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CONSTELLATION
NEWS RELEASE CONTACTS:
Investor Relations:
Mark Maring - 585-218-3668
Media:
Ginny Clark - 585-218-3669
CONSTELLATION REPORTS 32 PERCENT INCREASE IN NET SALES
FOR SECOND QUARTER
EPS at high end of Company guidance driven by strong sales growth
FAIRPORT, NEW YORK, SEPTEMBER 30, 2003 - Constellation Brands, Inc. (NYSE: STZ),
a leading international producer and marketer of beverage alcohol brands, today
reported record net sales for its second quarter ended August 31, 2003. Net
sales increased 32 percent, led by the benefit from the Hardy acquisition,
strong top line performance across all segments of the base business and a
positive two percent impact from currency. Net sales on a pro forma basis,
including prior year period sales from Hardy of $132 million, increased 11
percent, including a positive four percent impact from currency. Net income on
a comparable basis increased $17 million, or 34 percent, to reach a record $66
million and diluted earnings per share on a comparable basis increased 21
percent to reach $0.64. For the first six months of fiscal 2004, net income on
a comparable basis increased 31 percent and diluted earnings per share on a
comparable basis increased 21 percent to reach $1.14.
Net income and diluted earnings per share as reported under generally
accepted accounting principles ("reported") for the second quarter declined $14
million, or 28 percent, to $36 million and 36 percent to $0.34, respectively.
The reported results for the quarter include restructuring and unusual charges
of $31 million after tax, or $0.30 per share. For the first six months of
fiscal 2004, net income on a reported basis declined 14 percent and diluted
earnings per share on a reported basis declined 20 percent to $0.75. The
reported results for the first six months include restructuring and unusual
charges of $39 million after tax, or $0.39 per share.
Chairman and Chief Executive Officer Richard Sands said, "Constellation had
a great quarter with sales improving across all categories along with strong
contributions from the Hardy acquisition. Our diversity across categories and
geographies continues to serve us well, allowing us to make investments where we
see the best growth opportunities and returns. Excluding the benefits of
currency, pro forma net sales increased seven percent led by double-digit growth
in imported beer, solid wine growth in the U.S. and growth in the wholesale
business in the U.K. We continued to experience healthy growth in a competitive
environment, a testament to our overall organizational strategy and our focus on
building long-term brand equity."
Net income on a comparable basis and diluted earnings per share on a
comparable basis exclude restructuring and unusual costs. For a further
discussion of these items, please see the section "Items Affecting
Comparability" contained in this release. A table reconciling these measures and
other related financial measures for the quarter is included in this release.
The Company's measure of segment profitability excludes restructuring and
unusual costs, which is consistent with the measure used by management to
evaluate results.
CONSOLIDATED RESULTS
For the three months ended August 31, 2003 ("Second Quarter 2004"), net
sales grew 32 percent, reaching $909 million compared to $690 million in the
prior year. Pro forma net sales for the quarter increased 11 percent, including
a positive four percent impact from currency.
Excluding net sales of $140 million from the Hardy acquisition, organic net
sales grew 11 percent. This increase was driven by increased sales across all
categories: imported beer, spirits, wine and wholesale and other, and includes a
positive two percent impact from currency.
Net sales for the six months ended August 31, 2003 ("Six Months 2004")
increased 25 percent. The increase was driven primarily by the addition of wine
sales from the Hardy acquisition, imported beer sales, the U.K. wholesale
business and a positive three percent impact from currency.
Gross profit on a comparable basis for the quarter increased 37 percent to
reach $264 million and gross margin on a comparable basis improved 100 basis
points to reach 29.1 percent. The increase in gross profit resulted primarily
from higher sales and a favorable mix towards higher margin products,
particularly brands from the Hardy acquisition and the spirits portfolio.
Reported gross profit, which includes the flow through of inventory step-up
associated with the Hardy acquisition of nine million dollars and the write down
of $17 million of inventory associated with the Company's decision to exit the
commodity concentrate business in the U.S., increased 23 percent to reach $238
million. Reported gross margin declined 180 basis points to 26.2 percent.
Gross profit on a comparable basis for Six Months 2004 increased 29 percent
to reach $478 million. On a reported basis for the six months, gross profit
increased 21 percent to $446 million and includes the flow through of inventory
step-up associated with the Hardy acquisition and concentrate inventory write
down of $15 million and $17 million, respectively.
Second quarter selling, general and administrative expenses ("SG&A") on a
comparable basis increased $32 million to reach $120 million. The majority of
the increase resulted from expenses associated with the Hardy acquisition. As a
percent of net sales, SG&A on a comparable basis was 13.2 percent compared to
12.7 percent for the prior year. The increase is due primarily to the Hardy
acquisition, which has a higher percentage SG&A than the Company's base business
and additional amortization expense associated with the Company's new bank
credit agreement.
Reported SG&A for the quarter increased $37 million to reach $125 million,
and includes five million dollars of financing costs associated with a bridge
loan used as financing for the Hardy acquisition. As a percent of net sales,
reported SG&A was 13.8 percent, including a 60 basis point impact from the
financing costs.
SG&A on a comparable basis for Six Months 2004 was $222 million, an
increase of 25 percent compared to the prior year. Reported SG&A for Six Months
2004 was $232 million, an increase of 30 percent, and includes nine million
dollars of financing costs associated with the Hardy acquisition.
