01—Abstract
Summary
Summary of the 10-K filed June 1, 1999. Cited figures are marked; the original filing is the authoritative source.
Canandaigua Brands, Inc. (now Constellation Brands, Inc.) reported net sales of $1,497.3 milliona for fiscal 1999 (year ended February 28, 1999), up $284.6 million, or 23.5%, from $1,212.8 million in fiscal 1998.
The increase was driven largely by the December 1, 1998 Matthew Clark acquisition, which contributed $158.8 millionb in net sales since acquisition, and by Barton's beer sales, which rose 27.1% to $478.6 million. Operating income increased 30.2% to $145.9 million, and net income rose 7.1% to $50.5 million, or $2.69 per diluted share. Net income was reduced by an $11.4 million after-tax extraordinary charge tied to replacing the bank credit facility.
The balance sheet expanded significantly. Total assets rose to $1.79 billionc from $1.09 billion, and long-term debt increased to $831.7 million from $309.2 million. Total debt outstanding was $925.4 million, and the ratio of total debt to total capitalization rose to 68.0% from 50.0%.
The company funded the Matthew Clark purchase with credit facility borrowings and issued $200.0 milliond of 8 1/2% Senior Subordinated Notes in March 1999 to fund the April 1999 Black Velvet Canadian whisky acquisition for $185.5 million. The company also changed its inventory method from LIFO to FIFO, with prior periods restated. The filing also describes pending acquisitions of Simi Winery and Franciscan Estates, both expected to close in the second quarter of fiscal 2000 and to be financed through the bank credit facility.
The company stated that the Matthew Clark and Black Velvet acquisitions are expected to have a material impact on future results of operations. Management reported Year 2000 remediation at approximately 75% for information technology systems and 64% for non-information technology systems, with testing expected to be completed by September 1999.
02—Key points
Key Highlights
- Net sales rose 23.5% to $1,497.3 million in fiscal 1999, with the Matthew Clark acquisition contributing $158.8 million since December 1, 1998.
- Barton beer net sales increased 27.1% to $478.6 million, led by Barton's Mexican beer portfolio.
- Operating income increased 30.2% to $145.9 million; gross margin improved to 29.9% of net sales from 28.3%.
- Net income increased 7.1% to $50.5 million, or $2.69 per diluted share, after an $11.4 million after-tax extraordinary charge for bank credit facility replacement.
- Total debt rose to $925.4 million, and the ratio of total debt to total capitalization increased to 68.0% from 50.0%.
- Total assets nearly doubled to $1.79 billion from $1.09 billion, reflecting the Matthew Clark acquisition.
- Pending Simi Winery and Franciscan Estates acquisitions are expected to close in the second quarter of fiscal 2000 and be financed through the bank credit facility.
03—Questions
Frequently Asked Questions
What drove the increase in net sales in fiscal 1999?
Net sales increased $284.6 million, or 23.5%, to $1,497.3 million. The filing attributes the increase to the Matthew Clark acquisition, which contributed $158.8 million since December 1, 1998, and to a $96.8 million, or 17.0%, increase in Barton net sales, primarily from beer brands. Canandaigua Wine net sales rose 4.2% to $669.5 million, driven by new products Arbor Mist and Mystic Cliffs.
How did the company's debt position change?
Total debt outstanding was $925.4 million at February 28, 1999, an increase of $500.2 million from February 28, 1998. Long-term debt was $831.7 million. The ratio of total debt to total capitalization increased to 68.0% from 50.0%. The company issued $200.0 million of 8 1/2% Senior Subordinated Notes due March 2009 to fund the Black Velvet acquisition.
What acquisitions did the company complete or announce?
The company acquired control of Matthew Clark plc on December 1, 1998, for a purchase price of approximately $475.0 million, net of cash acquired. On April 9, 1999, it acquired Black Velvet and related Canadian whisky brands from Diageo affiliates for approximately $185.5 million. It also entered agreements to acquire Simi Winery and Franciscan Estates, which the filing says are expected to close in the second quarter of fiscal 2000.
Does the company pay dividends?
No. The company's policy is to retain all of its earnings to finance the development and expansion of its business, and it has not paid any cash dividends since its initial public offering in 1973. Its bank credit agreement and the indentures for its senior subordinated notes restrict the payment of cash dividends.
What were the company's cash flows in fiscal 1999?
Net cash provided by operating activities was $107.3 million. Net cash used in investing activities was $382.4 million, primarily $332.2 million net cash paid for the Matthew Clark acquisition and $49.9 million of capital expenditures. Net cash provided by financing activities was $301.0 million, primarily from $635.1 million of proceeds from long-term debt issuance.
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