UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 28, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
COMMISSION FILE NO. 0-7570
Delaware Canandaigua Wine Company, Inc. 16-0716709
and its subsidiaries:
New York Batavia Wine Cellars, Inc. 16-1222994
Delaware Bisceglia Brothers Wine Co. 94-2248544
California California Products Company 94-0360780
New York Guild Wineries & Distilleries, Inc. 16-1401046
New York Widmer's Wine Cellars, Inc. 16-1184188
Delaware Barton Incorporated 36-3500366
Delaware Barton Brands, Ltd. 36-3185921
Maryland Barton Beers, Ltd. 36-2855879
Connecticut Barton Brands of California, Inc. 06-1048198
Georgia Barton Brands of Georgia, Inc. 58-1215938
New York Barton Distillers Import Corp. 13-1794441
Delaware Barton Financial Corporation 51-0311795
Wisconsin Stevens Point Beverage Co. 39-0638900
Illinois Monarch Import Company
(f/k/a Barton Management, Inc.) 36-3539106
New York Vintners International Company, Inc. 16-1443663
New York Canandaigua West, Inc. 16-1462887
Georgia The Viking Distillery, Inc. 58-2183528
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification No.)
incorporation or
organization)
116 BUFFALO STREET, CANANDAIGUA, NEW YORK 14424
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(Address of principal executive offices) (Zip Code)
REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE (716) 394-7900
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock (Par Value $.01 Per Share)of Canandaigua Wine Company, Inc.
- --------------------------------------------------------------------------------
(Title of Class)
Class B Common Stock (Par Value $.01 Per Share)of Canandaigua Wine Company, Inc.
- --------------------------------------------------------------------------------
(Title of Class)
<PAGE>
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
Canandaigua Wine Company, Inc., as of May 16, 1997, was $421,831,323.
The number of shares outstanding with respect to each of the classes of common
stock of Canandaigua Wine Company, Inc., as of May 16, 1997, is set forth below
(all of the Registrants, other than Canandaigua Wine Company, Inc., are direct
or indirect wholly-owned subsidiaries of Canandaigua Wine Company, Inc.):
NUMBER OF SHARES OUTSTANDING
CLASS AS OF MAY 16, 1997
----- ------------------
Class A Common Stock, Par Value $.01 Per Share 15,211,713
Class B Common Stock, Par Value $.01 Per Share 3,330,458
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement of Canandaigua Wine Company, Inc. to be issued for the
annual meeting of stockholders to be held July 22, 1997 is incorporated by
reference in Part III.
================================================================================
<PAGE>
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 ENDED FEBRUARY 28, 1997. DURING JANUARY 1996, THE BOARD OF DIRECTORS
OF THE COMPANY CHANGED THE COMPANY'S FISCAL YEAR END FROM AUGUST 31 TO THE LAST
DAY OF FEBRUARY. ACCORDINGLY, THIS FORM 10-K INCLUDES AND PRESENTS INFORMATION
FOR THE COMPANY'S TRANSITION PERIOD FROM SEPTEMBER 1, 1995, TO FEBRUARY 29, 1996
(THE "TRANSITION PERIOD") AS WELL AS INFORMATION FOR THE PERIOD FROM MARCH 1,
1995 TO FEBRUARY 29, 1996 ("PRO FORMA FISCAL 1996").
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 MEDIA 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.
The Company is a Delaware corporation organized in 1972 as the successor to
a business founded in 1945 by Marvin Sands, Chairman of the Board of the
Company.
The Company is a leading producer and marketer of branded beverage alcohol
products, with over 125 national and regional brands which are distributed by
over 1,400 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 fourth 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:
o TABLE WINES: Inglenook, Almaden, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James, Deer Valley and Dunnewood
o SPARKLING WINES: Cook's, J. Roget, Great Western and Taylor
o DESSERT WINES: Richards Wild Irish Rose, Cisco and Taylor
o IMPORTED BEER: Corona, St. Pauli Girl, Modelo Especial, Pacifico and
Tsingtao
o DISTILLED SPIRITS: Fleischmann's, Barton, Mr. Boston, Canadian LTD, Ten
High, Montezuma, Inver House and Monte Alban
<PAGE>
Based on available industry data, the Company believes that during calendar
year 1996 it had a 20% 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 25% share of the
non-varietal table wine market, an 11% 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 table 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 $1,135.0 million for fiscal 1997.
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. During this period, the Company has 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 Cook's, Cribari, Dunnewood and other
brands and related facilities and assets from Guild Wineries & Distilleries. In
June 1993, the Company acquired Barton Incorporated ("Barton"), which enabled
the Company to diversify 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 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").
<PAGE>
The Company's business strategy is to manage its existing portfolio of
brands and businesses in order to maximize profit and return on investment, and
reposition its portfolio of brands to benefit from growth trends in the beverage
alcohol industry. To achieve the foregoing, the Company intends to: (i) adjust
the price/volume relationships of certain brands; (ii) develop new brands and
introduce line extensions; (iii) expand geographic distribution; and (iv)
acquire businesses that meet its strategic and financial objectives.
CURRENT OPERATING ENVIRONMENT
The Company's growth through acquisitions over the past five years has
substantially expanded its portfolio of brands and has enabled it to become a
major participant in additional product categories of the beverage alcohol
business. This expansion has positioned the Company to benefit from faster
growing categories with over 40% of the Company's sales generated from the
growth categories of imported beer and varietal wines. The Company's beer and
spirits division, Barton, has continued to increase its operating profits.
However, recent operating results in the Company's wine division have been
negatively impacted by two factors: increases in grape prices and certain costs
and operating inefficiencies relating to the consolidation of certain West Coast
winery operations in connection with the acquisitions.
While the consolidation of certain wine operations has produced significant
overall synergies, some of the planned efficiencies have not materialized and
unanticipated costs have occurred. The Company believes that the unanticipated
production costs resulted from its rapid growth over the last three years,
combined with the lack of integrated production control systems and the
complexity of production at its newly consolidated Mission Bell Winery.
Additionally, as the Company has increased its wine and grape juice
concentrate business, it has become the second largest purchaser of grapes for
wine and concentrate in California. The Company's profits are significantly
influenced by grape price changes. Costs for grapes have escalated dramatically
over the last two grape harvests (fall 1995 and fall 1996). Holding tonnage
constant, the Company's overall cost of grapes increased 17.5% in the 1996
harvest.
In order to address these matters, the Company is taking a number of
specific steps to improve sales and margins, minimize unexpected costs related
to inefficiencies and realize opportunities for efficiencies afforded by the
Company's consolidation of its West Coast wine operations and its economies of
scale as a major participant in the beverage alcohol industry. There can be no
assurance, however, that the specific steps the Company is taking will address
such inefficiencies and unexpected costs that the Company has incurred. Such
steps include the following:
o The Company has completed a comprehensive reengineering effort in its wine
division. The new structure resulting from the reengineering effort is
intended to increase the efficiency of all of the Company's operating
processes, create smaller, more manageable business units and create
greater management accountability for its wine business. Organizational
changes include the creation of Accountable Business Units organized by
product categories which are accountable for
<PAGE>
production and marketing, and Customer Business Centers, organized by
region, which are responsible for sales, customer service and product
delivery. The Company intends, through the creation of remote distribution
centers, to store inventory closer to its customers, thereby reducing
delivery times. The Company believes these efforts will reduce the overall
amount of inventory it and its customers carry, thus reducing capital
employed and offering benefits to its customers that cannot currently be
obtained from competitors. The Company will be implementing the
distribution center concept on a measured basis to determine its efficacy.
o In connection with the reengineering effort, the Company is implementing a
new accounting and management information system to upgrade the type and
level of information the Company can generate, and to enable it to manage
its business more precisely.
o The Company has created a number of special task forces specifically to
address various issues related to inefficiencies at its West Coast wine
operations, and has relocated, in some cases temporarily and in others
permanently, personnel with particular expertise necessary to address these
matters. All aspects of the Company's wine and grape juice concentrate
production, material requirements planning functions, warehousing logistics
and bottling operations at the Company's Mission Bell Winery in California,
are being reviewed and changed as necessary to create greater efficiencies.
o The Company has instituted several broad price increases on its varietal
and non-varietal table wines in response to increased grape costs from the
1995 and 1996 grape harvests. In general, it is both industry and Company
practice to make selling price adjustments around the time the wine
produced with the higher cost grapes is actually sold, which generally
occurs in the calendar year following the grape harvest. Over the last
eighteen months the industry and the Company have increased their selling
prices. In the case of the Company, these selling price increases, on an
annualized basis, have not completely offset the increased costs associated
with the fall 1995 and fall 1996 harvests.
o The Company has recruited new management in several key positions in its
Corporate organization, including a new Chief Financial Officer and a Chief
Human Resources Officer. In the wine division, the Company has added a new
President of its wine division with extensive experience in the U.S.
beverage industry, and a number of senior managers in the wine division's
operating, manufacturing, selling, and finance areas. It is expected that
the filling of these positions has given, and will continue to give, the
Company significantly increased management depth and experience.
<PAGE>
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. During the 1990's, the overall per capita
consumption of beverage alcohol products in the United States has declined
slightly; 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, 1996:
INDUSTRY DATA 1992 1993 1994 1995 1996
------------- ------- ------- ------- ------- -------
Domestic Table Wines (a)(b) 308,169 300,953 307,481 318,546 339,450
Domestic Dessert Wines (a)(c) 32,449 29,698 27,634 25,439 24,727
Domestic Sparkling Wines (a) 23,794 23,600 22,855 22,298 21,827
Imported Beer (d) 114,590 127,418 144,527 155,178 171,186
Distilled Spirits (e) 148,017 144,162 140,504 137,809 137,750
------------------------------
(a) Units are in thousands of gallons. Data exclude sales of wine coolers.
(b) Includes other special natural (flavored) wines under 14% alcohol.
(c) Includes dessert wines, other special natural flavored wines over 14%
alcohol and vermouth.
(d) Units are in thousands of cases (2.25 gallons per case).
(e) Units are in thousands of 9-liter cases (2.378 gallons per case).
TABLE WINES. Wines containing 14% or less alcohol by volume are generally
referred to as table wines. Within this category, table wines are further
characterized as either "non-varietal" or "varietal." Non-varietal wines include
wines named after the European regions where similar types of wines were
originally produced (e.g., burgundy), niche products and proprietary brands.
Varietal wines are those named for the grape that comprises the principal
component of the wine. Table wines that retail at less than $5.75 per 750 ml.
bottle are generally considered to be popularly priced while those that retail
at $5.75 or more per 750 ml. bottle are considered premium wines.
From 1992 to 1996, shipments of domestic table wines increased at an
average compound annual rate of 2%. In 1996, domestic table wine shipments
increased by 7% when compared to 1995, 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 95% of the total domestically
produced
<PAGE>
table wine market in 1996, shipments of varietal wines have grown at an average
compound annual rate of 10% since 1992. 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. Shipments of imported
table wines have increased from 58.6 million gallons in 1992 to 80.6 million
gallons in 1996. Imported table wines constituted 19% of the United States table
wine market in 1996.
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 1996, shipments of domestic dessert
wines decreased 3% as compared to 1995. During the period from 1992 to 1996,
shipments of domestic dessert wines declined at an average compound annual rate
of 7%. Dessert wine consumption in the United States has been declining for many
years, reflecting a general shift in consumer preferences.
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 1992 to 1996, with shipments of domestic sparkling wines also
declining 2% in 1996 as compared to 1995. The Company believes that the decline
in sparkling wine consumption reflects continuing concerns about drinking and
driving, as a large part of sparkling wine consumption occurs outside the home
at social gatherings and restaurants.
IMPORTED BEER. Shipments of imported beers have increased at an average
compound annual rate of 11% from 1992 to 1996. Shipments of Mexican beers in
1996 increased 28% over 1995 as compared to an increase of 10% for the entire
imported beer category. Shipments of imported beers as a percentage of the
United States beer market, increased to 7% in 1996 from 6% in 1995. Imported
beers, along with microbrews and super-premium priced domestic beers, are
generally priced above the leading domestic premium brands.
DISTILLED SPIRITS. Although shipments of distilled spirits in the United
States declined at an average compound annual rate of 2% from 1992 to 1996,
certain types of distilled spirits, such as tequila, brandy and liqueurs, have
increased. In 1996, shipments of distilled spirits remained flat as compared to
1995. The Company believes shipments of certain types of distilled spirits may
have been negatively affected by high excise taxes, concerns about drinking and
driving, and a shift in consumer preference toward lower alcohol or lighter
tasting products like imported beer and varietal wines which have grown
substantially during the period from 1992 to 1996.
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 following tables include net sales and
unit volume of products and services from the Vintners, Almaden/Inglenook and
UDG Acquisitions for all periods shown as if they had been owned by the Company
for the entire period.
<PAGE>
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 fiscal 1994, fiscal 1995,
Pro Forma Fiscal 1996 and fiscal 1997.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL 1994 FISCAL 1995 FISCAL 1996 FISCAL 1997
-------------------- -------------------- -------------------- -------------------
NET NET NET NET
SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
-------- ------- -------- ------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL WINES AND
RELATED PRODUCTS $608,859 103,343 $603,526 101,430 $595,665 102,431 $630,964 99,739
</TABLE>
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 42% of the domestic table wine market
in the United States in 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 Company's principal table wine
brands include Inglenook, Almaden, Paul Masson, Taylor California Cellars,
Cribari, Manischewitz, Taylor, Marcus James, Deer Valley and Dunnewood.
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 periods shown:
FISCAL FISCAL PRO FORMA FISCAL
1994 1995 FISCAL 1996 1997
TABLE WINES VOLUME VOLUME VOLUME VOLUME
- ------------ ------ ------ ----------- ------
Non-varietal 52,610 47,774 45,888 43,897
Varietal 12,794 16,344 18,318 16,999
TOTAL (A) 65,404 64,118 64,206 60,896
- -----------------------------
(a) Excludes sales of wine coolers but includes sales of wine in bulk.
Unit volume sales of non-varietal table wines have declined, while varietal
table wines have generally 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. The Company's unit volume sales of imported wine increased steadily from
1.9 million gallons in fiscal 1994 to 2.8 million gallons in fiscal 1997. This
improvement is attributable primarily to increased sales of the Marcus James
varietal wine brand.
<PAGE>
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 93% of the dessert wine market in the latest year for
which data is available. The Company's principal dessert wine brands include
Richards Wild Irish Rose, Cisco and Taylor.
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 periods shown:
FISCAL FISCAL PRO FORMA FISCAL
1994 1995 FISCAL 1996 1997
DESSERT WINES VOLUME VOLUME VOLUME VOLUME
------ ------ ----------- ------
12,037 10,962 10,780 10,313
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 14%
from fiscal 1994 through fiscal 1997.
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 the latest year for which data is
available. The Company's principal sparkling wine brands include Cook's, J.
Roget, Great Western and Taylor.
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 periods shown:
FISCAL FISCAL PRO FORMA FISCAL
1994 1995 FISCAL 1996 1997
SPARKLING WINES VOLUME VOLUME VOLUME VOLUME
------ ------ ----------- ------
7,353 6,500 6,650 6,317
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. 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
periods shown:
<PAGE>
FISCAL FISCAL PRO FORMA FISCAL
GRAPE JUICE 1994 1995 FISCAL 1996 1997
CONCENTRATE VOLUME VOLUME VOLUME VOLUME
------ ------ ----------- ------
11,826 11,017 11,004 12,204
OTHER WINE PRODUCTS AND RELATED SERVICES. The Company's other wine related
products and services include: grape juice; St. Regis, a leading nonalcoholic
line of wines in the United States; wine coolers sold primarily under the Sun
Country brand name; cooking wine; and wine for the production of vinegar. The
Company also provides various bottling and distillation production services for
third parties.
