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (Registration No.
33-56557) and incorporated herein by reference).
4.1 Specimen of Certificate of Class A Common Stock of the Company (filed as
Exhibit 1.1 to the Registrant's Registration Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
4.2 Specimen of Certificate of Class B Common Stock of the Company (filed as
Exhibit 1.2 to the Registrant's Registration Statement on Form 8-A dated April
28, 1992 and incorporated herein by reference).
4.3 Indenture dated as of December 27, 1993 among the Registrant, its
Subsidiaries and Chemical Bank (filed as Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1993 and
incorporated herein by reference).
4.4 First Supplemental Indenture dated as of August 3, 1994 among the
Registrant, Canandaigua West, Inc. and Chemical Bank (filed as Exhibit 4.5 to
the Registrant's Registration Statement on Form S-8 (Registration No. 33-56557)
and incorporated herein by reference).
4.5 Second Supplemental Indenture dated August 25, 1995, among the Registrant, V
Acquisition Corp. (a Subsidiary of the Registrant now known as The Viking
Distillery, Inc.) and Chemical Bank (filed herewith).
10.4 Amendment No. 3 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1993 and incorporated
herein by reference).
10.5 Amendment No. 4 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 1993 and
incorporated herein by reference).
10.6 Amendment No. 5 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 1994 and
incorporated herein by reference).
10.7 Amendment No. 6 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed herewith).
10.8 Employment Agreement between Barton Incorporated and Ellis M. Goodman
dated as of October 1, 1991 as amended by Amendment to Employment Agreement
between Barton Incorporated and Ellis M. Goodman dated as of June 29, 1993
(filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1993 and incorporated herein by reference).
10.9 Barton Incorporated Management Incentive Plan (filed as Exhibit 10.6 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31,
1993 and incorporated herein by reference).
10.10 Ellis M. Goodman Split Dollar Insurance Agreement (filed as Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993 and incorporated herein by reference).
10.11 Barton Brands, Ltd. Deferred Compensation Plan (filed as Exhibit 10.8
to the Registrant's Annual Report on Form 10-K for the fiscal year ended August
31, 1993 and incorporated herein by reference).
10.12 Marvin Sands Split Dollar Insurance Agreement (filed as Exhibit 10.9
to the Registrant's Annual Report on Form 10-K for the fiscal year ended August
31, 1993 and incorporated herein by reference).
10.13 Amendment and Restatement dated as of June 29, 1993 of Credit
Agreement among the Registrant, its subsidiaries and certain banks for which The
Chase Manhattan Bank (National Association) acts as agent (filed as Exhibit 2(b)
to the Registrant's Current Report on Form 8-K dated June 29, 1993 and
incorporated herein by reference).
10.14 Amendment No. 1 dated as of October 15, 1993 to Amendment and
Restatement dated as of June 29, 1993 of Credit Agreement among the Registrant,
its subsidiaries and certain banks for which The Chase Manhattan Bank (National
Association) acts as agent (filed as Exhibit 2(c) to the Registrant's Current
Report on Form 8-K dated October 15, 1993 and incorporated herein by reference).
10.15 Senior Subordinated Loan Agreement dated as of October 15, 1993 among
the Registrant, its subsidiaries and certain banks for which The Chase Manhattan
Bank (National Association) acts as agent (filed as Exhibit 2(d) to the
Registrant's Current Report on Form 8-K dated October 15, 1993 and incorporated
herein by reference).
10.16 Second Amendment and Restatement dated as of August 5, 1994 of
Amendment and Restatement of Credit Agreement dated as of June 29, 1993 among
the Registrant, its subsidiaries and certain banks for which The Chase Manhattan
Bank (National Association) acts as agent (filed as Exhibit 2(b) to the
Registrant's Current Report on Form 8-K dated August 5, 1994 and incorporated
herein by reference).
10.17 Amendment No. 1 (dated as of August 5, 1994) to Second Amendment and
Restatement dated as of August 5, 1994 of Amendment and Restatement of Credit
Agreement dated as of June 29, 1993 among the Registrant, its subsidiaries and
certain banks for which The Chase Manhattan Bank (National Association) acts as
agent (filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended August 31, 1994 and incorporated herein by reference).
10.18 Third Amended and Restated Credit Agreement between the Registrant, its
principal operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (National Association) acts as Administrative Agent, dated as of
September 1, 1995 (filed as Exhibit 2(b) to the Registrant's Current Report on
Form 8-K, dated August 29, 1995 and incorporated herein by reference).
