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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ____________________
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from September 1, 1995 to February 29, 1996
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COMMISSION FILE NO. 0-7570
CANANDAIGUA WINE COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 16-0716709
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
116 BUFFALO STREET, CANANDAIGUA, NEW YORK 14424
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (716) 394-7900
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock (Par Value $.01 Per Share)
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(Title of Class)
Class B Common Stock (Par Value $.01 Per Share)
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(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 Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of May 22, 1996, was $440,853,141.
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The number of shares outstanding with respect to each of the classes of common
stock of the Registrant, as of May 23, 1996, is as follows:
NUMBER OF SHARES OUTSTANDING
CLASS AS OF MAY 23, 1996
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Class A Common Stock, Par Value $.01 Per Share 16,300,136
Class B Common Stock, Par Value $.01 Per Share 3,343,458
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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, EXCEPT, HOWEVER, REFERENCES TO FISCAL 1997 SHALL REFER TO THE COMPANY'S
FISCAL YEAR ENDING FEBRUARY 28, 1997. 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; NIELSEN WINE SCAN; JOBSON'S BEER HANDBOOK;
ADAMS/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; U.S. DEPARTMENT OF THE TREASURY
STATISTICAL RELEASES; AND THE MAXWELL CONSUMER REPORT. THE COMPANY HAS NOT
INDEPENDENTLY VERIFIED THIS DATA. REFERENCES TO MARKET SHARE DATA ARE BASED ON
UNIT VOLUME.
THIS TRANSITION REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS.
THE COMPANY DESIRES TO TAKE ADVANTAGE OF THE "SAFE HARBOR" WHICH IS AFFORDED
SUCH STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHEN
THEY ARE ACCOMPANIED BY MEANINGFUL CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS. SUCH CAUTIONARY STATEMENTS ARE SET FORTH UNDER THE
HEADING "IMPORTANT INFORMATION REGARDING FOWARD-LOOKING STATEMENTS" LOCATED IN
ITEM 7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" OF THIS TRANSITION REPORT ON FORM 10-K.
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.
During January 1996, the Board of Directors of the Company changed the
Company's fiscal year end from the twelve month period ending August 31 to the
twelve month period ending the last day of February. Accordingly, this
Transition Report on Form 10-K includes and presents information for the
Company's transition period from September 1, 1995, to February 29, 1996 (the
"Transition Period").
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 1,200 wholesalers throughout the United States and in selected
international markets. The Company is the second largest supplier of wines, the
third largest importer of beers and the fifth largest supplier of distilled
spirits in the United States. The Company's beverage alcohol brands are marketed
in five general categories: table wines, sparkling wines, dessert wines,
imported beer and distilled spirits, and include the following principal brands:
TABLE WINES: Inglenook, Almaden, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James, Deer Valley and Dunnewood
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SPARKING 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 that during calendar
year 1995 it had a 22% share of the wine market, a 13% 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 had a 28% share of the
non-varietal table wine market, a 12% share of the varietal table wine market, a
42% share of the dessert wine market and a 29% 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 fourth largest domestically bottled gin;
Montezuma, the second largest selling tequila brand; and Monte Alban, the
largest selling mezcal brand.
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 $987.1 million for the twelve months
ended February 29, 1996. Through these acquisitions, the Company developed
strong market positions in the growing beverage alcohol product categories of
varietal table wine and imported beer. The Company ranks second and third in the
varietal table wine and imported beer categories, respectively. From 1992
through 1995, industry shipments of varietal table wine and imported beer have
grown 35% 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 from Guild Wineries and
Distilleries, 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. In October 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"). In August 1994, the Company acquired the Almaden,
Inglenook and
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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"); 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
(collectively, 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 fourth 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. Under the terms of the acquisition agreement for the
Barton Acquisition, until August 31, 1996, consistent with past practices and
subject to approval by the Company's Board of Directors of an annual operating
plan, Ellis M. Goodman, the Chief Executive Officer of Barton, has full and
exclusive strategic and operational responsibility for Barton and all of its
subsidiaries. Also, as part of the Barton Acquisition, the Company extended Mr.
Goodman's employment agreement with Barton. Accordingly, after August 31, 1996
and throughout the term of his employment agreement, Mr. Goodman continues to
have full and complete authority to direct the day-to-day management of the
business, operations and affairs of Barton. A more detailed description of Mr.
Goodman's employment agreement is set forth under Item 11 "Executive
Compensation" of this Transition Report on Form 10-K.
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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 (nonalcoholic) and
Great Western brands and related facililties.
THE ALMADEN/INGLENOOK ACQUISITION. On August 5, 1994, the Company acquired
the Inglenook and Almaden brands, currently 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 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 on Form 10-K.
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
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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. The Company is currently the fifth largest distilled
spirits supplier in the United States. The UDG Acquisition also gave the Company
a significantly larger presence in the cordial and liqueur category, which is
more profitable than most other distilled spirits categories. Since the UDG
Acquisition, the Company has significantly increased the size of its sales,
marketing and administrative forces. The Company expects that the UDG
Acquisition will enable the Company to realize economies of scale in the
purchasing of materials and services and to capitalize on strong wholesaler
relationships. During the Transition Period, the Company realized savings in its
distilled spirits business in the purchase of packaging materials.
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 1995, 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, 1995:
INDUSTRY DATA 1991 1992 1993 1994 1995
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Domestic Table Wines (a) (b) 285,282 308,169 300,953 307,481 318,546
Domestic Dessert Wines (a) (c) 35,181 32,449 29,698 27,634 25,439
Domestic Sparkling Wines (a) 24,386 23,794 23,600 22,855 22,298
Imported Beer (d) 109,212 114,590 127,418 144,527 151,470
Distilled Spirits (e) 147,025 148,017 144,162 140,504 137,931
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(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).
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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 1991 to 1995, shipments of domestic table wines increased at an
average compound annual rate of 3%. 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 1995, domestic table wine shipments increased
by 4% when compared to 1994, led by increased shipments of varietal table wines.
The Company believes this improvement may be due in part to published reports,
over recent years, from a number of sources, citing the health benefits of
moderate wine consumption. Based on shipments of California table wines, which
constituted approximately 88% of the total domestically produced table wine
market in 1995, shipments of varietal wines have grown at an average compound
annual rate of 13% since 1991, with shipments in the first four months of 1996
increasing 15% over the same period in 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 four months of calendar 1996, shipments of table wines increased 9% over
the same period in 1995. Shipments of imported table wines have increased from
48.4 million gallons in 1991 to 60.3 million gallons in 1995. Imported table
wines constituted 16% of the United States table wine market in 1995.
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 1995, shipments of domestic dessert
wines decreased 8% as compared to 1994. During the period from 1991 to 1995,
shipments of domestic dessert wines declined at an average compound annual rate
of 8%. 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 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 2% from 1991 to 1995, with shipments of domestic sparkling wines also
declining 2% in 1995 as compared to 1994. Shipments of California sparkling
wines, which constituted 88% of the domestically produced sparkling wine market
in 1995, increased 10% in the first four months of 1996, as compared to the same
period a year ago. 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.
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IMPORTED BEER. Shipments of imported beers have increased at an average
compound annual rate of 9% from 1991 to 1995. Shipments of Mexican beers in 1995
increased 27% over 1994 as compared to an increase of 5% for the entire imported
beer category. Imported beer shipments have increased 10% for the first quarter
of calendar 1996 as compared to the same period a year ago. Shipments of
imported beers as a percentage of the United States beer market, increased to
6.0% in 1995 from 5.5% in 1994. Imported beers, along with microbrews 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 2% from 1991 to 1995. 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, sales of
most types of spirits have declined. 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 of dollars) 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 and the Transition Period.
TRANSITION
1993 1994 1995 PERIOD
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TOTAL NET NET NET NET
WINES SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
----- ----- ------ ----- ------ ----- ------ ----- ------
Company
(a) $254,379 41,373 $245,083 36,613 $209,957 35,481 $113,401 18,110
Vintners
(b) 157,706 24,868 125,923 20,461 141,790 20,949 78,260 11,135
Almaden/
Inglenook
(c) 233,408 45,029 237,853 46,269 251,779 45,000 132,534 23,442
-------- ------- -------- ------- -------- ------- -------- ------
TOTAL $645,493 111,270 $608,859 103,343 $603,526 101,430 $324,195 52,687
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(a) Data for fiscal years ended August 31, 1993, 1994 and 1995, and for the
Transition Period. The data for the Company's fiscal years ended August
31, 1994 and 1995, and for the Transition Period, exclude the net sales
for the brands and other products acquired in the Vintners Acquisition
and the Almaden/Inglenook Acquisition.
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(b) 1993 data is for the fiscal year ended July 31, 1993; 1994 and 1995
data is for the twelve months ended August 31, 1994 and 1995; and
Transition Period data is for the six months ended February 29, 1996.
(c) 1993 data is for the fiscal year ended September 30, 1993; 1994 and
1995 data is for the twelve months ended August 31, 1994 and 1995; and
Transition Period data is for the six months ended February 29, 1996.
TABLE WINES. The Company sells over 40 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 latest year for which data
is available. 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 and for the Transition Period:
TRANSITION
1993 1994 1995 PERIOD
TABLE WINES VOLUME VOLUME VOLUME VOLUME
- - ----------- ------ ------ ------ ------
Non-varietal 56,696 52,610 47,774 23,593
Varietal 12,499 12,794 16,344 9,758
TOTAL (a) 69,195 65,404 64,118 33,351
- - -----------------------------
(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 eleventh
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 tenth 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 thirteenth 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.
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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.
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.
MANISCHEWITZ: The largest selling brand of kosher wine in the United
States.
CRIBARI: A well-known brand of both varietal and non-varietal table wines,
marketed in the popularly priced segment.
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.
COOK'S: This varietal wine was created to take advantage of the brand
recognition associated with Cook's sparkling wines.
Unit volume sales of non-varietal table wines acquired in the Vintners and
Almaden/Inglenook Acquisitions have declined, while varietal table wines 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.
SANTA CAROLINA: The fourth largest table wine brand imported from Chile.
Santa Carolina is a line of varietal wines which include Chardonnay,
Cabernet and Merlot. The Company began to distribute this brand on May 20,
1996, under an exclusive distribution agreement.
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.
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PARTAGER: A popularly priced table wine with both varietal and non-varietal
products. The Company owns the Partager brand and originally contracted for
its production in France. The Company recently terminated French production
and launched a new Partager line of Chilean wines to take advantage of
lower costs.
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. For
the Transition Period, import sales were 1.3 million gallons. This improvement
is attributable primarily to increased sales of the Marcus James varietal wine
brand.
DESSERT WINES. With the exception of the premium 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, the
latest year for which data is available. 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 and for the Transition
Period:
TRANSITION
1993 1994 1995 PERIOD
DESSERT WINES VOLUME VOLUME VOLUME VOLUME
------ ------ ------ ------
13,878 12,037 10,962 5,025
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.
TAYLOR: Premium traditional dessert wines, including port and sherry.
CISCO: One of the leading dessert wine brands in the United States. Cisco
is a flavored dessert wine positioned higher in price than Richards Wild
Irish Rose.
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 latest year for which
data is available. 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 and for
the Transition Period:
<PAGE>
TRANSITION
1993 1994 1995 PERIOD
SPARKLING WINES VOLUME VOLUME VOLUME VOLUME
------ ------ ------ ------
7,555 7,353 6,500 3,991
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 an exclusive distribution agreement.
The Company's unit volumes of sparkling wine have declined over the last
three fiscal 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, and 6% of net sales during
the Transition Period. 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 and for the Transition Period:
TRANSITION
1993 1994 1995 PERIOD
GRAPE JUICE VOLUME VOLUME VOLUME VOLUME
CONCENTRATE ------ ------ ------ ------
13,351 11,826 11,017 5,409
OTHER WINE PRODUCTS AND RELATED SERVICES. The Company's other wine related
products and services include: grape juice; St. Regis, the leading nonalcoholic
line of wines in the United States; wine coolers sold primarily under the Sun
Country brand name; cooking wine; and wine
<PAGE>
for the production of vinegar. The Company also provides various bottling and
distillation production services for third parties.
BEER. The Company is the third largest marketer of imported beers in the
United States. The Company distributes four of the top 20 imported beers in the
United States: Corona and Corona Light, St. Pauli Girl, and Modelo Especial. The
table below sets forth the net sales (in thousands of dollars) and unit volumes
(in thousands of cases) for the beer sold by Barton and the Company for the
years ended August 31, 1993, 1994 and 1995, and for the Transition Period:
1993 1994 1995 TRANSITION PERIOD
---- ---- ---- -----------------
NET NET NET NET
SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
----- ------ ----- ------ ----- ------ ----- ------
$158,359 12,422 $173,883 14,100 $216,159 17,471 $115,757 9,316
The Company's principal imported beer brands include:
CORONA: The second largest selling imported beer in the United States and
the number one selling beer in Mexico. 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 has grown to be the sixteenth largest selling
imported beer in the United States.
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 fifth 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 of dollars) and unit volumes (in thousands of 9-liter cases)
for the distilled products case goods sold by Barton and under brands acquired
in the Vintners Acquisition and the Almaden/Inglenook Acquisition for the twelve
months ended
<PAGE>
August 31, 1993, 1994 and 1995, and for the Transition Period, and 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, and for the
Transition Period:
1993 1994 1995 TRANSITION PERIOD
---- ---- ---- -----------------
NET NET NET NET
SPIRITS SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
- - ------- ----- ------ ----- ------ ----- ------ ----- ------
Barton/ $91,832 5,926 $88,549 5,678 $92,400 5,917 $48,762 2,978
Vintners/
Almaden/
Inglenook
(a)
UDG (b) 111,676 6,443 101,916 4,941 92,136 5,013 42,457 2,397
TOTAL $203,508 12,369 $190,465 10,619 $184,536 10,930 $91,219 5,375
- - --------------------------
(a) Data is for the twelve months ended August 31, 1993, 1994 and 1995 and for
the Transition Period.
(b) 1993 data is for the calendar year ended December 31, 1993; 1994 and 1995
data is for the twelve months ended August 31, 1994 and 1995; and
Transition Period data is for the six months ended February 29, 1996.
The Company's leading distilled spirits brands include:
FLEISCHMANN'S VODKA, GIN AND PREFERRED: The fourth largest blended whiskey
and the fourth largest 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: The seventh largest bourbon brand in the United States.
MONTEZUMA: This brand is the second largest selling tequila in the United
States.
INVER HOUSE: The fourth largest domestically bottled Scotch whisky.
<PAGE>
MONTE ALBAN: A premium priced product which the Company believes is the
largest selling mezcal in the United States.
PAUL MASSON GRANDE AMBER: The fourth largest selling aged brandy in the
United States, and one of the fastest-growing domestic brandies.
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 spirits 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, the latest year for which data is available.
Although net sales and unit volumes of distilled spirits brands sold by
Barton and under brands acquired in the Vintners and Almaden/Inglenook
Acquisitions were essentially flat over the periods presented, there have been
increases in sales of certain product types. Unit volumes of vodka, tequila and
brandy 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 noncompetitive retail pricing and promotional
activities. The Company has implemented pricing and promotional activities which
it expects will reduce the rate of decline during the Company's 1997 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 and for the Transition Period of
$10.6 million, $7.0 million, $5.8 million, and $11.9 million, respectively. The
significant increase in contract production services is as a result of the UDG
Acquisition.
MARKETING AND DISTRIBUTION
The Company's products are distributed and sold throughout the United
States through over 1,200 wholesalers, as well as through state alcoholic
beverage control agencies. The Company employs a full-time, in-house marketing
and sales organization of approximately 400 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 7.2%, 10.6% and 12.3% of the
Company's gross sales for the Transition Period and the fiscal years ended
August 31, 1995 and 1994, respectively.
<PAGE>
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 has extensive marketing programs
for its brands including promotional programs on both a national basis and
regional basis in accordance with the strength of the brands,point-of-sale
materials, consumer media advertising, event sponsorship, market research, trade
advertising and public relations.
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.
<PAGE>
COMPETITION
The beverage alcohol industry is highly competitive. The Company competes
on the basis of quality, price, brand recognition and distribution. The
Company's beverage alcohol products compete with other alcoholic and
nonalcoholic beverages for consumer purchases, as well as shelf space in retail
stores and marketing focus by the Company's wholesalers. The Company competes
with numerous multinational producers and distributors of beverage alcohol
products, 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, Heineken USA, Molson Breweries USA, Labatt's USA and
Guinness Import Company 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
<PAGE>
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 expects that grape prices will increase for
the 1996 grape harvest. See also information under Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
this Transition Report on Form 10-K. The Company believes that it has adequate
sources of grape supplies to meet its sales expectation for fiscal 1997.
However, in the event demand for certain wine products exceeds expectations for
fiscal 1997, the Company could experience shortages.
The Company 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 has recently purchased
approximately 1,000 acres of vineyards in California and leases a small number
of additional acres in California for vineyard plantings. The Company continues
to consider the purchase or lease of additional vineyards, and additional land
for vineyard plantings, to supplement its grape supply. The Company is also
planting vineyards on land in California currently owned by the Company.
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
<PAGE>
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 2,500 full-time employees at the end of the
Transition Period, as compared to 2,150 employees at the end of fiscal 1995. The
net increase of 350 employees was due primarily to the UDG Acquisition. At the
end of the Transition Period, approximately 1,000 employees were 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 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. Under
the Restructuring Plan, the Mission Bell winery absorbed the production of the
Central Cellars winery, which was closed and has been recently sold. The
Monterey Cellars winery is a crushing, wine production and bottling facility. As
part of the Restructuring Plan, during fiscal 1995, most of the branded wine
bottling operations at the Monterey Cellars winery were moved to the Mission
Bell winery. The bottling of various sizes of branded wine products is currently
being transferred to Monterey Cellars to facilitate improvement in customer
order fulfillment. The transfer involves minimal increases in capital
expenditures and cost of production. The other wineries operated in California
are located in Escalon, Lodi, McFarland, Madera, Fresno, Soledad 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. 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
<PAGE>
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 brews and packages on a contract basis 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,
where it also leases additional office space, 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 Credit Facility (as defined below in Item 7 of this Report on Form
10-K 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"). On December 6, 1995, a
third purported stockholder of the Company filed a class action in the United
States District Court for the Southern District of New York, BABICH, ET AL. V.
CANANDAIGUA WINE COMPANY, INC., ET AL. (and this class action together with the
Brickell Class Action and 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 have been consolidated and a consolidated complaint
was filed on January 16, 1996. The Class Actions assert violations of Section
10(b) of the Securities
<PAGE>
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. 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. To that end, on April 8, 1996, the
Company filed a motion to dismiss the consolidated complaint. That motion is
fully briefed, and it is awaiting oral argument and decision by the Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on January 18, 1996
(the "Annual Meeting"), the holders of the Company's Class A Common Stock (the
"Class A Stock"), voting as a separate class, elected management's slate of
director nominees designated to be elected by the holders of the Class A Stock,
and the holders of the Company's Class B Common Stock (the "Class B Stock"),
voting as a separate class, elected management's slate of director nominees
designated to be elected by the holders of the Class B Stock. In addition, at
the Annual Meeting, the holders of Class A Stock and the holders of Class B
Stock, voting together as a single class, (i) approved an Amended and Restated
Certificate of Incorporation of the Company which amended the Company's Restated
Certificate of Incorporation to authorize the issuance of 1,000,000 shares of a
class of preferred stock and (ii) approved and ratified the selection of Arthur
Andersen LLP, Certified Public Accountants, as the Company's independent
auditors for the Transition Period and for the Company's fiscal year ending
February 28, 1997.
Set forth below is the number of votes cast for or against or withheld, as
well as the number of abstentions, and broker non-votes, as applicable, as to
the foregoing matters.
