01—Abstract
Summary
Summary of the 10-K filed November 29, 1994. Cited figures are marked; the original filing is the authoritative source.
Canandaigua Wine Company, Inc. (now Constellation Brands, Inc.) reported fiscal 1994 (year ended August 31, 1994) net sales of $629.6 milliona, up from $306.3 million in fiscal 1993, with the increase driven mainly by the Barton, Vintners and Almaden/Inglenook acquisitions.
Net sales on a pro forma basis were $876.4 millionb. Gross profit rose to $182.4 million, and gross margin declined to 29.0% from 29.8%. Net income fell to $11.7 million from $15.6 million, reflecting a $24.0 million pretax ($14.9 million after-tax, or $0.91 per fully diluted share) nonrecurring restructuring charge for consolidating California wineries.
Excluding that charge, the filing states net income increased 71% to $26.6 millionc, or $1.65 per fully diluted share. The company describes itself as the second largest supplier of wines, the fourth largest importer of beers and the eighth largest supplier of distilled spirits in the United States, with over 125 national and regional brands. Its Corona, Almaden and Inglenook brands are highlighted as market leaders.
Total assets were $826.6 milliond at August 31, 1994, up from $355.2 million, and long-term debt was $289.1 million. Stockholders' equity was $204.2 million. Subsequent to year-end, the company completed a public offering of 3,000,000 Class A shares by the company, with net proceeds of approximately $95.4 million, which were used to repay Term Loans under its Credit Facility.
Investors should note the filing's disclosures on the company's grape purchase commitments, where a reserve of approximately $62.7 million was established for estimated losses on firm purchase contracts, and the $28.3 million Barton earn-out payment due December 30, 1994. The company has not paid cash dividends since its 1973 initial public offering, and its credit agreement and note indenture restrict dividend payments. The company also reports a pending dispute with the former Vintners owners over the final net current asset amount, and a New Jersey Attorney General investigation into trade practices in which the company states it does not believe a settlement would be material.
02—Key points
Key Highlights
- Net sales rose to $629.6 million in fiscal 1994 from $306.3 million in fiscal 1993, with the filing attributing the increase primarily to the Barton, Vintners and Almaden/Inglenook acquisitions; pro forma fiscal 1994 net sales were $876.4 million.
- Net income was $11.7 million ($0.74 per primary share) versus $15.6 million in fiscal 1993, after a $14.9 million after-tax restructuring charge ($0.91 per fully diluted share); excluding the charge, net income was $26.6 million, or $1.65 per fully diluted share.
- Gross margin declined to 29.0% from 29.8%, which the filing attributes primarily to including the lower-margin Barton and Vintners operations.
- Total assets grew to $826.6 million from $355.2 million, and long-term debt increased to $289.1 million, reflecting borrowings used for the acquisitions, including $130 million of 8.75% Senior Subordinated Notes due 2003.
- Market position: the company states it holds a 21% share of the U.S. wine market, a 10% share of the imported beer market and a 4% share of the distilled spirits market; Corona is cited as the second largest selling imported beer brand.
- Post-year-end financing: a public offering of 3,000,000 Class A shares by the company (net proceeds approximately $95.4 million) and a $47.0 million Term Loan borrowing were used to reduce Credit Facility indebtedness.
- Restructuring Plan expected to yield net cost savings of approximately $1.7 million in fiscal 1995 and $13.3 million annually beginning in fiscal 1996, with approximately 260 jobs eliminated.
03—Questions
Frequently Asked Questions
Why did net income decline in fiscal 1994 despite a large increase in net sales?
The filing attributes the decline to a $24.0 million pretax nonrecurring restructuring charge ($14.9 million after tax) for consolidating California wineries, along with higher interest expense of $18.4 million, compared with $6.3 million in fiscal 1993, related to acquisition borrowings. Net income was $11.7 million versus $15.6 million in fiscal 1993.
Does the company pay dividends?
No. The filing states the company's policy is to retain all earnings to finance growth, that it has not paid any cash dividends since its 1973 initial public offering, and that its bank credit agreement prohibits and its indenture for the 8 3/4% Senior Subordinated Notes restricts cash dividends.
What are the main financial risks disclosed in the filing?
The filing discloses a $62.7 million reserve for estimated losses on firm grape purchase commitments tied to the Vintners and Almaden/Inglenook acquisitions, a $28.3 million Barton earn-out payment due December 30, 1994 (funded through Revolving Loans), a dispute with former Vintners owners over the final net current asset amount, and Credit Facility covenants that include a fixed charges ratio of at least 1.0 to 1.0. Most of the company's real property is pledged as collateral.
How did the Almaden/Inglenook and Vintners acquisitions change the company's scale?
The company states that the Almaden/Inglenook acquisition, completed August 5, 1994 for $130.6 million in cash plus options, made it the second largest supplier of wines in the United States and the leading grape juice concentrate producer. The Vintners acquisition, completed October 15, 1993 for an aggregate purchase price of $148.9 million, added the Paul Masson and Taylor California Cellars brands.
What legal and regulatory matters are pending?
The New Jersey Attorney General's office is investigating regulatory trade practices in the beverage alcohol industry, including the provision of free goods to retailers; one company employee was arrested in March 1994, and the company has submitted a settlement proposal that it does not believe will be material. Separately, Barton Georgia agreed to a Consent Order with the Georgia Environmental Protection Division involving a stipulated civil penalty of $99,000 and approximately $16,000 of other costs.
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