FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 30, 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 NUMBER 0-7570
DELAWARE CANANDAIGUA BRANDS, INC. 16-0716709
AND ITS SUBSIDIARIES:
NEW YORK BATAVIA WINE CELLARS, INC. 16-1222994
NEW YORK CANANDAIGUA WINE COMPANY, INC. 16-1462887
NEW YORK CANANDAIGUA EUROPE LIMITED 16-1195581
NEW YORK ROBERTS TRADING CORP. 16-0865491
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 36-3539106
GEORGIA THE VIKING DISTILLERY, INC. 58-2183528
(State or other (Exact name of registrant as specified (I.R.S. Employer
jurisdiction of in its charter) Identification
incorporation or No.)
organization)
235 NORTH BLOOMFIELD ROAD, CANANDAIGUA, NEW YORK 14424
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 393-4130
--------------
(Registrant's telephone number, including area code)
-------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
<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
--- ---
The number of shares outstanding with respect to each of the classes of common
stock of Canandaigua Brands, Inc., as of December 16, 1997, is set forth below
(all of the Registrants, other than Canandaigua Brands, Inc., are direct or
indirect wholly-owned subsidiaries of Canandaigua Brands, Inc.):
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 15,377,367
Class B Common Stock, Par Value $.01 Per Share 3,330,458
<PAGE>
Page 1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
November 30, 1997 February 28, 1997
----------------- -----------------
(unaudited)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash investments $ 2,298 $ 10,010
Accounts receivable, net 184,992 142,592
Inventories, net 419,392 326,626
Prepaid expenses and other current assets 19,295 21,787
----------- -----------
Total current assets 625,977 501,015
PROPERTY, PLANT AND EQUIPMENT, net 241,381 249,552
OTHER ASSETS 264,155 270,334
----------- -----------
Total assets $ 1,131,513 $ 1,020,901
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 161,000 $ 57,000
Current maturities of long-term debt 40,119 40,467
Accounts payable 69,838 63,492
Accrued Federal and state excise taxes 20,218 17,058
Other accrued expenses and liabilities 93,803 68,556
----------- -----------
Total current liabilities 384,978 246,573
----------- -----------
LONG-TERM DEBT, less current maturities 275,300 338,884
----------- -----------
DEFERRED INCOME TAXES 64,695 61,395
----------- -----------
OTHER LIABILITIES 7,862 9,316
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at November 30, 1997, and
February 28, 1997 -- --
Class A Common Stock, $.01 par value-
Authorized, 60,000,000 shares;
Issued, 17,576,507 shares at November 30, 1997,
and 17,462,332 shares at February 28, 1997 175 174
Class B Convertible Common Stock, $.01 par value-
Authorized, 20,000,000 shares;
Issued, 3,956,183 shares at November 30, 1997, and
February 28, 1997 40 40
Additional paid-in capital 226,242 222,336
Retained earnings 210,297 170,275
----------- -----------
436,754 392,825
----------- -----------
Less-Treasury stock-
Class A Common Stock, 2,199,320 shares at
November 30, 1997, and 1,915,468 shares at
February 28, 1997, at cost (34,878) (25,885)
Class B Convertible Common Stock, 625,725 shares
at November 30, 1997, and February 28, 1997, at cost (2,207) (2,207)
----------- -----------
(37,085) (28,092)
----------- -----------
Less-Unearned compensation-restricted stock award (991) --
----------- -----------
Total stockholders' equity 398,678 364,733
----------- -----------
Total liabilities and stockholders' equity $ 1,131,513 $ 1,020,901
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</FN>
</TABLE>
<PAGE>
Page 2
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<CAPTION>
For the Nine Months Ended November 30, For the Three Months Ended November 30,
-------------------------------------- ---------------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
GROSS SALES $ 1,252,372 $ 1,180,849 $ 432,046 $ 425,983
Less - Excise taxes (322,134) (307,405) (109,343) (108,250)
------------ ------------ ------------ ------------
Net sales 930,238 873,444 322,703 317,733
COST OF PRODUCT SOLD (666,747) (649,019) (224,703) (236,050)
------------ ------------ ------------ ------------
Gross profit 263,491 224,425 98,000 81,683
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (171,772) (161,139) (60,289) (58,269)
------------ ------------ ------------ ------------
Operating income 91,719 63,286 37,711 23,414
INTEREST EXPENSE, net (23,885) (25,468) (7,861) (8,665)
------------ ------------ ------------ ------------
Income before provision for Federal
and state income taxes 67,834 37,818 29,850 14,749
PROVISION FOR FEDERAL AND
STATE INCOME TAXES (27,812) (16,065) (12,239) (6,438)
------------ ------------ ------------ ------------
NET INCOME $ 40,022 $ 21,753 $ 17,611 $ 8,311
============ ============ ============ ============
SHARE DATA:
Net income per common and common
equivalent share:
Primary $ 2.07 $ 1.10 $ 0.90 $ 0.42
============ ============ ============ ============
Fully diluted $ 2.05 $ 1.10 $ 0.90 $ 0.42
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding:
Primary 19,324,073 19,864,901 19,544,459 19,617,854
Fully diluted 19,512,046 19,864,901 19,563,020 19,778,993
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
Page 3