I. The results of the balloting for the election of Directors of the
Company were as follows:
Directors Elected by Class A Stockholders:
------------------------------------------
James A. Locke, III:
For: 11,262,656; Withheld: 433,413
George Bresler:
For: 11,262,338; Withheld: 433,731
<PAGE>
Directors Elected by Class B Stockholders:
------------------------------------------
Marvin Sands:
For: 31,057,490; Withheld: 6,850
Richard Sands:
For: 31,047,290; Withheld: 17,050
Robert Sands:
For: 31,048,390; Withheld: 15,950
Bertram Silk:
For: 31,058,590; Withheld: 5,750
II. The proposal submitted to the stockholders to approve an Amended and
Restated Certificate of Incorporation of the Company which amends the Company's
Restated Certificate of Incorporation to authorize the issuance of 1,000,000
shares of a class of preferred stock was adopted by the following vote:
For: 34,757,668
Against: 4,238,862
Abstain: 38,929
Broker Non-Votes: 3,724,950
III. The proposal submitted to the stockholders to approve and ratify the
selection of Arthur Andersen LLP as the Company's independent auditors for the
Transition Period and for the fiscal year ending February 28, 1997, was adopted
by the following vote:
For: 42,686,062
Against: 11,051
Abstain: 63,296
<PAGE>
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock (the "Class A Stock") and Class B Common
Stock (the "Class B Stock") trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbols "WINEA" and "WINEB," respectively. The
following tables set forth for the periods indicated the high and low sales
prices of the Class A Stock and the Class B Stock as reported on the Nasdaq
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
CLASS A STOCK
-------------
TRANSITION PERIOD HIGH LOW
----------------- ---- ---
September 1, 1995, through
November 30, 1995 $53.00 $30.75
December 1, 1995, through
February 29, 1996 $39.00 $29.75
CLASS B STOCK
-------------
TRANSITION PERIOD HIGH LOW
----------------- ---- ---
September 1, 1995, through
November 30, 1995 $52.25 $32.50
December 1, 1995, through
February 29, 1996 $38.75 $32.25
<PAGE>
At May 22, 1996, the number of holders of record of Class A Stock and Class
B Stock of the Company were 1,339 and 362, 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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED AUGUST 31, SIX MONTHS ENDED
------------------------------ ----------------
February 29, February 28,
1991 1992 1993 1994 1995 1996 1995
---- ---- ---- ---- ---- ---- ----
(unaudited)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales:
Gross, including excise taxes $ 212,637 $ 305,118 $ 389,417 $ 861,059 $ 1,185,074 $ 738,415 $ 592,305
Less-excise taxes (36,078) (59,875) (83,109) (231,475) (278,530) (203,391) (137,820)
--------- --------- --------- --------- ----------- ---------- ---------
Net sales 176,559 245,243 306,308 629,584 906,544 535,024 454,485
Cost of product sold (131,064) (174,686) (214,931) (447,211) (653,811) (396,208) (327,694)
--------- --------- --------- --------- ----------- ---------- ---------
Gross profit 45,495 70,557 91,377 182,373 252,733 138,816 126,791
Selling, general and
administrative expenses (30,184) (46,491) (59,983) (121,388) (159,196) (112,411) (79,925)
Nonrecurring restructuring
expenses - - - (24,005) (2,238) (2,404) (685)
--------- -------- -------- --------- ----------- ---------- ---------
Operating income 15,311 24,066 31,394 36,980 91,299 24,001 46,181
--------- -------- -------- --------- ----------- ---------- ---------
Interest income 955 328 147 311 520 149 335
Interest expense (4,586) (6,510) (6,273) (18,367) (25,121) (17,447) (13,476)
--------- -------- -------- --------- ----------- ---------- ---------
Income before provision for
federal and state income taxes 11,680 17,884 25,268 18,924 66,698 6,703 33,040
Provision for federal and state
income taxes (3,970) (6,528) (9,664) (7,191) (25,678) (3,381) (12,720)
--------- -------- -------- --------- ----------- ---------- ---------
Net income $ 7,710 $ 11,356 $ 15,604 $ 11,733 $ 41,020 $ 3,322 $ 20,320
========= ========= ========= ========= =========== ========== =========
Net income per common and
common equivalent share:
Primary $ .84 $ 1.08 $ 1.30 $ .74 $ 2.14 $ .17 $ 1.11
========= ========= ========= ========= =========== ========== =========
Fully diluted $ .84 $ 1.01 $ 1.20 $ .74 $ 2.13 $ .17 $ 1.11
========= ========= ========= ========= =========== ========== =========
Total assets $ 147,207 $ 217,835 $ 355,182 $ 826,562 $ 785,921 $1,054,580 $ 832,917
========= ========= ========= ========= =========== ========== =========
Long-term debt $ 62,278 $ 61,909 $ 108,303 $ 289,122 $ 198,859 $ 327,616 $ 239,791
========= ========= ========= ========= =========== ========== =========
</TABLE>
For the six months ended February 29, 1996, and February 28, 1995, and the
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 February 29,
1996, 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE INFORMATION IN THIS ITEM 7 CONTAINS FORWARD-LOOKING STATEMENTS. THE
COMPANY DESIRES TO TAKE ADVANTAGE OF THE "SAFE HARBOR" WHICH IS AFFORDED SUCH
STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHEN THEY
ARE ACCOMPANIED BY MEANINGFUL CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE
FORWARD-LOOKING STATEMENTS. SUCH CAUTIONARY STATEMENTS ARE SET FORTH UNDER THE
HEADING "IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS" BELOW IN
THIS ITEM 7.
RESULTS OF OPERATIONS OF THE COMPANY
On January 11, 1996, the Company changed its fiscal year end from the
twelve month period ending August 31 to the twelve month period ending the last
day of February. The Company believes that this change creates a better planning
and financial reporting cycle by allowing the Company to take into account new
costs from the fall grape harvest, other inventory costs, summer sales of
imported beer products and holiday shipments of wines and spirits products in
its fiscal planning and reporting process. The accompanying financial statements
for the six month transition period ended February 29, 1996 (the "Transition
Period"), are based on the newly adopted fiscal year. Accordingly, the reported
results for the Transition Period reflect the effect of, among other matters,
seasonal factors related primarily to the timing of advertising and promotion
expenditures and inventory levels during the six months ended February 29, 1996.
The Company's results of operations over recent years have been
significantly impacted by acquisitions. The Company acquired the outstanding
capital stock of Barton on June 29, 1993, the assets of Vintners on October 15,
1993, the Almaden/Inglenook Product Lines on August 5, 1994 and certain assets
from UDG on September 1, 1995. A description of these acquisitions is set forth
under the heading "Recent Acquisitions" located in Item 1 "Business" of this
Transition Report on Form 10-K. The Company financed the UDG Acquisition through
an amendment to its then-existing bank credit facility, primarily through an
increase in the term loan facility under that credit facility. (See "Financial
Liquidity and Capital Resources" below in this Item 7.)
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:
<PAGE>
SIX MONTHS ENDED
YEAR ENDED AUGUST 31, FEBRUARY 28, FEBRUARY 29,
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(Unaudited)
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product sold 70.2 71.0 72.1 72.1 74.1
Gross profit 29.8 29.0 27.9 27.9 25.9
Selling, general and
administrative expenses 19.6 19.3 17.6 17.6 21.0
Nonrecurring restructuring
expenses - 3.8 0.2 0.1 0.4
Operating income 10.2 5.9 10.1 10.2 4.5
Interest expense, net 1.9 2.9 2.7 2.9 3.2
Income before provision
for income taxes 8.3 3.0 7.4 7.3 1.3
Provision for federal
and state income taxes 3.2 1.1 2.9 2.8 0.7
Net income 5.1% 1.9% 4.5% 4.5% 0.6%
SIX MONTH TRANSITION PERIOD ENDED FEBRUARY 29, 1996, COMPARED TO SIX MONTHS
ENDED FEBRUARY 28, 1995
Net income for the Transition Period was $3.3 million, a decrease of $17.0
million as compared to the six months ended February 28, 1995 ("Six Months
1995"). This decrease in net income resulted from nonrecurring costs and
expenses and the timing of recognition of costs and expenses related to the
change in the Company's fiscal year end (collectively, the "One-time Items")
which reduced net income by approximately $12.9 million. The One-time Items were
comprised of (i) overtime, freight and other expenses and restructuring charges
related to production and shipping delays associated with the relocation of West
Coast bottling operations to the Company's Mission Bell winery, employee bonuses
and other nonrecurring expenses, which reduced net income by approximately $7.1
million; and (ii) as a result of the change in the Company's fiscal year end,
the recognition of higher than normal advertising and promotion expenses in the
Transition Period due to the seasonality of these expenses, and increased cost
of product sold due to the different amount and composition of inventory levels
at the end of February versus the end of August, the Company's former fiscal
year end, which reduced net income by approximately $5.8 million. The decrease
in net income also resulted from higher selling, general and administrative
expenses and higher grape costs; and was offset, in part, by higher net income
from Barton exclusive of the UDG Acquisition and by net income contributed from
the UDG Acquisition, among other things.
Net income was favorably impacted by the UDG Acquisition, which contributed
$53.3 million in net sales, $18.5 million in gross profit and $3.1 million in
after-tax net income in the Transition Period, including the impact of the
interest expense associated with the acquisition financing. The gross margin
from the business acquired in the UDG Acquisition was significantly higher than
the Company's average gross margins in the Transition Period.
<PAGE>
NET SALES
Net sales for the Transition Period increased to $535.0 million from $454.5
million for Six Months 1995, an increase of $80.5 million, or 17.7%. In addition
to the sales of products and services from the UDG Acquisition, the Company had
additional net sales of $23.6 million from its imported beer brands and $14.1
million from its varietal wine products, partially offset by lower sales of bulk
wine, non-varietal wine, contract bottling services, grape juice concentrate and
dessert wine.
FOR PURPOSES OF COMPUTING THE NET SALES AND UNIT VOLUME COMPARATIVE DATA
BELOW, SALES OF PRODUCTS ACQUIRED IN THE UDG ACQUISITION HAVE BEEN INCLUDED IN
THE ENTIRE PERIOD FOR THE TRANSITION PERIOD AND INCLUDED FOR THE SAME PERIOD
DURING SIX MONTHS 1995, WHICH WAS PRIOR TO THE UDG ACQUISITION.
The table below sets forth the net sales (in thousands of dollars) and unit
volumes (in thousands of cases) for the branded beverage alcohol products,
branded wine products, each category of branded wine product, beer and spirits
brands sold by the Company for the Transition Period and Six Months 1995:
TRANSITION PERIOD COMPARED TO SIX MONTHS 1995
---------------------------------------------
NET SALES UNIT VOLUME
-------------------------------- -------------------------------
TRANSITION SIX MONTHS %INCREASE TRANSITION SIX MONTHS %INCREASE
PERIOD 1995 (DECREASE) PERIOD 1995 (DECREASE)
------ ---- ---------- ------ ---- ----------
Branded Beverage
Alcohol Products
(1) $474,450 $443,204 7.1 % 28,748 26,786 7.3 %
Branded Wine
Products $268,782 $255,881 5.0 % 14,783 14,537 1.7 %
Non-varietal
wines $116,128 $117,805 (1.4)% 7,325 7,699 (4.9)%
Varietal wines $ 78,182 $ 64,049 22.1 % 3,637 2,971 22.4 %
Dessert wines $ 32,640 $ 33,435 (2.4)% 2,033 2,137 (4.9)%
Sparkling
wines $ 41,831 $ 40,592 3.1 % 1,788 1,731 3.3 %
Beer $115,757 $ 92,131 25.6 % 9,316 7,444 25.1 %
Spirits $ 91,219 $ 96,547 (5.5)% 4,648 4,793 (3.0)%
- - -------------------------
(1) The sum of the net sales and unit volume amounts from the categories do not
equal total Branded Beverage Alcohol Products because miscellaneous items
reducing net sales and adding to unit volume are included in total Branded
Beverage Alcohol Products but are not reflected in the category
information.
Net sales and unit volume of the Company's branded beverage alcohol
products for the Transition Period increased 7.1% and 7.3%, respectively, as
compared to Six Months 1995. These increases were principally due to increased
net sales and unit volume of the Company's imported beer brands and varietal
table wine brands.
Net sales of the Company's branded wine products increased by $12.9
million, or 5.0%, for the Transition Period as compared to Six Months 1995. Unit
volume of the Company's
<PAGE>
branded wine products increased by approximately 246,000 cases, or 1.7%. Of the
$12.9 million increase in net sales, (i) $8.6 million was due to higher average
selling prices per case due to a combination of price increases implemented by
the Company between October 1995 and January 1996 and a change in the product
mix in favor of higher-priced categories; and (ii) $4.3 million was due to
increased shipments of the Company's varietal table wines and sparkling wines,
partially offset by lower shipments of non-varietal table wines and dessert
wines. The Company believes that the increase in unit volume was partially due
to the fulfillment of a backlog of orders at the end of fiscal 1995 caused by
production and shipping delays associated with the relocation of bottling
operations under the Restructuring Plan. The backlog of unfilled orders from
August 1995 was substantially eliminated in the first three months of the
Transition Period.
Net sales and unit volume of the Company's non-varietal table wine brands
for the Transition Period decreased by 1.4% and 4.9%, respectively, as compared
to Six Months 1995. The decline in net sales was less than the decline in unit
volume as a result of the selling price increases implemented by the Company.
The Company believes that the volume decline is consistent with a general change
in consumer preferences from non-varietal table wines to varietal table wines
and may also reflect the impact of the Company's price increases.
Net sales and unit volume of the Company's varietal table wine brands for
the Transition Period increased 22.1% and 22.4%, respectively, as compared to
Six Months 1995. With the price increases implemented in the Transition Period,
the phasing out of introductory pricing on varietal wine line extensions, and
changes in mix, the average price per case of varietal wine has virtually
returned to the level the Company experienced in Six Months 1995. In addition,
the Company has initiated a second round of price increases on most of its
varietal wine brands which were implemented over the first three months of the
Company's fiscal year ending February 28, 1997 ("Fiscal 1997").
Net sales and unit volume of the Company's sparkling wine brands increased
by 3.1% and 3.3%, respectively, in the Transition Period as compared to Six
Months 1995. While these results were better than the industry growth rate in
the category during this period, they reflect comparisons to lower sales for the
Company in Six Months 1995 relative to the industry.
Net sales and unit volume of the Company's dessert wine brands decreased by
2.4% and 4.9%, respectively, in the Transition Period as compared to Six Months
1995, reflecting the continuing decline in the consumption of beverage dessert
wines, partially offset by increases in the sale of traditional dessert wines
such as ports and sherries.
Net sales and unit volume of the Company's beer brands for the Transition
Period increased by 25.6% and 25.1%, respectively, as compared to Six Months
1995. These increases were principally driven by growth in the Company's Mexican
beer brands. The Company does not anticipate that sales of imported beers will
continue to grow at such rates during Fiscal 1997.
Net sales and unit volume of the Company's distilled spirits brands
declined by 5.5% and 3.0%, respectively, in the Transition Period as compared to
Six Months 1995. Excluding the impact of the UDG Acquisition, net sales and unit
volume of the Company's distilled spirits brands grew by 6.2% and 5.0%,
respectively, in the Transition Period, led by higher brandy,
<PAGE>
tequila, liqueur and rum sales, partially offset by lower whiskey, gin and vodka
sales. Unit sales of the brands acquired in the UDG Acquisition were 11.5% lower
than in Six Months 1995, accounting for lower overall spirits sales. 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
noncompetitive retail pricing and promotional activities. The Company has
implemented pricing and promotional activities which it expects will reduce the
rate of decline during Fiscal 1997.
GROSS PROFIT
Gross profit for the Transition Period was $138.8 million, an increase of
$12.0 million as compared to gross profit of $126.8 million for Six Months 1995.
This increase in gross profit resulted from $18.5 million of additional gross
profit from sales generated from the business acquired from UDG and $1.0 million
from ongoing operations, which was offset in part by $7.5 million of One-time
Items. The $1.0 million increase in gross profit from ongoing operations
resulted from a $7.3 million increase in gross profit, primarily due to
increased sales and higher gross margins from the Company's imported beer
business, partially offset by $6.3 million of lower gross profits in the
Company's wine and grape juice concentrate businesses, which reduced net income
by $3.8 million, and were due primarily to higher grape costs which were only
partially recovered by selling price increases in the Transition Period.
Gross profit as a percentage of net sales was 25.9% for the Transition
Period. The gross profit percentage was positively impacted by the UDG
Acquisition, as gross profit as a percentage of net sales on the business
acquired from UDG was 34.7%. Exclusive of the UDG Acquisition and One-time
Items, gross profit as a percentage of net sales in the Transition Period was
26.5%, a decline from 27.9% in Six Months 1995. This decline was due primarily
to the impact of higher grape costs in the Transition Period, partially offset
by improved gross profit as a percentage of net sales in the Company's imported
beer business.
The Company has initiated a second round of price increases on most of its
varietal wine brands which were implemented over the first three months of
Fiscal 1997. As a result, the Company expects gross profit as a percentage of
net sales to increase in Fiscal 1997.
The Company expects that grape costs will rise again in the fall 1996
harvest, and is estimating that, as a result, gross profits for Fiscal 1997 will
be negatively impacted by approximately $13 million under the Company's last-in,
first-out ("LIFO") method of costing. Under LIFO, higher cost inventory expected
at the end of the fiscal year is fully reflected on an estimated basis each
quarter the Company reports its results of operations during that fiscal year.
For example, estimated increases in grape costs for the fall 1996 harvest will
begin to be reflected in the Company's results of operations for the first
quarter of Fiscal 1997. Increases in wine and grape juice concentrate selling
prices, however, are generally implemented as higher cost inventories are used
later in the fiscal year. Initially, this timing difference results in increased
selling prices not fully absorbing higher costs on a reported basis.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses totalled $112.4 million for
the Transition Period, an increase of $32.5 million as compared to Six Months
1995. Exclusive of $11.1 million covered in the One-time Items and $8.3 million
related to the UDG Acquisition, selling, general and administrative expenses
increased by $13.1 million, or 16.3%, as compared to Six Months 1995.
Advertising and promotion increases of $6.7 million were related primarily to
the Almaden and Inglenook brands which were acquired in August 1994 and which
the Company did not advertise or promote at a full level in the first several
months after their acquisition. The Company also incurred increased advertising
and promotion expenses related to the increased sales of its imported beers.
Selling expenses increased by $5.4 million primarily as a result of the Almaden
and Inglenook brand acquisitions, with the Transition Period including a full
complement of sales and marketing personnel to service the brands that were not
in place for the entire period in Six Months 1995. The Transition Period also
included additional sales personnel in the Company's spirits and imported beer
divisions. Other general and administrative expenses increased by $1.0 million.
Excluding the One-time Items and the UDG Acquisition, selling, general and
administrative expenses as a percent of net sales increased to 19.3% from 17.6%
in Six Months 1995 due to the inclusion of a full complement of advertising,
promotion and selling expense related to the Almaden and Inglenook brands. The
Company expects the percent of net sales represented by selling, general and
administrative expenses to decline in Fiscal 1997 as compared to the Transition
Period.
NONRECURRING RESTRUCTURING EXPENSES
The Company incurred net restructuring charges of $2.4 million in the
Transition Period, as compared to restructuring charges of $0.7 million in Six
Months 1995. The restructuring expenses in the Transition Period represent $3.1
million of incremental, nonrecurring expenses such as overtime and freight
expense related to production and shipment delays associated with the
Restructuring Plan, offset by a net reduction of $0.7 million in accrued
liabilities associated with the Restructuring Plan to take into account lower
than expected expenses for severance and facility holding and closure costs.
(See "Financial Liquidity and Capital Resources" and the footnotes to the
financial statements included in this Report on Form 10-K.)
INTEREST EXPENSE, NET
Net interest expense increased $4.2 million to $17.3 million in the
Transition Period as compared to Six Months 1995. The increase resulted from
additional interest expense associated with the borrowings related to the UDG
Acquisition, amounting to $5.1 million, and increased working capital
requirements due primarily to higher grape costs and the UDG Acquisition,
partially offset by net reductions in the Company's Term Loan and Revolving
Credit Loans using proceeds of the Company's November 18, 1994, public equity
offering.
<PAGE>
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for the Transition Period was 50.4% as
compared to 38.5% for Six Months 1995. The effective tax rate increased by 1.5%
due to an increased state tax liability generated primarily by the increasing
mix of the Company's business in the state of California, which has a higher tax
rate. The additional 10.4% effective tax rate was related to a decrease in the
tax benefit recognized for state tax purposes related primarily to the state of
California's treatment of net operating losses, which are not expected to impact
the effective tax rate in Fiscal 1997.
NET INCOME
Net income decreased to $3.3 million in the Transition Period from $20.3
million in Six Months 1995. The decrease in net income was primarily due to the
after-tax impact of the One-time Items of $12.9 million, $7.8 million of higher
selling, general and administrative expenses after taxes and $3.8 million of
higher grape costs after taxes; partially offset by net income contributed by
Barton exclusive of the impact of the UDG Acquisition and $3.1 million of
after-tax profits from the UDG Acquisition including the impact of the interest
associated with the acquisition financing, among other items.
--------------------------------
As previously announced, the Company expects its fully diluted net income
per share for Fiscal 1997 to be in the range of $2.30 to $2.50. The Company does
not, however, necessarily expect its projected fully diluted net income per
share for each quarter of Fiscal 1997 to follow historical patterns on a
quarterly basis. These projected results assume increased grape costs from the
upcoming harvest. The Company would expect to increase its wine and grape juice
concentrate selling prices to offset fully these higher costs on an annualized
basis. Under LIFO, higher cost inventory expected at the end of the fiscal year
is fully reflected on an estimated basis each quarter the Company reports its
results of operations during that fiscal year. Increases in wine and grape juice
concentrate selling prices, however, are generally implemented as higher cost
inventories are used later in the fiscal year. Initially, this timing difference
results in increased selling prices not fully absorbing higher costs on a
reported basis.
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
<PAGE>
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 of dollars) and unit
volumes (in thousands of cases) 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
------------------------------ -------------------------
% INCREASE % INCREASE
1995 1994 (DECREASE) 1995 1994 (DECREASE)
---- ---- --------- ---- ---- ----------
Branded Beverage
Alcohol Products (1) $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 (2) $ 92,400 $ 88,549 4.3% 5,041 4,847 4.0%
- - -----------------------
(1) The sum of the net sales and unit volume amounts from the categories do not
equal total Branded Beverage Alcohol Products because miscellaneous items
affecting net sales and unit volume are included in total Branded Beverage
Alcohol Products but are not reflected in the category information.
(2) The Spirits category includes for both years presented case goods sales of
a number of brandy products under brands acquired in the Vintners and
Almaden/Inglenook Acquisitions.
Net sales and unit volume of the Company's branded beverage alcohol
products for the fiscal year ended August 31, 1995, each increased 6% 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.
<PAGE>
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 backlog was
substantially eliminated in the first three months of the Transition Period. The
Company also increased prices on selected branded wine products during the
Transition Period 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.
Net sales and unit volume of the Company's spirits brands for fiscal 1995
increased 4.3% and 4.0%, respectively, compared to fiscal 1994. The growth is
due to increased shipments of brandy, vodka, and tequila.
<PAGE>
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 percentages 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 therefore
increased the Company's costs of goods sold beginning in the first three months
of the Transition Period. As a result, gross profit margins for the Company's
wine business were adversely affected during the Transition Period.
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 the footnotes to the financial statements included in this
Report on Form 10-K.)
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.
<PAGE>
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
<PAGE>
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 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 3.9% and 1.2%, 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) and
brandy, which was partially offset by increased net sales of the Company's
blended whiskey, tequila and liqueur brands.
<PAGE>
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
the footnotes to the financial statements included in this Report on Form 10-K.)
INTEREST EXPENSE, NET
Net interest expense 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.")
<PAGE>
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.
TRANSITION PERIOD CASH FLOWS
OPERATING ACTIVITIES
Net cash used in operating activities in the Transition Period was $84.8
million. The net cash used in operating activities for the Transition Period
resulted principally from an increase in current assets, offset in part by net
income adjusted for noncash items. The increase in current assets resulted
principally from a $70.2 million increase in inventories as a result of the
purchase of grapes from the 1995 harvest and a $27.0 million increase in
accounts receivable primarily due to sales of products and services from the UDG
Acquisition.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities in the Transition Period was $26.8
million, resulting primarily from $16.1 million of capital expenditures and
$11.3 million of Earn-Out payments (as defined below). Included in the capital
expenditures is $6.6 million associated with the Restructuring Plan.
Net cash provided by financing activities in the Transition Period was
$110.8 million, resulting principally from $111.3 million of Revolving Loan
borrowings under the Company's Credit Facility (as defined below) to fund higher
net seasonal working capital requirements and $13.2 million of increased Term
Loan facility borrowings used to fund the purchase of inventories, excess
borrowings and transaction costs in connection with the UDG Acquisition,
partially offset by $14.6 million of principal payments of long-term debt. The
total increase in the Company's Term Loan facility was $155.0 million, which
included the $13.2 million and $141.8 million used to finance the UDG
Acquisition.