BEER. The Company is the 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 Extra 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 the Company for the
periods shown:
FISCAL FISCAL PRO FORMA FISCAL
BEER 1994 1995 FISCAL 1996 1997
-------------- --------------- --------------- ---------------
NET NET NET NET
SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
------- ------ ------- ------ ------- ------ ------- ------
$173,883 14,100 $216,159 17,471 $239,785 19,344 $298,925 23,848
The Company's other imported beer brands include Pacifico and Negra Modelo
from Mexico, Tsingtao from China, 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 since
fiscal 1994, primarily as a result of the increased sales of Corona and the
Company's other Mexican beer brands. Net sales and unit volume increased 24.7%
and 23.3%, respectively, in fiscal 1997 compared to Pro Forma Fiscal 1996.
DISTILLED SPIRITS. The Company is the fourth largest supplier of distilled
spirits in the United States. The Company produces, bottles, imports and markets
a diversified line of quality distilled spirits, and also exports distilled
spirits to more than 15 foreign countries. The Company's principal distilled
spirits brands include Fleischmann's, Barton, Mr. Boston, Canadian LTD, Ten
High, Montezuma, Inver House and Monte Alban. Substantially all of the Company's
spirits unit volume consists of products marketed in the price value segment.
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 the Company and under brands acquired in the Vintners Acquisition, the
Almaden/Inglenook Acquisition, and for the brands and products acquired in the
UDG Acquisition for the periods shown:
<PAGE>
PRO FORMA
FISCAL 1994 FISCAL 1995 FISCAL 1996 FISCAL 1997
---------------- ---------------- ---------------- ----------------
NET NET NET NET
SPIRITS SALES VOLUME SALES VOLUME SALES VOLUME SALES VOLUME
-------- ------ -------- ------ -------- ------ -------- ------
Company
(exclusive $ 88,549 5,678 $ 92,400 5,917 $ 94,671 6,031 $100,907 6,059
of UDG)
UDG 101,916 4,941 92,136 5,013 84,132 4,709 82,936 4,840
-------- ------ -------- ------ -------- ------ -------- ------
TOTAL $190,465 10,619 $184,536 10,930 $178,803 10,740 $183,843 10,899
======== ====== ======== ====== ======== ====== ======== ======
For the year ended February 28, 1997, net sales and unit volume of
distilled spirits brands sold by the Company and under brands acquired in the
Vintners and Almaden/Inglenook Acquisitions increased 6.6% and 0.5%,
respectively. Unit volume of vodka, tequila and brandy have increased while
Scotch and bourbon have experienced decreases in unit volume.
During the period from the beginning of fiscal 1994 to the end of Pro Forma
Fiscal 1996, the unit volume of 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
implemented pricing and promotional activities during fiscal 1997 which
eliminated the rate of decline and resulted in a volume increase of 3%.
In addition to the branded products described above, the Company also sells
distilled spirits in bulk and provides contract production and bottling
services.
MARKETING AND DISTRIBUTION
The Company's products are distributed and sold throughout the United
States through over 1,400 wholesalers, as well as through state alcoholic
beverage control agencies. The Company employs a full-time, in-house marketing
and sales organization of approximately 300 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.
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.
<PAGE>
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 expires in
December 2006 and, subject to compliance with certain performance criteria,
continued retention of certain Company personnel and other terms under the
agreement, will be automatically renewed for additional terms of five years. The
Company's agreement for the importation of St. Pauli Girl expires in 1998 and,
subject to compliance with certain performance criteria, may be extended by the
Company until 2003. The Company's agreement for the exclusive importation of
Tsingtao throughout the entire United States expires in December 1999 and,
subject to compliance with certain performance criteria and other terms under
the agreement, will be automatically renewed until December 2002. Prior to their
expiration, these agreements may be terminated if the Company fails to meet
certain performance criteria. The Company believes it is currently in compliance
with its imported beer distribution agreements. From time to time, the Company
has failed, and may in the future fail, to satisfy certain performance criteria
in its distribution agreements. Although there can be no assurance that its beer
distribution agreements will be renewed, given the Company's long-term
relationships with its suppliers, the Company expects that such agreements will
be renewed prior to their expiration and does not believe that these agreements
will be terminated.
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.
<PAGE>
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 Albany, Georgia,
facility, the Company produces all of the neutral grain spirits and whiskeys
used by it in the production of vodka, gin and blended whiskey sold by it to
customers in the state of Georgia. The Company's requirements of Canadian and
Scotch whiskies, and tequila, mezcal, and the neutral grain spirits used by it
in the production of gin and vodka for sale outside of Georgia, and other
spirits products, are purchased from various suppliers.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal components in the production of the Company's branded
beverage alcohol products are: packaging materials, primarily glass; grapes; and
other agricultural products, such as grain.
The Company utilizes glass and PET bottles and other materials, such as
caps, corks, capsules, labels and cardboard cartons, in the bottling and
packaging of its products. Glass bottle costs are one of the largest components
of the Company's cost of product sold. The glass bottle industry is highly
concentrated with only a small number of producers. The Company has
traditionally obtained, and continues to obtain, its glass requirements from a
limited number of producers. The Company has not experienced difficulty in
satisfying its requirements with respect to any of the foregoing and considers
its sources of supply to be adequate. However, the inability of any of the
Company's glass bottle suppliers to satisfy the Company's requirements could
adversely affect the Company's operations.
Most of the Company's annual grape requirements are satisfied by purchases
from each year's harvest, which normally begins in August and runs through
October. Costs for grapes have escalated dramatically over the last two grape
harvests (fall 1995 and fall 1996). The Company believes that it has adequate
sources of grape supplies to meet its sales expectations. However, in the event
demand for certain wine products exceeds expectations, the Company could
experience shortages.
<PAGE>
The Company purchases grapes from over 700 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 currently owns or leases
under various arrangements approximately 4,500 acres of vineyards, either fully
bearing or under development, in California and New York. This acreage supplies
only a small percentage of the Company's total needs. The Company continues to
consider the purchase or lease of additional vineyards, and additional land for
vineyard plantings, to supplement its grape supply.
The distilled spirits manufactured by the Company require various
agricultural products, neutral grain spirits and bulk spirits. The Company
fulfills its requirements through purchases from various sources, through
contractual arrangements and through purchases on the open market. The Company
believes that adequate supplies of the aforementioned products are available at
the present time.
GOVERNMENT REGULATION
The Company's operations are subject to extensive federal and state
regulation. These regulations cover, among other matters, sales promotion,
advertising and public relations, labeling and packaging, changes in officers or
directors, ownership or control, distribution methods and relationships, and
requirements regarding brand registration and the posting of prices and price
changes. All of the Company's facilities are also subject to federal, state and
local environmental laws and regulations and the Company is required to obtain
permits and licenses to operate its facilities. The Company believes that it is
in compliance in all material respects with all presently applicable
governmental laws and regulations and that the cost of administration of
compliance with such laws and regulations does not have, and is not expected to
have, a material adverse impact on the Company's financial condition or results
of operations.
EMPLOYEES
The Company had approximately 2,500 full-time employees at the end of
fiscal 1997 and Pro Forma Fiscal 1996. As of February 28, 1997, approximately
1,100 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 generally to be good.
<PAGE>
ITEM 2. PROPERTIES
The Company currently operates 12 wineries, two distilling and bottling
plants, three bottling plants and a brewery, most 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. All of these facilities are
owned by the Company other than a winery in Escalon, California, a winery in
Batavia, New York and a bottling plant in Carson, California, each of which is
leased.
In New York, the Company operates three wineries located in Canandaigua,
Naples and Batavia. The Company currently operates nine winery facilities in
California. The Mission Bell winery is a crushing, wine production, bottling and
distribution facility and a grape juice concentrate production facility. The
Monterey Cellars winery is a crushing, wine production and bottling facility.
The other wineries operated in California are located in Escalon, Lodi,
McFarland, Madera, Fresno, and Ukiah. The Company expects to sell its winery in
Lodi, California. The Escalon facility is operated under a long-term lease with
an option to buy. The Company currently owns or leases under various
arrangements approximately 4,500 acres of vineyards, either fully bearing or
under development, in California and New York.
The Company operates five facilities that produce, bottle and store
distilled spirits. It owns distilling, bottling and storage facilities in
Bardstown, Kentucky, and Albany, Georgia, and operates bottling plants in
Atlanta, Georgia, Owensboro, Kentucky, and Carson, California. The Carson plant
is operated under a management contract and a sublease, each of which is
scheduled to expire on December 31, 1998. The parties are currently negotiating
an extension of this arrangement. The Carson plant receives distilled spirits in
bulk from Bardstown and outside vendors, which it bottles and distributes. The
Company also performs contract bottling at the Carson plant. The Bardstown
facility distills, bottles and warehouses distilled spirits products for the
Company's account and on a contractual basis for other participants in the
industry. The Owensboro facility bottles and warehouses distilled spirits
products for the Company's account and performs contract bottling. The Company's
Atlanta, Georgia facility bottles, and its Albany, Georgia facility distills and
bottles, 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 Company's bank
<PAGE>
Credit Agreement (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.
With respect to the following described litigation, on November 8, 1996,
the District Court entered summary judgment in favor of the Company and the
other defendants. The Court's judgment resolves all claims against all of the
defendants in this litigation. The time period in which plaintiffs could have
filed a notice of appeal to the United States Court of Appeals for the Second
Circuit expired on December 12, 1996, without any such notice being filed.
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 were the Company, Richard Sands and Lynn K.
Fetterman. The Class Actions were consolidated and a consolidated complaint was
filed on January 16, 1996. The Class Actions asserted violations of Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder and sought to recover damages in an unspecified amount which the
class members allegedly sustained by purchasing the Company's common stock at
artificially inflated prices. The complaints in the Class Actions alleged that
the Company's public documents and statements were materially incomplete and, as
a result, misleading.
On April 8, 1996, the Company filed a motion to dismiss the consolidated
complaint and oral argument was held on September 25, 1996. After oral argument,
the Court stated that it intended to construe the Company's motion to dismiss as
a motion for summary judgment. As noted above, on November 8, 1996, the District
Court entered summary judgment in favor of the Company and the other defendants.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information with respect to the current
executive officers of the Company:
NAME AGE OFFICE HELD
- ---- --- -----------
Marvin Sands 73 Chairman of the Board
Richard Sands 46 President and Chief Executive Officer
Robert Sands 38 Executive Vice President, General Counsel
and Secretary
Ellis M. Goodman 60 Chief Executive Officer of Barton Incorporated
Daniel C. Barnett 47 Senior Vice President and President of
Wine Division
Bertram E. Silk 65 Senior Vice President
Thomas S. Summer 43 Senior Vice President and Chief Financial Officer
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.
Daniel C. Barnett joined the Company during November 1995 as a Senior Vice
President and President of the Company's wine division. From July 1994 to
October 1995, Mr. Barnett
<PAGE>
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 responsible for industry
relations with respect to labor unions in California, as well as for various
trade association and international alcohol beverage industry matters.
Immediately prior to his current position, he was 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.
Thomas S. Summer joined the Company during April l997 as Senior Vice
President and Chief Financial Officer. From November 1991 to April 1997, Mr.
Summer served as Vice President, Treasurer of Cardinal Health, Inc., a large
national heath care services company, where he was responsible for directing
financing strategies and treasury matters. Prior to that, from November 1987 to
November 1991, Mr. Summer held several positions in corporate finance and
international treasury with PepsiCo, Inc.
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>
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") trade 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
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Fiscal 1995
High $34 1/4 $40 1/2 $44 3/4 $48
Low $29 3/4 $33 1/4 $33 1/2 $40 1/2
Transition Period
High $53 $39
Low $30 3/4 $29 3/4
Fiscal 1997
High $39 1/2 $32 1/4 $27 1/2 $31 3/4
Low $27 $22 7/8 $15 3/4 $25 1/2
CLASS B STOCK
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Fiscal 1995
High $34 1/2 $40 $45 1/2 $47 3/4
Low $30 1/2 $33 $35 1/4 $43
Transition Period
High $52 1/4 $38 3/4
Low $32 1/2 $32 1/4
Fiscal 1997
High $39 1/2 $32 1/2 $29 3/4 $34
Low $27 3/4 $25 3/8 $19 $28 3/4
At May 5, 1997, the number of holders of record of Class A Stock and Class
B Stock of the Company were 1,292 and 351, 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 $130
million 8 3/4% Senior Subordinated Notes due 2003 and its indenture for its $65
million 8 3/4% Series C Senior Subordinated Notes due 2003 restrict the payment
of cash dividends.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
FOR THE YEARS ENDED AUGUST 31, ENDED FOR THE YEARS ENDED
------------------------------------------------------ ------------ ----------------------------
February 29, February 29, February 28,
1992 1993 1994 1995 1996 1996 (a) 1997
---------- ---------- ---------- ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales:
Gross, including excise
taxes $ 305,118 $ 389,417 $ 861,059 $ 1,185,074 $ 738,415 $ 1,331,184 $ 1,534,452
Less-excise taxes (59,875) (83,109) (231,475) (278,530) (203,391) (344,101) (399,439)
--------- --------- --------- ----------- ----------- ----------- -----------
Net sales 245,243 306,308 629,584 906,544 535,024 987,083 1,135,013
Cost of product sold (174,686) (214,931) (447,211) (653,811) (396,208) (722,325) (844,181)
--------- --------- --------- ----------- ----------- ----------- -----------
Gross profit 70,557 91,377 182,373 252,733 138,816 264,758 290,832
Selling, general and
administrative expenses (46,491) (59,983) (121,388) (159,196) (112,411) (191,683) (208,991)
Nonrecurring restructuring
expenses -- -- (24,005) (2,238) (2,404) (3,957) --
--------- --------- --------- ----------- ----------- ----------- -----------
Operating income 24,066 31,394 36,980 91,299 24,001 69,118 81,841
Interest expense, net (6,182) (6,126) (18,056) (24,601) (17,298) (28,758) (34,050)
--------- --------- --------- ----------- ----------- ----------- -----------
Income before provision
for Federal and state
income taxes 17,884 25,268 18,924 66,698 6,703 40,360 47,791
Provision for Federal and
state income taxes (6,528) (9,664) (7,191) (25,678) (3,381) (16,339) (20,116)
--------- --------- --------- ----------- ----------- ----------- -----------
Net income $ 11,356 $ 15,604 $ 11,733 $ 41,020 $ 3,322 $ 24,021 $ 27,675
========= ========= ========= =========== =========== =========== ===========
Net income per common and
common equivalent share:
Primary $ 1.08 $ 1.30 $ .74 $ 2.14 $ .17 $ 1.20 $ 1.41
========= ========= ========= =========== =========== =========== ===========
Fully diluted $ 1.01 $ 1.20 $ .74 $ 2.13 $ .17 $ 1.20 $ 1.40
========= ========= ========= =========== =========== =========== ===========
Total assets $ 217,835 $ 355,182 $ 826,562 $ 785,921 $ 1,054,580 $ 1,054,580 $ 1,020,901
========= ========= ========= =========== =========== =========== ===========
Long-term debt $ 61,909 $ 108,303 $ 289,122 $ 198,859 $ 327,616 $ 327,616 $ 338,884
========= ========= ========= =========== =========== =========== ===========
</TABLE>
For the fiscal year ended February 28, 1997, the twelve months ended February
29, 1996, the six months ended February 29, 1996, and the fiscal years ended
August 31, 1995 and 1994, 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 28, 1997, under Item 8 of this
report.