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
For the Nine Months Ended November 30,
--------------------------------------
1997 1996
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 40,022 $ 21,753
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation of property, plant and equipment 18,806 18,662
Amortization of intangible assets 6,987 7,155
Deferred tax provision 6,900 10,000
Stock-based compensation expense 529 20
Amortization of discount on long-term debt 261 29
(Gain) loss on sale of property, plant and equipment (3,036) 201
Change in operating assets and liabilities:
Accounts receivable, net (42,192) (55,635)
Inventories, net (91,008) (31,793)
Prepaid expenses and other current assets 2,552 9,176
Accounts payable 6,896 18,510
Accrued Federal and state excise taxes 3,161 3,150
Other accrued expenses and liabilities 21,649 17,951
Other assets and liabilities, net (1,043) (3,815)
--------- ---------
Total adjustments (69,538) (6,389)
--------- ---------
Net cash (used in) provided by operating activities (29,516) 15,364
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net of minor disposals (23,206) (25,318)
Proceeds from sale of property, plant and equipment 12,547 5,171
Payment of accrued earn-out amounts -- (13,848)
--------- ---------
Net cash used in investing activities (10,659) (33,995)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 104,000 18,700
Proceeds from employee stock purchases 1,256 998
Exercise of employee stock options 1,194 10
Principal payments of long-term debt (64,193) (39,612)
Purchases of treasury stock (9,233) (19,997)
Payment of issuance costs of long-term debt (561) (1,478)
Proceeds from issuance of long-term debt, net of discount -- 61,668
--------- ---------
Net cash provided by financing activities 32,463 20,289
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS (7,712) 1,658
CASH AND CASH INVESTMENTS, beginning of period 10,010 3,339
--------- ---------
CASH AND CASH INVESTMENTS, end of period $ 2,298 $ 4,997
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Goodwill reduction on settlement of disputed final closing net
current asset statement for Vintners Acquisition $ -- $ 5,894
========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
Page 4
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
1) MANAGEMENT'S REPRESENTATIONS:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission applicable to quarterly reporting on Form
10-Q and reflect, in the opinion of the Company, all adjustments necessary to
present the financial information for Canandaigua Brands, Inc. and its
subsidiaries. All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements,
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted as permitted by such rules and regulations. These
consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1997.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Certain November 1996 balances have been reclassified to conform with
current year presentation.
3) 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.
Substantially all of the inventories are valued using the LIFO method. Elements
of cost include materials, labor and overhead and consist of the following:
November 30, February 28,
1997 1997
------------ ------------
(in thousands)
Raw materials and supplies $ 13,203 $ 14,191
Wines and distilled spirits in process 330,987 262,289
Finished case goods 98,707 72,526
--------- ---------
442,897 349,006
Less - LIFO reserve (23,505) (22,380)
--------- ---------
$ 419,392 $ 326,626
========= =========
Information related to the FIFO method of inventory valuation may be useful
in comparing operating results to those companies not using the LIFO method of
inventory valuation. If the FIFO method had been used, reported net income would
have been $0.7 million, or $0.03 per share on a fully diluted basis, higher for
the nine months ended November 30, 1997, and reported net income would have been
$12.5 million, or $0.63 per share on a fully diluted basis, higher for the nine
months ended November 30, 1996.
<PAGE>
Page 5
4) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Net income per common and common equivalent share is based on the weighted
average number of common and dilutive common equivalent shares outstanding
during each period. Dilutive common equivalent shares consist of stock options.
5) STOCK INCENTIVE PLANS:
At the Company's Annual Meeting of Stockholders held on July 22, 1997,
stockholders approved the amendment and restatement of the Company's Stock
Option and Stock Appreciation Right Plan as the Long-Term Stock Incentive Plan
and the adoption of the Company's Incentive Stock Option Plan.
Under the Long-Term Stock Incentive Plan, non-qualified stock options,
stock appreciation rights, restricted stock and other stock-based awards may be
granted to employees, officers and directors of the Company. Grants, in the
aggregate, may not exceed 4,000,000 shares of the Company's Class A Common
Stock.
Under the Incentive Stock Option Plan, incentive stock options may be
granted to employees, including officers, of the Company. Grants, in the
aggregate, may not exceed 1,000,000 shares of the Company's Class A Common
Stock. The exercise price of any incentive stock option may not be less than the
fair market value of the shares on the date of grant.