As of February 29, 1996, under its Credit Facility, the Company had
outstanding Term Loans of $236.0 million bearing interest at 6.4%, $111.3
million of Revolving Loans bearing interest at 6.3%, $5.0 million of Revolving
Letters of Credit and $13.7 million under the Barton Letter of Credit. As of
February 29, 1996, under the Credit Facility, $68.7 million of Revolving Loans
were available to be drawn by the Company.
<PAGE>
During the Transition Period, the Company's Board of Directors authorized
the repurchase of up to $30.0 million of its Class A Stock and Class B Stock.
The repurchase of shares of common stock will be accomplished, from time to
time, depending upon market conditions, through open market or privately
negotiated transactions. The Company may finance such repurchases through cash
generated from operations or through the Credit Facility. The repurchased shares
will become treasury shares and may be used for general corporate purposes. As
of May 29, 1996, the Company had repurchased 55,000 shares of Class A Stock, at
an aggregate cost of $1,708,750, or at an average price of $31.07 per share. All
such shares were repurchased subsequent to the Transition Period.
THE COMPANY'S CREDIT FACILITY
On September 1, 1995, the Company, its principal operating subsidiaries,
and a syndicate of 20 banks, (the "Syndicate Banks") for which The Chase
Manhattan Bank (National Association)("Chase") acts as Administrative Agent,
entered into the Third Amended and Restated Credit Agreement. (This Agreement
amended and restated the Second Amendment and Restatement dated as of August 5,
1994 of Amendment and Restatement of Credit Agreement dated June 29, 1993.) This
Third Amended and Restated Credit Agreement was further amended (i) as of
December 20, 1995, to permit the use of Revolving Loans to purchase up to $30.0
million of the Company's common stock, (ii) as of January 10, 1996, to
accommodate the change in the Company's fiscal year end, and (iii) as of May 17,
1996, to, among other things, modify certain financial covenants, effective as
of February 29, 1996, to which the Company is subject. (The Third Amended and
Restated Credit Agreement, as amended, is referred to as the "Credit Facility".)
As of September 1, 1995, the Credit Facility provided for (i) a $246.0 million
Term Loan facility due in August 2001 ("Term Loans"), (ii) a $185.0 million
Revolving Loan facility which expires in June 2001 ("Revolving Loans"), and
(iii) a $25.0 million irrevocable standby Letter of Credit (the "Barton Letter
of Credit") related to the Barton Acquisition Earn-Out payments (as defined
below), which expires in December 1996.
The Term Loans and the Revolving Loans, 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 0.75%. The interest rate margin
for Eurodollar rate loans may be decreased by up to 0.25% or increased by up to
0.5% depending on the Company's debt coverage ratio (as defined in the 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, under the Credit Facility, the Company borrowed an
additional $155,000,000 through the Term Loan facility to finance the UDG
Acquisition. As of May 22, 1996, the Company had outstanding Term Loans in a
principal amount of $226.0 million bearing interest at 6.2% with quarterly
principal payments of $10.0 million which commenced 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
<PAGE>
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 $185.0 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 $20.0 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 amount of Revolving Letters of
Credit. As of May 22, 1996, there were outstanding Revolving Loans of $93.0
million bearing interest at 6.3%, undrawn Revolving Letters of Credit of $9.6
million and $82.4 million available to be drawn in Revolving Loans. The proceeds
from the $93.0 million increase in the Revolving Loans since August 31, 1995,
were used primarily 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 fiscal quarters ending on May 31 and August 31 of
each fiscal year, the aggregate amount of Revolving Loans outstanding, together
with drawn and undrawn Revolving Letters of Credit, will not exceed $60.0
million.
The Barton Letter of Credit is an existing letter of credit originally
issued in the face amount of $25.0 million. This amount represented the full
amount committed under the Credit Facility. On January 1, 1996, the face amount
of the Barton Letter of Credit was reduced to $13.7 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 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 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 $130.0
million under a subordinated bank loan. The Company repaid the subordinated bank
loan in December 1993 from the proceeds of the sale of its $130.0 million 8.75%
Senior Subordinated Notes due 2003 (the "Notes") together with Revolving Loan
borrowings. The Notes are due in 2003 with a
<PAGE>
stated interest rate of 8.75% per annum. Interest is payable semi-annually on
June 15 and December 15 of each year. The Notes are redeemable at the option of
the Company, in whole or in part, on or after December 15, 1998. The Notes are
unsecured and subordinated to the prior payment in full of all senior
indebtedness of the Company, which includes the Credit Facility. The Notes are
guaranteed, on a senior subordinated basis, by substantially all of the
Company's operating subsidiaries.
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, the
second payment of $28.3 million was made on December 30, 1994, and the third
payment of $10.0 million was made on November 30, 1995, 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 final
remaining payment has been accrued as of February 29, 1996, as a result of the
achievement of certain targets for earnings before interest and taxes and is to
be made by November 29, 1996, and is expected to be funded through Revolving
Loans. Such payment obligations are secured by the Company's irrevocable
standby letter of credit under the Credit Facility (i.e., the Barton Letter of
Credit) and are subject to acceleration in certain events. All Earn-Out payments
were accounted for as additional purchase price for the Barton Acquisition when
the contingencies were satisfied and were allocated based upon the fair market
value of the underlying assets. As a result, as the Earn-Out conditions are
satisfied and the payments are accrued, 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, which escrow has been extended. 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 $14.0 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
<PAGE>
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 Transition Period of approximately $1.2 million, or
$.06 per share on a fully diluted basis. These charges primarily represent
incremental, nonrecurring expenses incurred for overtime and freight expenses
resulting from inefficiencies related to the Restructuring Plan, offset by a
reduction in the accrual for restructuring expenses primarily for severance and
facility holding and closure costs. During the Transition Period, the Company
expended approximately $6.6 million for capital expenditures associated with the
Restructuring Plan.
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 wastewater 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 wastewater treatment facilities have not constituted a
material part of the Company's maintenance or capital expenditures during the
Transition Period or over the last three fiscal years and the Company does not
expect to incur any such material expenditures during its 1997 fiscal year.
During the Transition Period and the last three fiscal years, the Company has
not incurred, nor does it expect to incur in its 1997 fiscal year, any material
expenditures related to remediation of previously contaminated sites or other
nonrecurring 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 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.
------------------------------
IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The Company makes forward-looking statements from time to time and desires
to take advantage of the "safe harbor" which is afforded such statements under
the Private Securities Litigation Reform Act of 1995 when they are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those in the forward-looking
statements.
<PAGE>
The statements contained in the foregoing "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Transition Report on Form 10-K which are not historical facts are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from those set forth in the forward-looking
statements. Any projections of future results of operations, and in particular,
the Company's estimated fully diluted net income per share for Fiscal 1997,
should not be construed in any manner as a guarantee that such results will in
fact occur. There can be no assurance that any forward-looking statement will be
realized or that actual results will not be significantly higher or lower than
set forth in such forward-looking statement. In addition to the risks and
uncertainties of ordinary business operations, the forward-looking statements of
the Company contained in this Transition Report on Form 10-K are also subject to
the following risks and uncertainties:
The Company is in a highly competitive environment and its dollar sales and
unit volume could be negatively affected by its inability to maintain or
increase prices, changes in geographic or product mix, a general decline in
beverage alcohol consumption or the decision of its wholesale customers,
retailers or consumers to purchase competitive products instead of the
Company's products. Wholesaler, retailer and consumer purchasing decisions
are influenced by, among other things, the perceived absolute or relative
overall value of the Company's products, including their quality or
pricing, compared to competitive products. Unit volume and dollar sales
could also be affected by pricing, purchasing, financing, operational,
advertising or promotional decisions made by wholesalers and retailers
which could affect their supply, or consumer demand for, the Company's
products.
The Company could experience raw material supply, production or shipment
difficulties which could adversely affect its ability to supply goods to
its customers. The Company could also experience higher than expected
increases in its cost of product sold if raw materials such as grapes or
packaging materials are in short supply or if the Company experiences
increased overhead costs.
The Company could experience higher than expected selling, general and
administrative expenses if it finds it necessary to increase its number of
personnel or its advertising or promotional expenditures to maintain its
competitive position or for other reasons.
The Company believes that its future results of operations are inherently
difficult to predict due to the Company's use of the last-in, first-out
costing method ("LIFO"), particularly as it relates to the Company's
purchase of grapes from the 1996 fall harvest. The Company has estimated
the impact that grape costs will have on the Company's gross profits for
Fiscal 1997. However, at this time of year, the Company's estimate is
preliminary as there is insufficient information available to predict with
any certainty grape costs from the fall 1996 harvest.
<PAGE>
The Company is currently undergoing a reengineering effort involving the
evaluation of its business processes and organizational structure and could
make changes in its business in response to this effort which are not
currently contemplated.
The Company could experience difficulties or delays in the development,
production, testing and marketing of new products, and the failure of
manufacturing economies related to such matters as bottling line speeds and
warehousing capabilities to develop when planned.
The Company could experience changes in its ability to obtain or hedge
against foreign currency, foreign exchange rates and fluctuations in those
rates. The Company could also be affected by nationalizations or unstable
governments or legal systems or intergovernmental disputes. These currency,
economic and political uncertainties may affect the Company's results,
especially to the extent these matters, or the decisions, policies or
economic strength of the Company's suppliers, affect the Company's Mexican,
German, Chinese and other imported beer products.
The forward-looking statements contained herein are based on estimates
which the Company believes are reasonable. This means that the Company's
actual results could differ materially from such estimates as a result of
being negatively affected as above described or otherwise positively
affected.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND
SUPPLEMENTARY SCHEDULES
FEBRUARY 29, 1996
Page
The following information is presented in this report:
Report of Independent Public Accountants .............................
Consolidated Balance Sheets - February 29, 1996, February 28, 1995
(unaudited), August 31, 1995 and 1994............................
Consolidated Statements of Income for the six months ended February
29, 1996 and February 28, 1995 (unaudited) and for the years
ended August 31, 1995, 1994, and 1993............................
Consolidated Statements of Changes in Stockholders' Equity for the
six months ended February 29, 1996 and for the years ended
August 31, 1995, 1994, and 1993..................................
Consolidated Statements of Cash Flows for the six months ended
February 29, 1996 and February 28, 1995 (unaudited) and for the
years ended August 31, 1995, 1994, and 1993......................
Notes to Consolidated Financial Statements............................
Selected Financial Data...............................................
Selected Quarterly Financial Information (Unaudited) .................
Schedules I thru 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.
<PAGE>
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 February 29, 1996
and August 31, 1995 and 1994, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the six months ended February
29, 1996 and each of the three years in the period ended August 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Canandaigua Wine Company, Inc.
and subsidiaries as of February 29, 1996 and August 31, 1995 and 1994, and the
results of their operations and their cash flows for the six months ended
February 29, 1996 and each of the three years in the period ended August 31,
1995, in conformity with generally accepted accounting principles.
Rochester, New York, /s/ Arthur Andersen LLP
May 17, 1996
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
February 29, 1996 February 28, 1995 August 31, 1995 August 31, 1994
----------------- ----------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash investments $ 3,339 $ 3,090 $ 4,180 $ 1,495
Accounts receivable, net 142,471 120,538 115,448 122,124
Inventories, net 341,838 319,836 256,811 301,053
Prepaid expenses and other
current assets 30,372 26,298 25,070 29,377
----------- --------- --------- ---------
Total current assets 518,020 469,762 401,509 454,049
PROPERTY, PLANT AND EQUIPMENT, NET 250,638 195,839 217,505 194,283
OTHER ASSETS 285,922 167,316 166,907 178,230
=========== ========= ========= =========
Total assets $ 1,054,580 $ 832,917 $ 785,921 $ 826,562
=========== ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 111,300 $ 7,000 $ -- $ 19,000
Current maturities of long-term debt 40,797 37,857 29,133 31,001
Accounts payable 59,730 45,438 62,091 75,506
Accrued federal and state excise taxes 19,699 23,564 15,633 16,657
Other accrued expenses and liabilities 68,440 77,192 67,896 96,061
----------- --------- --------- ---------
Total current liabilities 299,966 191,051 174,753 238,225
----------- --------- --------- ---------
LONG-TERM DEBT, less current maturities 327,616 239,791 198,859 289,122
----------- --------- --------- ---------
DEFERRED INCOME TAXES 58,194 43,831 49,827 43,774
----------- --------- --------- ---------
OTHER LIABILITIES 12,298 30,077 10,600 51,248
----------- --------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par value-
Authorized, 60,000,000 shares; Issued,
17,423,082 shares at February 29, 1996,
17,343,889 shares at February 28, 1995,
17,400,082 shares at August 31, 1995,
and 13,832,597 shares at August 31, 1994 174 173 174 138
Class B Convertible Common Stock, $.01
par value - Authorized, 20,000,000
shares; Issued 3,991,683 shares at
February 29, 1996, 4,015,626 shares
at February 28, 1995, 3,996,683
shares at August 31, 1995, and
4,015,776 shares at August 31, 1994 40 40 40 40
Additional paid-in capital 221,133 216,967 219,894 113,348
Retained earnings 142,600 118,578 139,278 98,258
----------- --------- --------- ---------
363,947 335,758 359,386 211,784
----------- --------- --------- ---------
Less-Treasury stock-
Class A Common Stock, 1,165,786 shares
at February 29, 1996, 1,215,296
shares at February 28, 1995,
1,186,655 shares at August 31, 1995,
and 1,215,296 shares at
August 31, 1994, at cost (5,234) (5,384) (5,297) (5,384)
Class B Convertible Common Stock, 625,725
shares at February 29, 1996,
February 28, 1995, August 31, 1995
and 1994, at cost (2,207) (2,207) (2,207) (2,207)
----------- --------- --------- ---------
(7,441) (7,591) (7,504) (7,591)
----------- --------- --------- ---------
Total stockholders' equity 356,506 328,167 351,882 204,193
----------- --------- --------- ---------
Total liabilities and stockholders' equity $ 1,054,580 $ 832,917 $ 785,921 $ 826,562
=========== ========= ========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<CAPTION>
For the Six Months Ended For the Years Ended August 31,
-------------------------- ------------------------------------
February 29, February 28,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
GROSS SALES $ 738,415 $ 592,305 $ 1,185,074 $ 861,059 $ 389,417
Less - Excise taxes (203,391) (137,820) (278,530) (231,475) (83,109)
--------- --------- ----------- --------- ---------
Net sales 535,024 454,485 906,544 629,584 306,308
COST OF PRODUCT SOLD (396,208) (327,694) (653,811) (447,211) (214,931)
--------- --------- ----------- --------- ---------
Gross profit 138,816 126,791 252,733 182,373 91,377
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (112,411) (79,925) (159,196) (121,388) (59,983)
NONRECURRING RESTRUCTURING EXPENSES (2,404) (685) (2,238) (24,005) --
--------- --------- ----------- --------- ---------
Operating income 24,001 46,181 91,299 36,980 31,394
INTEREST INCOME 149 335 520 311 147
INTEREST EXPENSE (17,447) (13,476) (25,121) (18,367) (6,273)
--------- --------- ----------- --------- ---------
Income before provision for federal
and state income taxes 6,703 33,040 66,698 18,924 25,268
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (3,381) (12,720) (25,678) (7,191) (9,664)
--------- --------- ----------- --------- ---------
NET INCOME $ 3,322 $ 20,320 $ 41,020 $ 11,733 $ 15,604
========= ========= =========== ========= =========
SHARE DATA:
Net income per common and common
equivalent share:
Primary $.17 $1.11 $2.14 $.74 $1.30
==== ===== ===== ==== =====
Fully diluted $.17 $1.11 $2.13 $.74 $1.20
==== ===== ===== ==== =====
Weighted average shares outstanding:
Primary 20,006,267 18,343,870 19,147,935 15,783,583 11,963,652
Fully diluted 20,006,267 18,346,513 19,296,269 16,401,598 15,203,114
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
Common Stock Additional Retained Treasury
Class A Class B paid-in Capital Earnings Stock Total
------- ------- --------------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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
Conversion of 5,000 Class B Convertible Common
shares to Class A Common shares -- -- -- -- -- --
To record exercise of 18,000 Class A stock options -- -- 238 -- -- 238
Employee stock purchase of 20,869 treasury shares -- -- 593 -- 63 656
To record issuance of 10,000 Class A stock options -- -- 134 -- -- 134
To record tax benefit on stock options exercised -- -- 198 -- -- 198
To record tax benefit on disposition of employee
stock purchases -- -- 76 -- -- 76
Net income for Transition Period -- -- -- 3,322 -- 3,322
=======================================================================
BALANCE, February 29, 1996 $ 174 $ 40 $ 221,133 $ 142,600 ($ 7,441) $ 356,506
=======================================================================
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Six Months Ended For the Years Ended August 31,
------------------------ ------------------------------
February 29, February 28,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,322 $ 20,320 $ 41,020 $ 11,733 $ 15,604
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation of property, plant and equipment 9,521 9,786 15,568 10,534 7,389
Amortization of intangible assets 4,437 2,865 5,144 3,281 1,286
Deferred tax provision (benefit) 1,991 57 19,232 (4,319) 1,028
Loss (gain) on sale of property, plant and
equipment 81 -- (33) -- (524)
Accrued interest on converted debentures,
net of taxes -- -- -- 161 --
Restructuring charges - fixed asset write-down 275 -- (2,050) 13,935 --
Change in assets and liabilities,
net of effects from purchases of businesses:
Accounts receivable, net (27,008) 1,586 7,392 (17,946) (5,761)
Inventories, net (70,172) (18,783) 41,528 784 8,966
Prepaid expenses (2,350) 3,079 (3,884) 1,703 (8,571)
Accounts payable (2,362) (30,068) (13,415) 2,680 (18,948)
Accrued federal and state excise taxes 4,066 6,907 (1,025) 4,405 845
Other accrued expenses and liabilities (8,564) (28,175) (20,784) 4,023 6,687
Other 1,930 (3,817) (15,375) (3,795) 911
--------- --------- --------- --------- ---------
Total adjustments (88,155) (56,563) 32,298 15,446 (6,692)
--------- --------- --------- --------- ---------
Net cash (used in) provided by operating
activities (84,833) (36,243) 73,318 27,179 8,912
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 555 -- 1,336 -- 1,337
Purchases of property, plant and equipment,
net of minor disposals (16,077) (11,342) (37,121) (7,853) (6,949)
Payment of accrued Earn-Out Amounts (11,307) -- (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 (26,829) (11,342) (64,085) (16,950) 3,098
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayment) of notes payable, short-term
borrowings 111,300 57,100 50,100 (2,035) (9,835)
Repayment of notes payable from equity offering
proceeds -- (22,100) (22,100) -- --
Repayment of notes payable from proceeds of Term Loan -- (47,000) (47,000) -- --
Payment of fees for subordinated notes offering -- -- -- (4,624) --
Principal payments of long-term debt (14,579) (7,474) (57,906) (6,856) (981)
Proceeds of Term Loan, long-term debt 13,220 47,000 47,000 -- --
Repayment of Term Loan from equity offering proceeds,
long-term debt -- (82,000) (82,000) -- --
Proceeds from equity offering, net -- 103,313 103,400 -- --
Proceeds from employee stock purchases 656 -- 633 1,056 330
Exercise of employee stock options 224 341 1,325 10 --
Fractional shares paid for debenture conversions -- -- -- (3) --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities 110,821 49,180 (6,548) (12,452) (10,486)
--------- --------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS (841) 1,595 2,685 (2,223) 1,524
CASH AND CASH INVESTMENTS, beginning of period 4,180 1,495 1,495 3,718 2,194
--------- --------- --------- --------- ---------
CASH AND CASH INVESTMENTS, end of period $ 3,339 $ 3,090 $ 4,180 $ 1,495 $ 3,718
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 14,720 $ 14,068 $ 25,082 $ 14,727 $ 5,910
========= ========= ========= ========= =========
Income taxes $ 3,612 $ 9,454 $ 11,709 $ 15,751 $ 5,670
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Fair value of assets acquired, including cash
acquired $ 144,927 $ -- $ -- $ 428,442 $ 135,280
Liabilities assumed (3,147) -- -- (153,827) (52,851)
--------- --------- --------- --------- ---------
Cash paid 141,780 -- -- 274,615 82,429
Less - Amounts borrowed (141,780) -- -- (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 acquisition $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Accrued Earn-Out Amounts $ 15,155 $ -- $ 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
========= ========= ========= ========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 1996
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 1,200 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.
YEAR-END CHANGE -
The Company changed its fiscal year end from the twelve month period ending
August 31 to the twelve month period ending on the last day of February. The
period from September 1, 1995, through February 29, 1996, is hereinafter
referred to as the "Transition Period".
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements of the Company include the accounts of
Canandaigua Wine Company, Inc., and all of its subsidiaries. All intercompany
accounts and transactions have been eliminated.
UNAUDITED FINANCIAL STATEMENTS -
The consolidated financial statements as of February 28, 1995, and for the six
month period ended February 28, 1995, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission applicable to interim reporting and reflect, in the opinion of the
Company, all adjustments necessary to present fairly the financial information
for Canandaigua Wine Company, Inc., and its subsidiaries. All such adjustments
are of a normal recurring nature.
MANAGEMENT'S USE OF ESTIMATES AND JUDGMENT -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH INVESTMENTS -
Cash investments consist of money market funds and a certificate of deposit and
are stated at cost, which approximates market value. These investments amounted
to approximately $1,732,000, at February 29, 1996, and $12,900 at February 28,
1995 (unaudited), and $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.
<PAGE>
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% at February 29,
1996, 95% at February 28, 1995 (unaudited), and 94% and 95% at August 31, 1995
and 1994, respectively. Replacement cost of the inventories determined on a FIFO
basis is approximately $332,849,000 at February 29, 1996, $306,991,000 at
February 28, 1995 (unaudited), and $240,895,000 and $289,209,000 at August 31,
1995 and 1994, respectively. The net realizable value of the Company's
inventories was in excess of $341,838,000, $319,836,000 (unaudited),
$256,811,000 and $301,053,000 at February 29, 1996, February 28, 1995, and
August 31, 1995 and 1994, 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:
February 29, February 28, August 31, August 31,
1996 1995 1995 1994
---- ---- ---- ----
(unaudited)
(IN THOUSANDS)
Raw materials and supplies $ 24,197 $ 42,478 $ 19,753 $ 25,225
Wines and distilled spirits
in process 254,956 212,483 174,399 209,999
Finished case goods 62,685 64,875 62,659 65,829
-------- -------- -------- --------
$341,838 $319,836 $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.
