UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 2004
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CONSTELLATION BRANDS, INC.
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(Exact name of registrant as specified in its charter)
001-08495
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(Commission File Number)
Delaware 16-0716709
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(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
370 Woodcliff Drive, Suite 300, Fairport, New York 14450
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(Address of principal executive offices) (Zip Code)
(585) 218-3600
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) The following exhibit is furnished as part of this Form 8-K.
No. Description
---- -----------
99.1 Press Release of Constellation Brands, Inc. (the "Company"), dated
June 30, 2004.
ITEM 9. REGULATION FD DISCLOSURE.
On June 30, 2004, Constellation Brands, Inc. (the "Company"), a Delaware
corporation, issued a press release (the "release"), a copy of which is attached
hereto as Exhibit 99.1 and is incorporated herein by reference.
The information included in this Form 8-K, including the press release
attached as Exhibit 99.1, is incorporated by reference into this Item 9 in
satisfaction of the public disclosure requirements of Regulation FD. This
information is "furnished" and not "filed" for purposes of Section 18 of the
Securities and Exchange Act of 1934, or otherwise subject to the liabilities of
that section. It may only be incorporated by reference in another filing under
the Securities Exchange Act of 1934 or the Securities Act of 1933 only if and to
the extent such subsequent filing specifically references the information
incorporated by reference herein.
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On June 30, 2004, the Company issued a press release (the "release")
announcing its results of operations and financial condition for the first
quarter ended as of May 31, 2004. A copy of the release is attached hereto
as Exhibit 99.1 and incorporated herein by reference. The projections
constituting the guidance included in the release involve risks and
uncertainties, the outcome of which cannot be foreseen at this time and,
therefore, actual results may vary materially from these forecasts. In this
regard, see the information included in the release under the caption
"Forward-Looking Statements."
The information in the release and in this Item 12 is "furnished" and not
"filed" for purposes of Section 18 of the Securities and Exchange Act of 1934,
or otherwise subject to the liabilities of that section. Such information may
only be incorporated by reference in another filing under the Securities
Exchange Act of 1934 or the Securities Act of 1933 only if and to the extent
such subsequent filing specifically references such information.
The release contains non-GAAP financial measures; in the release these are
referred to as "comparable" or "pro forma" measures. For purposes of Regulation
G, a non-GAAP financial measure is a numerical measure of a registrant's
historical or future financial performance, financial position or cash flows
that excludes amounts, or is subject to adjustments that have the effect of
excluding amounts, that are included in the most directly comparable measure
calculated and presented in accordance with GAAP in the statement of income,
balance sheet or statement of cash flows (or equivalent statements) of the
issuer; or includes amounts, or is subject to adjustments that have the effect
of including amounts, that are excluded from the most directly comparable
measure so calculated and presented. In this regard, GAAP refers to generally
accepted accounting principles in the United States. Pursuant to the
requirements of Regulation G, the Company has provided reconciliations within
the release of the non-GAAP financial measures to the most directly comparable
GAAP financial measures.
Comparable measures are provided because management uses this information
in evaluating the results of the continuing operations of the Company and in
internal goal setting. In addition, the Company believes this information
provides investors a better insight on underlying business trends and results in
order to evaluate year over year financial performance. As such, an increase in
cost of goods sold resulting from the flow through of inventory step-up
associated with the acquisition of BRL Hardy Limited (now known as Hardy Wine
Company Limited) ("Hardy"), financing costs, the imputed interest charge
associated with the Hardy acquisition, restructuring and related charges
(including exiting the United States commodity concentrate product line) and
gains on changes in fair value of derivative instruments are excluded from
comparable results. Similarly, the Company believes that pro forma information
including Hardy sales information in the year ago period set forth in the
release provides investors with better insight on underlying business trends and
results in order to evaluate year over year financial performance.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
CONSTELLATION BRANDS, INC.
Dated: June 30, 2004 By: /s/ Thomas S. Summer
--------------------------------
Thomas S. Summer, Executive Vice
President and Chief Financial
Officer
INDEX TO EXHIBITS
(1) UNDERWRITING AGREEMENT
Not Applicable.
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION
Not Applicable.
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
Not Applicable.
(16) LETTER RE CHANGE IN CERTIFYING ACCOUNTANT
Not Applicable.