(a) The twelve month period ended February 29, 1996, consisted of the last six
months of the Company's 1995 fiscal year ended August 31, 1995, and the six
month fiscal period ended February 29, 1996, as a result of a change in the
Company's fiscal year end.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
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:
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR TWELVE MONTHS FISCAL YEAR
ENDED AUGUST SIX MONTHS ENDED ENDED ENDED
31, FEBRUARY 28, FEBRUARY 29, FEBRUARY 29, FEBRUARY 28,
1994 1995 1995* 1996 1996* 1997
------ ------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of product sold 72.1 74.1 73.2 74.4 71.0 72.1
Gross profit 29.0 27.9 27.9 25.9 26.8 25.6
Selling, general and
administrative expenses 19.3 17.6 17.6 21.0 19.4 18.4
Nonrecurring restructuring
expenses 3.8 0.2 0.1 0.4 0.4 0.0
Operating income 5.9 10.1 10.2 4.5 7.0 7.2
Interest expense, net 2.9 2.7 2.9 3.2 2.9 3.0
Income before provision
for income taxes 3.0 7.4 7.3 1.3 4.1 4.2
Provision for Federal and
state income taxes 1.1 2.9 2.8 0.7 1.7 1.8
Net income 1.9% 4.5% 4.5% 0.6% 2.4% 2.4%
*Unaudited
</TABLE>
TWELVE MONTHS ENDED FEBRUARY 28, 1997, COMPARED TO TWELVE MONTHS ENDED FEBRUARY
29, 1996
NET SALES
Net sales for fiscal 1997 increased to $1,135.0 million from $987.1 million
for Pro Forma Fiscal 1996, an increase of $147.9 million, or approximately
15.0%. This increase resulted primarily from (i) $59.1 million of additional
imported beer sales, primarily Mexican beers; (ii) the inclusion of $49.0
million of net sales of products and services from the UDG Acquisition during
the period from March 1, 1996, through August 31, 1996; (iii) $22.7 million of
higher sales of grape juice concentrate; (iv) $19.4 million of increased net
sales of the Company's varietal table wine products resulting from selling price
increases implemented between October 1995 and May 1996, as well as additional
unit volume; and (v) $5.8 million of additional sales of spirits brands;
partially offset by $5.2 million of decreased sales of the Company's
non-varietal table wine brands and a decrease of $2.9 million in sales of other
products and services.
<PAGE>
For purposes of computing the net sales and unit volume comparative data
for the table below and for the remainder of the discussion of net sales, sales
of spirits acquired in the UDG Acquisition have been included for the period
from March 1, 1995 through August 31, 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 products, beer and spirits
brands sold by the Company for fiscal 1997 and Pro Forma Fiscal 1996:
FISCAL 1997 COMPARED TO PRO FORMA FISCAL 1996
NET SALES UNIT VOLUME
-------------------------- ----------------------
%INC/ %INC/
1997 1996 (DEC) 1997 1996 (DEC)
-------- -------- ----- ------ ------ -----
Branded Beverage
Alcohol Products (1) $994,500 $919,206 8.2% 60,631 56,823 6.7%
Branded Wine Products 512,510 499,962 2.5 27,393 28,232 (3.0)
Non-varietal table wines 216,284 221,522 (2.4) 13,518 14,203 (4.8)
Varietal table wines 162,174 142,812 13.6 6,858 6,666 2.9
Dessert wines 67,132 67,625 (0.7) 4,175 4,371 (4.5)
Sparkling wines 66,920 68,003 (1.6) 2,843 2,992 (5.0)
Beer 298,925 239,786 24.7 23,848 19,344 23.3
Spirits (2) 183,843 178,803 2.8 9,390 9,223 1.8
- -------------------------
(1) The sum of the net sales and unit volume amounts from the categories
may not equal total Branded Beverage Alcohol Products because
miscellaneous items affecting net sales and unit volume may be included
in total Branded Beverage Alcohol Products but not reflected in the
category information.
(2) For comparison purposes only, net sales of $41,514 and unit volume of
2,001 cases of distilled spirits brands acquired in the September 1,
1995, UDG Acquisition have been included in the table for the twelve
months ended February 29, 1996. These amounts represent net sales and
unit volume of those brands for the period March 1, 1995, through
August 31, 1995, which was prior to the UDG Acquisition.
Net sales and unit volume of the Company's branded beverage alcohol
products for fiscal 1997 increased 8.2% and 6.7%, respectively, as compared to
Pro Forma Fiscal 1996. The net sales increase resulted from higher imported beer
sales, price increases on most of the Company's branded wine products,
particularly varietal table wine brands, and increased sales of the Company's
spirits brands. Unit volume increases were led by substantial growth in the
Company's imported beer brands and increases in its varietal table wine and
spirits brands, partially offset by declines in unit volume of non-varietal
table wines, dessert wines and sparkling wines.
Net sales and unit volume of the Company's non-varietal table wine products
declined by 2.4% and 4.8% respectively, for fiscal 1997 as compared to Pro Forma
Fiscal 1996. The
<PAGE>
Company believes that the decline in unit volume reflects the impact of the
Company's selling price increases, reduced promotion, and other competitive
pressures.
Net sales and unit volume of the Company's varietal table wine brands
increased by 13.6% and 2.9%, respectively. Net sales increased at a greater rate
than unit volume due to selling price increases instituted between October 1995
and May 1996. Net sales of the Company's varietal table wine products such as
chardonnay, cabernet sauvignon and merlot, which represent more than half of the
Company's varietal table wine volume, increased substantially in fiscal 1997,
while net sales of white zinfandel products declined slightly in fiscal 1997.
The Company believes that unit volume growth of its varietal table wine brands
has slowed during fiscal 1997 due to price increases. During this period the
entire industry experienced a slowdown of its varietal wine volume growth due to
price increases related to higher costs from the last two grape harvests.
Net sales and unit volume of the Company's dessert wine brands declined by
0.7% and 4.5%, respectively, during fiscal 1997. The Company believes that,
although the impact of the decline in unit volume was mitigated by selling price
increases, these results reflect the continuing trend of consumer preferences
away from the dessert wine category.
Net sales and unit volume of the Company's sparkling wines decreased by
1.6% and 5.0%, respectively, during fiscal 1997 as compared to Pro Forma Fiscal
1996. The Company believes that the decline in unit volume is consistent with
industry trends.
Net sales and unit volume of the Company's beer brands increased 24.7% and
23.3%, respectively, during fiscal 1997. These increases were largely due to the
Company's Mexican beer brands, which represented over 70% of total beer sales.
The Company believes that the growth in its Mexican beers is related to the
growth of the Hispanic population in the Company's distribution areas, the
continued popularity of imported beers in general and the narrowing retail price
gap between imported beers and domestic beers.
Net sales and unit volume of the Company's distilled spirits brands
increased by 2.8% and 1.8%, respectively, in fiscal 1997 as compared to Pro
Forma Fiscal 1996. Excluding the impact of the UDG Acquisition, spirits net
sales and unit volume increased by 6.4% and 1.3%, respectively, reflecting
strong brandy sales, increased sales of tequila and liqueurs and the
introduction of a number of new products. Net sales of the brands acquired in
the UDG Acquisition decreased by 1.2% and unit volume increased by 2.5% in
fiscal 1997. Net sales declines reflect the impact of downward selling price
adjustments to bring these brands more in line with the pricing strategy of the
rest of the Company's spirits portfolio.
GROSS PROFIT
The Company's gross profit increased to $290.8 million in fiscal 1997 from
$264.8 million in Pro Forma Fiscal 1996, an increase of $26.1 million, or 9.8%.
This change in gross profit resulted primarily from (i) approximately $20.5
million of gross profit from sales generated during the period from March 1,
1996, through August 31, 1996, from the business acquired from UDG; (ii)
approximately $19.0 million of additional gross profit from increased
<PAGE>
beer sales; and (iii) approximately $13.4 million of lower gross profit
primarily due to increased cost of product sold, particularly higher grape costs
in the fall 1996 harvest and additional costs resulting from inefficiencies in
the production of wine and grape juice concentrate, at the Company's Mission
Bell Winery in California, partially offset by additional net sales resulting
primarily from selling price increases of the Company's branded wine and grape
juice concentrate products and a reduction of certain long-term grape contracts
to reflect current market prices and the renegotiation of certain unfavorable
contracts. The Company's increased production costs stemmed from low bulk wine
conversion rates and bottling inefficiencies. The Company also experienced high
imported concentrate and bulk freight costs. The Company has instituted a series
of steps to address these matters, including a reengineering effort to redesign
its work processes, organizational structure and information systems.
Gross profit as a percentage of net sales was 25.6% for fiscal 1997 as
compared to 26.8% in Pro Forma Fiscal 1996. The decline in the gross profit
margin was largely due to higher costs, particularly grape costs, of wine and
grape juice concentrate products, partially offset by increased selling prices
on most of the Company's branded wines and grape juice concentrate products. The
Company has experienced significant increases in its cost of grapes in both the
1995 and 1996 harvests. The Company believes that these increases in grape costs
were due to an imbalance in supply and demand in the varieties which the Company
purchases.
In general, the preferred method of accounting for inventory valuation is
the last-in, first-out method ("LIFO") because, in most circumstances, it
results in a better matching of costs and revenues. For comparison purposes to
companies using the first-in, first-out method of accounting for inventory
valuation ("FIFO") only, the Company's fiscal 1997 results reflect a reduction
in gross profit of approximately $31.4 million due to the Company's LIFO
accounting method. For comparison purposes, results for the Company's Pro Forma
Fiscal 1996 reflected a reduction in gross profit of approximately $3.9 million
due to LIFO.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscal 1997 were $209.0
million, an increase of $17.3 million as compared to Pro Forma Fiscal 1996. Of
this amount, $13.5 million was due primarily to increased personnel and related
expenses stemming from the Company's reengineering efforts, including the
continued strengthening of the Company's management, and other expenses
consistent with the Company's growth; and $11.3 million related to the UDG
Acquisition. These items were offset primarily by one-time costs incurred in
advertising and promotion expenses in Pro Forma Fiscal 1996 due to the change in
the Company's fiscal year-end.
NONRECURRING RESTRUCTURING EXPENSES
Pro Forma Fiscal 1996 included $4.0 million of nonrecurring restructuring
expenses.
<PAGE>
INTEREST EXPENSE, NET
Net interest expense totaled $34.1 million in fiscal 1997, an increase of
$5.3 million as compared to Pro Forma Fiscal 1996, primarily due to additional
interest expense from the UDG Acquisition financing.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for fiscal 1997 was 42.1% as compared to
40.5% for Pro Forma Fiscal 1996 due to a higher effective tax rate in California
caused by statutory limitations on the Company's ability to utilize certain
deductions.
NET INCOME
As a result of the foregoing, net income for fiscal 1997 was $27.7 million,
an increase of $3.7 million as compared to Pro Forma Fiscal 1996.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for fiscal 1997 was
$113.7 million, an increase of $22.6 million over EBITDA of $91.1 million in Pro
Forma Fiscal 1996. EBITDA should not be construed as an alternative to operating
income or net cash flow from operating activities and should not be construed as
an indication of operating performance or as a measure of liquidity. For
comparison purposes to companies using the FIFO method of accounting only,
EBITDA on a FIFO basis was $145.1 million in fiscal 1997, an increase of $50.1
million over EBITDA on a FIFO basis of $95.0 million in Pro Forma Fiscal 1996.
SIX MONTH TRANSITION PERIOD ENDED FEBRUARY 29, 1996, COMPARED TO SIX MONTHS
ENDED FEBRUARY 28, 1995
NET SALES
Net sales for the Transition Period increased to $535.0 million from $454.5
million for the six months ended February 28, 1995 (the "February 1995 Six
Months"), 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 Company's results for the entire Transition Period and the entire February
1995 Six Months, which was prior to the UDG Acquisition.
The following table 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
<PAGE>
category of branded wine product, beer and spirits brands sold by the Company
for the Transition Period and the February 1995 Six Months:
<TABLE>
TRANSITION PERIOD COMPARED TO FEBRUARY 1995 SIX MONTHS
<CAPTION>
NET SALES UNIT VOLUME
--------------------------------------- ---------------------------------------
TRANSITION FEBRUARY 1995 %INCREASE TRANSITION FEBRUARY 1995 %INCREASE
PERIOD SIX MONTHS (DECREASE) PERIOD SIX MONTHS (DECREASE)
---------- ------------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
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 (2) 91,219 96,547 (5.5) 4,648 4,793 (3.0)
- -----------------
<FN>
(1) The sum of the net sales and unit volume amounts from the individual
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.
(2) For comparison purposes only, net sales of $50,622 and unit volume of
2,340 of distilled spirits have been included in the table for the six
months ended February 28, 1995, which was prior to the UDG Acquisition.
</FN>
</TABLE>
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 the February 1995 Six Months. 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 the February 1995 Six
Months. Unit volume of the Company's 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 consolidation of certain of its California wineries
(the "Restructuring Plan"). The backlog of unfilled orders from August 1995 was
substantially eliminated in the first three months of the Transition Period.
<PAGE>
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 the February 1995 Six Months. 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
the February 1995 Six Months. 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 the February 1995 Six
Months.
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 the
February 1995 Six Months. 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 the February 1995 Six Months 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 the
February 1995 Six Months, 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 the February
1995 Six Months. These increases were principally driven by growth in the
Company's Mexican beer brands, which represented over 70% of total beer sales.
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
the February 1995 Six Months. 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, 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 the February 1995 Six Months, 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.
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 the February
1995 Six Months. This increase in gross profit resulted from $18.5 million of
additional gross profit from sales generated from the
<PAGE>
business acquired from UDG and $1.0 million from ongoing operations, which was
offset in part by $7.5 million 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 certain nonrecurring expenses; and (ii) as a result
of the change in the Company's fiscal year end, 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. 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
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 was 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 declined from 27.9% to 25.9% in
the Transition Period. This decline was due primarily to the impact of higher
grape and other costs in the Transition Period, partially offset by the higher
gross profit sales of brands acquired from UDGand improved gross profit as a
percentage of net sales in the Company's imported beer business. 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%.
SELLING, GENERAL AND ADMINISTRTIVE EXPENSES
Selling, general and administrative expenses totalled $112.4 million for
the Transition Period, an increase of $32.5 million as compared to the February
1995 Six Months. Exclusive of $11.1 million of nonrecurring costs including, 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 employee bonuses and other
nonrecurring costs 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 the February 1995 Six Months. Advertising and promotion increases of
$6.7 million were related primarily to the Almaden/Inglenook Product Lines 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/Inglenook Product Line
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 the February 1995 Six Months. 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 nonrecurring costs referred to above and the UDG Acquisition,
selling, general and administrative expenses as a percent of net sales increased
to 19.3% from 17.6% in the February 1995 Six Months due to the inclusion of a
full complement of advertising, promotion and selling expense related to the
Almaden/Inglenook Product Lines.
<PAGE>
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 the
February 1995 Six Months. 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
the Notes to the Company's Consolidated Financial Statements included herein.
INTEREST EXPENSE, NET
Net interest expense increased $4.2 million to $17.3 million in the
Transition Period as compared to February 1995 Six Months. 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 Loans and Revolving
Loans using proceeds of the Company's November 18, 1994 public equity offering.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for the Transition Period increased to
50.4% from 38.5% for the February 1995 Six Months due to a higher effective tax
rate in California caused by statutory limitations on the Company's ability to
utilize certain deductions.
NET INCOME
As a result of the foregoing, net income for the Transition Period was $3.3
million, a decrease of $17.0 million as compared to the February 1995 Six
Months.