6) 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 or loan repayments. The subsidiary guarantors may not loan funds to
the Company.
The following table presents summarized financial information for
subsidiary guarantors in connection with all of the Company's 8.75% Senior
Subordinated Notes:
November 30, February 28,
1997 1997
------------ -----------
(in thousands)
Balance Sheet Data:
Current assets $ 501,384 $ 401,870
Noncurrent assets $ 390,495 $ 403,068
Current liabilities $ 104,699 $ 100,009
Noncurrent liabilities $ 64,480 $ 65,300
<PAGE>
Page 6
For the Nine Months For the Three Months
Ended November 30, Ended November 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
Income Statement Data:
Net sales $764,457 $718,676 $250,119 $264,883
Gross profit $153,590 $127,306 $ 47,165 $ 48,599
Income before provision for
Federal and state income
taxes $ 58,658 $ 34,602 $ 17,210 $ 18,043
Net income $ 34,886 $ 19,903 $ 10,118 $ 10,466
7) ACCOUNTING PRONOUNCEMENTS:
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," (SFAS No. 128) and Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure," (SFAS
No. 129) were issued. SFAS No. 128 requires the Company to present basic and
diluted earnings per share in the financial statements. The Company is required
to adopt SFAS No. 128 for the year ending February 28, 1998, and restate
previously reported earnings per share. Early adoption is not permitted. The
Company believes the effect of adoption will not be material. SFAS No. 129
consolidates specific existing disclosure requirements and establishes standards
for disclosing information about an entity's capital structure. The Company is
required to adopt SFAS No. 129 for the year ending February 28, 1998. The
Company believes the effect of adoption will not be material.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (SFAS No. 130) and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," (SFAS No. 131) were issued. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. The Company is required to adopt SFAS No.
130 for interim periods and fiscal years beginning March 1, 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company believes the effect of adoption
will not be material. SFAS No. 131 establishes standards for reporting
information about operating segments in annual financial statements and requires
reporting of selected information in interim financial statements. The Company
is required to adopt SFAS No. 131 for fiscal years beginning March 1, 1998, and
for interim periods beginning March 1, 1999. Restatement of comparative
information for earlier years is required in the initial year of adoption and
comparative information for interim periods in the initial year of adoption is
to be reported for interim periods in the second year of application. The
Company has not yet determined the impact of SFAS No. 131 on its financial
statements.
8) SUBSEQUENT EVENT - NEW CREDIT AGREEMENT:
Senior credit facility:
On December 19, 1997, the Company and a syndicate of banks (the Syndicate
Banks) entered into a new $325.0 million senior Credit Agreement (the Credit
Agreement). The proceeds of the Credit Agreement were used to repay all
outstanding principal and accrued interest on all loans under the Company's
Third Amended and Restated Credit Agreement, as amended. As compared to the
previous bank credit agreement, the Credit Agreement includes, among other
things, lower interest rates, lower
<PAGE>
Page 7
quarterly loan amortization and greater flexibility with respect to effecting
acquisitions, incurring indebtedness and repurchasing the Company's capital
stock.
The Credit Agreement provides for a $140.0 million term loan facility due
in June 2003 and a $185.0 million revolving loan facility, including letters of
credit up to a maximum of $20.0 million, which expires in June 2003. The rate of
interest payable, at the Company's option, is a function of the London interbank
offered rate (LIBOR) plus a margin, federal funds rate plus a margin or the
prime rate. The margin is adjustable based upon the Company's Debt Ratio (as
defined in the Credit Agreement). There are certain mandatory term loan
prepayments including, if the proceeds of which are not used to finance an
acquisition, aggregate net proceeds received in excess of $50.0 million from any
Debt Incurrence (as defined in the Credit Agreement) and 50% of any net proceeds
from the sale of equity, and net proceeds from the sale of assets not reinvested
in like assets.
The term loan facility requires quarterly repayments of $6.0 million
beginning March 1998 through December 2002, and payments of $10.0 million in
March 2003 and June 2003. Currently, the margin on the term loan facility
borrowings is 0.75% and may be decreased by up to 0.35% and increased by up to
0.5% depending on the Company's Debt Ratio.
The revolving loan facility is utilized to finance working capital
requirements. The Credit Agreement requires that the Company reduce the
outstanding balance of the revolving loan facility to less than $60.0 million
for thirty consecutive days during the six months ending each August 31.
Currently, the margin on the revolving loan facility is 0.5% and may be
decreased by up to 0.25% and increased by up to 0.4% depending on the Company's
Debt Ratio. In addition, the Company pays a facility fee on the revolving loan
commitments. Currently, the facility fee is 0.25% and may be reduced or
increased by 0.1% subject to the Company's Debt Ratio.