(17) LETTER RE DIRECTOR RESIGNATION
Not Applicable.
(20) OTHER DOCUMENTS OR STATEMENTS TO SECURITY HOLDERS
Not Applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL
Not Applicable.
(24) POWER OF ATTORNEY
Not Applicable.
(99) ADDITIONAL EXHIBITS
99.1 Press Release dated June 30, 2004.
[LOGO] CONSTELLATION
NEWS RELEASE CONTACTS:
Media Relations:
Philippa Dworkin - 585-218-3733
Mike Martin - 585-218-3669
Investor Relations:
Mark Maring - 585-218-3668
Lisa Schnorr - 585-218-3677
CONSTELLATION'S STRONG BEER & SPIRITS SALES RESULT IN HIGHER
THAN EXPECTED FIRST QUARTER EARNINGS PER SHARE
COMPANY RAISES FULL-YEAR EARNINGS PER SHARE GUIDANCE
FAIRPORT, N.Y., JUNE 30, 2004 - Constellation Brands, Inc. (NYSE: STZ, ASX:
CBR), a leading international producer and marketer of beverage alcohol brands,
reported record net sales of $927 million, a 20 percent increase, for its first
quarter ended May 31, 2004. Pro forma net sales for the quarter, which include
$31 million of sales from Hardy for March 2003, increased 15 percent driven by
growth across all categories - imported beer, spirits, wine and the U.K.
wholesale business. Currency contributed six percent of the increase.
"Our first quarter results represent a tremendous start to the new year and
continue to demonstrate the strength of our strategy of breadth and scale
leading to profitable growth," said Chairman and Chief Executive Officer Richard
Sands. "Our recent beer price increase was well received in all channels
resulting in a quicker volume rebound than we anticipated and our spirits
business posted another quarter of sales growth that exceeded our expectations.
Our wine business continued to experience healthy growth as evidenced by strong
consumer purchases in all our major markets. With these strong results we are
raising our full year earnings per share estimates."
Net income as reported under generally accepted accounting principles
("reported") for first quarter increased 31 percent to $51 million and reported
diluted earnings per share increased 10 percent to $0.45. First quarter 2005
reported results include restructuring and related charges and net unusual costs
of $8 million after tax, or $0.07 per
2
share. First quarter 2004 reported results also include restructuring and
related charges and net unusual costs of $8 million after tax, or $0.08 per
share. Net income on a comparable basis, excluding the restructuring and
related charges and net unusual costs, increased 27 percent to $60 million and
comparable diluted earnings per share increased six percent to reach $0.52 per
share. Earnings per share growth was negatively impacted by additional shares
outstanding primarily as a result of the company's equity offerings in July 2003
which paid down debt incurred to partially finance the Hardy acquisition.
Net income and diluted earnings per share on a comparable basis exclude
restructuring and related charges and net unusual costs. The company discusses
results on a comparable basis in order to give investors better insight on
underlying business trends from continuing operations. A table reconciling
these measures and other related financial measures to reported results is
included in this release. For a detailed discussion of these items, please see
the section "Items Affecting Comparability" following the financial statements.
The company's measure of segment profitability excludes restructuring and
related charges and net unusual costs, which is consistent with the measure used
by management to evaluate results.
CONSTELLATION BEERS AND SPIRITS RESULTS
Net sales for the quarter grew 14 percent to reach $316 million on both
strong beer and spirits growth. Beer sales increased 14 percent driven by both
pricing and volume gains on Corona Extra, Corona Light, Modelo Especial,
Pacifico and Negra Modelo. The company's beer volumes rebounded quicker than
expected following a planned price increase to wholesalers on its Mexican beers,
which began to take effect in January 2004 and resulted in strong wholesaler
demand prior to the price increase.
A seven percent increase in branded spirits sales and a sharp increase in
production services sales resulted in total spirits sales improving 13 percent.
The seven percent rise in branded sales was driven by Black Velvet Canadian
Whisky, Montezuma Tequila, Fleischmann and Barton vodkas, the 99 Cordials range
and Chi-Chi's prepared cocktails.