FISCAL YEAR ENDED AUGUST 31, 1995, COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994
NET SALES
Net sales for fiscal 1995 increased to $906.5 million from $629.6 million
for fiscal 1994, an increase of $276.9 million, or approximately 44.0%. This
increase resulted from the inclusion of (i) $234.7 million of net sales of
products acquired in the Almaden/Inglenook Acquisition; (ii) an overall increase
of $25.8 million in net sales of Company products, excluding the impact of the
net sales of products that were acquired during fiscal 1994; and (iii) an
additional $16.4 million of net sales of Vintners' products resulting from
inclusion of these products in the Company's portfolio for the entire first
quarter of fiscal 1995 versus only six weeks in the first quarter of fiscal
1994. Excluding the impact of the additional six weeks of net sales of Vintners'
products during the first quarter of fiscal 1995 and all of the net sales
resulting from the Almaden/Inglenook Acquisition during fiscal 1995, the
Company's net sales increased 4.1% as
<PAGE>
compared to fiscal 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 fiscal 1995, and the
entire fiscal year 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:
<TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
<CAPTION>
NET SALES UNIT VOLUME
--------------------------------------- ---------------------------------------
%INCREASE %INCREASE
1995 1994 (DECREASE) 1995 1994 (DECREASE)
-------- -------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Branded Beverage Alcohol
Products (1) $795,290 $750,180 6.0% 50,547 47,688 6.0%
Branded Wine Products (2) 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) (3) 92,400 88,549 4.3 5,041 4,847 4.0
- -----------------------
<FN>
(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) For comparison purposes only, the following amounts of net sales and
unit volume of brands acquired in the Vintners Acquisition and the
Almaden/Inglenook Acquisition have been included in the table for
fiscal year 1994;
NET SALES UNIT VOLUME
Non-varietal wines $113,754 7,964
Varietal wines 53,622 2,818
Dessert wines 1,637 78
Sparkling wines 7,701 265
Spirits 3,566 134
These amounts represent net sales and unit volume of brands from the
Vintners Acquisition for the period September 1, 1993, through October 14, 1993,
which was prior to the Vintners
<PAGE>
Acquisition, and net sales and unit volume of brands from the Almaden/Inglenook
Acquisition for the period September 1, 1993, through August 4, 1994, which was
prior to the Almaden/Inglenook Acquisition.
(3) 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.
</FN>
</TABLE>
Net sales and unit volume of the Company's branded beverage alcohol
products for fiscal 1995 each increased 6% as compared to fiscal 1994. This
increase was principally due to increased net sales and unit volume of the
Company's imported beer brands and varietal table wine brands.
Net sales and unit volume of the Company's branded wine products for fiscal
1995 increased 0.1% and decreased 2.2%, respectively, as compared to fiscal
1994. These results were primarily due to lower non-varietal table wine,
sparkling wine and dessert wine sales offset by improved varietal wine sales.
The Company's results were also negatively affected by a backlog in fulfilling
orders at the end of fiscal 1995 due to production and shipment delays
associated with the relocation of West Coast bottling operations to the
Company's Mission Bell winery under the Restructuring Plan. The 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.
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, as 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, as compared to fiscal 1994. These
declines were primarily the result of strong competition and weak consumer
demand for sparkling wine.
<PAGE>
Net sales and unit volume of the Company's beer brands for fiscal 1995
increased 24.3% and 23.9%, respectively, as compared to fiscal 1994. These
increases resulted primarily from increased sales of the Company's Corona brand
and its other Mexican beer brands, which represented over 70% of total beer
sales.
Net sales and unit volume of the Company's spirits brands for fiscal 1995
increased 4.3% and 4.0%, respectively, as compared to fiscal 1994. The growth is
due to increased shipments of brandy, vodka, and tequila.
GROSS PROFIT
Gross profit for fiscal 1995 increased to $252.7 million from $182.4
million for fiscal 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 fiscal 1995 from 29.0% for fiscal 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscal 1995 increased to
$159.2 million from $121.4 million for fiscal 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 $24.0 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 Notes to the Company's Consolidated Financial Statements
included herein.
<PAGE>
INTEREST EXPENSE, NET
Net interest expense increased $6.5 million to $24.6 million in fiscal 1995
as compared to fiscal 1994. The increase is primarily due to borrowings related
to the Vintners and Almaden/Inglenook Acquisitions.
NET INCOME
Net income for fiscal 1995 increased to $41.0 million from $11.7 million
for fiscal 1994, an increase of $29.3 million, or approximately 249.6%. Fully
diluted earnings per share increased to $2.13 in fiscal 1995 from $0.74 in
fiscal 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/Inglenook Product
Lines and other products acquired in the Almaden/Inglenook Acquisition and
increased sales of imported beer brands.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations, except during the annual fall
grape harvests when the Company has relied on short-term borrowings. The annual
grape crush normally begins in August and runs through October. The Company
generally begins purchasing grapes in August with payments for such grapes
beginning to come due in September. The Company's short-term borrowings to
support such purchases generally reach their highest levels in November or
December. Historically, the Company has used cash flow from operating activities
to repay its short-term borrowings. The Company will continue to use its
short-term borrowings to support its working capital requirements. The Company
believes that cash provided by operating activities and its financing
activities, primarily short-term borrowings, will provide adequate resources to
satisfy its working capital, liquidity and anticipated capital expenditure
requirements for both its short-term and long-term capital needs.
FISCAL 1997 CASH FLOWS
OPERATING ACTIVITIES
Net cash provided by operating activities in fiscal 1997 was $107.8
million. The net cash provided by operating activities in fiscal 1997 resulted
principally from net income adjusted for
<PAGE>
noncash items, a net decrease in operating assets and a net increase in
operating liabilities. The net decrease in operating assets resulted primarily
from a $16.2 million decrease in inventory levels. The net increase in operating
liabilities resulted primarily from a $24.6 million increase in other accrued
expenses and liabilities principally the result of an increase of $15.6 million
in accrued income taxes and an increase of $2.0 million in accrued interest.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities in fiscal 1997 was $36.3 million. The
net cash used in investing activities in fiscal 1997 resulted primarily from
$31.6 million of capital expenditures and the final $13.8 million earn-out
payment to the former Barton stockholders, offset in part by proceeds from the
sale of property, plant and equipment of $9.2 million, resulting principally
from the May 1996 sale of the Company's Central Cellars winery located in Lodi,
California, and the December 1996 sale of the Company's Soledad winery located
in Soledad, California.
Net cash used in financing activities in fiscal 1997 was $64.8 million. The
net cash used in financing activities in fiscal 1997 resulted principally from
net repayment of $54.3 million of revolving loan borrowings under the Company's
Credit Agreement (as defined below), principal payments of $50.8 million of
long-term debt and repurchases of $20.8 million of the Company's Class A Common
Stock, partially offset by net proceeds of $61.7 million from the issuance of
additional subordinated notes.
As of February 28, 1997, under its Credit Agreement, the Company had
outstanding Term Loans of $185.9 million bearing interest at 6.5%, $57.0 million
of Revolving Loans bearing interest at 6.4%, undrawn Revolving Letters of Credit
of $8.6 million and $119.4 million available to be drawn in Revolving Loans.
During January 1996, the Company's Board of Directors authorized the
repurchase of up to $30.0 million of its Class A Common Stock and Class B Common
Stock (the "Repurchase Program"). During May 1997, the Company completed the
Repurchase Program. With respect to the Repurchase Program, the Company
repurchased a total of 1,149,550 shares of Class A Common Stock at an aggregate
cost of $30.0 million, or at an average cost of $26.10 per share.
THE COMPANY'S CREDIT AGREEMENT
The Company, its principal operating subsidiaries, and a syndicate of 15
banks (the "Syndicate Banks"), for which The Chase Manhattan Bank acts as
Administrative Agent, are parties to a Third Amended and Restated Credit
Agreement, as amended (the "Credit Agreement"). As of February 28, 1997, the
Credit Agreement provided for (i) a $185.9 million Term Loan facility due in
August 2001 ("Term Loans") and (ii) a $185.0 million Revolving Loan facility,
including all drawn or undrawn letters of credit up to a maximum of $20.0
million ("Revolving Letters of Credit"), which expires in June 2001 ("Revolving
Loans").
As of May 7, 1997, under its Credit Agreement, the Company had outstanding
Term Loans of $175.9 million bearing interest at 6.8%, $20.0 million of
Revolving Loans bearing
<PAGE>
interest at 6.3%, undrawn Revolving Letters of Credit of $5.6 million and $159.4
million available to be drawn in Revolving Loans.
SENIOR SUBORDINATED NOTES
In December 1993, the Company issued $130.0 million aggregate principal
amount of 8 3/4% Senior Subordinated Notes due 2003 (the "Original Notes"). The
Original Notes are redeemable at the option of the Company, in whole or in part,
on or after December 15, 1998. The Original Notes are unsecured and subordinated
to the prior payment in full of all senior indebtedness of the Company, which
includes the Credit Agreement. The Original Notes are guaranteed, on a senior
subordinated basis, by substantially all of the Company's operating
subsidiaries. (Subsequent to fiscal 1997, Monarch Wine Company, Limited
Partnership, a subsidiary guarantor, was liquidated into another subsidiary
guarantor and Tenner Brothers, Inc., a subsidiary guarantor, was merged into
another subsidiary guarantor.)
On October 29, 1996, the Company issued $65.0 million aggregate principal
amount of 8 3/4% Series B Senior Subordinated Notes due 2003 (the "Series B
Notes"). The Company used the net proceeds from the sale of the Series B Notes
to repay amounts outstanding under its Credit Agreement, including $50.0 million
under Revolving Loans and approximately $9.6 million to repay and permanently
reduce Term Loans. The remaining proceeds were used to pay various fees and
expenses associated with the offering.
The terms of the Series B Notes are substantially identical to those of the
Original Notes. A brief description of the Original Notes and the Series B Notes
is contained in Note 5 to the Company's financial statements located in Item 8
of this Report on Form 10-K. On February 7, 1997, the Company commenced an
exchange offer for the exchange of up to $65 million aggregate principal amount
of its 8 3/4% Series C Senior Subordinated Notes due 2003 (the "Series C Notes")
for any and all of the issued and outstanding Series B Notes. All outstanding
Series B Notes were exchanged for Series C Notes. The Company did not receive
any proceeds from the exchange offer. The terms of the Series C Notes are
identical in all material respects to the Series B Notes.
As of February 28, 1997, the Company had outstanding $195.0 million
aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2003, being
the Original Notes and the Series C Notes.
CAPITAL EXPENDITURES
During fiscal 1997, the Company expended approximately $31.6 million for
capital expenditures, including approximately $8.7 million related to vineyards.
The Company plans to spend approximately $18.5 million for capital expenditures,
exclusive of vineyards, in fiscal 1998. In addition, the Company continues to
consider the purchase, lease and development of vineyards. See "Business -
Sources and Availability of Raw Materials." The Company may incur additional
expenditures for vineyards if opportunities become available. Management reviews
the capital expenditure program periodically and modifies it as required to meet
current business needs.
<PAGE>
COMMITMENTS
The Company has agreements with suppliers to purchase various spirits and
blends of which certain agreements are denominated in British pounds sterling.
The future obligations under these agreements, based upon exchange rates at
February 28, 1997, aggregate approximately $37.0 million to $65.1 million for
contracts expiring through December 2005.
At February 28, 1997, the Company had an open currency forward contract to
purchase British pounds sterling of $374,000 which matures within twelve months.
The Company's use of such contracts is limited to the management of currency
rate risks related to purchases denominated in a foreign currency. The Company's
strategy is to enter into currency exchange contracts that are matched to
specific purchases and not to enter into any speculative contracts.
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's results of operations and financial condition have not been
significantly affected by inflation and changing prices other than grape costs.
The Company has discussed the impact of increases in grape prices in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company has been able, subject to normal competitive
conditions, to pass along rising costs through increased selling prices.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND
SUPPLEMENTARY SCHEDULES
FEBRUARY 28, 1997
Page
----
The following information is presented in this report:
Report of Independent Public Accountants ...................................37
Consolidated Balance Sheets - February 28, 1997 and February 29, 1996.......38
Consolidated Statements of Income for the year ended February 28, 1997,
for the six months ended February 29, 1996 and February 28, 1995
(unaudited) and for the years ended August 31, 1995 and 1994..............39
Consolidated Statements of Changes in Stockholders' Equity
for the year ended February 28, 1997, for the six months
ended February 29, 1996 and for the years ended August 31,1995 and 1994...40
Consolidated Statements of Cash Flows for the year ended February 28, 1997,
for the six months ended February 29, 1996 and February 28,
1995 (unaudited) and for the years ended August 31, 1995 and 1994.........41
Notes to Consolidated Financial Statements..................................42
Selected Financial Data ....................................................19
Selected Quarterly Financial Information (unaudited) .......................60
Schedules I through V are not submitted because they are not applicable or not
required under the rules of Regulation S-X.
Individual financial statements of the Registrant have been omitted because the
Registrant is primarily an operating company and no subsidiary included in the
consolidated financial statements has minority equity interest and/or noncurrent
indebtedness, not guaranteed by the Registrant, in excess of 5% of total
consolidated assets.
<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 28, 1997
and February 29, 1996, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the year ended February 28,
1997, the six months ended February 29, 1996 and the years ended August 31, 1995
and 1994. 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 28, 1997 and February 29, 1996, and the results
of their operations and their cash flows for the year ended February 28, 1997,
the six months ended February 29, 1996 and the years ended August 31, 1995 and
1994, in conformity with generally accepted accounting principles.