<PAGE>
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
February 29, 1996, the weighted average of the remaining useful lives of these
assets was approximately thirty-seven years. The face value of the officers'
life insurance policies totaled $2,852,000 for all periods presented.
ADVERTISING AND PROMOTION COSTS -
The Company generally expenses advertising and promotion costs as incurred,
shown or distributed. Prepaid advertising costs at February 29, 1996, February
28, 1995 and August 31, 1995 and 1994, are not material. Advertising expense for
the Transition Period, the comparable six months ended February 28, 1995, and
the years ended August 31, 1995 and 1994, were approximately $60,187,000,
$41,658,000 (unaudited), $84,246,000 and $64,540,000, respectively.
INCOME TAXES -
The Company uses the liability method of accounting for income taxes. The
liability method accounts for deferred income taxes by applying statutory rates
in effect at the balance sheet date to the difference between the financial
reporting and tax basis of assets and liabilities.
ENVIRONMENTAL -
Environmental expenditures that relate to current operations are expensed 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
February 29, 1996, February 28, 1995, and August 31, 1995 and 1994, liabilities
for environmental costs totaled $465,000, $250,000 (unaudited), $550,000 and
$100,000, respectively, and are recorded in other accrued liabilities.
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
<PAGE>
debentures under the "if converted method" and assumes exercise of stock options
using the treasury stock method.
OTHER -
Certain fiscal 1995, 1994 and 1993 balances have been reclassified to conform
with current period 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 the
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 and achievement of targets for
earnings before interest and taxes. 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 was accrued at August 31, 1995, and was 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 final
remaining payment has been accrued as of February 29, 1996, as a result of the
achievement of 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 irrevocable standby 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 accounted for as additional purchase price for the
Barton Acquisition when the contingency was 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
<PAGE>
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 on November 30, 1995, paid $403,000. As of
February 29, 1996, all remaining payments to be made in accordance with the
Phantom Stock Plan, totaling $892,000, have been accrued as all performance
criteria have been satisfied. Payments of $605,000 will be made by November 30,
1996, and payments of $277,000 will be made by April 1, 1997, and $10,000 will
be made by February 10, 2024. At August 31, 1995 and 1994, $581,000 and
$554,000, respectively, were 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 $47,235,000 and an additional deferred tax liability of
$36,075,000 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
<PAGE>
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 February 29, 1996, 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
acquisition.
ALMADEN/INGLENOOK -
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, 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
<PAGE>
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.
UDG ACQUISITION -
On September 1, 1995, the Company through its wholly-owned subsidiary, Barton
Incorporated (Barton), 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 all of UDG's rights to the
Fleischmann's, Skol, Mr. Boston, Canadian LTD, Old Thompson, Kentucky Tavern,
Chi-Chi's, Glenmore and di Amore distilled spirits brands; 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. 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 aggregate consideration for the acquired brands and other assets consisted
of $141,780,000 in cash, plus transaction costs of $2,300,000, and assumption of
certain current liabilities. The source of the cash payment made at closing,
together with payment of other costs and expenses required by the UDG
Acquisition, was financing provided by the Company pursuant to a term loan under
the Credit Facility (see Note 7).
The following table sets forth the audited results of operations of the Company
for the Transition Period as compared to the unaudited pro forma results of
operations of the Company for the unaudited comparable six month period ended
February 28, 1995, and for the fiscal years ended August 31, 1995 and 1994. The
comparable six month period ended February 28, 1995, and the fiscal year ended
August 31, 1995, unaudited pro forma results of operations give effect to the
UDG Acquisition as if it occurred on September 1, 1994. The fiscal 1994
unaudited pro forma results of operations give effect to the Almaden/Inglenook
Acquisition, the Vintners Acquisition and the UDG Acquisition as if they
occurred on September 1, 1993. The unaudited pro forma results of operations are
presented after giving effect to certain adjustments for depreciation,
amortization of goodwill, interest expense on the acquisition financing and
related income tax effects. The unaudited pro forma results of operations are
based upon currently available information and upon certain assumptions that the
Company believes are reasonable under the circumstances. The unaudited pro forma
results of operations do not purport to represent what the Company's results of
operations would actually have been if the aforementioned transactions in fact
had occurred on such dates or to project the Company's financial position or
results of operations at any future date or for any future period.
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended
------------------------ -------------------
February 29, February 28, August 31, August 31,
1996 1995 1995 1994
---- ---- ---- ----
(audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Net sales $ 535,024 $ 505,107 $ 998,679 $ 978,275
Income before provision for income
taxes $ 6,703 $ 37,318 $ 107,129 $ 29,392
Net income $ 3,322 $ 22,951 $ 45,793 $ 17,654
Share data:
Net income per common and common
equivalent share:
Primary $.17 $1.25 $2.39 $1.12
Fully diluted $.17 $1.25 $2.37 $1.10
Weighted average shares outstanding:
Primary 20,006,267 18,343,870 19,147,935 15,783,583
Fully diluted 20,006,267 18,346,513 19,296,269 16,401,598
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
<TABLE>
February 29, February 28, August 31,
1996 1995 1995 1994
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Land $ 16,867 $ 13,814 $ 15,257 $ 13,814
Buildings and improvements 76,694 62,583 65,084 62,440
Machinery and equipment 226,432 168,767 197,266 168,222
Motor vehicles 5,814 2,552 5,204 2,552
Construction in progress 12,404 19,643 12,171 8,989
------ ------ ------ -----
338,211 267,359 294,982 256,017
Less - Accumulated depreciation (87,573) (71,520) (77,477) (61,734)
------- ------- ------- -------
$ 250,638 $ 195,839 $ 217,505 $ 194,283
========= ========= ========= =========
</TABLE>
<PAGE>
4. OTHER ASSETS:
The major components of other assets are as follows:
February 29, February 28, August 31,
1996 1995 1995 1994
---- ---- ---- ----
(unaudited)
(IN THOUSANDS)
Goodwill $ 156,489 $ 79,511 $ 70,141 $ 88,459
Distribution rights, agency
license agreements
and trademarks 119,316 72,970 83,536 72,970
Other 23,123 23,195 23,187 22,296
------ ------ ------ ------
298,928 175,676 176,864 183,725
Less - Accumulated amortization (13,006) (8,360) (9,957) (5,495)
------- ------ ------ ------
$ 285,922 $ 167,316 $ 166,907 $ 178,230
========= ========= ========= =========
5. OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as follows:
February 29, February 28, August 31,
1996 1995 1995 1994
---- ---- ---- ----
(unaudited)
(IN THOUSANDS)
Accrued Earn-Out Amounts $ 13,848 $ -- $ 10,000 $ 28,300
Accrued loss on noncancelable
grape contracts 1,719 13,646 10,862 14,410
Other 52,873 63,546 47,034 53,351
------ ------ ------ ------
$ 68,440 $ 77,192 $ 67,896 $ 96,061
======== ======== ======== ========
6. OTHER LIABILITIES:
The major components of other liabilities are as follows:
February 29, February 28, August 31,
1996 1995 1995 1994
---- ---- ---- ----
(unaudited)
(IN THOUSANDS)
Accrued loss on noncancelable
grape contracts $ 8,937 $27,170 $ 7,374 $48,254
Other 3,361 2,907 3,226 2,994
----- ----- ----- -----
$12,298 $30,077 $10,600 $51,248
======= ======= ======= =======
<PAGE>
7. BORROWINGS:
Borrowings consist of the following:
<TABLE>
<CAPTION>
February 29, February 28, August 31,
1996 1995 1995 1994
---------------------------------------------------------------------
Current Long-term Total Total Total Total
------- --------- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Notes Payable:
Senior Credit Facility:
Revolving Credit Loans $111,300 $ -- $111,300 $ 7,000 $ -- $ 19,000
======== ======== ======== ======== ======== ========
Long-term Debt:
Senior Credit Facility:
Term loan, variable rate,
aggregate proceeds of
$246,000, due in installments
through August 2001 40,000 196,000 236,000 135,000 91,000 177,000
Senior Subordinated Notes:
8.75% redeemable after
December 15, 1998, due 2003 -- 130,000 130,000 130,000 130,000 130,000
Capitalized Lease Agreements:
Capitalized facility and equipment
leases at interest rates ranging
from 8.9% to 11.5%, due in monthly
installments through fiscal 1998 679 293 972 2,137 1,338 2,292
Industrial Development Agencies:
7.50% 1980 issue, original proceeds
$2,370, due in annual installments
of $118 through fiscal 2000 118 356 474 592 592 592
Other Long-term Debt:
Loans payable - 5% secured by cash
surrender value of officers' life
insurance policies -- 967 967 967 967 967
Notes payable at prime -- -- -- 8,632 3,775 8,632
Promissory note at prime rate, due
in equal annual installments
through fiscal 1996 -- -- -- 320 320 640
------- -------- -------- ------- -------- --------
$ 40,797 $327,616 $368,413 $277,648 $227,992 $320,123
======== ======== ======== ======== ======== ========
</TABLE>
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 the Third Amended and
Restated Credit Agreement (the Credit Agreement) dated September 1, 1995 which
provided for (i) a $246,000,000 Term Loan (the Term Loan) Facility and (ii) a
$185,000,000 Revolving Credit (the Revolving Credit Loans) Facility 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. On
September 1, 1995 the Company borrowed $155,000,000 on the Term Loan in
connection with the UDG Acquisition. This Third Amended and Restated Credit
Agreement was further amended (i) as of December 20, 1995 to permit the use of
Revolving Loans to repurchase up to $30,000,000 of its Class A and Class B
Common Stock, (ii) as of January 10, 1996 to accommodate the change in the
Company's fiscal year end, and (iii) as of May 17, 1996 to, among other things,
modify certain financial covenants, effective February 29, 1996, to which the
Company is subject. Term loans under the Senior 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 loans have an interest rate equal to the London Interbank
Offering Rate (LIBOR) plus a margin of .75%, 1.25% (unaudited), 1.00% and 1.25%,
at February 29, 1996, February 28, 1995, and August 31, 1995 and 1994,
respectively. The interest rate margin for Eurodollar loans ranges from .5% to
1.25% depending on the Company's debt coverage ratio (as defined by the Senior
Credit
<PAGE>
Facility). The principal of the Term Loan is to be repaid in 23 quarterly
installments of $10,000,000 with a final payment of $16,000,000, which is due on
August 15, 2001.
The $185,000,000 Revolving Credit Loans, available under the Senior 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 $20,000,000. At
February 29, 1996, February 28, 1995, and August 31, 1995 and 1994, the Company
had available to be drawn Revolving Credit Loans of $68,680,000, $176,670,000
(unaudited), $172,461,000 and $163,753,000, respectively. The Revolving Credit
Loans have the same borrowing options and margins as the Term Loan Facility and
in addition the Company may borrow under a money market option. The interest
rate is determined by a competitive bid process among the Syndicate Banks. For
30 consecutive days at any time during the fiscal quarters ending on May 31 and
August 31 of each fiscal year, the aggregate outstanding principal amount of
Revolving Credit Loans combined with Letters of Credit cannot exceed
$60,000,000. The weighted average interest rate on the Revolving Credit Loans
was 6.76%, 6.97% (unaudited), 7.16% and 6.07%, for the Transition Period, the
comparable six month period ended February 28, 1995, and the fiscal years ended
August 31, 1995 and 1994, respectively.
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, sale of assets, payment of dividends,
and incurring of other debt, liens or guarantees and making of investments. The
primary financial covenants as defined in the Credit Facility require the
maintenance of minimum tangible net worth and maximum debt ratio, fixed charge,
and interest coverage ratios.
The Revolving Credit Loans require commitment fees based on the daily average
unused portion of the Revolving Credit Facility. The fee is based upon the
Company's debt ratio as defined in the Credit Agreement and can range from .2%
to .375%. At February 29, 1996 the commitment fee percentage was .25%.
Commitment fees totaled approximately $142,600, $269,600 (unaudited), $635,000
and $223,000 for the Transition Period, the comparable six month period ended
February 28, 1995 and the fiscal years ended August 31, 1995 and 1994,
respectively.
At February 29, 1996, the Company maintains in accordance with the Senior Credit
Facility an interest rate cap agreement, in an amount equal to $61,000,000,
which protects the Company against three month LIBOR exceeding 8.75% per annum
and expires in September 1996 and an interest rate collar agreement in the
amount of $20,000,000 which protects the Company against three month LIBOR
exceeding 6.25% per annum with a floor rate of 4.75% per annum expiring in
September 1997.
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 with 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 Senior 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;
<PAGE>
(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 February 29, 1996,
February 28, 1995, and August 31, 1995 and 1994, is approximately $9,436,000,
$8,783,000 (unaudited), $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.
<PAGE>
DEBT PAYMENTS -
Principal payments required under long-term debt obligations during the next
five fiscal years are as follows:
February 29, 1996
-----------------
(in thousands)
1997 $ 40,797
1998 40,411
1999 40,119
2000 40,119
2001 40,000
Thereafter 166,967
--------
$368,413
========
8. INCOME TAXES:
The provision for Federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
For the Six Months For the Years Ended
February 29, 1996 August 31,
----------------- ----------
State &
Federal Local Total 1995 1994 1993
------- ----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Current income tax (benefit) provision $ (116) $ 1,506 $ 1,390 $ 6,446 $ 11,510 $8,636
Deferred income tax (benefit) provision 2,224 (233) 1,991 19,232 (4,319) 1,028
------- ------- ------- ------- -------- ------
$ 2,108 $ 1,273 $ 3,381 $25,678 $ 7,191 $9,664
======= ======= ======= ======= ======== ======
</TABLE>
The components of the deferred income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
For the
Six Months Ended For the Years Ended
February 29, August 31,
------------ -------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Accelerated tax depreciation and amortization $ 4,752 $ 10,089 $ 4,610 $ 758
LIFO reserve (2,007) 1,871 1,306 (202)
Prepaid advertising (922) 792 258 701
Inventory reserves 1,868 5,163 (2,186) (249)
Restructuring costs 2,155 3,144 (8,843) --
Other accruals (3,855) (1,827) 536 20
-------- -------- ------- -------
$ 1,991 $ 19,232 $(4,319) $ 1,028
======== ======== ======= =======
</TABLE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
For the For the Years Ended August 31,
Six Months Ended ------------------------------------------------------
February 29, 1996 1995 1994 1993
----------------- --------------- --------------- ----------------
% of % of % of % of
Pretax Pretax Pretax Pretax
Amount Income Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Computed "expected" tax provision $ 2,346 35.0 $ 23,344 35.0 $ 6,623 35.0 $ 8,758 34.7
State and local income taxes, net
of federal income tax benefit 827 12.3 2,395 3.6 644 3.4 870 3.4
Nondeductible meals and
entertainment expenses 205 3.1 290 .4 87 .5 48 .2
Miscellaneous items, net 3 -- (351) (.5) (163) (.9) (12) (.1)
------- ---- -------- ---- ------- ---- ------- ----
$ 3,381 50.4 $ 25,678 38.5 $ 7,191 38.0 $ 9,664 38.2
======= ==== ======== ==== ======= ==== ======= ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
February 29, August 31,
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Depreciation & amortization $ 66,746 $ 55,015 $ 40,152
LIFO reserve 2,638 4,644 2,672
Prepaid advertising 2,201 3,107 2,281
Restructuring costs (3,963) (6,133) (9,482)
Inventory reserves 3,648 1,718 (3,734)
Other accruals (9,685) (5,027) 2,511
------ ------ -----
$ 61,585 $ 53,324 $ 34,400
======== ======== ========
At February 29, 1996, the Company has state and U.S. Federal net operating loss
carryforwards of $10,370,000 and $3,880,000, respectively, to offset future
taxable income that, if not otherwise utilized, will expire at February 28, 2001
and 2011, respectively.
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 $3,608,000 in the Transition Period, $3,830,000, $3,414,000, and $1,290,000
in fiscal 1995, 1994 and 1993, respectively.
<PAGE>
In connection with the Barton Acquisition, the Company assumed Barton's profit
sharing and 401(k) plan which covers all salaried employees of Barton. The
amount of Barton's contribution under the profit sharing portion of the plan is
at the discretion of its Board of Directors, subject to limitations of the plan.
Contribution expense was $1,095,000 in the Transition Period, $1,430,000 in
fiscal 1995, $1,395,000 in fiscal 1994, and $230,000 from the date of
acquisition to August 31, 1993. Pursuant to the 401(k) portion of the plan,
participants may defer up to 8% of their compensation for the year and receive
no matching contribution from Barton.
The Company's retirement savings plans, 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, exclusive of Barton employees, may defer up to 10% of their
compensation for the year and the Company makes a matching contribution of 25%
of the first 4% of compensation an employee defers. Company contributions to
this plan were $325,000 in the Transition Period, $281,000, $207,000, and
$131,000 in fiscal 1995, 1994, and 1993, respectively.
10. STOCKHOLDERS' EQUITY:
COMMON STOCK -
The Company has two classes of common stock: Class A Common Stock and Class B
Convertible Common Stock. Class B Convertible Common Stock shares are
convertible into shares of Class A Common Stock on a one-to-one basis at any
time at the option of the holder. Holders of Class B Convertible Common Stock
are entitled to ten votes per share. Holders of Class A Common Stock are
entitled to only one vote per share but are entitled to a cash dividend premium.
If the Company pays a cash dividend on Class B Convertible Common Stock, each
share of Class A Common Stock will receive an amount at least ten percent
greater than the amount of the cash dividend per share paid on Class B
Convertible Common Stock. In addition, the Board of Directors may declare and
pay a dividend on Class A Common Stock without paying any dividend on Class B
Convertible Common Stock.
At February 29, 1996, there were 16,257,296 shares of Class A Common Stock and
3,365,958 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 Convertible Common Stock from 5,000,000 shares to 20,000,000
shares.
STOCK REPURCHASE AUTHORIZATION -
On January 11, 1996, the Company's Board of Directors authorized the repurchase
of up to $30,000,000 of its Class A and Class B Common stock. The Company may
finance such purchases, which will become treasury shares, through cash
generated from operations or through the Credit Facility. No shares have been
repurchased as of February 29, 1996.
PREFERRED STOCK -
The Company is authorized to issue up to 1,000,000 shares of preferred stock,
par value $.01 per share, in one or more series. The Board of Directors of the
Company is entitled to authorize the issuance of preferred stock with such
rights, qualifications, limitations and restrictions as may be determined by the
Board. No preferred stock has been issued as of February 29, 1996.
<PAGE>
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, nonqualified 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.
Nonemployee directors are eligible to receive only nonqualified 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 nonqualified 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 the Transition Period and
fiscal 1995, 1994 and 1993 are summarized as follows:
February 29, August 31,
1996 1995 1994
---- ---- ----
Options outstanding at
beginning of period 733,925 563,500 452,375
Options granted 571,050 289,000 125,000
Options exercised (18,000) (114,075) (2,250)
Options forfeited/canceled (193,250) (4,500) (11,625)
-------- ------- --------
Options outstanding at end of period 1,093,725 733,925 563,500
Number of options at end of period:
Exercisable 28,675 39,675 2,250
Available for grant 1,739,550 2,117,350 2,401,850
Price range of options:
Granted during period $35.75-49.00 $ 33.25-44.75 $22.25-30.25
Outstanding at end of period $ 4.44-36.00 $ 4.44-44.75 $ 4.44-30.25
Exercised during the period $ 4.44-33.25 $ 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 the Transition Period and fiscal 1995, 1994 and 1993, employees purchased
20,869, 28,641, 58,955 and 21,071 shares, respectively.
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.
<PAGE>
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:
February 29, 1996
(in thousands)
1997 $ 1,169
1998 923
1999 766
2000 742
2001 732
2002 724
Thereafter 1,802
------
$ 6,858
======
Rental expense was approximately $2,382,000 in the Transition Period, $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 four 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 February 29, 1996, the Company's aggregate future obligation will be
approximately $1,376,000 to $1,681,000 for the contracts expiring on December
31, 1996, and approximately $10,730,000 to $24,748,000 for the contracts
expiring through December 31, 1999.
The Company has two agreements to purchase Canadian blended whisky through
December 31, 1999 at a purchase price of approximately $2,819,000 to
$13,035,000. The Company also has two agreements to purchase Canadian new
distillation whisky (including dumping charges) through December 2002 at
purchase prices of approximately $15,129,000 to $16,626,000. In addition, the
Company has an agreement to purchase corn whiskey through April 1999 at a
purchase price of approximately $562,000.
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
February 29, 1996, the Company believes it is in compliance with all of its
material distribution agreements and given the Company's long-term relationships
with its suppliers, the Company does not believe that these agreements will be
terminated.
In connection with the Vintners Acquisition and the Almaden/Inglenook
Acquisition, the Company assumed purchase contracts with certain growers and
suppliers. In addition, the Company has also entered into other purchase
contracts with various growers and suppliers in the normal course of business.
Under the grape
<PAGE>
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
sixteen 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 $113,880,000 of grapes under these contracts during the
Transition Period. 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 $730,574,000.
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
which was subsequently reduced during fiscal 1995, to reflect the effects of the
termination payments to cancel contracts with certain growers (see Note 2). The
remaining reserve for the estimated loss on the remaining contracts is
approximately $10,656,000 at February 29, 1996.
The Company's aggregate obligations under grape crush and processing contracts
will be approximately $5,662,000 over the remaining term of the contracts which
expire through fiscal 2000.
CURRENCY FORWARD CONTRACTS -
At February 29, 1996, the Company had open currency forward contracts to
purchase British pounds sterling of $3,129,000, which mature through September
1996; the fair market value, based upon February 29, 1996, market rates was
$3,164,000. At August 31, 1995, there were no currency forward contracts
outstanding. At August 31, 1994, the Company had open currency forward contracts
to purchase German marks of $6,674,000 and British pounds sterling 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.