Operating income for Constellation Beers and Spirits grew 13 percent to
reach $68 million for the first quarter due primarily to higher sales. Operating
margins remained relatively even as increased gross profit margins were offset
by increases in advertising, marketing and general expenses to support growth
initiatives.
3
CONSTELLATION WINES RESULTS
With growth in branded wines and the U.K. wholesale business, net sales for
first quarter fiscal 2005 increased 23 percent to $611 million, including an
eight percent benefit from currency.
Branded wine sales increased 17 percent to reach $364 million, primarily
due to an additional month of sales from the Hardy acquisition and a five
percent benefit from currency. Pro forma net sales of branded wine, which
include $27 million of sales from Hardy for March 2003, increased eight percent
for the quarter, including six percent from currency. Consumer purchases
remained healthy across the company's wine categories and geographies, and wine
shipments were strong in the U.K. and Australia. In the U.S., sales to
retailers and consumer purchases exceeded company shipments.
Wholesale and other sales increased 34 percent driven by the U.K. wholesale
business, which added new accounts and increased sales in existing accounts.
Nearly half this increase was due to the benefit of currency.
Operating income for Constellation Wines in first quarter fiscal 2005
increased 11 percent to reach $68 million. Operating margins were 11.1 percent
in the quarter versus 12.3 percent in the prior year. The decline in margins
was due to a greater volume of sales of lower margin products, and increased
advertising spend.
In summarizing the first quarter results Sands concluded, "With a broad
portfolio of beverage alcohol products, strong global routes-to-market and
independent businesses managing this wide breadth and scale within their
geographies, we are able to take advantage of different market forces to
consistently grow the business and deliver shareholder value."
OUTLOOK
The following table sets forth management's current diluted earnings per
share expectations both on a reported basis and comparable basis for the second
quarter ending August 31, 2004 and fiscal year ending February 28, 2005. The
table also includes actual diluted earnings per share both on a reported basis
and comparable basis for the same periods a year ago. A reconciliation of
reported information to comparable information is included in this media
release.
4
CONSTELLATION BRANDS SECOND QUARTER AND FISCAL YEAR 2005
DILUTED EARNINGS PER SHARE OUTLOOK
REPORTED BASIS COMPARABLE BASIS
----------------------------- ------------------------------
FY05 Estimate FY04 Actual FY05 Estimate FY04 Actual
------------- ------------ ------------- ------------
Second Quarter
Ending August 31 $0.66 - $0.69 $0.34 $0.68 - $0.71 $0.64
Full Year Ending
February 28/29 $2.42 - $2.52 $2.06 $2.57 - $2.67 $2.49
ABOUT CONSTELLATION
Constellation Brands, Inc. is a leading international producer and marketer
of beverage alcohol brands with a broad portfolio across the wine, spirits and
imported beer categories. Well-known brands in Constellation's portfolio
include: Corona Extra, Pacifico, St. Pauli Girl, Black Velvet, Fleischmann's,
Mr. Boston, Paul Masson Grande Amber Brandy, Franciscan Oakville Estate,
Estancia, Simi, Ravenswood, Blackstone, Banrock Station, Hardys, Nobilo, Alice
White, Vendange, Almaden, Arbor Mist, Stowells and Blackthorn.
QUARTERLY CONFERENCE CALL
A conference call to discuss first quarter fiscal 2005 results will be
hosted by Chairman and CEO Richard Sands and Executive Vice President and Chief
Financial Officer Tom Summer on Wednesday, June 30, 2004 at 5:00 p.m. (Eastern).
The conference call can be accessed by dialing 412-858-4600 beginning 10 minutes
prior to the start of the call. A live listen-only web cast of the conference
call, together with a copy of this press release (including the attachments) and
other financial information that may be discussed in the call are available on
the Internet at Constellation's web site: www.cbrands.com under "Investors."
5
FORWARD-LOOKING STATEMENTS
The statements made under the heading Outlook (collectively, the
"Outlook"), as well as all other statements set forth in this press release
which are not historical facts, are forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those set forth in or implied by the forward-looking statements.
During the quarter, Constellation may reiterate the estimates set forth
above under the heading Outlook. Prior to the start of the company's quiet
period, beginning August 18, the public can continue to rely on the Outlook as
still being Constellation's current expectations on the matters covered, unless
Constellation publishes a notice stating otherwise.