11.1 Statement of Computation of Per Share Earnings (filed herewith).
21.1 Subsidiaries of Registrant (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule (filed herewith).
EXHIBIT 4.5
Second Supplemental Indenture (the "Supplement"), dated as of August 25,
1995, is entered into by and among Canandaigua Wine Company, Inc., a Delaware
corporation (the "Company"), V Acquisition Corp., a Georgia corporation and an
indirect wholly owned subsidiary of the Company (the "New Guarantor"), and
Chemical Bank, a New York corporation, as Trustee (the "Trustee").
Recitals of the Company and the New Guarantor
Whereas, the Company, the Guarantors and the Trustee have executed and
delivered an Indenture, dated as of December 27, 1993, as supplemented, among
the Company, the Guarantors and the Trustee (the "Indenture") providing for the
issuance by the Company of $130,000,000 aggregate principal amount of the
Company's 8 3/4% Senior Subordinated Notes due 2003 (the "Securities") and
pursuant to which the Guarantors have agreed to guarantee, jointly and
severally, the full and punctual payment and performance when due of all
Indenture Obligations.
Whereas, the New Guarantor has become a Subsidiary and pursuant to Section
1014(b) of the Indenture is obligated to enter into the Supplement thereby
guaranteeing the punctual payment and performance when due of all Indenture
Obligations;
Whereas, pursuant to Section 901(e) of the Indenture, the Company, the New
Guarantor and the Trustee may enter into this Supplement without the consent of
any Holder;
Whereas, the execution and delivery of this Supplement have been duly
authorized by a Board Resolution of the respective Boards of Directors of the
Company and the New Guarantor; and
Whereas, all conditions and requirements necessary to make the Supplement
valid and binding upon the Company and the New Guarantor, and enforceable
against the Company and the New Guarantor in accordance with its terms, have
been performed and fulfilled;
Now Therefore, in consideration of the above premises, each of the parties
hereto agrees, for the benefit of the others and for the equal and proportionate
benefit of the Holders of the Securities, as follows:
Article One
The New Guarantee
Section 101. For value received, the New Guarantor, in accordance with
Article Fourteen of the Indenture, hereby absolutely, unconditionally and
irrevocably guarantees (the "New Guarantee"), jointly and severally among itself
and the Guarantors, to the Trustee and the Holders, as if the New Guarantor were
the principal debtor, the punctual payment and
performance when due of all Indenture Obligations (which for purposes of the New
Guarantee shall also be deemed to include all commissions, fees, charges, costs
and other expenses (including reasonable legal fees and disbursements of one
counsel) arising out of or incurred by the Trustee or the Holders in connection
with the enforcement of this New Guarantee). The agreements made and obligations
assumed hereunder by the New Guarantor shall constitute and shall be deemed to
constitute a Guarantee under the Indenture and for all purposes of the
Indenture, and New Guarantor shall be considered a Subsidiary for all purposes
of the Indenture as if it was originally named therein as a Subsidiary.
Section 102. The New Guarantee shall be automatically and unconditionally
released and discharged upon the occurrence of the events set forth in Section
1014(c) of the Indenture.
Section 103. New Guarantor hereby waives, and will not in any manner
whatsoever, claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary as a result of any payment by New Guarantor under its
Guarantee under the Indenture.
Article Two
Miscellaneous
Section 201. Except as otherwise expressly provided or unless the context
otherwise requires, all terms used herein which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. Except as
supplemented hereby, the Indenture (including the Guarantees incorporated
therein) and the Securities are in all respects ratified and confirmed and all
the terms and provisions thereof shall remain in full force and effect.
Section 202. This Supplement shall be effective as of the close of business
on the date hereof.
Section 203. The recitals contained herein shall be taken as the statements
of the Company and the New Guarantors, and the Trustee assumes no responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Supplement.
Section 204. This Supplement shall be governed by and construed in
accordance with the laws of the jurisdiction which govern the Indenture and its
construction.
Section 205. This Supplement may be executed in any number of counterparts
each of which shall be an original, but such counterparts shall together
constitute but one and the same instrument.
In Witness Whereof, the parties hereto have caused this Supplement to be
duly executed and their respective seals to be affixed hereunto and duly
attested all as of the day and year first above written.
Canandaigua Wine Company, Inc.
[Corporate Seal] By: s/Lynn Fetterman
Name: Lynn Fetterman
Title: Senior Vice President and Chief
Financial Officer
Attest:
s/David Sorce
Assistant Secretary
V Acquisition Corp.