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 Company is subject to customary secured lending covenants including those
restricting additional liens, the incurrence of additional indebtedness, the
sale of assets, the payment of dividends, transactions with affiliates and the
making of certain investments. The primary financial covenants require the
maintenance of a Debt Ratio, a senior debt coverage ratio, a fixed charge ratio
and an interest coverage ratio. Among the most restrictive covenants contained
in the Credit Agreement is the requirement to maintain a fixed charge ratio of
not less than 1.0 at the last day of each fiscal quarter for the most recent
four quarters.
<PAGE>
Page 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
INTRODUCTION
- ------------
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended November 30, 1997 ("Third Quarter 1998"), compared to the three
months ended November 30, 1996 ("Third Quarter 1997"), and for the nine months
ended November 30, 1997 ("Nine Months 1998"), compared to the nine months ended
November 30, 1996 ("Nine Months 1997"), and (ii) financial liquidity and capital
resources for the nine months ended November 30, 1997. This discussion and
analysis should be read in conjunction with the Company's consolidated financial
statements and notes thereto included herein and in the Company's Annual Report
on Form 10-K for the fiscal year ended February 28, 1997.
The Company operates primarily in the beverage alcohol industry. The
Company is principally a producer and supplier of wines and an importer and
producer of beers and distilled spirits. The Company's branded products and its
other products and services are marketed by three operating divisions:
Canandaigua Wine Company, Barton Beers and Barton Brands.
RESULTS OF OPERATIONS
- ---------------------
THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases), if applicable, for branded beverage
alcohol products and other products and services sold by the Company for Third
Quarter 1998 and Third Quarter 1997.
Third Quarter 1998 Compared to Third Quarter 1997
-------------------------------------------------------------
Net Sales Unit Volume
------------------------------- ---------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products: 1998 1997 (Decrease) 1998 1997 (Decrease)
-------- -------- ---------- ------ ------ ----------
Wine $153,353 $152,224 0.7% 7,799 7,943 (1.8%)
Beer 92,605 74,314 24.6% 7,357 5,892 24.9%
Spirits 51,359 51,045 0.6% 2,520 2,476 1.8%
Other (a) 25,386 40,150 (36.8%) N/A N/A N/A
-------- -------- ----- ------ ------ -----
$322,703 $317,733 1.6% 17,676 16,311 8.4%
======== ======== ===== ====== ====== =====
(a) Other consists primarily of non-branded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
Net sales for Third Quarter 1998 increased to $322.7 million from $317.7
million for Third Quarter 1997, an increase of $5.0 million, or 1.6%. This
increase resulted primarily from (i) $18.3 million of additional beer sales,
largely Mexican beers, and (ii) $2.6 million of additional table wine sales.
These increases were partially offset by lower sales of grape juice concentrate,
bulk wine and other branded wine products. Unit volume for branded beverage
alcohol products for Third Quarter 1998 increased 8.4% as compared to Third
Quarter 1997. The unit volume increase was the result of increased sales of the
Company's Mexican beer brands and its spirits brands. Unit volume of the
Company's wine brands decreased slightly as compared to Third Quarter 1997.
<PAGE>
Page 9
GROSS PROFIT
The Company's gross profit increased to $98.0 million for Third Quarter
1998 from $81.7 million for Third Quarter 1997, an increase of $16.3 million, or
20.0%. As a percent of net sales, gross profit increased to 30.4% for Third
Quarter 1998 from 25.7% for Third Quarter 1997. The dollar increase in gross
profit resulted primarily from cost structure improvements and higher average
selling prices related to branded wine sales, and additional beer sales volume.
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, gross profit reflected an addition of $1.8 million and
a reduction of $8.0 million in Third Quarter 1998 and Third Quarter 1997,
respectively, due to the Company's LIFO accounting method. The Company's gross
profit for Third Quarter 1998 reflects the cumulative effect of revised cost
estimates, including more favorable grape costs than had been estimated through
the first six months of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $60.3 million for
Third Quarter 1998 from $58.3 million for Third Quarter 1997, an increase of
$2.0 million, or 3.5%. The dollar increase in selling, general and
administrative expenses resulted principally from selling and other expenses
related to the Company's increased beer sales volume and overall growth.
Selling, general and administrative expenses as a percent of net sales increased
to 18.7% for Third Quarter 1998 as compared to 18.3% for Third Quarter 1997. The
increase in percent of net sales resulted from a change in the sales mix driven
by an increase in net sales of branded products, which have a higher percent of
marketing and selling costs relative to sales, partially offset by a decrease in
net sales of nonbranded products which have relatively little associated
marketing and selling costs.