Rochester, New York, /s/ Arthur Andersen LLP
April 25, 1997
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 10,010 $ 3,339
Accounts receivable, net 142,592 142,471
Inventories, net 326,626 341,838
Prepaid expenses and other current assets 21,787 30,372
----------- -----------
Total current assets 501,015 518,020
PROPERTY, PLANT AND EQUIPMENT, NET 249,552 250,638
OTHER ASSETS 270,334 285,922
----------- -----------
Total assets $ 1,020,901 $ 1,054,580
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 57,000 $ 111,300
Current maturities of long-term debt 40,467 40,797
Accounts payable 63,492 59,730
Accrued Federal and state excise taxes 17,058 19,699
Other accrued expenses and liabilities 68,556 68,440
----------- -----------
Total current liabilities 246,573 299,966
----------- -----------
LONG-TERM DEBT, less current maturities 338,884 327,616
----------- -----------
DEFERRED INCOME TAXES 61,395 58,194
----------- -----------
OTHER LIABILITIES 9,316 12,298
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par value-
Authorized, 60,000,000 shares;
Issued, 17,462,332 shares at February 28, 1997,
and 17,423,082 shares at February 29, 1996 174 174
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,956,183 shares at February 28, 1997,
and 3,991,683 shares at February 29, 1996 40 40
Additional paid-in capital 222,336 221,133
Retained earnings 170,275 142,600
----------- -----------
392,825 363,947
----------- -----------
Less-Treasury stock-
Class A Common Stock, 1,915,468 shares at
February 28, 1997, and 1,165,786 shares at
February 29, 1996, at cost (25,885) (5,234)
Class B Convertible Common Stock, 625,725 shares
at February 28, 1997, and February 29, 1996, at cost (2,207) (2,207)
----------- -----------
(28,092) (7,441)
----------- -----------
Total stockholders' equity 364,733 356,506
----------- -----------
Total liabilities and stockholders' equity $ 1,020,901 $ 1,054,580
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<CAPTION>
For the Year Ended For the Six Months Ended For the Years Ended
------------------ ---------------------------- --------------------------
February 28, February 29, February 28, August 31, August 31,
1997 1996 1995 1995 1994
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
GROSS SALES $ 1,534,452 $ 738,415 $ 592,305 $1,185,074 $ 861,059
Less - Excise taxes (399,439) (203,391) (137,820) (278,530) (231,475)
----------- ----------- ----------- ---------- ----------
Net sales 1,135,013 535,024 454,485 906,544 629,584
COST OF PRODUCT SOLD (844,181) (396,208) (327,694) (653,811) (447,211)
----------- ----------- ----------- ---------- ----------
Gross profit 290,832 138,816 126,791 252,733 182,373
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (208,991) (112,411) (79,925) (159,196) (121,388)
NONRECURRING RESTRUCTURING EXPENSES -- (2,404) (685) (2,238) (24,005)
----------- ----------- ----------- ---------- ----------
Operating income 81,841 24,001 46,181 91,299 36,980
INTEREST EXPENSE, net (34,050) (17,298) (13,141) (24,601) (18,056)
----------- ----------- ----------- ---------- ----------
Income before provision for Federal
and state income taxes 47,791 6,703 33,040 66,698 18,924
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (20,116) (3,381) (12,720) (25,678) (7,191)
----------- ----------- ----------- ---------- ----------
NET INCOME $ 27,675 $ 3,322 $ 20,320 $ 41,020 $ 11,733
=========== =========== =========== ========== ==========
SHARE DATA:
Net income per common and common
equivalent share:
Primary $ 1.41 $ .17 $ 1.11 $ 2.14 $ .74
=========== =========== =========== ========== ==========
Fully diluted $ 1.40 $ .17 $ 1.11 $ 2.13 $ .74
=========== =========== =========== ========== ==========
Weighted average common shares outstanding:
Primary 19,657,297 20,006,267 18,343,870 19,147,935 15,783,583
Fully diluted 19,706,271 20,006,267 18,346,513 19,296,269 16,401,598
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
Additional
Common Stock Paid-in Retained Treasury
Class A Class B Capital Earnings Stock Total
------- ------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
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 Acquisition -- -- 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
Conversion of 35,500 Class B Convertible Common
shares to Class A Common shares -- -- -- -- -- --
To record exercise of 3,750 Class A stock options -- -- 17 -- -- 17
Employee stock purchase of 37,768 treasury shares -- -- 884 -- 114 998
To record repurchase of 787,450 Class A Common shares -- -- -- -- (20,765) (20,765)
To record acceleration of 18,500 Class A stock options -- -- 248 -- -- 248
To record tax benefit on stock options exercised -- -- 27 -- -- 27
To record tax benefit on disposition of employee
stock purchases -- -- 27 -- -- 27
Net income for fiscal 1997 -- -- -- 27,675 -- 27,675
------- ------- --------- --------- ------- ---------
BALANCE, February 28, 1997 $ 174 $ 40 $ 222,336 $ 170,275 ($28,092) $ 364,733
======= ======= ========= ========= ======= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Year Ended For the Six Months Ended For the Years Ended August 31,
------------------ ---------------------------- ------------------------------
February 28, February 29, February 28,
1997 1996 1995 1995 1994
------------ ------------ ------------ ---------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,675 $ 3,322 $ 20,320 $ 41,020 $ 11,733
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation of property, plant and equipment 22,359 9,521 9,786 15,568 10,534
Amortization of intangible assets 9,507 4,437 2,865 5,144 3,281
Deferred tax provision (benefit) 5,769 1,991 57 19,232 (4,319)
Stock option expense 248 -- -- -- --
Amortization of discount on long-term debt 112 -- -- -- --
(Gain) loss on sale of property, plant and
equipment (3,371) 81 -- (33) --
Restructuring charges - fixed asset write-down -- 275 -- (2,050) 13,935
Accrued interest on converted debentures,
net of taxes -- -- -- -- 161
Change in operating assets and liabilities, net of
effects from purchases of businesses:
Accounts receivable, net 3,523 (27,008) 1,586 7,392 (17,946)
Inventories, net 16,232 (70,172) (18,783) 41,528 784
Prepaid expenses and other current assets 3,271 (2,350) 3,079 (3,884) 1,703
Accounts payable (431) (2,362) (30,068) (13,415) 2,680
Accrued Federal and state excise taxes (2,641) 4,066 6,907 (1,025) 4,405
Other accrued expenses and liabilities 24,617 (8,564) (28,175) (20,784) 4,023
Other 898 1,930 (3,817) (15,375) (3,795)
--------- --------- --------- --------- ---------
Total adjustments 80,093 (88,155) (56,563) 32,298 15,446
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities 107,768 (84,833) (36,243) 73,318 27,179
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment,
net of minor disposals (31,649) (16,077) (11,342) (37,121) (7,853)
Payment of accrued earn-out amounts (13,848) (11,307) -- (28,300) (4,000)
Proceeds from sale of property, plant
and equipment 9,174 555 -- 1,336 --
Purchase of brands -- -- -- -- (5,100)
Purchases of businesses, net of cash acquired -- -- -- -- 3
--------- --------- --------- --------- ---------
Net cash used in investing activities (36,323) (26,829) (11,342) (64,085) (16,950)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from notes payable,
short-term borrowings (54,300) 111,300 57,100 50,100 (2,035)
Principal payments of long-term debt (50,842) (14,579) (7,474) (57,906) (6,856)
Purchases of treasury stock (20,765) -- -- -- --
Payment of issuance costs of long-term debt (1,550) -- -- -- (4,624)
Proceeds from issuance of long-term debt,
net of discount 61,668 -- -- -- --
Proceeds from employee stock purchases 998 656 -- 633 1,056
Exercise of employee stock options 17 224 341 1,325 10
Proceeds from Term Loan, long-term debt -- 13,220 47,000 47,000 --
Proceeds from equity offering, net -- -- 103,313 103,400 --
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) --
Repayment of Term Loan from equity offering
proceeds, long-term debt -- -- (82,000) (82,000) --
Fractional shares paid for debenture conversions -- -- -- -- (3)
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing
activities (64,774) 110,821 49,180 (6,548) (12,452)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 6,671 (841) 1,595 2,685 (2,223)
CASH AND CASH INVESTMENTS, beginning of period 3,339 4,180 1,495 1,495 3,718
--------- --------- --------- --------- ---------
CASH AND CASH INVESTMENTS, end of period $ 10,010 $ 3,339 $ 3,090 $ 4,180 $ 1,495
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 32,615 $ 14,720 $ 14,068 $ 25,082 $ 14,727
========= ========= ========= ========= =========
Income taxes $ 4,411 $ 3,612 $ 9,454 $ 11,709 $ 15,751
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Fair value of assets acquired, including cash
acquired $ -- $ 144,927 $ -- $ -- $ 428,442
Liabilities assumed -- (3,147) -- -- (153,827)
--------- --------- --------- --------- ---------
Cash paid -- 141,780 -- -- 274,615
Less - Amounts borrowed -- (141,780) -- -- (276,860)
Less - Issuance of Class A stock options -- -- -- -- (7,052)
Add - Receivable from Seller -- -- -- -- 9,297
--------- --------- --------- --------- ---------
Net cash paid for acquisition $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Goodwill reduction on settlement of disputed
final closing net current asset statement
for Vintners Acquisition $ 5,894 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Accrued earn-out amounts $ -- $ 15,155 $ -- $ 10,000 $ 28,300
========= ========= ========= ========= =========
Issuance of Class A Common Stock for conversion
of debentures $ -- $ -- $ -- $ -- $ 58,960
========= ========= ========= ========= =========
Write-off of unamortized deferred financing costs
on debentures $ -- $ -- $ -- $ -- $ 1,569
========= ========= ========= ========= =========
Write-off unpaid accrued interest on debentures
through conversion date $ -- $ -- $ -- $ -- $ 1,371
========= ========= ========= ========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
CANANDAIGUA WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
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 1,400 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 August 31 to 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 statements of income and cash flows 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 primarily consist of money market funds and certificates of
deposit with an original maturity when purchased of three months or less and are
stated at cost, which approximates market value. These investments amounted to
approximately $17,000 at February 28, 1997, and $1,732,000 at February 29, 1996.
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 using quoted market
prices whenever available. 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. The methods and assumptions used to
estimate the fair value of financial instruments are summarized as follows:
ACCOUNTS RECEIVABLE: The carrying amount approximates fair value due to the
short maturity of these instruments, the creditworthiness of the customers and
the large number of customers constituting the accounts receivable balance.
NOTES PAYABLE: These instruments are variable interest rate bearing notes
for which the carrying value approximates the fair value.
<PAGE>
LONG-TERM DEBT: The carrying value of the debt facilities with short-term
variable interest rates approximates the fair value. The fair value of the fixed
rate debt was estimated by discounting cash flows using interest rates currently
available for debt with similar terms and maturities.
FOREIGN EXCHANGE HEDGING AGREEMENTS: The fair value of currency forward
contracts is estimated based on quoted market prices.
INTEREST RATE HEDGING AGREEMENTS: The fair value of interest rate hedging
instruments is the estimated amount that the Company would receive or be
required to pay to terminate the derivative agreements at February 28, 1997. The
fair value includes consideration of current interest rates and the
creditworthiness of the counterparties to the agreements.
LETTERS OF CREDIT: At February 28, 1997 and February 29, 1996, the Company
had letters of credit outstanding totaling approximately $8,622,000 and
$18,729,000, respectively, which guarantee payment for certain obligations. The
Company recognizes expense on these obligations as incurred and no material
losses are anticipated.
The carrying amount and estimated fair value of the Company's financial
instruments are summarized as follows:
February 28, 1997 February 29, 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(IN THOUSANDS)
Liabilities:
- ------------
Notes payable $ 57,000 $ 57,000 $111,300 $111,300
Long-term debt, including current
portion $379,351 $374,628 $368,413 $365,089
Derivative Instruments:
- -----------------------
Foreign exchange hedging agreements:
Currency forward contracts $ 374 $ 407 $ 3,129 $ 3,164
Interest rate hedging agreements:
Interest rate cap agreement $ -- $ -- $ -- $ --
Interest rate collar agreement $ -- $ -- $ -- $ --
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 currency forward contracts
are deferred and recognized as a component of the related transactions in the
accompanying financial statements. Discounts or premiums on currency 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 28,
1997 and February 29, 1996. Replacement cost of the inventories determined on a
FIFO basis is approximately $349,006,000 at February 28, 1997, and $332,849,000
at February 29, 1996. The net realizable value of the Company's inventories is
in excess of $326,626,000 at February 28, 1997, and $341,838,000 at February 29,
1996.
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. Bulk wine inventories are also
included as work in process within current assets, in accordance with the
general practices of the wine industry, although a portion of such inventories
<PAGE>
may be aged for periods greater than one year. 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 28, February 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Raw materials and supplies $ 17,822 $ 24,197
Wines and distilled spirits in process 237,186 254,956
Finished case goods 71,618 62,685
-------- --------
$326,626 $341,838
======== ========
If the FIFO method of inventory valuation had been used, reported net income
would have been approximately $18,163,000, or $.92 per share on a fully diluted
basis, higher for the year ended February 28, 1997, and reported net income
would have been approximately $2,159,000, or $.11 per share on a fully diluted
basis, higher for the twelve months ended February 29, 1996 (unaudited).
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 accumulated depreciation are eliminated from the accounts at the
time of disposal and resulting gains and losses are included as a component of
operating income.
DEPRECIATION -
Depreciation is computed primarily using the straight-line method over the
following estimated useful lives:
Depreciable Life in Years
-------------------------
Buildings and improvements 10 to 33 1/3
Machinery and equipment 3 to 15
Motor vehicles 3 to 7
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, trademarks, agency
license agreements, 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 the following estimated useful lives:
Useful Life in Years
--------------------
Goodwill 40
Distribution rights 40
Trademarks 40
Agency license agreements 16 to 40
Deferred financing costs 5 to 10
<PAGE>
At February 28, 1997, the weighted average remaining useful life of these assets
is approximately 36 years. The face value of the officers' life insurance
policies totaled $2,852,000 at both February 28, 1997 and February 29, 1996.
LONG-LIVED ASSETS AND INTANGIBLES -
In March 1996, the Company adopted 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." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable on an undiscounted cash flow basis. The statement also
requires that long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less cost
to sell. The adoption of SFAS No. 121 did not have a material effect on the
financial statements.
ADVERTISING AND PROMOTION COSTS -
The Company generally expenses advertising and promotion costs as incurred,
shown or distributed. Prepaid advertising costs at February 28, 1997 and
February 29, 1996, are not material. Advertising and promotion expense for the
year ended February 28, 1997, the Transition Period, the six months ended
February 28, 1995 (unaudited), and the years ended August 31, 1995 and 1994,
were approximately $101,319,000, $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 the completion
of a feasibility study or the Company's commitment to a formal plan of action.
Liabilities for environmental costs were not material at February 28, 1997 and
February 29, 1996.
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 using the treasury stock method) outstanding during the year for
Class A Common Stock and Class B Convertible Common Stock. Fully diluted net
income per common and common equivalent share assumes the conversion of
convertible securities, if any, using the "if converted" method and assumes the
exercise of stock options using the treasury stock method.
OTHER -
Certain Transition Period, fiscal 1995 and 1994 balances have been reclassified
to conform with current year presentation.
2. ACQUISITIONS:
VINTNERS -
On October 15, 1993, the Company acquired substantially all of the tangible and
intangible assets of Vintners International Company, Inc. (Vintners) other than
cash and the Hammondsport winery (the Vintners Assets), and assumed certain
current liabilities associated with the ongoing business (the Vintners
Acquisition). 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 included the Monterey
Cellars winery in Gonzales, California, and the Paul Masson wineries in Madera
and Soledad, California. In addition, the Company
<PAGE>
leased from Vintners the Hammondsport winery in Hammondsport, New York. The
lease was for a period of eighteen months from the date of the Vintners
Acquisition and expired during fiscal 1995.
The aggregate purchase price of $148,900,000 (the Cash Consideration) was
subject to adjustment based upon the determination of the Final Net Current
Asset Amount as defined in the Asset Sale Agreement. 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 of the
Company's Class A Common Stock (the Vintners Option Shares), at an exercise
price per share of $18.25, which were exercisable at any time until October 15,
1996. These options were recorded at $8.42 per share, based upon an independent
appraisal, and $4,210,000 was reflected as a component of additional paid-in
capital. On November 18, 1994, 432,067 of the Vintners Option Shares were
exercised (see Note 8). The remaining 67,933 options expired, unexercised, on
October 15, 1996.
The Cash Consideration was funded by the Company pursuant to (i) approximately
$12,600,000 of Revolving Credit Loans under the Credit Agreement 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) a $130,000,000 subordinated loan (see
Note 5).
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. On September 26, 1996, the
Company reached a final settlement with the company formerly known as Vintners
International Company, Inc. and its lenders on the disputed final closing net
current asset statement. As a result, the Company recorded a purchase price
reduction for the Vintners Acquisition, which reduced recorded goodwill by
approximately $5,894,000.
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), $38,257,000, is being amortized on
a straight-line basis over 40 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 were exercisable at a
price of $30 per share and the remaining 400,000 were exercisable at a price of
$35 per share. All of the options were exercisable at any time until August 5,
1996. The 200,000 and 400,000 options were recorded at $5.83 and $4.19 per
share, respectively, based upon an independent appraisal, and $2,842,000 was
reflected as a component of additional paid-in capital. All of the options
expired, unexercised, on August 5, 1996. The source of the cash payment made at
closing, together with payment of other costs and expenses required by the
Almaden/Inglenook Acquisition, was financing provided by the Company pursuant to
a term loan under the Credit Agreement (see Note 5).
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.
<PAGE>
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 9). The excess of purchase price over the estimated fair
market value of the net assets acquired (goodwill), $24,028,000, is being
amortized on a straight-line basis over 40 years. The results of operations of
Almaden/Inglenook have been included in the Consolidated Statements of Income
since the date of 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 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 Agreement (see Note 5).