Beginning August 18, 2004, Constellation will observe a "quiet period"
during which the Outlook no longer constitutes the company's current
expectations. During the quiet period, the Outlook should be considered to be
historical, speaking as of prior to the quiet period only, and not subject to
update by the company.
The company's forward-looking statements are based on management's current
expectations and, unless otherwise noted, do not take into account the impact of
any future acquisition, merger or any other business combination, divestiture or
financing that may be completed after the date of this release. Any projections
of future results of operations, and in particular, (i) the company's estimated
diluted earnings per share on a reported basis for second quarter 2005 and
fiscal 2005, and (ii) the company's estimated diluted earnings per share on a
comparable basis for second quarter 2005 and fiscal 2005, should not be
construed in any manner as a guarantee that such results will in fact occur. In
addition to the risks and uncertainties of ordinary business operations, the
forward-looking statements of the company contained in this press release are
also subject to the following risks and uncertainties: the company achieving
certain sales projections and meeting certain cost targets; wholesalers and
retailers may give higher priority to products of the company's competitors; raw
material supply, production or shipment difficulties could adversely affect the
company's ability to supply its customers; increased competitive activities in
the form of pricing, advertising and promotions could adversely impact consumer
demand for the company's products and/or result in higher than expected selling,
general and administrative expenses; a general decline in alcohol consumption;
increases in excise and other taxes on beverage alcohol products; and changes in
foreign currency exchange rates. For additional information about risks and
uncertainties that could adversely affect the company's forward-looking
statements, please refer to the company's filings with the Securities and
Exchange Commission, including its Annual Report on Form 10-K for the fiscal
year ended February 29, 2004.
6
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
May 31, 2004 February 29, 2004
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ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 11,443 $ 37,136
Accounts receivable, net 711,847 635,910
Inventories, net 1,315,356 1,261,378
Prepaid expenses and other 141,589 137,047
------------ ------------
Total current assets 2,180,235 2,071,471
PROPERTY, PLANT AND EQUIPMENT, net 1,060,706 1,097,362
GOODWILL 1,501,912 1,540,637
INTANGIBLE ASSETS, net 723,887 744,978
OTHER ASSETS 82,334 104,225
------------ ------------
Total assets $ 5,549,074 $ 5,558,673
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 243,552 $ 1,792
Current maturities of long-term debt 108,927 267,245
Accounts payable 361,506 270,291
Accrued excise taxes 55,377 48,465
Other accrued expenses and liabilities 397,979 442,009
------------ ------------
Total current liabilities 1,167,341 1,029,802
LONG-TERM DEBT, less current maturities 1,736,159 1,778,853
DEFERRED INCOME TAXES 178,258 187,410
OTHER LIABILITIES 156,633 184,989
STOCKHOLDERS' EQUITY 2,310,683 2,377,619
------------ ------------
Total liabilities and stockholders' equity $ 5,549,074 $ 5,558,673
============ ============
7
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
ON A REPORTED BASIS
(in thousands, except per share data)
For the Three For the Three
Months Ended Months Ended Percent
May 31, 2004 May 31, 2003 Change
------------- ------------- -------
Sales $ 1,174,315 $ 990,240 19%
Excise taxes (247,010) (217,438) 14%
------------- -------------
Net sales 927,305 772,802 20%
Cost of product sold (676,843) (563,717) 20%
------------- -------------
Gross profit 250,462 209,085 20%
Selling, general and administrative expenses (138,428) (107,802) 28%
Restructuring and related charges (1,613) (2,316) -30%
------------- -------------
Operating income 110,421 98,967 12%
Gain on change in fair value of derivative instruments - 1,181 -100%
Equity in earnings of equity method investees 62 328 -81%
Interest expense, net (30,281) (39,243) -23%
------------- -------------
Income before income taxes 80,202 61,233 31%
Provision for income taxes (28,873) (22,044) 31%
------------ -------------
Net income 51,329 39,189 31%
Dividends on preferred stock (2,451) - N/A
------------- -------------
Income available to common stockholders $ 48,878 $ 39,189 25%
============= =============
Earnings per common share:
Basic $ 0.46 $ 0.42 10%
Diluted $ 0.45 $ 0.41 10%
Weighted average common shares outstanding:
Basic 106,778 92,880 15%