INTEREST EXPENSE, NET
Net interest expense decreased to $7.9 million for Third Quarter 1998 from
$8.7 million for Third Quarter 1997, a decrease of $0.8 million, or 9.3%. The
decrease was primarily due to a decrease in the Company's average borrowings.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for Third Quarter 1998 decreased to 41.0%
from 43.7% for Third Quarter 1997 as Third Quarter 1997 reflected 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 above factors, net income increased to $17.6 million for
Third Quarter 1998 from $8.3 million for Third Quarter 1997, an increase of $9.3
million, or 111.9%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Third Quarter 1998
were $46.2 million, an increase of $14.2 million over EBITDA of $32.0 million
for Third Quarter 1997. EBITDA should not be construed as an alternative to
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Page 10
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.
NINE MONTHS 1998 COMPARED TO NINE MONTHS 1997
NET SALES
The following table sets forth the net sales (in thousands of dollars) and
unit volumes (in thousands of cases), if applicable, for branded beverage
alcohol products and other products and services sold by the Company for Nine
Months 1998 and Nine Months 1997.
Nine Months 1998 Compared to Nine Months 1997
-------------------------------------------------------------
Net Sales Unit Volume
------------------------------- ---------------------------
Branded Beverage %Increase/ %Increase/
Alcohol Products: 1998 1997 (Decrease) 1998 1997 (Decrease)
-------- -------- ---------- ------ ------ ----------
Wine $400,891 $392,629 2.1% 20,961 20,809 0.7%
Beer 298,601 237,628 25.7% 23,796 18,964 25.5%
Spirits 153,093 141,266 8.4% 7,644 7,235 5.7%
Other (a) 77,653 101,921 (23.8%) N/A N/A N/A
-------- -------- ----- ------ ------ -----
$930,238 $873,444 6.5% 52,401 47,008 11.5%
======== ======== ===== ====== ====== =====
(a) Other consists primarily of non-branded concentrate sales, contract
bottling and other production services and bulk product sales, none of
which are sold in case quantities.
Net sales for Nine Months 1998 increased to $930.2 million from $873.4
million for Nine Months 1997, an increase of $56.8 million, or 6.5%. This
increase resulted primarily from (i) $61.0 million of additional beer sales,
largely Mexican beers, (ii) $13.3 million of additional table wine sales and
(iii) $11.8 million of additional spirits sales. These increases were partially
offset by lower sales of grape juice concentrate, bulk wine and other branded
wine products. Unit volume for branded beverage alcohol products for Nine Months
1998 increased 11.5% as compared to Nine Months 1997. The unit volume increase
was largely the result of increased sales of the Company's Mexican beer brands
and its spirits brands. The increase in table wine brands unit volume was
partially offset by a decrease in unit volume of dessert wine brands and
sparkling wine brands.
GROSS PROFIT
The Company's gross profit increased to $263.5 million for Nine Months 1998
from $224.4 million for Nine Months 1997, an increase of $39.1 million, or
17.4%. As a percent of net sales, gross profit increased to 28.3% for Nine
Months 1998 from 25.7% for Nine Months 1997. The dollar increase in gross profit
resulted primarily from increased beer sales, higher average selling prices and
cost structure improvements related to branded wine sales, higher average
selling prices in excess of cost increases related to grape juice concentrate
sales and higher average selling prices and increased volume related to branded
spirits sales. These increases were partially offset by lower sales volume of
grape juice concentrate and bulk wine.
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
<PAGE>
Page 11
valuation ("FIFO") only, gross profit reflected a reduction of $1.1 million and
$21.8 million in Nine Months 1998 and Nine Months 1997, respectively, due to the
Company's LIFO accounting method.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $171.8 million
for Nine Months 1998 from $161.1 million for Nine Months 1997, an increase of
$10.6 million, or 6.6%. The dollar increase in selling, general and
administrative expenses resulted principally from selling and other expenses
related to the Company's increased sales volume and overall growth. Selling,
general and administrative expenses as a percent of net sales increased to 18.5%
for Nine Months 1998 as compared to 18.4% for Nine Months 1997. The increase in
percent of net sales resulted from a change in the sales mix driven by an
increase in net sales of branded products, which have a higher percent of
marketing and selling costs relative to sales, partially offset by a decrease in
net sales of nonbranded products which have relatively little associated
marketing and selling costs.
INTEREST EXPENSE, NET
Net interest expense decreased to $23.9 million for Nine Months 1998 from
$25.5 million for Nine Months 1997, a decrease of $1.6 million, or 6.2%. The
decrease was primarily due to a decrease in the Company's average borrowings
which was partially offset by an increase in the average interest rate.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
The Company's effective tax rate for Nine Months 1998 decreased to 41.0%
from 42.5% for Nine Months 1997 as Nine Months 1997 reflected 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 above factors, net income increased to $40.0 million for
Nine Months 1998 from $21.8 million for Nine Months 1997, an increase of $18.3
million, or 84.0%.