The UDG Acquisition was accounted for using the purchase method; accordingly,
the UDG 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), $86,348,000, is being amortized on a straight-line
basis over 40 years. The results of operations of the UDG Acquisition have been
included in the Consolidated Statements of Income since the date of acquisition.
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
February 28, February 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Land $ 16,961 $ 16,867
Buildings and improvements 76,379 76,694
Machinery and equipment 243,274 226,432
Motor vehicles 5,355 5,814
Construction in progress 13,999 12,404
---------- ----------
355,968 338,211
Less - Accumulated depreciation (106,416) (87,573)
---------- ----------
$ 249,552 $ 250,638
========== ==========
4. OTHER ASSETS:
The major components of other assets are as follows:
February 28, February 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Goodwill $ 150,595 $ 156,489
Distribution rights, agency license
agreements and trademarks 119,316 119,316
Other 22,936 23,123
---------- ----------
292,847 298,928
Less - Accumulated amortization (22,513) (13,006)
----------- ----------
$ 270,334 $ 285,922
========== ==========
<PAGE>
5. BORROWINGS:
Borrowings consist of the following:
<TABLE>
<CAPTION>
February 29,
February 28, 1997 1996
------------------------------------ ------------
Current Long-term Total Total
(IN THOUSANDS) -------- --------- -------- ---------
<S> <C> <C> <C> <C>
Notes Payable:
Senior Credit Facility:
Revolving Credit Loans $ 57,000 $ -- $ 57,000 $111,300
======== ======== ======== ========
Long-term Debt:
Senior Credit Facility:
Term Loan, variable rate,
aggregate proceeds of $246,000,
due in installments through
August 2001 $ 40,000 $145,900 $185,900 $236,000
Senior Subordinated Notes:
8.75% redeemable after
December 15, 1998, due 2003 -- 130,000 130,000 130,000
8.75% Series C redeemable after
December 15, 1998, due 2003 (less
unamortized discount of $3,220 -
effective rate 9.76%) -- 61,780 61,780 --
Capitalized Lease Agreements:
Capitalized facility lease bearing
interest at 9%, due in monthly
installments through fiscal 1998 348 -- 348 972
Industrial Development Agencies:
7.50% 1980 issue, original proceeds
$2,370, due in annual installments
of $119 through fiscal 2000 119 237 356 474
Other Long-term Debt:
Loans payable bearing interest at
5%, secured by cash surrender value
of officers' life insurance policies -- 967 967 967
-------- -------- -------- --------
$ 40,467 $338,884 $379,351 $368,413
======== ======== ======== ========
</TABLE>
SENIOR CREDIT FACILITY -
The Company and a syndicate of 15 banks (the Syndicate Banks), for which The
Chase Manhattan Bank, N.A. acts as agent, are parties to a third amended and
restated credit agreement (the Credit Agreement). The Credit Agreement currently
provides for a Term Loan and a Revolving Credit Loan facility. The interest on
the Term Loan and on all drawn Revolving Credit Loans may be based on either the
London Interbank Offering Rate (LIBOR) plus a predetermined margin, competitive
bid rates from the Syndicate Banks or the prime rate. The interest rate margin
for LIBOR based loans may range from 0.5% to 1.25% depending on the Company's
debt coverage ratio as defined in the Credit Agreement. The margin on LIBOR
based loans was 1.00%, 0.75%, 1.00% and 1.25% at February 28, 1997, February 29,
1996 and August 31, 1995 and 1994, respectively.
The principal of the Term Loan is to be repaid in quarterly installments of
$10,000,000 with a final payment of $5,900,000, due on August 15, 2001. There
are certain mandatory Term Loan prepayments as defined in the Credit Agreement
including aggregate proceeds received in excess of $50,000,000 from subordinated
debt offerings, 50% of any proceeds from the sale of equity and excess proceeds
from the sale of assets as defined in the Credit Agreement.
The Revolving Credit Loan facility has a capacity of $185,000,000 which may be
utilized by the Company in the form of Revolving Credit Loans and up to a
maximum of $20,000,000 of Revolving Letters of Credit. The Company primarily
utilizes the Revolving Credit Loans to finance working capital and operating
requirements and classifies the Revolving Credit Loans as a current liability,
as it intends to repay all amounts outstanding within one
<PAGE>
year. The Company had average outstanding Revolving Credit Loans of
approximately $88,825,000 and $93,800,000 for the year ended February 28, 1997
and the Transition Period, respectively. Amounts available to be drawn down
under the Revolving Credit Loans were $119,378,000 and $68,680,000 at February
28, 1997 and February 29, 1996, respectively. The average interest rate on the
Revolving Credit Loans was 6.58%, 6.76%, 7.16% and 6.07%, for fiscal 1997, the
Transition Period, fiscal 1995 and fiscal 1994, respectively. Commitment fees
are due based upon the unused portion of the Revolving Credit Loan facility. The
fee is based upon the Company's debt ratio as defined in the Credit Agreement
which can range from 0.2% to 0.375%. At February 28, 1997 and February 29, 1996,
the commitment fee percentages were 0.325% and 0.25%, 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 Agreement contains certain covenants providing for restrictions on
mergers, consolidations, sale of assets, payment of dividends and incurring of
other debt, liens, guarantees and making of new investments. The primary
financial covenants in the Credit Agreement require the maintenance of minimum
defined tangible net worth, a debt ratio, a fixed charge ratio and an interest
coverage ratio.
At February 28, 1997, the Company maintains, in accordance with the Credit
Agreement, interest rate protection agreements, in an amount equal to
$55,000,000, which protect the Company against three month LIBOR exceeding 6.25%
per annum and require payments when three month LIBOR rates are below 4.75%.
These agreements expire through December 1997.
SENIOR SUBORDINATED NOTES -
On December 27, 1993, the Company issued $130,000,000 aggregate principal amount
of 8.75% Senior Subordinated Notes due in December 2003 (the Notes). The Company
used the net proceeds to repay the subordinated loan incurred in the Vintners
Acquisition. Interest on the Notes is payable semiannually on June 15 and
December 15 of each year. The Notes are unsecured and subordinated to the prior
payment in full of all senior indebtedness of the Company, which includes the
Credit Agreement. The Notes are guaranteed, on a senior subordinated basis, by
all of the Company's significant operating subsidiaries.
The Trust Indenture relating to the Notes contains certain covenants, including,
but not limited to, (i) limitation on indebtedness; (ii) limitation on
restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on senior subordinated indebtedness; (v) limitation on liens; (vi)
limitation on sale of assets; (vii) limitation on issuance of guarantees of and
pledges for indebtedness; (viii) restriction on transfer of assets; (ix)
limitation on subsidiary capital stock; (x) limitation on the creation of any
restriction on the ability of the Company's subsidiaries to make distributions
and other payments; and (xi) restrictions on mergers, consolidations and the
transfer of all or substantially all of the assets of the Company to another
person. The limitation on indebtedness covenant is governed by a rolling four
quarter fixed charge ratio requiring a specified minimum.
On October 29, 1996, the Company issued $65,000,000 aggregate principal amount
of 8.75% Series B Senior Subordinated Notes due in December 2003 (the Series B
Notes). The Company used the net proceeds of approximately $61,700,000 to repay
$50,000,000 of Revolving Credit Loans and to prepay and permanently reduce
$9,600,000 of the Term Loan. The remaining proceeds were used to pay various
fees and expenses associated with the offering. The terms of the Series B Notes
were substantially identical to those of the Notes. In February 1997, the
Company exchanged $65,000,000 aggregate principal amount of 8.75% Series C
Senior Subordinated Notes due in December 2003 (the Series C Notes) for the
Series B Notes. The terms of the Series C Notes are identical in all material
respects to the Series B Notes.
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. The bonds are secured by the leases and the related
<PAGE>
facilities. These transactions have been treated as capital leases with the
related assets included in property, plant and equipment and the lease
commitments included in long-term debt. 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 agreements.
DEBT PAYMENTS -
Principal payments required under long-term debt obligations during the next
five fiscal years are as follows:
February 28, 1997
-----------------
(IN THOUSANDS)
1998 $ 40,467
1999 40,119
2000 40,118
2001 40,000
2002 25,900
Thereafter 195,967
--------
$382,571
========
6. INCOME TAXES:
The provision for Federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
For the Six
For the Months For the
Year Ended Ended Years Ended
February 28, 1997 February 29, August 31,
------------------------------- ------------ --------------------
State and
Federal Local Total 1996 1995 1994
------- --------- ------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Current income tax
provision $ 9,412 $ 4,935 $14,347 $ 1,390 $ 6,446 $ 11,510
Deferred income tax
provision (benefit) 5,621 148 5,769 1,991 19,232 (4,319)
------- ------- ------- ------- -------- --------
$15,033 $ 5,083 $20,116 $ 3,381 $ 25,678 $ 7,191
======= ======= ======= ======= ======== ========
</TABLE>
The components of the deferred income tax provision (benefit) are as follows:
For the Six
For the Year Months For the Years Ended
Ended Ended August 31,
February 28, February 29, ---------------------
1997 1996 1995 1994
------------ ------------ -------- --------
Depreciation and amortization $ 5,130 $ 4,752 $ 10,089 $ 4,610
LIFO reserve (602) (2,007) 1,871 1,306
Prepaid advertising (1,379) (922) 792 258
Inventory reserves 5,616 1,868 5,163 (2,186)
Restructuring costs 386 2,155 3,144 (8,843)
Other accruals (3,382) (3,855) (1,827) 536
------- -------- -------- -------
$ 5,769 $ 1,991 $ 19,232 $(4,319)
======= ======== ======== =======
<PAGE>
A reconciliation of the total tax provision to the amount computed by applying
the expected U.S. Federal income tax rate to income before provision for Federal
and state income taxes is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Six Months For the Years Ended August 31,
February 28, Ended February 29, ----------------------------------
1997 1996 1995 1994
------------------- ------------------- ---------------- ---------------
% 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 $16,727 35.0 $ 2,346 35.0 $23,344 35.0 $ 6,623 35.0
State and local
income taxes,
net of Federal income
tax benefit 3,304 6.9 827 12.3 2,395 3.6 644 3.4
Nondeductible meals
and entertainment
expenses 310 .6 205 3.1 290 .4 87 .5
Miscellaneous items, net (225) (.4) 3 -- (351) (.5) (163) (.9)
------- ---- ------- ---- ------- ---- ------- ----
$20,116 42.1 $ 3,381 50.4 $25,678 38.5 $ 7,191 38.0
======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
Deferred tax liabilities (assets) are comprised of the following:
February 28, February 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Depreciation and amortization $ 71,511 $ 66,746
LIFO reserve 2,019 2,638
Prepaid advertising 801 2,201
Restructuring costs (3,567) (3,963)
Inventory reserves 9,418 3,648
Other accruals (13,191) (9,685)
-------- --------
$ 66,991 $ 61,585
======== ========
At February 28, 1997, the Company has state and U.S. Federal net operating loss
(NOL) carryforwards of $17,043,000 and $4,567,000, respectively, to offset
future taxable income that, if not otherwise utilized, will expire as follows:
state NOLs of $6,945,000 and $10,098,000 at February 28, 2001 and 2002,
respectively, and Federal NOL of $4,567,000 at February 28, 2011.
At February 28, 1997, the Company has Federal alternative minimum tax credit
carryforwards of $2,852,000 to offset future tax with no expiration date.
7. 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 are qualified as tax-exempt under the Internal Revenue Code
and conform with the Employee Retirement Income Security Act of 1974. The
Company's provisions for the plans, including the Barton
<PAGE>
plan described below, were $4,999,000 for the year ended February 28, 1997,
$2,579,000 in the Transition Period and $3,830,000 and $3,414,000 in fiscal 1995
and 1994, respectively.
The Company's retirement savings plan, established pursuant to Section 401(k) of
the Internal Revenue Code, permits substantially all full-time employees of the
Company (excluding Barton employees) to defer a portion of their compensation on
a pretax basis. Participants may defer up to 10% of their compensation for the
year. The Company makes a matching contribution of 25% of the first 4% of
compensation an employee defers. Company contributions to this plan were
$700,000 for the year ended February 28, 1997, $325,000 in the Transition Period
and $281,000 and $207,000 in fiscal 1995 and 1994, respectively.
The Barton profit sharing and 401(k) plan 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 $2,504,000 for the year ended February 28,
1997, $1,095,000 in the Transition Period and $1,430,000 and $1,395,000 in
fiscal 1995 and 1994, respectively. Pursuant to the 401(k) portion of the plan,
participants may defer up to 8% of their compensation for the year, subject to
limitations of the plan, and receive no matching contribution from Barton.
8. 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 28, 1997, there were 15,546,864 shares of Class A Common Stock and
3,330,458 shares of Class B Convertible Common Stock outstanding, net of
treasury stock.
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 Agreement. Throughout the year
ending February 28, 1997, the Company repurchased 787,450 shares of Class A
Common Stock totaling $20,765,000.
PREFERRED STOCK -
The Company is authorized to issue up to 1,000,000 shares of preferred stock in
one or more series, at a par value of $.01 per share. The terms of any issuance
of the preferred stock will be fixed by resolution of the Board of Directors. No
preferred stock has been issued as of February 28, 1997.
STOCK OPTION AND STOCK APPRECIATION RIGHT PLAN -
The Company 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 become fully vested and exercisable
over periods of one to five years as determined by the Compensation Committee of
the Board of Directors and have a maximum term of ten
<PAGE>
years. Changes in the status of the Plan during the year ended February 28,
1997, the Transition Period, fiscal 1995 and fiscal 1994 are summarized as
follows:
Weighted Options
Shares Avg. Exercise Available
Under Option Price for Grant
------------ ------------- ---------
Balance, August 31, 1993 452,375 $ 12.65
Options granted 125,000 $ 25.62
Options exercised (2,250) $ 4.44
Options forfeited/canceled (11,625) $ 8.09
---------
Balance, August 31, 1994 563,500 $ 15.65 2,401,850
Options granted 289,000 $ 40.29
Options exercised (114,075) $ 7.02
Options forfeited/canceled (4,500) $ 19.22
---------
Balance, August 31, 1995 733,925 $ 26.68 2,117,350
Options granted 571,050 $ 36.01
Options exercised (18,000) $ 13.23
Options forfeited/canceled (193,250) $ 44.06
---------
Balance, February 29, 1996 1,093,725 $ 28.70 1,739,550
Options granted 1,647,700 $ 22.77
Options exercised (3,750) $ 4.44
Options forfeited/canceled (1,304,700) $ 32.09
---------
Balance, February 28, 1997 1,432,975 $ 18.85 1,396,550
=========
The following table summarizes information about stock options outstanding at
February 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 4.44 - $11.50 94,675 4.7 years $ 9.64 28,425 $ 5.31
$17.00 - $22.25 1,079,800 8.3 years $ 17.29 23,000 $ 17.30
$22.25 - $30.00 258,500 9.3 years $ 28.76 -- $ -
--------- ------
1,432,975 51,425
========= ======
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and the
Transition Period was $10.27 and $15.90, respectively. The fair value of options
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions: risk-free interest rate of 6.6%
for fiscal 1997 and 5.5% for the Transition Period; volatility of 42.7% for
fiscal 1997 and 39.6% for the Transition Period; expected option life of 4.7
years for fiscal 1997 and 5.4 years for the Transition Period. The dividend
yield was 0% for both fiscal 1997 and the Transition Period. Forfeitures are
recognized as they occur.
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
<PAGE>
Class A Common Stock through payroll deductions. The purchase price is the lower
of 85% of the fair market value of the stock on the first or last day of the
purchase period. During fiscal 1997, the Transition Period, fiscal 1995 and
fiscal 1994, employees purchased 37,768, 20,869, 28,641 and 58,955 shares,
respectively.
