01—Abstract
Summary
Summary of the 10-K filed November 29, 1995. Cited figures are marked; the original filing is the authoritative source.
Canandaigua Wine Company, Inc. reported fiscal 1995 (year ended August 31, 1995) net sales of $906.5 milliona, up from $629.6 million in fiscal 1994, and net income of $41.0 million, or $2.13 per fully diluted share, versus $11.7 million ($0.74) in fiscal 1994.
Growth was driven largely by the Almaden/Inglenook acquisition, which contributed $234.7 millionb of net sales, along with a 6.0% increase in branded beverage alcohol unit volume, led by imported beer (Corona and other Mexican brands) and varietal table wines. Excluding nonrecurring restructuring expenses, net income was $42.4 million, or $2.20 per fully diluted share. Gross margin declined to 27.9% from 29.0%, partly reflecting higher grape costs expected to pressure fiscal 1996 margins.
The company's balance sheet shows total assets of $785.9 millionc and long-term debt of $198.9 million at August 31, 1995, down from $289.1 million a year earlier, reflecting a November 1994 Class A stock offering of 3 million shares at $33.50 and debt repayment. Following year-end, the company acquired assets of United Distillers Glenmore on September 1, 1995 for approximately $144.3 million in cash, financed by a $155 million increase in its Term Loan facility, which will raise debt levels materially. The filing also discloses that management expects the acquisition to have a material impact on future results.
Investors should note the November 1995 shareholder class actions alleging misleading public statements, filed after the company announced fiscal 1995 results that fell below analyst expectations. The filing states Class A shares fell approximately 38%d and Class B shares fell approximately 30% on November 10, 1995. The company believes the suits are without merit, and it has not paid cash dividends since its 1973 initial public offering.
02—Key points
Key Highlights
- Net sales rose to $906.5 million in fiscal 1995 from $629.6 million in fiscal 1994, including $234.7 million from the Almaden/Inglenook acquisition.
- Net income was $41.0 million ($2.13 fully diluted EPS) versus $11.7 million ($0.74) in fiscal 1994; excluding restructuring charges, net income was $42.4 million ($2.20 per share).
- Gross profit margin fell to 27.9% from 29.0%, and SG&A declined to 17.6% of net sales from 19.3%.
- Corona-led imported beer net sales rose 24.3% to $216.2 million, and varietal table wine net sales rose 20.8% to $128.7 million.
- Long-term debt declined to $198.9 million at August 31, 1995 from $289.1 million, after a November 1994 Class A stock offering of 3 million shares at $33.50.
- The September 1, 1995 UDG Acquisition (about $144.3 million in cash) was financed through a $155 million Term Loan increase and is expected to have a material impact on future results.
- Shareholder class actions were filed in November 1995 after results fell below analyst expectations; Class A stock fell approximately 38% and Class B approximately 30% on November 10, 1995.
03—Questions
Frequently Asked Questions
Why did the company's net sales and net income increase so sharply in fiscal 1995?
Net sales increased $276.9 million, or approximately 44.0%, mainly due to $234.7 million of net sales from products acquired in the Almaden/Inglenook Acquisition, plus an overall $25.8 million increase in Company products and an additional $16.4 million from Vintners' products. Net income rose to $41.0 million from $11.7 million, largely reflecting these acquired sales and lower restructuring charges, though fiscal 1994 also included a $24.0 million restructuring charge.
What is the outlook for profitability in fiscal 1996?
The filing states that the cost of grapes increased significantly for the 1995 harvest and is expected to rise further in the 1996 harvest. Because the company uses LIFO inventory accounting, these higher costs will increase cost of goods sold beginning in the first quarter of fiscal 1996, and gross profit margins for the wine business could be adversely affected. The company is also raising prices on selected branded wine products during fiscal 1996.
How will the UDG Acquisition affect the company's finances?
On September 1, 1995, Barton Incorporated acquired certain assets of United Distillers Glenmore for approximately $144.3 million in cash, subject to adjustment. The company financed it primarily by increasing its Term Loan by $155.0 million, and it expects the acquisition to have a material impact on future results of operations. Pro forma fiscal 1995 net sales including UDG would have been $998.7 million, with pro forma fully diluted EPS of $2.37.
What legal risks did the company disclose?
In November 1995, two purported shareholder class actions were filed in the U.S. District Court for the Southern District of New York under Section 10(b) of the Securities Exchange Act, alleging the company's public documents were materially incomplete and misleading. The complaints seek unspecified damages. Management believes the claims are without merit and intends to defend them vigorously, and cannot determine whether the outcome could have a material adverse effect.
Does the company pay dividends, and what are the restrictions on its debt?
The company's policy is to retain all earnings to finance growth, and it has not paid cash dividends since its 1973 initial public offering. The current bank credit agreement prohibits dividends, and the indenture for its 8 3/4% Senior Subordinated Notes due 2003 restricts them. The Amended Credit Facility also contains financial covenants, including a fixed charges ratio of not less than 1.0 to 1.0.
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