For financial analysis purposes only, the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for Nine Months 1998
were $117.5 million, an increase of $28.4 million over EBITDA of $89.1 million
for Nine Months 1997. 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.
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
<PAGE>
Page 12
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.
NINE MONTHS 1998 CASH FLOWS
OPERATING ACTIVITIES
Net cash used in operating activities for Nine Months 1998 was $29.5
million which resulted from a net increase of $130.7 million in operating
assets, partially offset by a net increase of $70.5 million in net income
adjusted for noncash items plus a net increase of $30.7 million in operating
liabilities. The net increase of $130.7 million in operating assets resulted
principally from a $91.0 million net increase in inventory levels, primarily the
result of the purchase of grapes from the 1997 grape harvest, and a $42.2
million increase in accounts receivable primarily due to higher seasonal sales
of products. The net increase of $30.7 million in operating liabilities was
primarily due to a $21.6 million increase in other accrued expenses and
liabilities, including advertising and promotion accruals associated with the
Company's unit volume increase, accrued income taxes and accrued interest.
INVESTING ACTIVITIES AND FINANCING ACTIVITIES
Net cash used in investing activities for Nine Months 1998 was $10.7
million which resulted from $23.2 million of capital expenditures, including
$8.7 million for vineyards, partially offset by proceeds from the sale of
property, plant and equipment of $12.5 million.
Net cash provided by financing activities for Nine Months 1998 was $32.5
million which resulted primarily from net proceeds of $104.0 million of
revolving loan borrowings under the Company's bank credit agreement, partially
offset by principal payments of $64.2 million of long-term debt and repurchase
of $9.2 million of the Company's Class A Common Stock.
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 the repurchase of 362,100 shares of its Class A Common
Stock at a cost of $9.2 million. 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.
DEBT
Total debt outstanding as of November 30, 1997, amounted to $476.4 million,
an increase of $40.1 million from February 28, 1997, resulting primarily from
the net proceeds of revolving loan borrowings, partially offset by principal
payments of long-term debt. The ratio of total debt to total capitalization
decreased to 54.4% as of November 30, 1997, from 54.5% as of February 28, 1997.
As of November 30, 1997, under its bank credit agreement, the Company had
outstanding term loans of $122.2 million bearing interest at 6.5%, $161.0
million of revolving loans bearing interest at 6.5%, undrawn revolving letters
of credit of $7.9 million and $16.1 million available to be drawn in revolving
loans.
<PAGE>
Page 13
As of November 30, 1997, the Company had outstanding $195.0 million
aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2003. The
notes are unsecured and subordinated to the prior payment in full of all senior
indebtedness of the Company, which includes the bank credit agreement. The notes
are guaranteed, on a senior subordinated basis, by substantially all of the
Company's operating subsidiaries.
On December 19, 1997, the Company, its principal operating subsidiaries,
and a syndicate of banks (the "Syndicate Banks"), for which The Chase Manhattan
Bank acts as Administrative Agent, entered into a new $325.0 million senior
Credit Agreement (the "Credit Agreement"). The proceeds of the Credit Agreement
were used to repay all outstanding principal and accrued interest on all loans
under the Company's Third Amended and Restated Credit Agreement, as amended. As
compared to the previous bank credit agreement, the Credit Agreement includes,
among other things, lower interest rates, lower quarterly loan amortization and
greater flexibility with respect to effecting acquisitions, incurring
indebtedness and repurchasing the Company's capital stock.
The Credit Agreement provides for a $140.0 million term loan facility due
in June 2003 and a $185.0 million revolving loan facility, including letters of
credit up to a maximum of $20.0 million, which expires in June 2003. The rate of
interest payable, at the Company's option, is a function of the London interbank
offered rate (LIBOR) plus a margin, federal funds rate plus a margin or the
prime rate. The margin is adjustable based upon the Company's Debt Ratio (as
defined in the Credit Agreement). There are certain mandatory term loan
prepayments including, if the proceeds of which are not used to finance an
acquisition, aggregate net proceeds received in excess of $50.0 million from any
Debt Incurrence (as defined in the Credit Agreement) and 50% of any net proceeds
from the sale of equity, and net proceeds from the sale of assets not reinvested
in like assets.
The term loan facility requires quarterly repayments of $6.0 million
beginning March 1998 through December 2002, and payments of $10.0 million in
March 2003 and June 2003. Currently, the margin on the term loan facility
borrowings is 0.75% and may be decreased by up to 0.35% and increased by up to
0.5% depending on the Company's Debt Ratio.
The revolving loan facility is utilized to finance working capital
requirements. The Credit Agreement requires that the Company reduce the
outstanding balance of the revolving loan facility to less than $60.0 million
for thirty consecutive days during the six months ending each August 31.