The weighted average fair value of purchase rights granted during fiscal 1997
was $7.74. The fair value of purchase rights is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: risk-free interest rate of 5.6%; volatility of 65.4%; expected
purchase right life of 0.8 years and a dividend yield of 0%. No purchase rights
were granted in the Transition Period.
PRO FORMA DISCLOSURE -
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. In fiscal 1997, the Company elected to adopt the disclosure only
provisions of Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation." Accordingly, no compensation
expense has been recognized for its stock-based compensation plans. Had the
Company recognized the compensation cost based upon the fair value at the date
of grant for awards under its plans consistent with the methodology prescribed
by SFAS No. 123, net income and net income per common and common equivalent
share would have been reduced to the pro forma amounts as follows:
For the Year Ended For the Six Months Ended
February 28, 1997 February 29, 1996
----------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income $ 27,675 $ 25,163 $ 3,322 $ 3,178
Net income per common
and common equivalent share:
Primary $ 1.41 $ 1.28 $ .17 $ .16
Fully diluted $ 1.40 $ 1.28 $ .17 $ .16
The provisions of SFAS No. 123 have not been applied to options or purchase
rights granted prior to September 1, 1995. Therefore, the resulting pro forma
effect on net income may not be representative of that to be expected in future
years.
STOCK OFFERING -
During November 1994, the Company completed a public offering and sold 3,000,000
shares of its Class A Common Stock, 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 Agreement. The balance of
net proceeds was used to repay Revolving Credit Loans under the Credit
Agreement.
<PAGE>
9. 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 28, 1997
-----------------
(IN THOUSANDS)
1998 $ 1,068
1999 829
2000 776
2001 740
2002 714
Thereafter 1,790
-------
$ 5,917
=======
Rental expense was approximately $4,716,000 for the year ended February 28,
1997, $2,382,000 in the Transition Period, $4,193,000 in fiscal 1995 and
$3,318,000 in fiscal 1994.
PURCHASE COMMITMENTS AND CONTINGENCIES - The Company has agreements with three
suppliers to purchase blended Scotch whisky through December 2003. The purchase
prices under the agreements are denominated in British pounds sterling and based
upon exchange rates at February 28, 1997, the Company's aggregate future
obligation will be approximately $18,340,000 to $36,775,000 for the contracts
expiring through December 2003.
The Company has two agreements to purchase Canadian blended whisky through
December 1999 at a purchase price of approximately $1,050,000 to $8,903,000. The
Company also has two agreements to purchase Canadian new distillation whisky
(including dumping charges) through December 2005 at purchase prices of
approximately $17,360,000 to $19,133,000. In addition, the Company has an
agreement to purchase corn whiskey through April 1999 at a purchase price of
approximately $294,000.
All of the Company's imported beer products are marketed and sold pursuant to
exclusive distribution agreements from the suppliers of these products. The
Company's agreement to distribute Corona and its other Mexican beer brands
exclusively throughout 25 states was renewed effective November 22, 1996, and
expires December 2006, with automatic five year renewals thereafter, subject to
compliance with certain performance criteria and other terms under the
agreement. The remaining agreements expire through December 1999 and may be
extended by the Company through June 2003, subject to compliance with certain
performance criteria. Prior to their expiration, these agreements may be
terminated if the Company fails to meet certain performance criteria. At
February 28, 1997, 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 entered into other purchase contracts
with various growers and suppliers in the normal course of business. Under the
grape purchase contracts, the Company is committed to purchase all grape
production yielded from a specified number of acres for a period of time ranging
up to fifteen 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.
<PAGE>
The Company purchased $142,547,000 of grapes under these contracts during fiscal
1997. 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 $900,343,000. 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 $1,171,000 at
February 28, 1997.
The Company's aggregate obligations under bulk wine purchase contracts will be
approximately $61,486,000 over the remaining term of the contracts which expire
through fiscal 2000.
EMPLOYMENT CONTRACTS -
The Company has employment contracts with certain of its executive officers and
certain other management personnel with remaining terms ranging up to four
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 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 $10,534,000 as of February 28, 1997, of which approximately
$2,223,000 is accrued in other liabilities as of February 28, 1997.
EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENTS -
Approximately 43% of the Company's full-time employees are covered by collective
bargaining agreements at February 28, 1997. Agreements expiring within one year
cover approximately 27% of the Company's full-time employees.
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.
10. 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 22.9%, 16.9%, 21.6% and 23.7% of the Company's gross sales
for the fiscal year ending February 28, 1997, the Transition Period and for the
fiscal years ended August 31, 1995 and 1994, respectively. Gross sales to the
Company's largest wholesaler, Southern Wine and Spirits, represented 10.5%,
10.6% and 12.3% of the Company's gross sales for the fiscal year ended February
28, 1997 and for the fiscal years ended August 31, 1995 and 1994, respectively.
No single wholesaler was responsible for greater than 10% of gross sales during
the Transition Period. 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.
<PAGE>
11. 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 during fiscal 1997. 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 the 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 on a fully diluted
basis. These charges represented 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 completed the Restructuring Plan
at February 29, 1996, with a total employment reduction of 177 jobs. The Company
expended approximately $2,125,000 in fiscal 1997 and $6,644,000 during the
Transition Period for capital expenditures to expand storage capacity. As of
February 28, 1997 and February 29, 1996, the Company had accrued liabilities of
approximately $402,000 and $1,186,000, respectively, relating to the
Restructuring Plan.
12. SUMMARIZED FINANCIAL INFORMATION - SUBSIDIARY GUARANTORS:
The subsidiary guarantors are wholly-owned and the guarantees are full,
unconditional, joint and several obligations of each of the subsidiary
guarantors. Summarized financial information for the subsidiary guarantors is
set forth below. Separate financial statements for the subsidiary guarantors of
the Company are not presented because the Company has determined that such
financial statements would not be material to investors. The subsidiary
guarantors comprise all of the direct and indirect subsidiaries of the Company,
other than the non-guarantor subsidiaries which individually, and in the
aggregate, are inconsequential. There are no restrictions on the ability of the
subsidiary guarantors to transfer funds to the Company in the form of cash
dividends, loans or advances.
The following table presents summarized financial information for subsidiary
guarantors in connection with all of the Company's 8.75% Senior Subordinated
Notes:
February 28, February 29,
1997 1996
------------ ------------
(IN THOUSANDS)
Balance Sheet Data:
Current assets $ 401,870 $ 404,655
Noncurrent assets $ 403,068 $ 306,647
Current liabilities $ 100,009 $ 122,923
Noncurrent liabilities $ 65,300 $ 67,132
<PAGE>
<TABLE>
<CAPTION>
For the Year For the Six Months Ended For the Years Ended August 31,
Ended ---------------------------- ------------------------------
February 28, February 29, February 28,
1997 1996 1995 1995 1994
----------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Income Statement Data:
Net sales $907,387 $416,839 $334,885 $716,969 $514,466
Gross profit $164,471 $ 73,843 $ 62,883 $131,489 $ 81,454
Income (loss) before
provision for Federal and
and state income taxes $ 47,303 $ 17,083 $ 22,690 $ 52,756 $ (7,048)
Net income (loss) $ 27,392 $ 8,466 $ 13,954 $ 32,445 $ (4,370)
</TABLE>
13. ACCOUNTING PRONOUNCEMENTS:
In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS No.
128), "Earnings per Share," was issued, superseding Accounting Principles Board
Opinion No. 15 (Opinion 15), "Earnings per Share." This statement specifies the
computation, presentation and disclosure requirements for earnings per share
(EPS) for companies with publicly held common stock or potential common stock.
This statement replaces the reporting of primary EPS with basic EPS and changes
the computation of fully diluted EPS to dilutive EPS which uses the average
share price for the period, rather than the more dilutive greater of the average
share price or end-of-period share price required by Opinion 15. The Company
will be required to adopt SFAS No. 128 on a prospective basis in fiscal 1998.
The Company believes the effect of adoption will not be material.
14. FEBRUARY FISCAL YEAR FINANCIAL DATA (UNAUDITED):
The financial data presented below summarizes recast 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 YEAR ENDED FEBRUARY 28, 1997, SIX MONTHS ENDED FEBRUARY 29, 1996 AND
THE YEARS ENDED AUGUST 31, 1995 AND 1994
(in thousands, except per share data)
QUARTER ENDED 5/31/96 8/31/96 11/30/96 2/28/97 YEAR
----------------------------------------------------------
Net sales $276,493 $279,218 $317,733 $261,569 $1,135,013
Gross profit 72,907 69,835 81,683 66,407 290,832
Net income 8,501 4,941 8,311 5,922 27,675
Earnings per share:
Primary .43 .25 .42 .31 1.41
Fully diluted .43 .25 .42 .30 1.40
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
<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 non-recurring
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 information required by this Item (except for the information regarding
executive officers required by Item 401 of Regulation S-K which is included in
Part I hereof in accordance with General Instruction G(3)) is incorporated
herein by reference to the Company's proxy statement to be issued in connection
with the Annual Meeting of Stockholders of the Company to be held on July 22,
1997, under that section of the proxy statement titled "Nomination and Election
of Directors," and under a caption titled "Section 16(a) Beneficial Ownership
Reporting Compliance," which proxy statement will be filed within 120 days after
the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 22, 1997, under that
section of the proxy statement titled "Executive Compensation," which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 22, 1997, under those
sections of the proxy statement titled "Beneficial Ownership" and "Nomination
and Election of Directors," which proxy statement will be filed within 120 days
after the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the Company's proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on July 22, 1997, under that
section of the proxy statement titled "Executive Compensation," which proxy
statement will be filed within 120 days after the end of the Company's fiscal
year.
<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 28, 1997 and February
29, 1996
Consolidated Statements of Income for the year ended
February 28, 1997, for the six months ended February 29,
1996 and February 28, 1995 (unaudited) and for the years
ended August 31, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity
for the year ended February 28, 1997, for the six months
ended February 29, 1996 and for the years ended August 31,
1995 and 1994
Consolidated Statements of Cash Flows for the year ended
February 28, 1997, for the six months ended February 29,
1996 and February 28, 1995 (unaudited) and for the years
ended August 31, 1995 and 1994
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 Stock Purchase Agreement dated April 27, 1993 among the Company,
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 Company's Current Report on
Form 8-K dated June 29, 1993 and incorporated herein by
reference).
2.2 Asset Sale Agreement dated September 14, 1993 between the Company
and Vintners International Company, Inc. (filed as Exhibit 2(a)
to the Company's Current Report on Form 8-K dated October 15,
1993 and incorporated herein by reference).
2.3 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 Company (filed as Exhibit
2(b) to the Company's Current Report on Form 8-K dated October
15, 1993 and incorporated herein by reference).
2.4 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 Company (filed as Exhibit 2.1
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended February 28, 1994 and incorporated herein by
reference).
2.5 Asset Purchase Agreement dated August 3, 1994 between the Company
and Heublein, Inc. (filed as Exhibit 2(a) to the Company's
Current Report on Form 8-K dated August 5, 1994 and incorporated
herein by reference).
2.6 Amendment dated November 8, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.2 to
the Company'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).
2.7 Amendment dated November 18, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.8 to
the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1994 and incorporated herein by reference).
<PAGE>
2.8 Amendment dated November 30, 1994 to Asset Purchase Agreement
between Heublein, Inc. and the Company (filed as Exhibit 2.9 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 1994 and incorporated herein by
reference).
2.9 Asset Purchase Agreement among Barton Incorporated (a
wholly-owned subsidiary of the Company), 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 Company's Current Report on Form 8-K, dated August 29, 1995
and incorporated herein by reference).
3.1 Restated Certificate of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Transition Report on Form 10-K for
the Transition Period from September 1, 1995 to February 29, 1996
and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (filed as Exhibit 3.2
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended 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 Company'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 Company'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 Company, its
Subsidiaries and Chemical Bank (filed as Exhibit 4.1 to the
Company'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
Company, Canandaigua West, Inc. and Chemical Bank (filed as
Exhibit 4.5 to the Company'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
Company, V Acquisition Corp. (a subsidiary of the Company now
known as The Viking Distillery, Inc.) and Chemical Bank (filed as
Exhibit 4.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1995 and incorporated herein by
reference).
<PAGE>
4.6 Indenture with respect to the 8 3/4% Series C Senior Subordinated
Notes due 2003 dated as of October 29, 1996 among the Company,
its Subsidiaries and Harris Trust and Savings Bank (filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-4
(Registration No. 333-17673 and incorporated herein by
reference).
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 Company'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 Company'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 Company'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 Company'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 as Exhibit 10.8
to the Company's Transition Report on Form 10-K for the
Transition Period from September 1, 1995 to February 29, 1996 and
incorporated herein by reference).
<PAGE>
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
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993 and incorporated herein by reference).
10.10Barton Incorporated Management Incentive Plan (filed as Exhibit
10.6 to the Company'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 Company'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 Company'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 Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1993 and incorporated herein by reference).
10.14Third Amended and Restated Credit Agreement between the Company,
its principal operating subsidiaries, and certain banks for which
The Chase Manhattan Bank (successor by merger to The Chase
Manhattan Bank, N.A.) acts as Administrative Agent, dated as of
September 1, 1995 (filed as Exhibit 2(b) to the Company's Current
Report on Form 8-K, dated August 29, 1995 and incorporated herein
by reference).
10.15Amendment No. 1, dated as of December 20, 1995, to Third Amended
and Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1995 and incorporated herein by reference).
10.16Amendment No. 2, dated as of January 10, 1996, to Third Amended
and Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1995 and incorporated herein by reference).
<PAGE>
10.17Letter agreement, effective as of October 7, 1995, as amended,
addressing compensation, between the Company and Daniel Barnett
(filed as Exhibit 10.23 to the Company's Transition Report on
Form 10-K for the Transition Period from September 1, 1995 to
February 29, 1996 and incorporated herein by reference).
10.18Amendment No. 3, dated as of May 17, 1996, to Third Amended and
Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.24 to the
Company's Transition Report on Form 10-K for the Transition
Period from September 1, 1995 to February 29, 1996 and
incorporated herein by reference).
10.19Amendment No. 4, dated as of May 17, 1996, to Third Amended and
Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1996 and incorporated herein by reference).
10.20Amendment No. 5, dated as of October 10, 1996, to Third Amended
and Restated Credit Agreement between the Company, its principal
operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank,
N.A.) acts as Administrative Agent (filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-4 (Registration No.
333-17673) and incorporated herein by reference).
10.21Amendment No. 8 to the Canandaigua Wine Company, Inc. Stock
Option and Stock Appreciation Right Plan (filed as Exhibit 10.27
to the Company's Registration Statement on Form S-4 (Registration
No. 333-17673) and incorporated herein by reference).
11.1 Statement of Computation of Per Share Earnings (filed herewith).
21.1 Subsidiaries of Company (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
The following Report on Form 8-K was filed by the Company with the
Securities and Exchange Commission during the fourth quarter of the
Company's fiscal year ended February 28, 1997: Form 8-K dated December 19,
1996. This Form 8-K reported information under Item 5 (Other Events).
<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, 1997 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/ Thomas S. Summer
- ----------------- --------------------
Richard Sands, President, Chief Thomas S. Summer, Senior Vice President
Executive Officer and Director and Chief Financial Officer (Principal
(Principal Executive Officer ) Financial Officer and Principal Accounting
Officer)
Dated: May 29, 1997 Dated: May 29, 1997
/s/ Marvin Sands /s/ Robert Sands
- ---------------- ----------------
Marvin Sands, Chairman of the Board Robert Sands, Director
Dated: May 29, 1997 Dated: May 29, 1997
/s/ George Bresler /s/ James A. Locke, III
- ------------------ -----------------------
George Bresler, Director James A. Locke, III, Director
Dated: May 29, 1997 Dated: May 29, 1997
/s/ Bertram E. Silk
- -------------------
Bertram E. Silk, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 BATAVIA WINE CELLARS, INC.