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 termination of employment. The aggregate
commitment for future compensation and severance, excluding incentive bonuses,
was approximately $5,278,000 as of February 29, 1996, of which approximately
$1,879,000 is accrued in other liabilities as of February 29, 1996.
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 16.9%, 21.6%, 23.7% and 25.1% of the Company's gross sales
for the Transition Period and 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
<PAGE>
Transition Period and 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 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 was sold for
its approximate net book value subsequent to February 29, 1996. 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 related 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 fiscal 1994, primarily related to the land, buildings and equipment at the
Central Cellars Winery. The Company also expended approximately $19,071,000 in
fiscal 1995 for capital expenditures to expand storage capacity and install
certain relocated equipment. In the Transition Period, the expense incurred in
connection with the Restructuring Plan reduced income before taxes and net
income by approximately $2,404,000 and $1,192,000, respectively, or $.06 per
share. These charges represent incremental, nonrecurring expenses of $3,982,000
primarily incurred for overtime and freight expenses resulting from
inefficiencies related to the Restructuring Plan, offset by a reduction in the
accrual for restructuring expenses of $1,578,000, primarily for severance and
facility holding and closure costs. The Company expended approximately
$6,644,000 during the Transition Period, for capital expenditures to expand
storage capacity. As of February 29, 1996, employment has been reduced by 177
jobs and no additional reductions are expected. As of February 29, 1996, August
31, 1995 and 1994, the Company had accrued approximately $1,186,000, $4,251,000
and $9,106,000, respectively, relating to the Restructuring Plan.
14. ACCOUNTING PRONOUNCEMENTS:
In March 1995, Statement of Financial Accounting 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), "Accounting for Stock-Based Compensation," was issued. This statement
encourages companies to use the fair value based
<PAGE>
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 has elected to
apply the provisions of APB Opinion No. 25 and will comply with the disclosure
requirements in the notes to its fiscal 1997 consolidated financial statements.
15. FEBRUARY FISCAL YEAR FINANCIAL DATA (UNAUDITED):
The financial data presented below summarizes unaudited activity for the 1996,
1995 and 1994 fiscal years ended the last day of February.
Full Year Full Year Full Year
Recast Recast Recast
February 29, February 28, February 28,
1996 1995 1994
---- ---- ----
(unaudited) (unaudited) (unaudited)
(IN THOUSANDS)
GROSS SALES $ 1,331,184 $ 1,046,792 $ 635,983
Less - Excise taxes (344,101) (257,239) (165,049)
--------- --------- -------
Net sales 987,083 789,553 470,934
COST OF PRODUCT SOLD (722,325) (566,713) (332,463)
--------- --------- -------
Gross profit 264,758 222,840 138,471
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (191,683) (141,653) (93,903)
NONRECURRING
RESTRUCTURING EXPENSES (3,957) (24,690) --
--------- --------- -------
Operating income 69,118 56,497 44,568
INTEREST EXPENSE - NET (28,758) (22,911) (11,495)
--------- --------- -------
Income before provision
for federal and state
income taxes 40,360 33,586 33,073
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (16,339) (12,928) (12,629)
------- ------- -------
NET INCOME $ 24,021 $ 20,658 $ 20,444
=========== ============ ==========
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996 AND
THE YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
(in thousands, except per share data)
QUARTER ENDED 11/30/95 2/29/96 SIX MONTHS
---------------------------------------------------------
Net sales $ 285,585 $ 249,439 $ 535,024
Gross profit 77,253 61,563 138,816
Net income 10,412(a) (7,090)(b) 3,322
Earnings per share:
Primary .52 (.36) .17
Fully diluted .52 (.36) .17
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
<PAGE>
(a) During the quarter ended November 30, 1995, the Company recorded
nonrecurring operating expenses, net of tax, of approximately $1,980,000
related to inefficiencies resulting from the Company's Restructuring Plan
offset by a reduction in the accrual for restructuring expenses, net of
tax, of approximately $960,000, primarily for severance and facility
holding and closure costs. The Company recorded other nonrecurring
expenses, net of tax, of approximately $780,000.
(b) During the quarter ended February 29, 1996, the Company recorded
nonrecurring operating expenses, net of tax, of approximately $2,852,000
related to inefficiencies resulting from the integration of the West Coast
wineries, of which $2,412,000 has been recorded as a component of cost of
goods sold and $440,000 has been recorded as nonrecurring restructuring
expense. In addition, the Company recorded, net of tax, $1,470,000 for
employee bonuses and $1,270,000, net of tax, of other nonrecurring
expenses.
The accompanying notes to consolidated financial statements
are an integral part of this schedule.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information with respect to the current
directors and executive officers of the Company:
NAME AGE POSITION/OFFICE HELD
Marvin Sands 72 Chairman of the Board
Richard Sands 45 President, Chief Executive Officer and Director
Robert Sands 37 Executive Vice President, General Counsel,
Secretary and Director
Ellis M. Goodman 59 Chief Executive Officer of Barton Incorporated
Lynn K. Fetterman 49 Senior Vice President and Chief Financial
Officer
Daniel C. Barnett 46 Senior Vice President and President of Wine
Division
Bertram E. Silk 64 Senior Vice President and Director
George Bresler 71 Director
James A. Locke, III 54 Director
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 is the Chief Executive Officer of Barton and serves in
that capacity under the terms of an employment agreement with Barton. By virtue
of his position and responsibilities with Barton, Mr. Goodman is deemed an
executive officer of the Company. From July 1993 to January 1996, Mr. Goodman
served as a director of the Company. Also, from July 1993 to October 1993, he
served as a Vice President of the Company and from October 1993 to January 1996,
Mr. Goodman served as an Executive Vice President of the Company. Mr. Goodman
has been Chief Executive Officer of Barton since 1987 and Chief Executive
Officer of Barton Brands, Ltd. (predecessor to Barton) since 1982. (A
description of Mr.
<PAGE>
Goodman's employment agreement is set forth under Item 11 "Executive
Compensation" of this Transition Report on Form 10-K and is incorporated into
this Item 10 by reference.)
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 a 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
Weyerhauser'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.
George Bresler has served as a director of the Company since 1992 and has
been engaged in the practice of law since 1957. From August 1987 through July
1992, Mr. Bresler was a partner in the law firm of Bresler and Bab, New York,
New York. Currently, Mr. Bresler is a partner in the law firm of Rosner,
Bresler, Goodman & Bucholz in New York, New York.
James A. Locke, III has served as a director of the Company since 1983.
Since January 1, 1996, Mr. Locke has been a partner in the law firm of Nixon,
Hargrave, Devans and Doyle LLP, Rochester, New York, which firm is the Company's
principal outside counsel. For twenty years prior to joining this firm, Mr.
Locke was a partner in the law firm of Harter, Secrest and Emery, Rochester, New
York.
Directors of the Company hold office until the next Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified. Executive officers of the Company hold office until the next Annual
Meeting of the Board of Directors and until their successors are chosen and
qualify.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act requires the Company's
directors and executive officers, and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "Commission") and the National
Association of Securities Dealers, Inc., reports of ownership and changes in
ownership of the Company's Class A Stock and Class B Stock. Executive officers,
directors and greater than ten percent stockholders are required to furnish the
Company with copies of all such forms they file. To the Company's knowledge,
based solely upon review of copies of such reports and written representations
by such persons furnished to the Company that no other reports were required
during the Transition Period, all executive officers, directors and greater than
ten percent beneficial owners of the Company's Common Stock complied with
Section 16(a) filing requirements applicable to the Company.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information on the annual and
long-term compensation for services rendered to the Company in all capacities,
for the Transition Period and for the fiscal years ended August 31, 1995, 1994
and 1993, paid by the Company to those persons who were, at February 29, 1996,
(i) the chief executive officer of the Company and (ii) the other four most
highly compensated executive officers of the Company during the Transition
Period (the "Named Executives"):
<TABLE>
SUMMARY COMPENSATION TABLE
--------------------------
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
NAME AND YEAR SALARY BONUS SATION AWARD(S) OPTIONS / PAYOUTS SATION
PRINCIPAL POSITION (1) (2) ($)(3) ($)(3) ($)(4) ($) SARS (#)(5) ($) ($)(6)
- - ---------------------- ---- ------ ------ ------ --- ----------- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Sands, 1996 $205,192 $ 92,337 70,000 $19,687
President and Chief 1995 $387,750 $148,314 - - - - $22,456
Executive Officer (1) 1994 $371,635 $241,748 $31,001
1993 $176,522 $ 60,000 $21,960
Marvin Sands, 1996 $212,971 $ 95,837 $41,368
Chairman of the 1995 $415,531 $158,941 - - - - $44,358
Board (1) 1994 $401,196 $260,978 $41,203
1993 $248,173 $ 60,000 $27,950
Ellis Goodman, 1996 $200,000 $160,000 $31,902(8)
Chief 1995 $385,200 $308,150 - - - - $39,509
Executive 1994 $363,283 $214,200 $47,452
Officer, Barton 1993 $ 62,769 $ 10,356 $ 6,497
Incorporated (7)
Robert Sands, 1996 $203,109 $ 91,399 65,000 $21,210
Executive Vice 1995 $389,546 $149,001 - - (9) - $22,130
President and 1994 $322,356 $209,692 - $30,643
General Counsel 1993 $161,105 $ 60,000 5,000 $19,099
Lynn Fetterman, 1996 $107,008 $ 37,453 11,000 $16,003
Sr. Vice President 1995 $198,769 $ 66,500 - - (9) $26,558
and Chief 1994 $163,077 $ 76,529 6,000 - $25,284
Financial Officer 1993 $143,047 $ 33,632 12,500 $21,089
- - ----------------------
<FN>
(1) On October 28, 1993, Richard Sands succeeded Marvin Sands as the Company's
Chief Executive Officer. Marvin Sands, Chairman of the Board of Directors,
continues to serve as an executive officer of the Company.
(2) Information for 1996 is for the Transition Period (i.e., the period from
September 1, 1995 through February 29, 1996).
<PAGE>
(3) Amounts shown include cash compensation earned and received by the Named
Executives as well as amounts earned but deferred. All non-cash
compensation has been disclosed in items (f)-(i) of the Summary
Compensation Table.
(4) Individual perquisites do not exceed the lesser of $50,000 or 10% of salary
and bonus for any Named Executive.
(5) The number of securities relates to shares of Class A Stock underlying
options.
(6) Amounts reported for 1996 consist of:
--Company contributions under the Company's Retirement Savings Plan (a plan
established under Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code")): Richard Sands $1,133; Marvin Sands $2,171; Robert
Sands $1,811; and Lynn Fetterman $1,601.
--Company contributions to the Canandaigua Wine Company, Inc. Profit
Sharing Retirement Plan: Richard Sands $16,312; Marvin Sands $16,312;
Robert Sands $16,312; and Lynn Fetterman $10,637.
--Company contributions to the profit sharing plan for Ellis Goodman under
the Barton Incorporated Employees' Profit Sharing and 401(k) Plan: $17,187.
--"Flex credits" under the Canandaigua Wine Company, Inc. flexible health
care benefits plan: Richard Sands $1,732; Marvin Sands $1,732; Robert Sands
$1,732; and Lynn Fetterman $1,732.
--Imputed income from Company Group Term Life Insurance coverage: Richard
Sands $510; Marvin Sands $11,280; Ellis Goodman $2,250; Robert Sands $330;
and Lynn Fetterman $870.
--Company owned automobiles for: Marvin Sands $9,873; Robert Sands $1,025;
and Lynn Fetterman $1,163.
(7) On June 29, 1993, the Company acquired Barton Incorporated, and in July
1993, Ellis Goodman, the Chief Executive Officer of Barton Incorporated,
was appointed a Vice President of Canandaigua Wine Company, Inc. In October
1993, he was appointed an Executive Vice President of the Company and
served in that capacity until January 1996. Mr. Goodman continues in his
capacity as Chief Executive Officer of Barton Incorporated.
(8) On June 29, 1993, as part of its acquisition of Barton Incorporated, the
Company extended Ellis Goodman's employment agreement with Barton
Incorporated. This agreement provides for reimbursement of club
memberships, which amounted to $12,465 in 1996.
(9) During fiscal 1995, Robert Sands was granted options to purchase up to
15,000 shares of the Company's Class A Stock and Lynn Fetterman was granted
options to purchase up to 7,500 shares of Class A Stock. These options were
cancelled during the Transition Period.
</TABLE>
The table on the next page sets forth information regarding stock options
granted to any of the Named Executives during the Transition Period.
<PAGE>
STOCK OPTION GRANTS
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
-----------------------------------------
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------- --------------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED (#) EMPLOYEES IN BASE PRICE EXPIRATION
NAME (1)(2) FISCAL YEAR ($/SH)(3) DATE 5% ($) 10% ($)
- - -------------------------- ------------ ------------ --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard Sands,
President and Chief
Executive Officer 70,000 (4) 12.3% $36.00 1/28/06 $1,584,800 $4,015,900
Marvin Sands,
Chairman of the Board - - - - - -
Ellis Goodman,
Chief Executive Officer, - - - - - -
Barton Incorporated
Robert Sands,
Executive Vice President 15,000 (5) 2.6% $35.75 8/27/05 $ 337,200 $ 854,700
and General Counsel 50,000 (6) 8.8% $35.75 1/24/06 $1,124,000 $2,849,000
Lynn Fetterman,
Sr. Vice President and 7,500 (5) 1.3% $35.75 8/27/05 $ 168,600 $ 427,350
Chief Financial Officer 3,500 (6) 0.6% $35.75 1/24/06 $ 78,680 $ 199,430
- - ------------------------------------------
<FN>
(1) Information is for the Transition Period. The options were granted under
the Company's Stock Option and Stock Appreciation Right Plan and are
"non-qualified stock options" (i.e., options other than "incentive stock
options" within the meaning of Section 422(b) of the Code).
(2) The options were granted for a term of no greater than 10 years, subject to
earlier termination upon the occurrence of certain events related to
termination of employment. The securities underlying the options are shares
of Class A Stock.
(3) The exercise price per share is equal to the closing market price of a
share of Class A Stock on the date of grant.
(4) Under the terms of the grant, these options vest and become exercisable on
January 29, 2001.
(5) Under the terms of the grant, these options vest and become exercisable on
August 28, 2000.
(6) Under the terms of the grant, these options vest and become exercisable on
January 25, 2001.
</TABLE>
<PAGE>
The table below sets forth information regarding the number and value of
exercisable and unexercisable stock options held by the Named Executives at
February 29, 1996. No stock options were exercised by any of the Named
Executives during the Transition Period. There are no outstanding SARs. The
stock options reflected on the table were granted under the Company's Stock
Option and Stock Appreciation Right Plan.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES (1)
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARs AT OPTIONS/SARs AT
FY/END (#) (1)(2) FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ------------ ---------------------- ------------------------
<S> <C> <C> <C> <C>
Richard Sands,
President and Chief
Executive Officer - - 70,000 (Unexercisable) $140,000 (Unexercisable)
Marvin Sands,
Chairman of the Board - - - -
Ellis Goodman,
Chief Executive Officer, - - - -
Barton Incorporated
Robert Sands,
Executive Vice President
and General Counsel - - 70,000 (Unexercisable) $278,750 (Unexercisable)
Lynn Fetterman,
Sr. Vice President and - - 2,500 (Exercisable) $ 83,889 (Exercisable)
Chief Financial Officer 29,500 (Unexercisable) $369,750 (Unexercisable)
- - -----------------------------
<FN>
(1) Information is for the Transition Period.
(2) Number of underlying securities relates to shares of Class A Stock
underlying options.
</TABLE>
On July 12, 1993, the Company adopted a policy to pay its non-employee
directors $35,000 per year for their services as directors; George Bresler and
James Locke qualify for such payments. Mr. Locke has waived the payment of
directors' fees. The Company also reimburses its directors for reasonable
expenses incurred in connection with attending meetings of the Board of
Directors and Committees of the Board of Directors.
On June 29, 1993, as part of the Barton Acquisition, the Company extended
Ellis Goodman's employment agreement with Barton (the "Employment Agreement").
Ellis Goodman serves as Chairman of the Board and Chief Executive Officer of
Barton and by virtue of his position and responsibilities with Barton, is deemed
an executive officer of the Company. Mr. Goodman is a former director of the
Company. Pursuant to the terms of the Stock Purchase
<PAGE>
Agreement dated April 27, 1993, as amended, among the Company, Barton and the
former stockholders of Barton, under which the Company acquired Barton, (the
"Stock Purchase Agreement"), until August 31, 1996, Mr. Goodman has, consistent
with past practices and subject to annual approval by the Company's Board of
Directors of the Barton annual operating plan, full and exclusive strategic and
operational responsibility for Barton and all of its subsidiaries, including
responsibility for: (i) day-to-day operations; (ii) all employee welfare,
benefit, profit-sharing and pension programs; (iii) compensation for all
officers and employees; and (iv) all matters impacting Barton's earnings. If
Barton fails to achieve certain earnings levels in any fiscal year during the
term of the Agreement, then Mr. Goodman's employment may be terminated. If Mr.
Goodman's employment is terminated for this reason, he is entitled to the
severance benefits described in the following paragraph. As described below,
after August 31, 1996, Mr. Goodman continues to have full and complete authority
to direct the day-to-day management of the business of Barton.
The Employment Agreement expires on December 31, 1999, but will be
automatically extended for additional one-year periods unless either Mr. Goodman
or Barton notifies the other, within a specified time period, of the desire not
to extend the Employment Agreement. The Employment Agreement provides that Mr.
Goodman will serve as the Chairman of the Board and Chief Executive Officer of
Barton and its subsidiaries (the Company's beer and spirits division). Under the
Employment Agreement, Mr. Goodman has full and complete authority to direct the
day-to-day management of the business, operations and affairs of Barton and its
subsidiaries and shall have such additional power and authority consistent with
his offices as may be conferred or directed by Board of Directors of Barton.
Under the Employment Agreement, (i) Barton is obligated to review Mr. Goodman's
compensation annually each year and afford him participation under employee
benefit and compensation plans offered from time to time to other key executives
of Barton, and (ii) Mr. Goodman has agreed not to compete with Barton for a
period of 12 months following the termination of his employment with Barton for
certain reasons. Upon the expiration of the Employment Agreement or its earlier
termination for certain reasons, Barton is obligated to make a severance payment
to Mr. Goodman in an amount equal to 200% of his then base salary and 200% of
the incentive compensation payable to him for Barton's fiscal year ended
immediately prior to the date of termination, plus an amount equal to the base
compensation, if any, remaining to be paid to Mr. Goodman for the years then
remaining in the term of the Employment Agreement.
Under the terms of a letter agreement with the Company, if Mr. Fetterman's
employment with the Company is terminated by the Company for any reason, except
gross misconduct, then he is entitled to receive from the Company biweekly
severance payments equaling his then-current, biweekly, base gross compensation
for a period of nine months from the date of his execution of a mutually
acceptable separation agreement with the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors presently
consists of Marvin Sands and George Bresler. During the Transition Period until
January 26, 1996, Richard Sands was also a member of the Compensation Committee.
Marvin Sands is the Chairman of the Board and serves in this capacity as the
Company's senior executive officer. Richard Sands is
<PAGE>
the Company's President, Chief Executive Officer and a director. Mr. Bresler is
a partner in the law firm of Rosner, Bresler, Goodman & Bucholz in New York, New
York.
By an Agreement dated December 20, 1990, the Company entered into a
split-dollar agreement with a Trust established by Marvin Sands of which Robert
Sands is Trustee. Pursuant to the Agreement, the Company pays the annual premium
on an insurance policy (the "Policy") held in the Trust net of the amount paid
by the Trust. The Trust pays the portion of the premium equal to the "economic
benefit" to Marvin Sands calculated in accordance with the United States
Treasury Department rules then in effect. The Policy is a joint life policy
payable upon the death of the second to die of the insureds, Marvin Sands and
his wife Marilyn. The face value of the Policy is $5 million. Pursuant to the
terms of the Trust, Richard Sands and Robert Sands (in his individual capacity)
will each receive one-half of the proceeds of the Policy (less the reimbursement
to the Company described below) if they survive Marvin Sands and Marilyn Sands.
The amount of all premiums paid by the Company constitutes indebtedness from the
Trust to the Company and is secured by a collateral assignment of the Policy.
Upon the termination of the Agreement, whether by the death of the survivor of
the insureds or the sooner cancellation of the Agreement, the Company is
entitled to receive from the Trust the amount equal to the premiums which it has
paid. The premium paid during the Transition Period with respect to this
arrangement was $209,063; of this amount, the Trust paid $9,762, which amount
represents the "economic benefit" to Marvin Sands.
Richard Sands, along with Robert Sands and the Estate of Laurie Sands are
the beneficial owners of a limited partnership which owns railroad cars. These
cars are leased by the Company from the partnership at fair market rates. The
Company's payments are offset to the extent that railroads using these cars
reimburse the partnership for such use.
George Bresler has in the past rendered legal services to the Company. It
is expected that he will continue to render legal services to the Company as
required by the Company.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. Security Ownership of Certain Beneficial Owners
The following tables, with notes thereto, set forth (i) the persons known
to the Company to own beneficially more than 5% of the Company's Class A Stock
or Class B Stock, (ii) the number of shares owned by them, and (iii) the percent
of such class so owned, rounded to the nearest one-tenth of one percent (such
information being based on information furnished by or on behalf of each person
concerned). Unless otherwise noted, percentages of ownership are calculated on
the basis of 16,300,136 shares of Class A Stock outstanding and 3,343,458 shares
of Class B Stock outstanding on May 23, 1996.
By virtue of a Stockholders Agreement among Richard Sands, Robert Sands and
CWC Partnership-I ("CWCP-I") and by virtue of the partnership agreements
governing CWCP-I and CWC Partnership-II ("CWCP-II"), Richard Sands, Robert
Sands, CWCP-I, CWCP-II and the trust for the benefit of the grandchildren of
Marvin and Marilyn Sands are a "group" under applicable regulations. The number
of shares of Class A Stock and Class B Stock reflected in the tables for Marvin
and Marilyn Sands (and the group) has been calculated as if Marvin and Marilyn
Sands were also members of the group (collectively, the "Group"). Pursuant to
applicable regulations, the Group is deemed to have beneficial ownership of all
securities of the Company beneficially owned by the members of the Group.