Currently, the margin on the revolving loan facility is 0.5% and may be
decreased by up to 0.25% and increased by up to 0.4% depending on the Company's
Debt Ratio. In addition, the Company pays a facility fee on the revolving loan
commitments. Currently, the facility fee is 0.25% and may be reduced or
increased by 0.1% subject to the Company's Debt Ratio.
Each of the Company's principal operating subsidiaries has guaranteed,
jointly and severally, the Company's obligations under the Credit Agreement. The
Syndicate Banks have been given security interests in substantially all of the
assets of the Company and its subsidiaries. The Company and its subsidiaries are
subject to customary secured lending covenants including those restricting
additional liens, the incurrence of additional indebtedness, the sale of assets,
the payment of dividends, transactions with affiliates and the making of certain
investments. The primary financial covenants require the maintenance of a Debt
Ratio, a senior debt coverage ratio, a fixed charge ratio and an interest
coverage ratio. Among the most restrictive covenants contained in the Credit
Agreement is the requirement to maintain a fixed charge ratio of not less than
1.0 at the last day of each fiscal quarter for the most recent four quarters.
<PAGE>
Page 14
As of December 22, 1997, under the Credit Agreement, the Company had
outstanding term loans of $140.0 million bearing interest at 6.7%, $116.0
million of revolving loans bearing interest at 6.4%, undrawn revolving letters
of credit of $7.2 million and $61.8 million available to be drawn in revolving
loans.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported under Item 3 in the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1997, which is incorporated herein
by reference, the Company was involved in an investigation in the State of New
Jersey with respect to regulatory trade practices in the beverage alcohol
industry. Effective October 14, 1997, the Company entered into a Consent Order
with the State of New Jersey to conclude the investigation with respect to the
Company. The Company's Consent Order fully resolves the matter without any
material effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits located on Page 19 of this Report.
(b) No Reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended November 30, 1997.
<PAGE>
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANANDAIGUA BRANDS, INC.
Dated: December 22, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Vice President,
Corporate Reporting and Controller
Dated: December 22, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Senior Vice
President and Chief Financial
Officer
(Principal Financial Officer and
Principal Accounting Officer)
SUBSIDIARIES
BATAVIA WINE CELLARS, INC.
Dated: December 22, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: December 22, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
CANANDAIGUA WINE COMPANY, INC.
Dated: December 22, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: December 22, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 16
CANANDAIGUA EUROPE LIMITED
Dated: December 22, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: December 22, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
ROBERTS TRADING CORP.
Dated: December 22, 1997 By: /s/ Thomas F. Howe
----------------------------------
Thomas F. Howe, Controller
Dated: December 22, 1997 By: /s/ Thomas S. Summer
----------------------------------
Thomas S. Summer, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
BARTON INCORPORATED
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, President and
Chief Operating Officer
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS, LTD.
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 17
BARTON BEERS, LTD.
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS OF CALIFORNIA, INC.
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON BRANDS OF GEORGIA, INC.
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
BARTON DISTILLERS IMPORT CORP.
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 18
BARTON FINANCIAL CORPORATION
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, President and
Secretary
Dated: December 22, 1997 By: /s/ Charles T. Schlau
----------------------------------
Charles T. Schlau, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
STEVENS POINT BEVERAGE CO.
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
MONARCH IMPORT COMPANY
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
THE VIKING DISTILLERY, INC.
Dated: December 22, 1997 By: /s/ Alexander L. Berk
----------------------------------
Alexander L. Berk, Executive Vice
President
Dated: December 22, 1997 By: /s/ Raymond E. Powers
----------------------------------
Raymond E. Powers, Executive Vice
President, Treasurer and Assistant
Secretary
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Page 19
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
Not applicable.
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1(a) Certificate of Amendment of the Certificate of Incorporation of
Canandaigua Wine Company, Inc. (now known as Canandaigua Brands, Inc.,
hereinafter in this Index to Exhibits, the "Company") (filed as Exhibit
3.1(a) to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1997 and incorporated herein by reference).
3.1(b) 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
August 31, 1997 and incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
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 The Chase Manhattan Bank (as successor to 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 The Chase Manhattan Bank (as
successor to 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 The Chase Manhattan Bank (as successor to 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>
Page 20
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) MATERIAL CONTRACTS.
10.1 Amendment Number 5 to the 1989 Employee Stock Purchase Plan of the
Company (filed herewith).
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(27) FINANCIAL DATA SCHEDULE.
Financial Data Schedule (filed herewith).
(99) ADDITIONAL EXHIBITS.
Not applicable.
EXHIBIT 10.1
------------
AMENDMENT NUMBER 5
TO THE
CANANDAIGUA WINE COMPANY, INC.