By: /s/ Ned Cooper
--------------
Ned Cooper, President
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/ Ned Cooper
- --------------
Ned Cooper, President
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Thomas S. Summer
- --------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 1997
/s/ Richard Sands
- -----------------
Richard Sands, Director
Dated: May 29, 1997
/s/ Robert S. Sands
- -------------------
Robert S. Sands, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 BISCEGLIA BROTHERS WINE CO.
By: /s/ Richard Sands
-----------------
Richard Sands, President
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
- -----------------
Richard Sands, President and Director
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Thomas S. Summer
- --------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 1997
/s/ Robert Sands
- ----------------
Robert Sands, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 CALIFORNIA PRODUCTS COMPANY
By: /s/ Richard Sands
-----------------
Richard Sands, President
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
- -----------------
Richard Sands, President and Director
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Thomas S. Summer
- --------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 1997
/s/ Robert Sands
- ----------------
Robert Sands, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 CANANDAIGUA WEST, INC.
By: /s/ Richard Sands
-----------------
Richard Sands, President
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
- -----------------
Richard Sands, President and Director
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Thomas S. Summer
- --------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 1997
/s/ Robert Sands
- ----------------
Robert Sands, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 GUILD WINERIES & DISTILLERIES, INC.
By: /s/ Richard Sands
------------------
Richard Sands, President
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
- -----------------
Richard Sands, President and Director
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Thomas S. Summer
- --------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 1997
/s/ Robert Sands
- ----------------
Robert Sands, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 VINTNERS INTERNATIONAL COMPANY, INC.
By: /s/ Richard Sands
-----------------
Richard Sands, President
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
- -----------------
Richard Sands, President and Director
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Thomas S. Summer
- --------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 1997
/s/ Robert Sands
- ----------------
Robert Sands, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 WIDMER'S WINE CELLARS, INC.
By: /s/ Richard Sands
-----------------
Richard Sands, President
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
- -----------------
Richard Sands, President and Director
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Thomas S. Summer
- --------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 29, 1997
/s/ Robert Sands
- ----------------
Robert Sands, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 BARTON INCORPORATED
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of
the Board of Directors 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/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, Chairman of the Raymond E. Powers, Executive Vice
Board of Directors and Chief Executive President, Treasurer, Assistant
Officer (Principal Executive Officer) Secretary and Director (Principal
Dated: May 29, 1997 Financial Officer and Principal
Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ William F. Hackett
- --------------------- ----------------------
Alexander L. Berk, Director William F. Hackett, Director
Dated: May 29, 1997 Dated: May 29, 1997
/s/ Edward L. Golden
- --------------------
Edward L. Golden, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 BARTON BRANDS, LTD.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of
the Board of Directors
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/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, Chairman of the Raymond E. Powers, Executive Vice
the Board of Directors (Principal President, Treasurer and Assistant
Executive Officer) Secretary(Principal Financial Officer and
Dated: May 29, 1997 Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
<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.
Dated: May 29, 1997 BARTON BRANDS OF CALIFORNIA, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President
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/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, President and Raymond E. Powers, Executive Vice
Director (Principal Executive Officer) President, Treasurer, Assistant Secretary
Dated: May 29, 1997 and Director (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
<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.
Dated: May 29, 1997 BARTON BRANDS OF GEORGIA, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President
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/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, President and Raymond E. Powers, Executive Vice
Director (Principal Executive Officer) President, Treasurer and Assistant
Dated: May 29, 1997 Secretary (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
<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.
Dated: May 29, 1997 THE VIKING DISTILLERY, INC.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President
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/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, President and Raymond E. Powers, Executive Vice
Director (Principal Executive Officer) President, Treasurer and Assistant
Dated: May 29, 1997 Secretary (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ Edward L. Golden
- --------------------- --------------------
Alexander L. Berk, Director Edward L. Golden, Director
Dated: May 29, 1997 Dated: May 29, 1997
<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.
Dated: May 29, 1997 BARTON DISTILLERS IMPORT CORP.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President
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/ Ellis M. Goodman
- --------------------
Ellis M. Goodman, President and Director (Principal
Executive Officer)
Dated: May 29, 1997
/s/ Raymond E. Powers
- ---------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant Secretary
and Director (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk
- ---------------------
Alexander L. Berk, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 BARTON FINANCIAL CORPORATION
By: /s/ Raymond E. Powers
---------------------
Raymond E. Powers, President
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/ Raymond E. Powers
- ---------------------
Raymond E. Powers, President, Secretary
and Director (Principal Executive Officer)
Dated: May 29, 1997
/s/ Charles T. Schlau
- ---------------------
Charles T. Schlau, Treasurer and Director
(Principal Financial Officer and Principal
Accounting Officer)
Dated: May 29, 1997
<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.
Dated: May 29, 1997 BARTON BEERS, LTD.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of
the Board of Directors
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/ Ellis M. Goodman /s/ Raymond E. Powers
- -------------------- ---------------------
Ellis M. Goodman, Chairman of the Raymond E. Powers, Executive Vice
Board of Directors (Principal Executive President, Treasurer and Assistant
Officer) Secretary (Principal Financial Officer
Dated: May 29, 1997 and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk /s/ William F. Hackett
- --------------------- ----------------------
Alexander L. Berk, Director William F. Hackett, Director
Dated: May 29, 1997 Dated: May 29, 1997
<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.
Dated: May 29, 1997 MONARCH IMPORT COMPANY
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, President and
Chairman of the Board of Directors
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/ Ellis M. Goodman
- --------------------
Ellis M. Goodman, President and Chairman
of the Board of Directors
(Principal Executive Officer)
Dated: May 29, 1997
/s/ Raymond E. Powers
- ---------------------
Raymond E. Powers, Executive Vice
President, Treasurer, Assistant Secretary
and Director (Principal Financial Officer
and Principal Accounting Officer)
Dated: May 29, 1997
/s/ Alexander L. Berk
- ---------------------
Alexander L. Berk, Director
Dated: May 29, 1997
<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.
Dated: May 29, 1997 STEVENS POINT BEVERAGE CO.
By: /s/ Ellis M. Goodman
--------------------
Ellis M. Goodman, Chairman of the
Board of Directors
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/ James P. Ryan /s/ Raymond E. Powers
- ----------------- ---------------------
James P. Ryan, Chief Executive Officer, Raymond E. Powers, Executive Vice
President and Director President, Treasurer, Assistant
(Principal Executive Officer) Secretary and Director (Principal
Dated: May 29, 1997 Financial Officer and Principal
Accounting Officer)
Dated: May 29, 1997
/s/ Ellis M. Goodman /s/ Alexander L. Berk
- -------------------- ---------------------
Ellis M. Goodman, Chairman Alexander L. Berk, Director
of the Board of Directors Dated: May 29, 1997
Dated: May 29, 1997
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
2.1 Stock Purchase Agreement dated April 27, 1993 among the Company, 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
Company's Current Report on Form 8-K dated June 29, 1993 and incorporated
herein by reference).
2.2 Asset Sale Agreement dated September 14, 1993 between the Company and
Vintners International Company, Inc. (filed as Exhibit 2(a) to the
Company's Current Report on Form 8-K dated October 15, 1993 and
incorporated herein by reference).
2.3 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 Company (filed as Exhibit 2(b) to the Company's Current Report on Form
8-K dated October 15, 1993 and incorporated herein by reference).
2.4 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 Company (filed as Exhibit 2.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended February 28, 1994 and
incorporated herein by reference).
2.5 Asset Purchase Agreement dated August 3, 1994 between the Company and
Heublein, Inc. (filed as Exhibit 2(a) to the Company's Current Report on
Form 8-K dated August 5, 1994 and incorporated herein by reference).
2.6 Amendment dated November 8, 1994 to Asset Purchase Agreement between
Heublein, Inc. and the Company (filed as Exhibit 2.2 to the Company'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).
2.7 Amendment dated November 18, 1994 to Asset Purchase Agreement between
Heublein, Inc. and the Company (filed as Exhibit 2.8 to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1994 and
incorporated herein by reference).
2.8 Amendment dated November 30, 1994 to Asset Purchase Agreement between
Heublein, Inc. and the Company (filed as Exhibit 2.9 to the Company's
<PAGE>
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
1994 and incorporated herein by reference).
2.9 Asset Purchase Agreement among Barton Incorporated (a wholly-owned
subsidiary of the Company), 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 Company's Current Report on Form 8-K, dated
August 29, 1995 and incorporated herein by reference).
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Company's Transition Report on Form 10-K for the Transition Period
from September 1, 1995 to February 29, 1996 and incorporated herein by
reference).
3.2 Amended and Restated By-laws of the Company (filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
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 Company'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 Company'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 Company, its Subsidiaries
and Chemical Bank (filed as Exhibit 4.1 to the Company'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 Company,
Canandaigua West, Inc. and Chemical Bank (filed as Exhibit 4.5 to the
Company'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 Company, V
Acquisition Corp. (a subsidiary of the Company now known as The Viking
Distillery, Inc.) and Chemical Bank (filed as Exhibit 4.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995 and
incorporated herein by reference).
4.6 Indenture with respect to the 8 3/4% Series C Senior Subordinated Notes due
2003 dated as of October 29, 1996 among the Company, its Subsidiaries and
Harris Trust and Savings Bank (filed as Exhibit 4.2 to the Company's
<PAGE>
Registration Statement on Form S-4 (Registration No. 333-17673 and
incorporated herein by reference).
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 Company'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 Company'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 Company'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 Company'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 as Exhibit 10.8 to the Company's
Transition Report on Form 10-K for the Transition Period from September 1,
1995 to February 29, 1996 and incorporated herein by reference).
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 Company's Annual Report on
<PAGE>
Form 10-K for the fiscal year ended August 31, 1993 and incorporated herein
by reference).
10.10Barton Incorporated Management Incentive Plan (filed as Exhibit 10.6 to
the Company'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 Company'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 Company'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 Company's Annual Report on Form 10-K for the fiscal year ended August
31, 1993 and incorporated herein by reference).
10.14Third Amended and Restated Credit Agreement between the Company, its
principal operating subsidiaries, and certain banks for which The Chase
Manhattan Bank (successor by merger to The Chase Manhattan Bank, N.A.) acts
as Administrative Agent, dated as of September 1, 1995 (filed as Exhibit
2(b) to the Company's Current Report on Form 8-K, dated August 29, 1995 and
incorporated herein by reference).
10.15Amendment No. 1, dated as of December 20, 1995, to Third Amended and
Restated Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A.) acts as
Administrative Agent (filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1995 and
incorporated herein by reference).
10.16Amendment No. 2, dated as of January 10, 1996, to Third Amended and
Restated Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A.) acts as
Administrative Agent (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1995 and
incorporated herein by reference).
10.17Letter agreement, effective as of October 7, 1995, as amended, addressing
compensation, between the Company and Daniel Barnett (filed as Exhibit
10.23 to the Company's Transition Report on Form 10-K for the Transition
<PAGE>
Period from September 1, 1995 to February 29, 1996 and incorporated herein
by reference).
10.18Amendment No. 3, dated as of May 17, 1996, to Third Amended and Restated
Credit Agreement between the Company, its principal operating subsidiaries,
and certain banks for which The Chase Manhattan Bank (successor by merger
to The Chase Manhattan Bank, N.A.) acts as Administrative Agent (filed as
Exhibit 10.24 to the Company's Transition Report on Form 10-K for the
Transition Period from September 1, 1995 to February 29, 1996 and
incorporated herein by reference).
10.19Amendment No. 4, dated as of May 17, 1996, to Third Amended and Restated
Credit Agreement between the Company, its principal operating subsidiaries,
and certain banks for which The Chase Manhattan Bank (successor by merger
to The Chase Manhattan Bank, N.A.) acts as Administrative Agent (filed as
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended May 31, 1996 and incorporated herein by reference).
10.20Amendment No. 5, dated as of October 10, 1996, to Third Amended and
Restated Credit Agreement between the Company, its principal operating
subsidiaries, and certain banks for which The Chase Manhattan Bank
(successor by merger to The Chase Manhattan Bank, N.A.) acts as
Administrative Agent (filed as Exhibit 10.26 to the Company's Registration
Statement on Form S-4 (Registration No. 333-17673) and incorporated herein
by reference).
10.21Amendment No. 8 to the Canandaigua Wine Company, Inc. Stock Option and
Stock Appreciation Right Plan (filed as Exhibit 10.27 to the Company's
Registration Statement on Form S-4 (Registration No. 333-17673) and
incorporated herein by reference).
11.1 Statement of Computation of Per Share Earnings (filed herewith).
21.1 Subsidiaries of Company (filed herewith).
23.1 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule (filed herewith).
<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 Year Ended For the Six Months Ended For the Years Ended August 31,
------------------ ---------------------------------- ----------------------------------
February 28, February 29, February 28,
1997 1996 1995 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
(unaudited)
Net income per common Fully Fully Fully Fully Fully
and common equivalent share: Primary Diluted Primary Diluted Primary Diluted Primary Diluted Primary Diluted
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income available to common and common
equivalent shares $27,675 $27,675 $ 3,322 $ 3,322 $20,320 $20,320 $41,020 $41,020 $11,733 $11,733
Adjustments:
Assumed exercise of convertible debt -- -- -- -- -- -- -- -- -- 419
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income available to common and common
equivalent shares $27,675 $27,675 $ 3,322 $ 3,322 $20,320 $20,320 $41,020 $41,020 $11,733 $12,152
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Shares:
Weighted average common shares outstanding 19,333 19,333 19,611 19,611 17,989 17,989 18,776 18,776 15,423 15,423
Adjustments:
(1) Assumed exercise of convertible debt -- -- -- -- -- -- -- -- -- 544
(2) Assumed exercise of incentive stock
options 309 354 260 260 284 285 252 302 227 257
(3) Assumed exercise of options 15 19 135 135 71 73 120 218 134 177
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding 19,657 19,706 20,006 20,006 18,344 18,347 19,148 19,296 15,784 16,401
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income per common and
and common equivalent share $ 1.41 $ 1.40 $ .17 $ .17 $ 1.11 $ 1.11 $ 2.14 $ 2.13 $ .74 $ .74
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES OF CANANDAIGUA WINE COMPANY, INC.
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.
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.
Illinois Monarch Import Company (f/k/a Barton Management, Inc.)
New York Vintners International Company, Inc.
New York Canandaigua West, Inc.
Georgia The Viking Distillery, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 file numbers 33-26694 and 33-56557.
Rochester, New York, /s/ Arthur Andersen LLP
May 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's February 28, 1997 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> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 10,010
<SECURITIES> 0
<RECEIVABLES> 142,592
<ALLOWANCES> 0
<INVENTORY> 326,626
<CURRENT-ASSETS> 501,015
<PP&E> 355,968
<DEPRECIATION> 106,416
<TOTAL-ASSETS> 1,020,901
<CURRENT-LIABILITIES> 246,573
<BONDS> 338,884
0
0
<COMMON> 214
<OTHER-SE> 364,519
<TOTAL-LIABILITY-AND-EQUITY> 1,020,901
<SALES> 1,135,013
<TOTAL-REVENUES> 1,135,013
<CGS> 844,181
<TOTAL-COSTS> 844,181
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,050
<INCOME-PRETAX> 47,791
<INCOME-TAX> 20,116
<INCOME-CONTINUING> 27,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,675
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.40
</TABLE>