Each share of Class B Stock is convertible into one share of Class A Stock
at any time at the option of the holder. The ownership information set forth in
the Class A Stock table for the members of the Group excludes shares of Class A
Stock issuable upon conversion of the Class B Stock because each member of the
Group has advised the Company of having no plans to convert any Class B Stock
into Class A Stock.
<PAGE>
SHARES BENEFICIALLY OWNED
CLASS A STOCK
-------------
PERCENT
NAME AND ADDRESS OF AMOUNT AND NATURE OF OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
---------------- -------------------- -----
Marvin Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(3) 10.9% (2)(3)
Marilyn Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(4) 10.9% (2)(4)
Richard Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(5) 10.9% (2)(5)
Robert Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(6) 10.9% (2)(6)
CWC Partnership - I (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(7) 10.9% (2)(7)
CWC Partnership - II (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(8) 10.9% (2)(8)
Marilyn Sands, as Trustee
under Irrevocable Declarations
of Trust Nos. 3 and 4 (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(9) 10.9% (2)(9)
Richard Sands and Robert Sands,
as Co-Trustees under
Irrevocable Trust Agreement (1)
116 Buffalo Street
Canandaigua, NY 14424 1,774,350 (2)(10) 10.9% (2)(10)
Wellington Management Company (11)
75 State Street
Boston, MA 02109 1,631,130 (11) 10.0% (11)
Mellon Bank Corporation and
Subsidiaries (12)
One Mellon Bank Center
Pittsburgh, PA 15258 1,173,000 (12) 7.2% (12)
<PAGE>
CLASS B STOCK
-------------
AMOUNT AND NATURE PERCENT
NAME AND ADDRESS OF OF OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
---------------- -------------------- -----
Marvin Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (13) 84.9% (13)
Marilyn Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (14) 84.9% (14)
Richard Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (15) 84.9% (15)
Robert Sands (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (16) 84.9% (16)
Richard Sands and Robert Sands,
as Co-Trustees under
Irrevocable Trust Agreement (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (17) 84.9% (17)
Marilyn Sands, as Trustee under
Irrevocable Declarations of
Trust Nos. 3 and 4 (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (18) 84.9% (18)
CWC Partnership - I (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (19) 84.9% (19)
CWC Partnership - II (1)
116 Buffalo Street
Canandaigua, NY 14424 2,838,371 (20) 84.9% (20)
(1) Richard and Robert Sands are adult children of Marvin and Marilyn Sands.
Laurie Sands, an adult child of Marvin and Marilyn Sands, died on March 9,
1995. On June 17, 1993, Richard Sands, Robert Sands and Laurie Sands
entered into a Stockholders Agreement (the "Stockholders Agreement") which
provided each with a right of first refusal to purchase, under certain
circumstances, the shares of Class A Stock and Class B Stock owned by the
others and which may be terminated only by the consent of all parties. On
January 17, 1995, Richard Sands, Robert Sands and Laurie Sands each
executed a consent, permitting Laurie Sands to transfer, free of all
restrictions arising under the Stockholders Agreement, all of her shares of
Class A and Class B Stock to CWCP-I, a New York partnership formed on
January 17, 1995. The partners of CWCP-I are Richard Sands, Robert Sands
and the Estate of Laurie Sands. See footnote (7) below. Also on January 17,
1995, CWCP-I agreed to be bound by the terms of the Stockholders Agreement.
CWCP-II is a New York partnership which was formed on January 17, 1995, the
partners of which are the Estate of Laurie Sands and The Robert Sands
Descendants Trust. See footnote (8) below. Except with respect to the
shares subject to the Stockholders Agreement, the shares owned by CWCP-I
and CWCP-II and the shares subject to the Irrevocable Trust Agreement
described in footnote (10) below, no member of the Group is required to
consult with any other family member with respect to the voting or
disposition of any shares of the Company and each such member of the Group
disclaims beneficial ownership of each other's shares
<PAGE>
with respect to matters not governed by the Stockholders Agreement, the
partnership agreements governing CWCP-I and CWCP-II or the Irrevocable
Trust Agreement described in footnote (10) below.
(2) The number of shares and the percentage of ownership is exclusive of shares
of Class A Stock issuable pursuant to the conversion feature of the Class B
Stock beneficially owned by the members of the Group. If the shares of
Class A Stock issuable upon conversion of Class B Stock were to be added to
the amount in the table, the amount of Class A Stock beneficially owned by
the Group would be 4,612,721 shares and the percentage of ownership would
be 24.1% based upon 19,138,507 shares deemed outstanding pursuant to Rule
13-3(d)(1) under the Securities Exchange Act.
(3) Excluding the shares of Class A Stock beneficially owned as a result of his
membership in the Group, Marvin Sands beneficially owns 805,444 shares of
Class A Stock, which is 4.9% of such Class. This total includes 788,875
shares of Class A Stock owned by Mr. Sands' wife, Marilyn Sands. The
788,875 shares include 787,501 shares of Class A Stock in which Mrs. Sands
owns a life estate and the remainder interest is held by Richard Sands,
Robert Sands and CWCP-II. Mr. Sands disclaims beneficial ownership with
respect to all shares owned by Marilyn Sands. Excluding the effect of his
membership in the Group, and adding the 248,100 shares of Class A Stock
issuable pursuant to the conversion feature of Class B Stock beneficially
owned by Mr. Sands to his 805,444 shares of Class A Stock, the amount of
Class A Stock beneficially owned by Mr. Sands would be 1,053,544 shares and
the percentage of ownership would be 6.4%. These amounts include an
aggregate of 146,250 shares of Class B Stock as to which Mr. Sands
disclaims beneficial ownership. See Class B Stock table and footnotes (13)
and (14) below.
(4) Excluding the shares of Class A Stock beneficially owned as a result of her
membership in the Group, Marilyn Sands beneficially owns 788,875 shares of
Class A Stock, which is 4.8% of such Class. With respect to 787,501 shares
of the 788,875 shares, Marilyn Sands is the beneficial owner of a life
estate which includes the right to receive income from and the power to
vote and dispose of such shares. Excluding the effect of her membership in
the Group, and adding the 146,250 shares of Class A Stock issuable pursuant
to the conversion feature of Class B Stock beneficially owned by Marilyn
Sands to her 788,875 shares of Class A Stock, the amount of Class A Stock
beneficially owned by Mrs. Sands would be 935,125 shares and the percentage
of ownership would be 5.7%. See Class B Stock table and footnotes (14) and
(17) below. The 788,875 shares do not include 16,569 shares of Class A
Stock owned by Marilyn Sands' husband, Marvin Sands. Marilyn Sands
disclaims beneficial ownership of all such securities owned by Marvin
Sands.
(5) Excluding the shares of Class A Stock beneficially owned as a result of his
membership in the Group, Richard Sands beneficially owns 320,667 shares of
Class A Stock or 2.0%. Mr. Sands is a managing partner of CWCP-I, which
owns for its own account 308,951 shares of Class A Common Stock. Excluding
the effect of his membership in the Group, and adding the 691,279 shares of
Class A Stock issuable pursuant to the conversion feature of Class B Stock
beneficially owned by Richard Sands to his 320,667 shares of Class A Stock,
the amount of Class A Stock beneficially owned by Mr. Sands would be
1,011,946 shares and the percentage of ownership would be 6.0%. See Class B
Stock table and footnote (15) below. None of the foregoing amounts include
the remainder interest in 262,501 shares of Class A Stock owned by Richard
Sands. The remainder interest is in 787,501 shares of Class A Stock; the
life estate with respect to these shares is held by Marilyn Sands. The
remainder interest is held by Richard Sands, Robert Sands and CWCP-II. See
footnote (4) above. Richard Sands disclaims beneficial ownership with
respect to such 262,501 shares.
(6) Excluding the shares of Class A Stock beneficially owned as a result of his
membership in the Group, and excluding any ownership interest arising out
of The Robert Sands Descendants Trust, Robert Sands beneficially owns
339,288 shares of Class A Stock or 2.1%. Such total includes an aggregate
of 18,564 shares of Class A Stock owned by Mr. Sands' wife, individually
and as custodian for their children. Robert Sands is a managing partner of
CWCP-I, which owns for its own account 308,951 shares of Class A Common
Stock. Excluding the effect of his membership in the Group and any
ownership interest arising out of The Robert Sands Descendants Trust, and
adding the 691,051 shares of Class A Stock issuable pursuant to the
conversion feature of Class B Stock owned by Robert Sands to his 339,288
shares of Class
<PAGE>
A Stock, the amount of Class A Stock beneficially owned by Robert Sands
would be 1,030,339 shares and the percentage of ownership would be 6.1%.
See Class B Stock table and footnote (16) below. None of the foregoing
amounts include the remainder interest in 259,849 shares of Class A Stock
owned by Robert Sands. The remainder interest is in 787,501 shares of Class
A Stock; the life estate with respect to these shares is held by Marilyn
Sands. The remainder interest is held by Richard Sands, Robert Sands and
CWCP-II. See footnote (4) above. Robert Sands disclaims beneficial
ownership with respect to such 259,849 shares.
(7) As a result of capital contributions upon its formation on January 17,
1995, CWCP-I acquired 308,951 shares of Class A Stock, which represents
1.9% of the outstanding shares of Class A Stock as of May 23, 1996. The
partners of CWCP-I are Richard Sands, Robert Sands and the Estate of Laurie
Sands. Upon final settlement or earlier distribution, the partnership
interests owned by the Estate of Laurie Sands will be distributed in
accordance with Ms. Sands' Will to a marital trust for the benefit of Ms.
Sands' husband, Andrew Stern, M.D., and to trusts for the benefit of Ms.
Sands' children, Abigail and Zachary Stern. Excluding the effect of its
membership in the Group, and adding the 678,964 shares of Class A Stock
issuable pursuant to the conversion feature of Class B Stock held by CWCP-I
to its 308,951 shares of Class A Stock, the amount of Class A Stock held by
CWCP-I would be 987,915 shares and the percentage of ownership would be
5.8%. See Class B Stock table and footnote (19) below.
(8) Excluding the shares of Class A Stock beneficially owned as a result of its
membership in the Group, CWCP-II beneficially owns no shares of Class A
Stock. The partners of CWCP-II are the Estate of Laurie Sands and The
Robert Sands Descendants Trust. Upon final settlement or earlier
distribution, the partnership interests owned by the Estate of Laurie Sands
will be distributed in accordance with Ms. Sands' Will to a marital trust
for the benefit of Ms. Sands' husband, Andrew Stern, M.D., and to trusts
for the benefit of Ms. Sands' children, Abigail and Zachary Stern.
Excluding the effect of its membership in the Group, and adding the 22,727
shares of Class A Stock issuable pursuant to the conversion feature of
Class B Stock owned by CWCP-II, the amount of Class A Stock held by CWCP-II
would be 22,727 shares and the percentage of ownership would be 0.1%. See
Class B Stock table and footnote (20) below. None of the foregoing amounts
include the remainder interest in 265,151 shares of Class A Stock owned by
CWCP-II as a result of capital contributions upon its formation. The
remainder interest is in 787,501 shares of Class A Stock; the life estate
with respect to these shares is held by Marilyn Sands. See footnote (4)
above. The remainder interest is held by Richard Sands, Robert Sands and
CWCP-II. CWCP-II disclaims beneficial ownership with respect to such
265,151 shares.
(9) Excluding the shares of Class A Stock beneficially owned as a result of
their membership in the Group, and excluding the 141,750 shares of Class A
Stock issuable pursuant to the conversion feature of the Class B Stock
owned by the two Trusts, neither of the Trusts beneficially owns any shares
of Class A Stock. If the 141,750 shares of Class A Stock issuable pursuant
to the conversion feature of Class B Stock owned by the two Trusts were
included, the amount of Class A Stock beneficially owned by the two Trusts
would be 141,750 shares and the percentage of ownership would be 0.9%. See
Class B Stock table and footnote (18) below.
(10) Excluding the shares of Class A Stock beneficially owned as a result of its
membership in the Group, and excluding the 506,250 shares of Class A Stock
issuable pursuant to the conversion feature of the Class B Stock owned by
the Trust, the Trust beneficially owns no shares of Class A Stock. If the
506,250 shares of Class A Stock issuable pursuant to the conversion feature
of the Class B Stock were included, the Trust would own 506,250 shares of
Class A Stock and the percentage of ownership would be 3.0%. See Class B
Stock table and footnote (17) below.
(11) The number of shares equals the number of shares of Class A Stock reported
to be beneficially owned by Wellington Management Company ("WMC") for the
month ended February 29, 1996 in its Schedule 13G (Amendment No. 2) dated
March 5, 1996, filed with the Securities and Exchange Commission. The
percentage of ownership reflected in the table is calculated on the basis
of 16,300,136 shares of Class A Stock outstanding on May 23, 1996. In its
Schedule 13G (Amendment No. 2), WMC reports that, in its capacity as
investment advisor, it may be deemed the beneficial owner of 1,631,130
shares of Class A
<PAGE>
Stock of the Company which are owned by a variety of investment advisory
clients of WMC, which clients are entitled to receive dividends and the
proceeds from the sale of such shares. Further, WMC reports that no such
client is known to have such interest with respect to more than five
percent (5%) of the Class A Stock. WMC also reports that Wellington Trust
Company, N.A. (BK) is the subsidiary of WMC which acquired the Class A
Stock reported on by WMC. The Schedule 13G (Amendment No. 2) indicates that
of the number of shares beneficially owned by WMC, WMC has shared voting
power with respect to 1,147,890 shares and shared dispositive power with
respect to 1,631,130 shares. WMC reported no sole voting or sole
dispositive power with respect to the Class A Stock beneficially owned. For
further information pertaining to WMC, reference should be made to WMC's
Schedule 13G and Amendment Nos. 1 and 2 thereto filed with the Securities
and Exchange Commission. With respect to the information in this Report on
Form 10-K pertaining to shares of Class A Stock beneficially owned by WMC,
the Company has relied solely on the information reported in WMC's Schedule
13G (Amendment No. 2) and has not independently verified WMC's beneficial
ownership as of May 23, 1996.
(12) The number of shares equals the number of shares of Class A Stock reported
to be beneficially owned by Mellon Bank Corporation, Mellon Bank, N.A. and
The Dreyfus Corporation (collectively "Mellon") in their Schedule 13G dated
January 26, 1996, filed with the Securities and Exchange Commission. The
percentage of ownership reflected in the table is calculated on the basis
of 16,300,136 shares of Class A Stock outstanding on May 23, 1996. The 13G
reports that the shares reported on in the Schedule 13G are beneficially
owned by Mellon Bank, N.A., Mellon Capital Management Corporation, The
Dreyfus Corporation and Dreyfus Management, Inc., all of which are direct
or indirect subsidiaries of Mellon Bank Corporation. The Schedule 13G
reports that: Mellon Bank Corporation has sole voting power with respect to
1,173,000 shares, no shared voting power, sole dispositive power with
respect to 65,000 shares and shared dispositive power with respect to
1,109,000 shares; Mellon Bank, N.A. has sole voting power with respect to
1,160,000 shares, no shared voting power, sole dispositive power with
respect to 51,000 shares and shared dispositive power with respect to
1,109,000 shares; and The Dreyfus Corporation has sole voting power with
respect to 1,109,000 shares, no shared voting power, no sole dispositive
power and shared dispositive power with respect to 1,109,000 shares. The
Schedule 13G also reports that all the securities are beneficially owned by
Mellon Bank Corporation and direct or indirect subsidiaries in their
various fiduciary capacities, and, as a result, another entity in every
instance is entitled to dividends or proceeds of sale. The Schedule 13G
reports that there are no individual accounts holding an interest of 5% or
more of the Class A Stock. For further information pertaining to Mellon,
reference should be made to their Schedule 13G filed with the Securities
and Exchange Commission. With respect to the information in this Report on
Form 10-K pertaining to shares of Class A Stock beneficially owned by
Mellon, the Company has relied solely on the information reported in
Mellon's Schedule 13G and has not independently verified Mellon's
beneficial ownership as of May 23, 1996.
(13) Excluding the shares of Class B Stock beneficially owned as a result of his
membership in the Group, Marvin Sands beneficially owns 248,100 shares of
Class B Stock or 7.4%. These 248,100 shares include an aggregate of 141,750
shares of Class B Stock held by certain trusts for the benefit of Mr.
Sands' wife and children. Such total also includes 4,500 shares of Class B
Stock owned by his wife, Marilyn Sands. Mr. Sands disclaims beneficial
ownership with respect to all such shares. The 248,100 shares do not
include 506,250 shares of Class B Stock held in Trust under the Irrevocable
Trust Agreement described in footnote (17) below.
(14) Excluding the shares of Class B Stock beneficially owned as a result of her
membership in the Group, Marilyn Sands beneficially owns 146,250 shares of
Class B Stock or 4.4%. These 146,250 shares include 141,750 shares of Class
B Stock held by two Trusts, of which Marilyn Sands is the trustee and a
beneficiary. See footnote (18) below. The 146,250 shares do not include
101,850 shares of Class B Stock owned by Marvin Sands. The 146,250 shares
also do not include 506,250 shares of Class B Stock held in Trust under the
Irrevocable Trust Agreement described in footnote (17) below.
(15) Excluding the shares of Class B Stock beneficially owned as a result of his
membership in the Group, Richard Sands beneficially owns 691,279 shares of
Class B Stock or 20.7 %. This total does not include the 506,250 shares of
Class B Stock held in Trust under the Irrevocable Trust Agreement described
in
<PAGE>
footnote (17) below nor the 678,964 shares of Class B Stock owned by
CWCP-I, of which Richard Sands is a managing partner. See footnote (19)
below.
(16) Excluding the shares of Class B Stock beneficially owned as a result of his
membership in the Group, and excluding his interest arising out of the
Robert Sands Descendants Trust, Robert Sands beneficially owns 691,051
shares of Class B Stock or 20.7%. This total does not include the 506,250
shares of Class B Stock held in Trust under the Irrevocable Trust Agreement
described in footnote (17) below nor the 678,964 shares of Class B Stock
owned by CWCP-I, of which Robert Sands is a managing partner. See footnote
(19) below.
(17) Excluding the shares of Class B Stock beneficially owned as a result of its
membership in the Group, 506,250 shares of Class B Stock, or 15.1%, are
owned by a Trust created by Marvin Sands under the terms of an Irrevocable
Trust Agreement dated November 18, 1987 (the "Trust"). The Trust is for the
benefit of the present and future grandchildren of Marvin and Marilyn
Sands. The Co-Trustees of the Trust are Richard Sands and Robert Sands.
Unanimity of the Co-Trustees is required with respect to voting and
disposing of the Class B Stock owned by the Trust. Each of Richard Sands
and Robert Sands, in his individual capacity, disclaims beneficial
ownership with respect to all such shares owned by the Trust. Each of
Marvin Sands and Marilyn Sands also disclaims beneficial ownership with
respect to all such shares owned by the Trust.
(18) Excluding the shares of Class B Stock beneficially owned as a result of
their membership in the Group, the two Trusts own in the aggregate 141,750
shares of Class B Stock. Neither of these Trusts individually owns more
than 5% of the outstanding shares of Class B Stock.
(19) Excluding the shares of Class B Stock beneficially owned as a result of its
membership in the Group, and as a result of capital contributions upon its
formation on January 17, 1995, CWCP-I owns 678,964 shares of Class B Stock,
which represents 20.3% of the outstanding shares of Class B Stock as of May
23, 1996. The partners of CWCP-I are Richard Sands, Robert Sands and the
Estate of Laurie Sands. Upon final settlement or earlier distribution, the
partnership interests owned by the Estate of Laurie Sands will be
distributed in accordance with Ms. Sands' Will to a marital trust for the
benefit of Ms. Sands' husband, Andrew Stern, M.D., and to trusts for the
benefit of Ms. Sands' children, Abigail and Zachary Stern.
(20) Excluding the shares of Class B Stock beneficially owned as a result of its
membership in the Group, and as a result of capital contributions upon its
formation on January 17, 1995, CWCP-II owns 22,727 shares of Class B Stock
or 0.7% of the outstanding shares of Class B Stock as of May 23, 1996. The
partners of CWCP-II are the Estate of Laurie Sands and The Robert Sands
Descendants Trust. Upon final settlement or earlier distribution, the
partnership interests owned by the Estate of Laurie Sands will be
distributed in accordance with Ms. Sands' Will to a marital trust for the
benefit of Ms. Sands' husband, Andrew Stern, M.D., and to trusts for the
benefit of Ms. Sands' children, Abigail and Zachary Stern.
B. Security Ownership of Management
The information appearing in the following table and in the notes thereto
has been furnished to the Company by the current directors and executive
officers of the Company. Unless otherwise indicated, the named individual has
sole power and investment discretion with respect to the shares attributed to
him.
<PAGE>
SHARES OF STOCK
BENEFICIALLY OWNED AS OF PERCENT OF
NAME MAY 23, 1996 CLASS (1)
- - --------------------------------------------------------------------------------
Marvin Sands (2) 1,774,350 10.9% (2)
Class A Stock (2)
2,838,371 84.9% (2)
Class B Stock (2)
- - --------------------------------------------------------------------------------
Richard Sands (2) 1,774,350 10.9% (2)
Class A Stock (2)
2,838,371 84.9% (2)
Class B Stock (2)
- - --------------------------------------------------------------------------------
Robert Sands (2) 1,774,350 10.9% (2)
Class A Stock (2)
2,838,371 84.9% (2)
Class B Stock (2)
- - --------------------------------------------------------------------------------
George Bresler 10,000 (3)
Class A Stock
0 __
Class B Stock
- - --------------------------------------------------------------------------------
Lynn Fetterman 4,404 (4) (4)
Class A Stock
0 __
Class B Stock
- - --------------------------------------------------------------------------------
Ellis Goodman 259,680 (5) 1.6% (5)
Class A Stock
0 __
Class B Stock
- - --------------------------------------------------------------------------------
James A. Locke, III 3,082 (6) (6)
Class A Stock
33 (6)
Class B Stock
- - --------------------------------------------------------------------------------
Bertram E. Silk 4,725 (7) (7)
Class A Stock
1,125 (7)
Class B Stock
- - --------------------------------------------------------------------------------
All Directors and Executive Officers
as a Group 2,056,241 (8) 12.6% (8)
(9 persons) Class A Stock
2,839,529 (9) 84.9% (9)
Class B Stock
- - --------------------------------------------------------------------------------
(1) Unless otherwise noted, percentages of ownership are calculated on the
basis 16,300,136 shares of Class A Stock outstanding and 3,343,458 shares
of Class B Stock outstanding on May 23, 1996.