Diluted 115,062 95,661 20%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 236,896 $ 207,264 14%
Spirits 79,291 70,205 13%
------------- -------------
Net sales $ 316,187 $ 277,469 14%
Constellation Wines
Branded wine $ 363,883 $ 310,480 17%
Wholesale and other 247,235 184,853 34%
------------- -------------
Net sales $ 611,118 $ 495,333 23%
------------- -------------
Consolidated net sales $ 927,305 $ 772,802 20%
============= =============
Operating income:
Constellation Beers and Spirits $ 67,852 $ 59,883 13%
Constellation Wines 67,659 61,023 11%
Corporate Operations and Other (11,869) (10,071) 18%
Restructuring and related charges and unusual costs (a) (13,221) (11,868) 11%
------------- -------------
Consolidated operating income $ 110,421 $ 98,967 12%
============= =============
(a) Restructuring and related charges and unusual costs for First Quarter 2005
include financing costs of $10,313, restructuring and related charges of
$1,613, and the flow through of inventory step-up associated with the Hardy
acquisition of $1,295. Restructuring and related charges and unusual costs
for First Quarter 2004 include the flow through of inventory step-up
associated with the Hardy acquisition of $5,517, financing costs of $4,035
and restructuring and related charges of $2,316.
8
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three For the Three
Months Ended Months Ended
May 31, 2004 May 31, 2003
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 51,329 $ 39,189
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation of property, plant and equipment 21,194 17,828
Deferred tax provision 6,259 4,650
Amortization of intangible and other assets 3,061 5,966
Noncash portion of loss on extinguishment of debt 1,799 800
Loss (gain) on sale of assets 693 (2,003)
Stock-based compensation expense 25 158
Amortization of discount on long-term debt 13 20
Equity in earnings of equity method investees (62) (328)
Gain on change in fair value of derivative instruments - (1,181)
Change in operating assets and liabilities, net of
effects from purchases of businesses:
Accounts receivable, net (85,132) (39,765)
Inventories, net (113,885) (15,169)
Prepaid expenses and other current assets 12,566 15,571
Accounts payable 112,745 (28,400)
Accrued excise taxes 7,449 5,461
Other accrued expenses and liabilities (56,971) (9,494)
Other assets and liabilities, net (7,541) 334
------------- -------------
Total adjustments (97,787) (45,552)
------------- -------------
Net cash used in operating activities (46,458) (6,363)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (22,113) (18,091)
Payment of accrued earn-out amount (1,338) (978)
Proceeds from sale of assets 445 4,896
Purchases of businesses, net of cash acquired - (1,067,694)
------------- -------------
Net cash used in investing activities (23,006) (1,081,867)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable 265,891 15,735
Exercise of employee stock options 5,814 7,571
Proceeds from employee stock purchases 1 -
Principal payments of long-term debt (217,204) (492,701)
Payment of preferred stock dividends (2,451) -
Proceeds from issuance of long-term debt - 1,600,000
Payment of issuance costs of long-term debt - (32,547)
------------- -------------
Net cash provided by financing activities 52,051 1,098,058
------------- -------------
Effect of exchange rate changes on cash and cash investments (8,280) 22,370
------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS (25,693) 32,198
CASH AND CASH INVESTMENTS, beginning of period 37,136 13,810
------------- -------------
CASH AND CASH INVESTMENTS, end of period $ 11,443 $ 46,008
============= =============
9
RECONCILIATION OF REPORTED AND COMPARABLE HISTORICAL INFORMATION
(in thousands, except per share data)
Comparable measures are provided because management uses this information in
evaluating the results of the continuing operations of the Company and internal
goal setting. In addition, the Company believes this information provides
investors better insight on underlying business trends and results in order to
evaluate year over year financial performance. As such, an increase in cost of
goods sold resulting from the flow through of inventory step-up associated with
the Hardy acquisition, financing costs and the imputed interest charge
associated with the Hardy acquisition, restructuring and related charges
(including exiting the U.S. commodity concentrate product line) and gains on
changes in fair value of derivative instruments are excluded from comparable
results. You may also visit the Company's website at www.cbrands.com under
Investors/Financial Information/Financial Reports for a historical
reconciliation between reported and comparable information.