1989 EMPLOYEE STOCK PURCHASE PLAN
This Amendment Number 5 to the Canandaigua Wine Company, Inc. 1989 Employee
Stock Purchase Plan (the "Plan") was approved pursuant to Paragraph 20 of the
Plan by the Board of Directors of Canandaigua Brands, Inc. (f/k/a Canandaigua
Wine Company, Inc., the "Company"). Capitalized terms used herein which are not
otherwise defined shall have the meanings ascribed to them in the Plan.
1. NAME. The name of the Plan is hereby changed to "Canandaigua Brands,
Inc. 1989 Employee Stock Purchase Plan," and all references in the Plan to
"Canandaigua Wine Company, Inc." are hereby replaced by references to
"Canandaigua Brands, Inc."
2. DEFINITION OF COMMITTEE. Paragraph 2 of the Plan, dealing with the
administration of the Plan and previously amended by Amendment No. 3 to the
Plan, is hereby amended and restated to read in its entirety as follows:
2. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company as it
may be constituted from time to time (the "Committee"). Subject to the
express provisions of the Plan and to such instructions and
limitations as the Board of Directors may establish from time to time,
the Committee shall have the authority to prescribe, amend and rescind
rules and regulations relating to the Plan. The Committee may
interpret the Plan and may correct any defect or supply any omission
or reconcile any inconsistency in the Plan to the extent necessary for
the effective operation of the Plan. Any action taken by the Committee
on the matters referred to in this paragraph shall be conclusive.
In witness whereof, Canandaigua Brands, Inc. has caused this instrument to
be executed as of November 26, 1997.
CANANDAIGUA BRANDS, INC.
By: /s/ Richard Sands
------------------------
Richard Sands, President
EXHIBIT 11
----------
<TABLE>
CANANDAIGUA BRANDS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands, except per share data)
(unaudited)
<CAPTION>
For the Nine Months Ended November 30,
----------------------------------------------------
1997 1996
---------------------- ----------------------
Fully Fully
Net income per common and common equivalent share: Primary Diluted Primary Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income available to common and common equivalent
shares $40,022 $40,022 $21,753 $21,753
Adjustments -- -- -- --
------- ------- ------- -------
Net income available to common and common equivalent
shares $40,022 $40,022 $21,753 $21,753
======= ======= ======= =======
Shares:
Weighted average common shares outstanding 18,668 18,668 19,482 19,482
Adjustments:
(1) Assumed exercise of incentive stock options 656 841 363 363
(2) Assumed exercise of stock options -- 3 20 20
------- ------- ------- -------
Weighted average common and common equivalent
shares outstanding 19,324 19,512 19,865 19,865
======= ======= ======= =======
Net income per common and common equivalent share $ 2.07 $ 2.05 $ 1.10 $ 1.10
======= ======= ======= =======
For the Three Months Ended November 30,
----------------------------------------------------
1997 1996
---------------------- ----------------------
Fully Fully
Net income per common and common equivalent share: Primary Diluted Primary Diluted
------- ------- ------- -------
Net income available to common and common equivalent
shares $17,611 $17,611 $ 8,311 $ 8,311
Adjustments -- -- -- --
------- ------- ------- -------
Net income available to common and common equivalent
shares $17,611 $17,611 $ 8,311 $ 8,311
======= ======= ======= =======
Shares:
Weighted average common shares outstanding 18,676 18,676 19,337 19,337
Adjustments:
(1) Assumed exercise of incentive stock options 866 884 275 431
(2) Assumed exercise of stock options 2 3 6 11
------- ------- ------- -------
Weighted average common and common equivalent
shares outstanding 19,544 19,563 19,618 19,779
======= ======= ======= =======
Net income per common and common equivalent share $ 0.90 $ 0.90 $ 0.42 $ 0.42
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's November 30, 1997 Form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000016918
<NAME> CANANDAIGUA BRANDS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 2,298
<SECURITIES> 0
<RECEIVABLES> 184,992
<ALLOWANCES> 0
<INVENTORY> 419,392
<CURRENT-ASSETS> 625,977
<PP&E> 350,183
<DEPRECIATION> 108,802
<TOTAL-ASSETS> 1,131,513
<CURRENT-LIABILITIES> 384,978
<BONDS> 275,300
0
0
<COMMON> 215
<OTHER-SE> 398,463
<TOTAL-LIABILITY-AND-EQUITY> 1,131,513
<SALES> 930,238
<TOTAL-REVENUES> 930,238
<CGS> 666,747
<TOTAL-COSTS> 838,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,885
<INCOME-PRETAX> 67,834
<INCOME-TAX> 27,812
<INCOME-CONTINUING> 40,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,022
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.05
</TABLE>