(2) See information, tables and footnotes under "Security Ownership of Certain
Beneficial Owners" above in this Item 12.
(3) The percentage of the Class A Stock beneficially owned by Mr. Bresler does
not exceed one percent of such Class.
<PAGE>
(4) The number of shares of Class A Stock includes presently exercisable
options to purchase up to 2,500 shares of Class A Stock. The percentage of
the Class A Stock beneficially owned by Mr. Fetterman does not exceed one
percent of such Class.
(5) Includes 34,680 shares owned of record by the Gillian and Ellis Goodman
Foundation (the "Foundation"). Mr. Goodman is president of the Foundation
with full voting power with respect to the shares and disclaims beneficial
ownership of such shares.
(6) The number of shares of Class A Stock includes presently exercisable
options to purchase up to 3,000 shares of Class A Stock and 33 shares of
Class A Stock issuable pursuant to the conversion feature of the Company's
Class B Stock owned by Mr. Locke. The percentage of the Class A Stock
beneficially owned by Mr. Locke does not exceed one percent of such Class.
The percentage of Class B Stock beneficially owned by Mr. Locke does not
exceed one percent of such Class.
(7) The number of shares of Class A Stock includes 1,125 shares of Class A
Stock issuable pursuant to the conversion feature of the Company's Class B
Stock owned by Mr. Silk. The percentage of the Class A Stock beneficially
owned by Mr. Silk does not exceed one percent of such Class. The percentage
of the Class B Stock beneficially owned by Mr. Silk does not exceed one
percent of such Class.
(8) The percentage of ownership of all executive officers and directors as a
group is based on 16,306,794 shares of Class A Stock deemed outstanding
pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act. The amount
in the table includes presently exercisable options to purchase up to 5,500
shares of Class A Stock and 1,158 shares of Class A Stock issuable to
members of the group pursuant to the conversion feature of Class B Stock
into Class A Stock, but excludes shares of Class A Stock issuable to Marvin
Sands, Richard Sands and Robert Sands pursuant to the conversion feature of
Class B Stock beneficially owned by them. If such shares of Class A Stock
were to be added to the amount in the table, the amount of Class A Stock
beneficially owned by all executive officers and directors as a group would
be 4,894,612 shares and the percentage of ownership would be 25.6%, based
upon 19,145,165 shares deemed outstanding pursuant to Rule 13d-3(d)(1)
under the Securities Exchange Act. (See information, table and footnotes
under "Security Ownership of Certain Beneficial Owners" above in this Item
12.)
(9) See information, table and footnotes under "Security Ownership of Certain
Beneficial Owners" above in this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the Stock Purchase Agreement, Ellis Goodman, the
Gillian and Ellis Goodman Foundation, and certain trusts established for the
benefit of Mr. Goodman's children (collectively, the "Goodman Recipients") have
received, since 1993, cash payments aggregating $72,559,782. Under the Stock
Purchase Agreement, the Goodman Recipients also received an aggregate of 673,021
shares of the Company's Class A Stock. On November 29, 1996, the Goodman
Recipients are entitled to receive additional payments upon the satisfaction by
Barton of certain performance goals.
Pursuant to the terms of the Stock Purchase Agreement, certain trusts
established for the benefit of Sir Harry Solomon and his wife and children
(collectively, the "Trusts") have received, since 1993, cash payments
aggregating $17,393,676. Under the Stock Purchase Agreement, the Trusts also
received an aggregate of 161,334 shares of the Company's Class A Stock. On
November 29, 1996, the Trusts are entitled to receive additional payments upon
the satisfaction by Barton of certain performance goals. (Sir Harry Solomon is a
former director of the Company and served in that capacity during a portion of
the Transition Period.)
<PAGE>
By an Agreement dated August 12, 1988, Barton entered into a split-dollar
insurance agreement with a trust established by Ellis M. Goodman of which
Gillian Goodman and Edwin H. Goldberger are the trustees. Pursuant to the
Agreement, Barton pays the annual premium on an insurance policy (the "Goodman
Policy") held in the trust. The Goodman Policy is a single life policy payable
upon the death of Mr. Goodman. The face value of the Goodman Policy is $1
million. The amount of all premiums paid by Barton is secured by an assignment
of certain rights in the Policy. Upon the termination of the Agreement, whether
by the death of Mr. Goodman or the sooner cancellation of the Agreement, Barton
is entitled to receive an amount equal to the premiums which it has paid. The
premium paid during fiscal year 1995 with respect to this Agreement was $19,370.
No premium amount was paid during the Transition Period.
Under the terms of a letter agreement between Daniel Barnett and the
Company, if Mr. Barnett's employment with the Company is terminated without
cause or if he is demoted or his responsibilities are materially diminished, in
either case without cause, and that results in his voluntary resignation from
the Company within 30 days thereof, then he will be entitled to receive from the
Company severance payments equal to his then current base compensation for a
period of 12 months. Further, stock options granted to Mr. Barnett to purchase
up to 40,000 shares of the Company's Class A Stock shall, to the extent not then
exercisable, become immediately exercisable, provided that such options shall
have been held for at least six months from the date of grant.
Richard Sands, Robert Sands and the Estate of Laurie Sands are the
beneficial owners of a limited partnership which owns railroad cars. These cars
are leased by the Company from the partnership at fair market rates. The
Company's payments are offset to the extent that railroads using these cars
reimburse the partnership for such use.
James A. Locke, III, a director of the Company, is a partner in the law
firm of Nixon, Hargrave, Devans and Doyle LLP, Rochester, New York, the
Company's principal outside counsel.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company are
submitted herewith:
Report of Independent Public Accountants
Consolidated Balance Sheets - February 29, 1996, February 28,
1995 (unaudited), August 31, 1995, and 1994
Consolidated Statements of Income for the six months ended
February 29, 1996 and February 28, 1995 (unaudited) and for the
years ended August 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for
the six months ended February 29, 1996 and for the years ended
August 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the six months ended
February 29, 1996 and February 28, 1995 (unaudited) and 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
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.
<PAGE>
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).
<PAGE>
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 Amendment dated November 30, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Registrant (filed as Exhibit 2.9
to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1994 and incorporated herein by
reference).
2.10 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 Registrant (filed
herewith).
3.2 Amended and Restated By-laws of the Registrant (filed as Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 1995 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 as Exhibit 4.5 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1995 and incorporated
herein by reference).
<PAGE>
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 as Exhibit 10.7
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 31, 1995 and incorporated herein by reference).
10.8 Amendment No. 7 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed herewith).
10.9 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).
<PAGE>
10.10Barton 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).
10.11Ellis 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).
10.12Barton 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).
10.13Marvin 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).
10.14Amendment 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).
10.15Amendment 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).
10.16Senior 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).
10.17Second 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).
10.18Amendment 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
<PAGE>
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).
10.19Third 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).
10.20Amendment No. 1, dated as of December 20, 1995, to 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 (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1995 and incorporated herein by reference).
10.21Amendment No. 2, dated as of January 10, 1996, to 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 (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1995 and incorporated herein by reference).
10.22Letter agreement, addressing compensation, between the
Registrant and Lynn Fetterman, dated March 22, 1990 (filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 1995 and incorporated
herein by reference).
10.23Letter agreement, effective as of October 7, 1995, as amended,
addressing compensation, between the Registrant and Daniel
Barnett (filed herewith).
10.24Amendment No. 3, dated as of May 17, 1996, to 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 (filed herewith).
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).
<PAGE>
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended February 29, 1996.
<PAGE>
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: May 29, 1996 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: May 29, 1996 Dated: May 29, 1996
/s/ Marvin Sands /s/ Robert Sands
- - ------------------------------- -------------------------------
Marvin Sands, Chairman of the Robert Sands, Director
Board Dated: May 29, 1996
Dated: May 29, 1996
/s/ George Bresler /s/ James A. Locke,III
- - ------------------------------- ------------------------------
George Bresler, Director James A. Locke, III, Director
Dated: May 29, 1996 Dated: May 29, 1996
/s/ Bertram E. Silk
- - -------------------------------
Bertram E. Silk, Director
Dated: May 29, 1996
<PAGE>
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
<PAGE>
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994 and incorporated herein by reference).
2.9 Amendment dated November 30, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Registrant (filed as Exhibit 2.9
to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1994 and incorporated herein by
reference).
2.10 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 Registrant (filed
herewith).
3.2 Amended and Restated By-laws of the Registrant (filed as Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 1995 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 as Exhibit 4.5 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1995 and incorporated
herein by reference).
<PAGE>
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 as Exhibit 10.7
to the Registrant's Annual Report on Form 10-K for the fiscal
year ended August 31, 1995 and incorporated herein by reference).
10.8 Amendment No. 7 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed herewith).
10.9 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).
<PAGE>
10.10Barton 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).
10.11Ellis 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).
10.12Barton 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).
10.13Marvin 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).
10.14Amendment 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).
10.15Amendment 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).
10.16Senior 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).
10.17Second 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).
10.18Amendment 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
<PAGE>
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).
10.19Third 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).
10.20Amendment No. 1, dated as of December 20, 1995, to 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 (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1995 and incorporated herein by reference).
10.21Amendment No. 2, dated as of January 10, 1996, to 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 (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1995 and incorporated herein by reference).
10.22Letter agreement, addressing compensation, between the
Registrant and Lynn Fetterman, dated March 22, 1990 (filed as
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended November 30, 1995 and incorporated
herein by reference).
10.23Letter agreement, effective as of October 7, 1995, as amended,
addressing compensation, between the Registrant and Daniel
Barnett (filed herewith).
10.24Amendment No. 3, dated as of May 17, 1996, to 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 (filed herewith).
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).
<PAGE>
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
CANANDAIGUA WINE COMPANY, INC.
DULY ADOPTED IN ACCORDANCE WITH SECTIONS 245 AND 242
OF THE DELAWARE GENERAL CORPORATION LAW
INCORPORATED ON DECEMBER 4, 1972
This is a Restated Certificate of Incorporation which amends the Restated
Certificate of Incorporation of Canandaigua Wine Company, Inc. to authorize the
issuance of 1,000,000 shares of a class of preferred stock.
1. NAME. The name of the Corporation is Canandaigua Wine Company, Inc.
2. ADDRESS; REGISTERED AGENT. The address of the registered office in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
3. PURPOSES. The nature of business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. CAPITALIZATION; GENERAL AUTHORIZATION. The total number of shares of
stock which the Corporation shall have authority to issue is Eighty-One Million
(81,000,000) consisting of:
(a) Class A Common. Sixty Million (60,000,000) shares designated as
Class A Common Stock, having a par value of One Cent ($.01) per share (the
"Class A Common");
(b) Class B Common. Twenty Million (20,000,000) shares designated as
Class B Common Stock, having a par value of One Cent ($.01) per share (the
"Class B Common"); and
(c) Preferred Stock. One Million (1,000,000) shares designated as
Preferred Stock, having a par value of One Cent ($.01) per share (the
"Preferred Stock").
5. RIGHTS AND LIMITATIONS. The designations, powers, preferences and
relative participation, optional or other special rights and the qualifications,
limitations and restrictions thereof in respect of each class of capital stock
of the Corporation are as follows:
<PAGE>
(i) CLASS A COMMON AND CLASS B COMMON. The Class A Common and Class B
Common shall be identical in all respects and shall entitle the holders
thereof to the same rights, privileges and limitations, except as otherwise
provided herein. The relative rights, privileges and limitations are as
follows:
(a) VOTING RIGHTS. The holders of Class A Common and Class B
Common shall have the following rights:
(i) The holders of Class A Common and Class B Common shall
be entitled to vote as separate classes on all matters as to
which a class vote is now, or hereafter may be, required by law.
(ii) The number of authorized shares of Class A Common
and/or Class B Common may be increased or decreased (but not
below the number of shares thereof then outstanding) by the
majority vote of all Class A Common and Class B Common voting as
a single class, provided that the holders of Class A Common shall
have one (1) vote per share and the holders of Class B Common
shall have ten (10) votes per share.
(iii) At every meeting of shareholders called for the
election of directors, the holders of the Class A Common, voting
as a class, shall be entitled to elect one-fourth (1/4) of the
number of directors to be elected at such meeting (rounded, if
the total number of directors to be elected at such meeting is
not evenly divisible by four (4), to the next higher whole
number), and the holders of the Class B Common, voting as a
class, shall be entitled to elect the remaining number of
directors to be elected at such meeting. Irrespective of the
foregoing, if the number of outstanding Class B Common shares is
less than 12 1/2% of the total number of outstanding shares of
Class A Common and Class B Common, then the holders of the Class
A Common shall be entitled to elect one-fourth (1/4) of the
number of directors to be elected at such meeting (rounded, if
the total number of directors to be elected at such meeting is
not evenly divisible by four (4), to the next higher whole
number) and shall be entitled to participate with the holders of
the Class B Common shares voting as a single class in the
election of the remaining number of directors to be elected at
such meeting, provided that the holders of Class A Common shall
have one (1) vote per share and the holders of the Class B Common
shall have ten (10) votes per share. If, during the interval
between annual meetings for the election of directors, the number
of directors who have been elected by either the holders of the
Class A Common or the Class B Common shall, by reason of
resignation, death, retirement, disqualification or removal, be
reduced, the vacancy or vacancies in directors so created may be
filled by a majority vote of the remaining directors then in
office, even if less than a quorum, or by a sole remaining
director. Any director so elected by the remaining directors to
fill any such vacancy may be removed from office by the vote
<PAGE>
of the holders of a majority of the shares of the Class A Common
and the Class B Common voting as a single class, provided that
the holders of Class A Common shall have one (1) vote per share
and the holders of the Class B Common shall have ten (10) votes
per share.
(iv) The holders of Class A Common and Class B Common shall
in all matters not specified in Sections 5(i)(a)(i), 5(i)(a)(ii)
and 5(i)(a)(iii) vote together as a single class, provided that
the holders of Class A Common shall have one (1) vote per share
and the holders of Class B Common shall have ten (10) votes per
share.
(v) There shall be no cumulative voting of any shares of
either the Class A Common or the Class B Common.
(b) DIVIDENDS. Subject to the rights of the Class A Common set
forth in Paragraph 5(i)(c) hereof, the Board of Directors, acting in
its sole discretion, may declare in accordance with law a dividend
payable in cash, in property or in securities of the Corporation, on
either the Class A Common or the Class B Common or both.
(c) CASH DIVIDENDS. The Board of Directors may, in its sole
discretion, declare cash dividends payable only to holders of Class A
Common or to both the holders of Class A Common and Class B Common,
but not only to holders of Class B Common. A cash dividend in any
amount may be paid on the Class A Common if no cash dividend is to be
paid on the Class B Common. If a cash dividend is to be paid on the
Class B Common, a cash dividend shall also be paid on the Class A
Common in an amount per share thereof which exceeds the amount of the
cash dividend paid on each share of Class B Common by at least ten
percent (10%) (rounded up, if necessary, to the nearest one-hundredth
of a cent).
(d) CONVERTIBILITY. Each holder of record of a share of Class B
Common may at any time or from time to time, without cost to such
holder and at such holder's option, convert any whole number or all of
such holder's shares of Class B Common into fully paid and
nonassessable shares of Class A Common at the rate of one share of
Class A Common for each share of Class B Common surrendered for
conversion. Any such conversion may be effected by any holder of Class
B Common by surrendering such holder's certificate or certificates for
the shares of Class B Common to be converted, duly endorsed, at the
office of the Corporation or the office of any transfer agent for the
Class A Common, together with a written notice for the Corporation at
such office that such holder elects to convert all or a specified
number of such shares of Class B Common. Promptly thereafter, the
Corporation shall issue and deliver to such holder a certificate or
certificates for the number of shares of Class A Common to which such
holder shall be entitled as aforesaid. Such conversion shall be made
as of
<PAGE>
the close of business on the date of such surrender and the person or
persons entitled to receive the shares of Class A Common issuable on
such conversion shall be treated for all purposes as the record holder
or holders of such shares of Class A Common on such date. The
Corporation will at all times reserve and keep available, solely for
the purpose of issue upon conversion of the outstanding shares of
Class B Common, such number of shares of Class A Common as shall be
issuable upon the conversion of all such outstanding shares, provided
that the foregoing shall not be considered to preclude the Corporation
from satisfying its obligations in respect of the conversion of the
outstanding shares of Class B Common by delivery of shares of Class A
Common which are held in the treasury of the Corporation.
(e) RIGHTS UPON LIQUIDATION. Holders of Class A Common and Class
B Common shall have identical rights in the event of liquidation, and
shall be treated as a single class for purposes thereof.
(ii) PREFERRED STOCK. Subject to the terms contained in any designation of
a series of Preferred Stock, the Board of Directors is expressly authorized, at
any time and from time to time, to fix, by resolution or resolutions, the
following provisions for shares of any class or classes of Preferred Stock of
the Corporation or any series of any class of Preferred Stock:
(a) the designation of such class or series, the number of shares to
constitute such class or series which may be increased or decreased (but
not below the number of shares of that class or series then outstanding) by
resolution of the Board of Directors, and the stated value thereof if
different from the par value thereof;
(b) whether the shares of such class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so, the
terms of such voting rights;
(c) the dividends, if any, payable on such class or series, whether
any such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, and the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or any other series of
the same class;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such class or series in, the voluntary or
involuntary
<PAGE>
liquidation, dissolution or winding up, or upon any distribution of the
assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such class or series for retirement
or other corporate purposes and the terms and provisions relative to the
operation thereof;
(g) whether the shares of such class or series shall be convertible
into, or exchangeable for, shares of stock of any other class or any other
series of the same class or any other securities and, if so, the price or
prices or the rate or rates of conversion or exchange and the method, if
any, of adjusting the same, and any other terms and conditions of
conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while
any shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of the Common Stock or
shares of stock of any other class or any other series of the same class;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series
of the same class or of any other class;
(j) the ranking (be it pari passu, junior or senior) of each class or
series vis-a-vis any other class or series of any class of Preferred Stock
as to the payment of dividends, the distribution of assets and all other
matters; and
(k) any other powers, preferences and relative, participating,
optional and other special rights, and any qualifications, limitations and
restrictions thereof, insofar as they are not inconsistent with the
provisions of this Restated Certificate of Incorporation, to the full
extent permitted in accordance with the laws of the State of Delaware.
The powers, preferences and relative, participating, optional and
other special rights of each class or series of Preferred Stock, and
the qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding.
6. BY-LAWS. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
<PAGE>
7. LIABILITY OF DIRECTORS. A member of the Corporation's Board of Directors
shall not be personally liable to the Corporation or its shareholders for
monetary damages for a breach of fiduciary duty as a director, except for
liability of the director (i) for any breach of the director's duty of loyalty
to the Corporation or its shareholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, relating to the
payment of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the shareholders of this Paragraph to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended. Any
repeal or modification of this Paragraph by the shareholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
8. INDEMNIFICATION.
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to an employee benefit
plan (hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith
and such indemnification shall continue as to an indemnitee who has ceased
to be a director, officer, employee or agent and shall inure to the benefit
of the indemnitee's heirs, executors and administrators; PROVIDED, HOWEVER,
that, except as provided in subparagraph (b) hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this Paragraph shall be a contract
right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of
<PAGE>
expenses"), PROVIDED, HOWEVER, that, if the Delaware General Corporation
Law requires, an advancement of expenses incurred by an indemnitee in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Paragraph or otherwise.
(b) RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under subparagraph
(a) of this Paragraph is not paid in full by the Corporation within sixty
days after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any time
thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled
to be paid also the expense of prosecuting or defending such suit. In (i)
any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right
to an advancement of expenses) it shall be a defense that, and (ii) in any
suit by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking the Corporation shall be entitled to recover
such expenses upon final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its shareholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstance because the
indemnitee has met the applicable standard of conduct sets forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its shareholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not
met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought
by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Paragraph or otherwise shall be on
the Corporation.
(c) NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and to
the advancement of expenses conferred in this Paragraph shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, this
<PAGE>
Restated Certificate of Incorporation, by-law, agreement, vote of
shareholders or disinterested directors or otherwise.
(d) INSURANCE. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
(e) INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent
of the provisions of this Paragraph with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
The undersigned hereby certifies that the amendments and changes made in
this Restated Certificate of Incorporation were duly adopted in accordance with
the provisions of Sections 245 and 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has executed this Restated
Certificate of Incorporation as of the 30th day of January, 1996.
/S/ RICHARD SANDS
---------------------------------
Richard Sands, President
A:1014DS/sl
<PAGE>
EXHIBIT 10.8
AMENDMENT NO. 7
TO THE
CANANDAIGUA WINE COMPANY, INC.
STOCK OPTION AND STOCK APPRECIATION RIGHT PLAN
Pursuant to Section 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.
Section 17 of the Plan is hereby amended and restated in its entirety as
follows:
17. ADMINISTRATION. The Plan shall be administered by the Committee as
it may be constituted from time to time. The Committee shall consist
of at least two members of the Board selected by the Board, all of
whom shall be Disinterested Persons. A Disinterested Person for
purposes of the Plan is one who is not, during the one-year period
prior to service on the Committee, or during such service, granted or
awarded equity securities pursuant to the Plan or pursuant to any
other plan of the Company. Decisions of the Committee concerning the
interpretation and construction of any provisions of the Plan or of
any option or SAR granted pursuant to the Plan shall be final. The
Committee may from time to time adopt rules and regulations for the
administration of the Plan. Options and SARs awarded by the Committee
under the Plan shall be deemed granted as of the date of the Committee
action or such later date as may be specified by the Committee at the
time of the award. The Company shall enter into stock option and/or
SAR agreements with the individual to whom the award was granted
setting forth the terms and conditions of the award. Subject to the
express provisions of the Plan, the Committee shall have the
authority, in its discretion and without limitation: to determine the
individuals to receive options and SARs, whether an option is intended
to be an incentive stock option or a non-statutory stock option, the
times when such individuals shall receive such options or SARs, the
number of Shares to be subject to each option or SAR, the term of each
option or SAR, the date when each option or SAR shall become
exercisable, or when each SAR will mature, whether an option or SAR
shall be exercisable or mature in whole or in part in installments,
the form in which payment of an SAR will be made (i.e., cash, Shares,
or any combination thereof), the number of Shares to be subject to
each installment, the date each installment shall become exercisable
or mature, the term of each installment and the option price of each
<PAGE>
option, to accelerate the date of exercise of any option or SAR or
installment thereof, and to make all other determinations necessary or
advisable for administering the Plan.