For the Three For the Three
Months Ended Months Ended
May 31, 2004 Margin May 31, 2003 Margin
------------ ------ ------------ ------
Reported net sales $ 927,305 100.0% $ 772,802 100.0%
============ ============
Reported gross profit $ 250,462 27.0% $ 209,085 27.1%
Inventory step-up 1,295 0.1% 5,517 0.7%
------------ ------------
Comparable gross profit $ 251,757 27.1% $ 214,602 27.8%
============ ============
Reported operating income $ 110,421 11.9% $ 98,967 12.8%
Financing costs 10,313 1.1% 4,035 0.5%
Restructuring and related charges 1,613 0.2% 2,316 0.3%
Inventory step-up 1,295 0.1% 5,517 0.7%
------------ ------------
Comparable operating income $ 123,642 13.3% $ 110,835 14.3%
============ ============
Reported net income $ 51,329 5.5% $ 39,189 5.1%
Financing costs 6,601 0.7% 2,583 0.3%
Restructuring and related charges 1,032 0.1% 1,482 0.2%
Inventory step-up 829 0.1% 3,531 0.5%
Imputed interest charge - 0.0% 1,061 0.1%
Gain on derivative instruments - 0.0% (756) -0.1%
------------ ------------
Comparable net income $ 59,791 6.4% $ 47,090 6.1%
============ ============
Reported diluted earnings per share $ 0.45 $ 0.41
Financing costs 0.06 0.03
Restructuring and related charges 0.01 0.02
Inventory step-up 0.01 0.04
Imputed interest charge - 0.01
Gain on derivative instruments - (0.01)
------------ ------------
Comparable diluted earnings per share(1) $ 0.52 $ 0.49
============ ============
(1) May not sum due to rounding as each item is computed independently.
10
RECONCILIATION OF REPORTED AND PRO FORMA NET SALES
(in thousands)
Pro forma net sales are provided because management believes this information
provides investors better insight on underlying business trends and results in
order to evaluate year over year financial performance. As such, pro forma net
sales for the three months ended May 31, 2003, present net sales after giving
effect to the Hardy acquisition as if the Company had owned Hardy since March 1,
2003. You may also visit the Company's website at www.cbrands.com under
Investors/Financial Information/Financial Reports for a reconciliation of
reported net sales to pro forma net sales.
For the Three For the Three
Months Ended Months Ended
May 31, 2004 May 31, 2003 Growth
------------- ------------- ------
CONSOLIDATED NET SALES
Reported net sales $ 927,305 $ 772,802 20%
Prior year Hardy sales(2) - 31,000
------------- -------------
Pro forma net sales $ 927,305 $ 803,802 15%
============= =============
BRANDED WINE NET SALES
Reported net sales $ 363,883 $ 310,480 17%
Prior year Hardy sales(2) - 27,000
------------- -------------
Pro forma net sales $ 363,883 $ 337,480 8%
============= =============
(2) For the period March 1, 2003 through March 27, 2003.
RECONCILIATION OF REPORTED AND COMPARABLE DILUTED EARNINGS PER SHARE GUIDANCE
Range for the Quarter Range for the Year
Ending August 31, 2004 Ending February 28, 2005
---------------------------- ----------------------------
Forecasted reported diluted earnings per share $ 0.66 $ 0.69 $ 2.42 $ 2.52
Inventory step-up 0.01 0.01 0.03 0.03
Financing costs - Call of senior notes - - 0.06 0.06
Restructuring and related charges 0.01 0.01 0.06 0.06
------------- ------------- ------------- -------------
Forecasted comparable diluted earnings per share $ 0.68 $ 0.71 $ 2.57 $ 2.67
============= ============= ============= =============
For the For the
Quarter Ended Year Ended
August 31, February 29,
2003 2004
------------- -------------
Reported diluted earnings per share $ 0.34 $ 2.06
Excise tax, duty and other costs - (0.06)
Inventory step-up 0.06 0.13
Concentrate inventory write-down 0.10 0.10
Financing costs 0.03 0.07
Restructuring and related charges 0.10 0.19
Imputed interest charge - 0.01
Gain on derivative instruments - (0.01)
------------- -------------
Comparable diluted earnings per share(1) $ 0.64 $ 2.49
============= =============
(1) May not sum due to rounding as each item is computed independently.
