Diageo Board (DEO)

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Diageo Issues Statement Regarding the New Captain Morgan Rum Facility in the US Virgin Islands

Wednesday, July 01, 2009 19:37ET

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NORWALK, Conn., July 1 /PRNewswire-FirstCall/ -- Diageo, the world's leading spirits, beer and wine company is setting the record straight in light of a Bloomberg story that erroneously stated that Diageo received funds from the Troubled Assets Recovery Program (TARP). Diageo has never sought, and will not receive TARP funds.

The suggestion by Bloomberg that Diageo is receiving TARP funds is false ("Bailout of U.S. Banks Gives British Rum a $2.7 Billion Benefit... The $2.7 billion Diageo tax break in the October bailout bill gives the most financial aid to a non-U.S. company," Bloomberg, June 26, 2009). The public-private initiative that is bringing Captain Morgan to St. Croix is based on cover over, not TARP. Cover over has been the law of the land for more than a half century and the rum cover over extender (which increases cover over from $10.50/gallon to $13.50/gallon) has been reenacted every year by Congress as part of an independent package of tax extenders. Congress has enacted the cover over extender based upon its finding that the US Virgin Islands (USVI) has a continuing need for cover over revenues to promote its economic stability and fiscal autonomy.

Purely as a matter of circumstance, Congress attached the extenders package to the TARP bill last fall. It is clear that the cover over is completely unrelated in any way to either the bailout or TARP money. The suggestion in the Bloomberg article that Diageo somehow benefits from TARP funds is misleading and gives the reader an inaccurate and false impression. Diageo's agreement with the USVI was announced in June 2008 -- well before any TARP legislation was ever discussed on Capitol Hill. Even if this extender had never been introduced or passed, Diageo's agreement with the USVI would still be in tact.

The following overview describes the public-private initiative between the Government of the USVI and Diageo that will build a state-of-the-art distillery in St. Croix to supply rum for the Captain Morgan brand in the US for at least thirty years.

OVERVIEW

Last summer, the USVI and Diageo announced a public-private initiative under which Diageo will construct and operate a state-of-the-art, environmentally sound, high-capacity rum distillation facility in St. Croix that will age and supply all rum used to produce Captain Morgan products for the US for at least thirty years beginning in 2012.

The distillery will provide much-needed economic stimulus for the USVI as a major boost in promoting the Territory's goal to achieve economic stability and fiscal autonomy as it moves from historic budgetary deficit to budgetary surplus. The Agreement was ratified by the US Virgin Islands Legislature in July 2008 after three days of extensive public hearings.

The USVI-Diageo partnership is well-balanced: Diageo commits to manufacture its premium brand, Captain Morgan, on St. Croix for at least 30 years; the operation of Diageo's state-of-the art rum distillery, coupled with more than $6 billion in cover over revenues generated by the new distillery, injects irreplaceable long-term stimulus into the USVI economy; and the USVI provides Diageo with lawfully enacted incentives to promote rum production. Since 1962, the USVI has subsidized local rum production and no new incentive programs were created for this initiative. As with the Territory's current rum producer, the rum cover over law specifically allows the USVI to apply cover over revenues to finance subsidies to attract rum production, but for no other purpose (see 26 U.S.C. 7652).

The rum cover over program -- the economic financing mechanism behind the USVI-Diageo public private partnership -- has been the cornerstone of the US-USVI relationship since Congress enacted the Revised Organic Act more than a half century ago. With the USVI-Diageo Agreement, the USVI finally is making progress toward Congress' long-stated objective that the USVI apply rum cover over revenues to achieve economic stability and fiscal autonomy. Congress, in 1983 and again in 2000, enacted laws vesting exclusive discretion in the USVI legislature to expend rum cover over revenues as it may determine. The USVI-Diageo public-private initiative is grounded in the letter and the spirit of the rum cover over law.

FACTS ABOUT THE INITIATIVE

-- For more than 50 years, the rum cover over has been the primary
financing mechanism thru which the US Government provides funding and
economic development resources to the US territories. The rum cover
over program returns to the two territories excise tax revenue collected
on US sales of Caribbean produced rum.
-- By law, the expenditure of cover over revenues in the USVI is vested
exclusively in the USVI Government.
-- There is no TARP or bailout money involved in the rum cover over
program.
-- The current rum cover over law was enacted in 1954. The extender
provision has been in place since 1993 and has been renewed by Congress
each year since. Although it was circumstantially enacted with the
recently passed TARP bill, the latest cover over extender is totally
unrelated to that measure.
-- The USVI is devoting rum cover over revenues specifically as Congress
directed when it enacted the rum cover over law: to generate a sustained
revenue stream designed to promote economic development.
-- The USVI is the most fiscally challenged of all the US states and/or
territories and the USVI-Diageo initiative will expand an essential
manufacturing base thereby creating a new and irreplaceable revenue
source for the territory.


-- Diageo's 30 year commitment to produce its flagship Captain Morgan
rum in St. Croix is the most significant economic event for the USVI
since the last half century.

ABOUT DIAGEO

Diageo (Dee-AH-Gee-O) is the world's leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, wines, and beer categories. These brands include Johnnie Walker, Guinness, Smirnoff, J&B, Baileys, Cuervo, Tanqueray, Captain Morgan, Crown Royal, Beaulieu Vineyard and Sterling Vineyards wines.

Diageo is a global company, trading in more than 180 countries around the world. The company is listed on both the New York Stock Exchange (DEO) and the London Stock Exchange (DGE). For more information about Diageo, its people, brands, and performance, visit us at Diageo.com. For our global resource that promotes responsible drinking through the sharing of best practice tools, information and initiatives, visit DRINKiQ.com.

Celebrating life, every day, everywhere.

SOURCE Diageo

Contacts:

Zsoka McDonald of Diageo
203-229-4730

Rachel Rosenblatt of FD
212-850-5697


Public Companies Associated with this story:
DEO

Knobias Subject Codes Associated with this story:
Corp Financing Markets/EMERGING Markets/US PIPEs
Product News Sector/US World News

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