IN WITNESS WHEREOF, Canandaigua Wine Company, Inc. has caused the
instrument to be executed as of March 8, 1996.
CANANDAIGUA WINE COMPANY, INC.
By: /s/ Richard Sands
---------------------
Richard Sands
Its: President
A:915DSS/sl
<PAGE>
EXHIBIT 10.23
[GRAPHIC - CW/GRAPE LOGO] CANANDAIGUA WINE COMPANY
116 Buffalo Street
Canandaigua, New York 14424
May 21, 1996
Mr. Daniel C. Barnett
303 North Bloomfield Road
Canandaigua, NY 14424
Dear Dan:
Reference is made to the letter agreement pertaining to your employment with the
Company, dated October 5, 1995 and signed by you on October 7, 1995 (the
"Letter"). (A copy of the Letter is attached hereto.)
Inasmuch as Canandaigua Wine Company, Inc. (the "Company") and you desire to
amend Sections 2 and 7 of the Letter, the Company and you hereby agree as
follows:
1. Section 2 of the Letter is hereby amended in its entirety to read as
follows:
"2. Upon your employment you will receive an option to purchase
40,000 shares of the Company's Class A Stock at the market price
on the date of the grant, which shall be your first day of
employment, unless we agree otherwise. The option shall contain
terms similar to grants heretofore made to employees with a
similar level of responsibility and as set forth in Section 7
hereof."
2. Section 7 of the Letter is hereby amended in its entirety to read as
follows:
"7. In the event the Company (i) terminates your employment without
cause, (ii) demotes you without cause resulting in your voluntary
resignation from the Company's employment within 30 days thereof
or (iii) materially diminishes your responsibilities without
cause resulting in your resignation from the Company's employment
within 30 days thereof, the Company shall provide you with
severance compensation equal to your then current base
<PAGE>
Mr. Daniel C. Barnett
May 21, 1996
Page -2-
compensation (excluding bonus) for a period of twelve months.
Furthermore, in the event that any one of the circumstances of
(i), (ii) or (iii) of this Section shall occur, the terms of your
stock option shall provide that to the extent such options have
not become exercisable, they shall upon such event become
exercisable, provided that such option shall have been held for
at least six months from the date of grant."
The Company and you agree that except as set forth herein, the Letter remains
unchanged and in full force and effect.
Please indicate your agreement with the terms and provisions set forth in this
letter by signing below and returning this letter to me.
Very truly yours,
CANANDAIGUA WINE COMPANY, INC.
/s/ Robert Sands
Robert Sands
Executive Vice President
RS/sl
A1022DS
AGREED TO:
/s/ Daniel C. Barnett
- - ---------------------
Daniel C. Barnett
Date: 5/21/96
------------
<PAGE>
[GRAPHIC - CW/GRAPE LOGO] CANANDAIGUA WINE COMPANY
116 Buffalo Street
Canandaigua, New York 14424
October 5, 1995
Mr. Daniel C. Barnett
316 Sea View Avenue
Piedmont, CA 94610
Dear Dan:
Canandaigua Wine Company, Inc. (the "Company") is pleased to offer you the
position of Senior Vice President and President, Wine Division reporting to the
President and Chief Executive Officer of the Company.
With regards to your compensation, the following describes the package:
1. Starting biweekly salary of $11,540.00 subject to all deductions required by
law.
2. Upon your employment you will receive an option to purchase 40,000 shares of
the Company's Class A Stock at the market price on the date of the grant which
shall be your first day of employment. The option shall contain terms similar to
grants heretofore made to employees with a similar level of responsibility and
as set forth in Section 7 hereof.
3. You will be eligible for a discretionary bonus with a target of 45% of your
annualized compensation and a maximum amount of 67.5% of your annualized
compensation. The amount and specific terms of the bonus shall be determined by
the President and Chief Executive Officer of the Company. Notwithstanding the
foregoing, in no event, shall your bonus for this fiscal year constitute less
than 22.5% of your annualized base salary specified in Section 1 hereof.
4. You will be eligible for three (3) weeks vacation during each calendar year
until such time you are eligible for more vacation under our vacation policy as
such policy is amended from time to time.
5. You will be eligible for your first performance and compensation review in
November 1996.
6. Relocation expenses will be reimbursed as per the Company's most inclusive
option under its relocation policy. In addition, the Company shall reimburse you
for up to five round-trip visits of your wife and provide you with temporary
housing during a period of up to twelve (12) months prior to your family's
relocation to the Rochester, NY area. It is expected that you will relocate
within this time frame.
7. In the event that the Company (i) terminates your employment without cause,
(ii) demotes you without cause resulting in your voluntary resignation from the
Company's employment within 30
<PAGE>
Mr. Daniel C. Barnett
Page 2
October 5, 1995
days thereof or (iii) materially diminishes your responsibilities without cause
resulting in your resignation from the Company's employment within 30 days
thereof, the Company shall provide you with severance compensation equal to your
then current base compensation (excluding bonus) for a period of twelve months.
Furthermore, in the event that any one of the circumstances of (i), (ii) or
(iii) of this Section shall occur, the terms of your stock option agreement
shall provide that to the extent such options have not become exercisable, they
shall upon such event become exercisable.
8. This offer is further subject to the terms of the Canandaigua Wine Employment
Application.
9. You will participate in all existing employee benefit plans as you become
eligible per the terms of such plans as amended, added to or discontinued from
time to time, such as health care, disability insurance, life insurance, profit
sharing, 401K and stock purchase plan.
The start date for this position will be November 1, 1995.
Lastly, by executing this letter of agreement, you acknowledge and agree that
your employment with Canandaigua Wine Company is at will meaning that it can be
terminated by you or the Company, at any time, with or without cause. You
further understand and agree that this letter of agreement constitutes the
entire agreement of the parties; is governed by New York State Law; there is no
other written or oral agreements of the parties and that this letter of
agreement cannot be modified or amended, except in writing, executed by you and
the President and Chief Executive Officer of the Company.
Dan, if you have additional questions regarding this offer, as well as any
issues regarding your acceptance of this position, please call Al Kidd or me
within the next few days. It is with pleasure we see you become a member of the
Canandaigua Wine Company's Team. Sign below and return this letter in the
enclosed envelope so we can expedite your employment process.
Sincerely,
CANANDAIGUA WINE COMPANY, INC.
/s/ Richard Sands
Richard Sands
President AGREED TO: /s/ Daniel C. Barnett
----------------------
Daniel C. Barnett
DATE: 10/7/95
RS/kjm -------
BARNETT.SAM
<PAGE>
EXHIBIT 10.24
Execution Copy
AMENDMENT NO. 3
AMENDMENT NO. 3 dated as of May 17, 1996, between CANANDAIGUA WINE COMPANY,
INC., a corporation duly organized and validly existing under the laws of the
State of Delaware (the "COMPANY"); each of the Subsidiaries of the Company
identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages
hereto (individually, a "SUBSIDIARY GUARANTOR" and, collectively the "SUBSIDIARY
GUARANTORS" and, together with the Company, the "OBLIGORS"); each of the lenders
that is a signatory hereto (individually, a "BANK" and, collectively, the
"BANKS"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national
banking association, as administrative agent for the Banks (in such capacity,
together with its successors in such capacity, the "ADMINISTRATIVE AGENT").
The Company, the Subsidiary Guarantors, the Banks and the Administrative
Agent are parties to a Third Amended and Restated Credit Agreement dated as of
September 1, 1995 (as modified and supplemented and in effect on the date
hereof, the "CREDIT AGREEMENT"). The Obligors and the Banks wish to amend the
Credit Agreement in certain respects and, accordingly, the parties hereto hereby
agree as follows:
Section 1. DEFINITIONS. Except as otherwise defined in this Amendment No.
3, terms defined in the Credit Agreement are used herein as defined therein.
Section 2. AMENDMENTS. Subject to the satisfaction of the conditions set
forth in Section 3 hereof, the Credit Agreement shall (except as otherwise
expressly provided in said Section 3) be amended as follows:
A. Section 1.01 of the Credit Agreement is hereby amended by adding the
following definitions (to the extent not already included in said Section 1.01)
and inserting the same in their appropriate alphabetic locations, and amending
in their entirety the following definitions (to the extent already included in
said Section 1.01), as follows:
"ADJUSTED CASH FLOW" shall mean, for any period (the "CALCULATION
PERIOD"), the sum, for the Company and its Consolidated Subsidiaries
(determined on a consolidated basis without duplication in accordance with
GAAP), of the following: (a) Operating Cash Flow for the calculation period
(excluding the Adjustment Amount for such period but including, for the
fiscal quarter of the Company ending on February 29, 1996, the aggregate
amount of the charges specified in Part I of Schedule A to Amendment No.
3), MINUS (b) Capital Expenditures made during the calculation period
AMENDMENT NO. 3
<PAGE>
(excluding (x) Capital Expenditures made from the proceeds of Indebtedness other
than Indebtedness hereunder and (y) Restructuring Capital Expenditures made
during such period but not exceeding an aggregate amount for all calculation
periods of $22,270,000) PLUS (c) the decrease (or MINUS the increase) of Working
Capital from the last day of the fiscal quarter immediately preceding the
calculation period to the last day of the calculation period.
"ADJUSTMENT AMOUNT" shall mean, for any period, for the Company and
its Consolidated Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), the amount of any income or expense
included in the determination of net operating income for such period as a
result of changes in the LIFO Reserve, PROVIDED that (i) for the fiscal
quarter ending February 29, 1996, the Adjustment Amount shall be deemed to
be equal to the aggregate amount of the charges specified in Parts I and II
of Schedule A to Amendment No. 3 and (ii) for the fiscal quarter ending May
31, 1996, the Adjustment Amount (as determined above) shall be deemed to be
increased by an amount equal to 50% of the aggregate amount of the charges
specified in Part II of Schedule A to Amendment No. 3.
"AMENDMENT NO. 3" shall mean Amendment No. 3 dated as of May 17, 1996
between the Company, the Banks party thereto and the Administrative Agent.
"LIFO RESERVE" shall mean, for any period, for the Company and its
Consolidated Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), the reserve established as at the end
of such period by the Company to reflect the difference, if any, between
(a) the cost of inventory using the last-in first-out method of accounting
therefor and (b) the cost of inventory using the first-in first-out method
of accounting therefor.
"OPERATING CASH FLOW" shall mean, for any period, the sum, for the
Company and its Consolidated Subsidiaries (determined on a consolidated
basis without duplication in accordance with GAAP), of the following: (a)
net operating income (calculated before taxes, interest income, Interest
Expense, extraordinary and unusual items and income or loss attributable to
equity in Affiliates) for such period PLUS (b) depreciation and
amortization (to the extent deducted in determining net operating income)
for such period PLUS (c) the Adjustment Amount for such period, if such
Adjustment amount is expense (or MINUS the Adjustment Amount for such
period, if such Adjustment Amount is income).
AMENDMENT NO. 3
<PAGE>
"TANGIBLE NET WORTH" shall mean, as at any date, the sum for the
Company and its Consolidated Subsidiaries (determined on a consolidated
basis without duplication in accordance with GAAP), of the following:
(a) the amount of capital stock, PLUS
(b) the amount of additional paid-in capital and retained
earnings (or, in the case of an additional paid-in capital or retained
earnings deficit, MINUS the amount of such deficit), MINUS
(c) the sum of the cost of treasury shares and Intangibles as at
such date; PLUS
(d) any expense since February 29, 1996 as a result of changes in
the LIFO Reserve (or MINUS any income since February 29, 1996 as a
result of changes in the LIFO Reserve), determined on an after-tax
basis;
PROVIDED, HOWEVER that in no event shall Subordinated Indebtedness be
included in Tangible Net Worth.
B. Section 2.05 of the Credit Agreement is hereby amended by increasing the
maximum aggregate amount of Revolving Letters of Credit that may be outstanding
at any one time from $12,000,000 (as specified in the first sentence of said
Section 2.05) to $20,000,000.
C. Section 9.10 (b) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(b) TANGIBLE NET WORTH. The Company will not permit Tangible Net
Worth to be less than the following respective amounts (subject to
adjustment as provided in the last sentence of this Section 9.10(b))
at any time during the following respective periods:
PERIOD AMOUNT
From 12/1/95 through 2/29/96 $ 80,000,000
From 3/1/96 through 5/31/96 $ 85,000,000
From 6/1/96 through 8/31/96 $ 90,000,000
From 9/1/96 through 11/30/96 $105,000,000
From 12/1/96 through 2/28/97 $125,000,000
Notwithstanding the foregoing, each of the amounts set forth in the
schedule above for any date shall be reduced by the aggregate amount
paid in respect of repurchases of shares of common stock of the Company
on or before such date pursuant to clause (iii) of Section 9.09 hereof.
AMENDMENT NO. 3
<PAGE>
In addition, the Company will not permit Tangible Net Worth as at
any date (the "DETERMINATION DATE") after February 28, 1997 to be less
than the sum of (i) $125,000,000 (or such lesser amount as is required
by reason of the adjustments for stock repurchases referred to above)
PLUS (ii) for each complete fiscal quarter commencing after December
1, 1996 and ending prior to the Determination Date for which net
income of the Company and its Consolidated Subsidiaries is positive,
75% of the amount of such net income PLUS (iii) the aggregate amount
paid upon the exercise of any stock options in respect of the
Company's capital stock after February 28, 1996 and on or before the
Determination Date MINUS (iv) the aggregate amount paid in respect of
repurchases of shares of common stock of the Company after February
28, 1997 and on or before the Determination Date pursuant to clause
(iii) of Section 9.09 hereof."
Section 3. CONDITIONS. Each amendment set forth in Section 2 hereof shall
become effective, as of February 29, 1996, upon the execution of this Amendment
by each Obligor, the Administrative Agent and the Majority Banks; PROVIDED, that
the definition of "Operating Cash Flow" (as such term is used in the
determination of the Debt Ratio for purposes of calculating the Applicable
Margin, the Commitment Fee Percentage and the Letter of Credit Fee Percentage)
shall not be amended or modified by this Amendment No. 3.
Section 4. REPRESENTATION. The Company represents and warrants to the Banks
that the expenses and charges specified in Schedule A hereto have been incurred
by the Company at the times specified therein and the description of such
expenses and charges is true and correct. Section 5. MISCELLANEOUS. Except as
herein provided, the Credit Agreement shall remain unchanged and in full force
and effect. This Amendment No. 3 may be executed in any number of counterparts,
all of which taken together shall constitute one and the same amendatory
instrument and any of the parties hereto may execute this Amendment No. 3 by
signing any such counterpart. This Amendment No. 3 shall be governed by, and
construed in accordance with, the law of the State of New York.
AMENDMENT NO. 3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
be duly executed and delivered as of the day and year first above written.
CANANDAIGUA WINE COMPANY, INC.
By /S/ ROBERT S. SANDS
Title: Executive Vice President
SUBSIDIARY GUARANTORS
BATAVIA WINE CELLARS, INC.
BISCEGLIA BROTHERS WINE COMPANY
CALIFORNIA PRODUCTS COMPANY
GUILD WINERIES & DISTILLERIES, INC.
(formerly known as Canandaigua California
Acquisition Corp.)
TENNER BROTHERS, INC.
WIDMER'S WINE CELLARS, INC.
VINTNERS INTERNATIONAL COMPANY, INC.
(formerly known as Canandaigua/Vintners
Acquisition Corp.)
By /S/ ROBERT S. SANDS
-------------------------
Title: Secretary
CANANDAIGUA WEST, INC.
BARTON INCORPORATED
BARTON BRANDS, LTD.
BARTON BEERS, LTD.
BARTON BRANDS OF CALIFORNIA, INC.
BARTON BRANDS OF GEORGIA, INC.
BARTON DISTILLERS IMPORT CORP.
STEVENS POINT BEVERAGE COMPANY
MONARCH WINE COMPANY,
LIMITED PARTNERSHIP
By Barton Management, Inc.,
Corporate General Partner
BARTON MANAGEMENT, INC.
V ACQUISITION CORP.
By /S/ ROBERT S. SANDS
----------------------
Title: Vice President
BARTON FINANCIAL CORPORATION
By /S/ DAVID S.SORCE
--------------------
Title: Vice President
AMENDMENT NO. 3
<PAGE>
BANKS
THE CHASE MANHATTAN BANK THE FIRST NATIONAL BANK OF CHICAGO
(NATIONAL ASSOCIATION),
ROCHESTER DIVISION
By /S/ DIANA LAURIA By /S/ J. GARLAND SMITH
--------------------------- ----------------------------
Title: Vice President Title: Managing Director
WELLS FARGO BANK, N.A. MANUFACTURERS AND TRADERS TRUST
COMPANY
By /S/ LANCYGIN By /S/ PHILIP SMITH
---------------------------- -----------------------------
Title: Assistant Vice President Title: Regional Sr. Vice President
By /S/ PETER G. OLSON
----------------------------
Title: Senior Vice President
FLEET BANK PNC BANK, NATIONAL ASSOCIATION
By /S/ MARTIN K. BIRMINGHAM By /S/ THOMAS R.COLWELL
--------------------------- -----------------------------
Title: Assistant Vice President Title: Vice President
NATIONAL CITY BANK CORESTATES BANK, N.A.
By /S/ JED M. PARKER By
--------------------------- -----------------------------
Title: Vice President Title:
THE FUJI BANK LIMITED, THE BANK OF NOVA SCOTIA
NEW YORK BRANCH
By /S/ TEIJI TERAMOTO By /S/ J. ALAN EDWARDS
--------------------------- -----------------------------
Title: Vice President and Title: Authorized Signatory
Manager
CREDIT SUISSE THE SUMITOMO BANK, LIMITED
NEW YORK BRANCH
By /S/ JOEL GLODOWSKI
---------------------------
Title: Member Senior Management By /S/ Y. KAWAMORA
----------------------------
Title: Joint General Manager
By /S/ CHRIS T. HORGAN
---------------------------
Title: Associate By
-----------------------------
Title:
KEY BANK OF NEW YORK CHEMICAL BANK
By /S/ TIMOTHY A. MERRIMAN By /S/ J. SPILLANE
---------------------------- -----------------------------
Title: Vice President Title: Vice President
AMENDMENT NO. 3
<PAGE>
COOPERATIVE CENTRAL RAIFFEISEN- LTCB TRUST COMPANY
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
By /S/ JOANNA M. SOLOWSKI By /S/ RENE' O. LEBLANC
------------------------------ -----------------------------
Title: Vice President Title: Senior Vice President
By /S/ ROBERT S. BUCKLIN
------------------------------
Title: Deputy General Manager
DB BANK DEUTSCHE GENOSSEN- NBD BANK
SCHAFTSBANK, CAYMAN ISLAND
BRANCH By /S/ J. GARLAND SMITH
-----------------------------
Title: Managing Director
By ------------------------------
Title:
By:------------------------------
Title:
THE ADMINISTRATIVE AGENT
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Administrative Agent
By /S/ CAROL A. ULMER
--------------------------
Title: Vice President
AMENDMENT NO. 3
<PAGE>
SCHEDULE A
Part I:
Eleven million three hundred thousand dollars ($11,300,000) of
non-recurring costs and expenses during the six-month period ended February 29,
1996.
Part II:
Nine million six hundred thousand dollars ($9,600,000) representing the
difference between the Company's and its consolidated Subsidiaries' (determined
on a consolidated basis without duplication and in accordance with GAAP) costs
during the six-month period ended February 29, 1996 of inventory using the
last-in first-out method of accounting therefor and the cost during such period
of inventory using the first-in first-out method of accounting therefor.
AMENDMENT NO. 3
<PAGE>
<TABLE>
EXHIBIT 11.1
CANANDAIGUA WINE COMPANY, INC AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands, except per share data)
<CAPTION>
For the Six Months Ended For the Years Ended August 31,
----------------------------------- --------------------------------------------------
February 29, 1996 February 28, 1995 1995 1994 1993
----------------- ----------------- ----------------- -------------- -----------------
(unaudited)
Net income per common and
common equivalent share: PRIMARY FULLY PRIMARY FULLY PRIMARY FULLY PRIMARY FULLY PRIMARY FULLY
DILUTED DILUTED DILUTED DILUTED DILUTED
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income available to common
and common equivalent shares $3,322 $3,322 $ 20,320 $ 20,320 $ 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 $3,322 $3,322 $ 20,320 $ 20,320 $ 41,020 $ 41,020 $ 11,733 $12,152 $15,604 $18,201
------ ------ -------- -------- ------- -------- -------- ------- ------- -------
Shares:
Weighted average common shares
outstanding 19,611 19,611 17,989 17,989 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 260 260 284 285 252 302 227 257 144 144
(3) Assumed exercise of options 135 135 71 73 120 218 134 177 - -
------ ------- ------- -------- ------- -------- -------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding 20,006 20,006 18,344 18,347 19,148 19,296 15,784 16,401 11,964 15,203
------ ------- ------- -------- ------- -------- -------- ------- ------- -------
Net income per common and
common equivalent share $.17 $ .17 $ 1.11 $ 1.11 $2.14 $2.13 $ .74 $.74 $1.30 $1.20
======= ======= ======= ======== ======= ======== ======== ======= ======= =======
</TABLE>
<PAGE>
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 Group
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.
<PAGE>
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.
Rochester, New York, /s/ Arthur Andersen LLP
May 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's February 29, 1996 Transition Period Form 10-K and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000016918
<NAME> CANANDAIGUA WINE COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 3,339
<SECURITIES> 0
<RECEIVABLES> 142,471
<ALLOWANCES> 0
<INVENTORY> 341,838
<CURRENT-ASSETS> 518,020
<PP&E> 338,211
<DEPRECIATION> 87,573
<TOTAL-ASSETS> 1,054,580
<CURRENT-LIABILITIES> 299,966
<BONDS> 327,616
0
0
<COMMON> 214
<OTHER-SE> 356,292
<TOTAL-LIABILITY-AND-EQUITY> 1,054,580
<SALES> 535,024
<TOTAL-REVENUES> 535,024
<CGS> 396,208
<TOTAL-COSTS> 396,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,447
<INCOME-PRETAX> 6,703
<INCOME-TAX> 3,381
<INCOME-CONTINUING> 3,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,322
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