11
ATTACHMENTS TO CONSTELLATION BRANDS FIRST QUARTER
FISCAL 2005 MEDIA RELEASE
ITEMS AFFECTING COMPARABILITY FOR FISCAL 2005
FINANCING COSTS - CALL (REDEMPTION) OF SENIOR NOTES - On February 10, 2004, the
company called its $200,000,000 8.5% senior subordinated notes due 2009 which
were redeemed March 2004. In connection with this redemption, the company
incurred an unusual charge in the first quarter of fiscal 2005 related to the
call premium and the remaining unamortized financing fees associated with the
original issuance of the bonds. The company expects to incur a charge of $0.06
per share for fiscal 2005.
RESTRUCTURING AND RELATED CHARGES - In connection with the further realignment
of business operations within the company's wine division and, as previously
announced in fiscal 2004, exiting the commodity concentrate product line, the
company expects restructuring and related charges of approximately $0.06 per
share for fiscal 2005 ($0.03 for exiting the commodity concentrate product line
and $0.03 for further realignment of business operations).
INVENTORY STEP-UP - The Hardy acquisition resulted in an allocation of purchase
price in excess of book value to certain inventory on hand at the date of
purchase. This allocation of purchase price in excess of book value is referred
to as inventory step-up. The inventory step-up represents an assumed
manufacturing profit attributable to Hardy preacquisition. For inventory
produced and sold after the acquisition date, the related manufacturer's profit
accrues to the company. As a result of final appraisals, the company expects
the flow through of inventory step-up to have a negative impact of approximately
$0.03 per share for fiscal 2005.
ITEMS AFFECTING COMPARABILITY FOR FISCAL 2004
EXCISE TAX, DUTY AND OTHER COSTS - In the fourth quarter of fiscal 2004, the
company recognized a net benefit of $10.4 million related to relief from certain
excise taxes, duty and other costs incurred in prior years. The net $10.4
million is comprised of a $9.2 million increase in net sales, a $2.3 million
reduction in cost of product sold and a $1.1 million increase in SG&A. This had
a positive impact of approximately $0.06 per share for fiscal 2004.
INVENTORY STEP-UP - The flow through of inventory step-up had an impact of
approximately $0.13 per share for fiscal 2004.
CONCENTRATE INVENTORY WRITE-DOWN - The company made a decision to exit the U.S.
commodity concentrate product line - located in Madera, California. The
commodity concentrate product line was facing declining sales and profits and
was not part of the company's core business, beverage alcohol. The company
continues to produce and sell value-added, proprietary products such as
MegaColors. The charge for the write-down of concentrate inventory was $0.10
per share for fiscal 2004. In addition, and related to exiting this product
line, the company expects to record restructuring and related charges of
approximately $0.17 per share, of which $0.14 was recorded in fiscal 2004 and
$0.03 will be recorded in fiscal 2005.
FINANCING COSTS - HARDY ACQUISITION - In connection with the Hardy acquisition,
the company recorded amortization expense for deferred financing costs
associated with noncontinuing financing, primarily related to the bridge loan
agreement. This charge was $0.07 per share for fiscal 2004.
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RESTRUCTURING AND RELATED CHARGES - Restructuring and related charges resulted
from the realignment of business operations in the company's wine division, as
previously announced in the fourth quarter of fiscal 2003, and exiting the
commodity concentrate product line. The company incurred total charges of
approximately $0.19 per share for fiscal 2004 ($0.05 for realignment of
businesses and $0.14 for exiting the commodity concentrate product line).
IMPUTED INTEREST CHARGE - In connection with the Hardy acquisition and in
accordance with purchase accounting, the company was required to take a one-time
imputed interest charge for the time period between when the company obtained
control of Hardy and the date it paid Hardy shareholders. The company incurred a
charge of $0.01 per share for fiscal 2004.
GAIN ON CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS - In connection with the
Hardy acquisition, the company entered into derivative instruments to cap the
cost of the acquisition in U.S. dollars. The company recorded a gain in the
first quarter, which represented the net change in value of the derivative
instruments from the beginning of the first quarter until the date Hardy
shareholders were paid. The company recorded a gain of $0.01 per share for
fiscal 2004.