[Corporate Seal] By: s/Fred Mardell
Name: Fred Mardell
Title:
Attest:
s/Elizabeth Kutyla
Assistant Secretary
Chemical Bank
[Corporate Seal] By: s/W.B. Dodge
Name: W.B. Dodge
Title: Vice President
Attest:
s/Gloria G. McKeever
Assistant Secretary
EXHIBIT 10.7
AMENDMENT NO. 6
TO THE
CANANDAIGUA WINE COMPANY, INC.
STOCK OPTION AND STOCK APPRECIATION RIGHT PLAN
Pursuant to Paragraph 15 of the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (the "Plan"), the Board of Directors hereby amends
the Plan, effective upon the date hereof, as set forth below.
Paragraph 5(c) of the Plan is hereby amended and restated to read in its
entirety as follows:
(c) Exercise. Each option, or any installment thereof, shall be
exercised, whether in whole or in part, by giving irrevocable written
notice to the Company at its principal office, specifying the number of
Shares purchased and the purchase price being paid, and accompanied by
the payment of the purchase price. A Participant may pay for the Shares
subject to the option with cash, a certified check or a bank cashier's
check payable to the order of the Company. Alternatively, at the
Company's sole option he may be permitted to pay for the Shares in whole
or in part, by the delivery of the Shares already owned by him, which
will be accepted in exchange at their fair market value on the date of
exercise, or alternatively, by delivery to the Company of the written
notice described above, together with irrevocable instructions to a
broker/dealer to sell or margin, or sell and margin, a sufficient
portion of the Shares and deliver the sale proceeds or margin loan
proceeds directly to the Company to pay the purchase price. Certificates
representing the Shares purchased by the Participant shall be issued as
soon as reasonably practicable after the Participant has complied with
the provisions hereof.
IN WITNESS WHEREOF, Canandaigua Wine Company, Inc. has caused the instrument to
be executed on August 10, 1995.
CANANDAIGUA WINE COMPANY, INC.
/s/Richard Sands
Richard Sands, President
EXHIBIT 11
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
FOR THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
August 31, 1995 August 31, 1994 August 31, 1993
--------------- --------------- ---------------
Net income per common equivalent Fully Fully Fully
share: Primary Diluted Primary Diluted Primary Diluted
------- ------- ------- ------- ------- -------
(in thousands, except per share data)
Net income available to common shares- $ 41,020 $ 41,020 $ 11,733 $ 11,733 $ 15,604 $ 15,604
Adjustments:
Assumed exercise of convertible debt -- -- -- 419 -- 2,597
------- ------- ------- ------- -------- -------
Net income available to common and
common equivalent shares $ 41,020 $ 41,020 $ 11,733 $ 12,152 $ 15,604 $ 18,201
======= ======= ======= ======= ======== =======
Shares:
Weighted average common shares
outstanding 18,776 18,776 15,423 15,423 11,820 11,820
Adjustments:
(1) Assumed exercise of convertible
debt -- -- -- 544 -- 3,239
(2) Assumed exercise of incentive
stock options 252 302 227 257 144 144
(3) Assumed exercise of stock 120 218 134 177 -- --
options
------- ------- ------- ------- -------- -------
Total shares 19,148 19,296 15,784 16,401 11,964 15,203
======= ======= ======= ======= ======== =======
Net income per common share $ 2.14 $ 2.13 $ 0.74 $ 0.74 $ 1.30 $ 1.20
======= ======= ======= ======= ======== =======
EXHIBIT 21.1
State of Incorporation Subsidiary
New York Batavia Wine Cellars, Inc.
Delaware Bisceglia Brothers Wine Co.
California California Products Company
New York Guild Wineries & Distilleries, Inc.
South Carolina Tenner Brothers, Inc.
New York Widmer's Wine Cellars, Inc.
Delaware Barton Incorporated
Delaware Barton Brands, Ltd.
Maryland Barton Beers, Ltd.
Connecticut Barton Brands of California, Inc.
Georgia Barton Brands of Georgia, Inc.
New York Barton Distillers Import Corp.
Delaware Barton Financial Corporation
Wisconsin Stevens Point Beverage Co.
New York Monarch Wine Company, Limited Partnership
Illinois Barton Management, Inc.
U.S. Virgin Islands Barton Foreign Sales Corporation
New York Vintners International Company, Inc.
New York Canandaigua West, Inc.
Georgia The Viking Distillery, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K into the Company's previously filed
Registration Statements on Form S-8 file numbers 33-26694 and 33-56557.
ARTHUR ANDERSEN LLP
Rochester New York
November 29, 1995