Operating income on a comparable basis increased to $144 million in the
quarter, an increase of 37 percent versus $106 million in the prior year.
Reported operating income was $96 million, a decline of nine percent, and
includes: the flow through of inventory step-up of nine million dollars; write
down of concentrate inventory of $17 million; financing costs of five million
dollars; and restructuring charges of $17 million.
Year-to-date, operating income on a comparable basis increased 33 percent
to reach $255 million and reported operating income increased two percent to
reach $195 million. For the year, operating income on a reported basis includes:
the flow through of inventory step-up of $15 million; write down of concentrate
inventory of $17 million; financing costs of nine million dollars; and
restructuring charges of $19 million.
Net interest expense for the quarter increased $14 million to $41 million
as a result of higher average borrowings due to the financing of the Hardy
acquisition, partially offset by a lower average borrowing rate.
For Six Months 2004, net interest expense on a comparable basis was $79
million. On a reported basis, net interest expense was $80 million and includes
one million dollars of imputed interest expense incurred in the first quarter
related to the Hardy acquisition.
As a result of the above factors, net income and diluted earnings per share
on a comparable basis for Second Quarter 2004 increased 34 percent and 21
percent, respectively, reaching $66 million and $0.64. On a reported basis, net
income and diluted earnings per share for Second Quarter 2004 declined 28
percent and 36 percent, respectively, to $36 million and $0.34.
Also as a result of the above factors, net income and diluted earnings per
share on a comparable basis for Six Months 2004 increased 31 percent and 21
percent, respectively. Net income and diluted earnings per share on a reported
basis for the same period declined 14 percent and 20 percent, respectively.
CONSTELLATION BEERS AND SPIRITS RESULTS
Due to strong growth in both imported beer and spirits, net sales for
Second Quarter 2004 grew 12 percent to reach $320 million and operating income
grew 14 percent to reach $70 million. Driven by double-digit volume gains on
Corona Extra, Corona Light, Negra Modelo and Pacifico, imported beer sales
increased 13 percent for the quarter. Spirits sales increased nine percent for
the quarter, benefiting from healthy industry growth, strong Canadian whisky
sales, particularly Black Velvet, and the introduction of several new products,
including Beachcomber Rum and Chi-Chi's Mango Margarita.
The 14 percent increase in operating income for the quarter resulted from
higher sales and a positive mix of spirits sales to higher margin products.
Net sales for Six Months 2004 increased seven percent to $597 million and
operating income increased 12 percent to reach $130 million for the same period.
CONSTELLATION WINES RESULTS
Net sales for Second Quarter 2004 were $589 million compared to $403
million the prior year, an increase of $186 million, or 46 percent. The
increase was driven primarily by the addition of $140 million of sales from the
Hardy acquisition, growth in the U.K. Wholesale business, wine sales in the U.S.
and a positive four percent impact from currency.
Excluding the additional sales from the Hardy acquisition, organic net
sales increased 11 percent for the quarter, led by growth in the U.K. wholesale
business and wine in the U.S. and a positive four percent impact from currency,
partially offset by specialty drinks in the U.K., particularly RTDs, or
ready-to-drink products.
Pro forma net sales for Second Quarter 2004, which include $132 million of
Hardy sales in the prior year period, increased 10 percent and include a
positive five percent impact from currency.
Operating income for Second Quarter 2004 was $84 million, an increase of 62
percent. The increase was primarily the result of sales derived from the Hardy
acquisition.
Net sales for Six Months 2004 increased 39 percent to reach $1.1 billion.
The increase was driven primarily from additional sales from the Hardy
acquisition and a positive six percent impact from currency.
Operating income increased 60 percent for Six Months 2004 driven primarily
by the additional sales from the Hardy acquisition.
OUTLOOK
The following statements are management's current diluted earnings per
share expectations both on a comparable basis and a reported (GAAP) basis for
the third quarter ending November 30, 2003 ("Third Quarter 2004") and fiscal
year ending February 29, 2004 ("Fiscal 2004"):
- - Diluted earnings per share on a comparable basis for Third Quarter 2004
are expected to be within a range of $0.76 to $0.80 versus $0.69 for
Third Quarter 2003.
- - Diluted earnings per share on a comparable basis for Fiscal 2004 are
expected to be within a range of $2.44 to $2.51 versus $2.07 for Fiscal
2003.
- - Diluted earnings per share on a reported (GAAP) basis for Third Quarter
2004 are expected to be within a range of $0.65 to $0.69 versus $0.69 for
Third Quarter 2003.
- - Diluted earnings per share on a reported (GAAP) basis for Fiscal 2004 are
expected to be within a range of $1.89 to $1.96 versus $2.19 for Fiscal
2003.
This Outlook is made as of the date of this press release, is
forward-looking and is based on management's current expectations. Actual
results may differ materially from these expectations due to a number of risks
and uncertainties. A reconciliation of reported estimates to comparable
estimates is included in this press release.
STATUS OF BUSINESS OUTLOOK
During the quarter, Constellation may reiterate the estimates set forth
above under the heading Outlook (collectively, the "Outlook"). Prior to the
start of the Quiet Period (described below), 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 November 15, 2003, 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. During the Quiet Period, Constellation's representatives
will not comment concerning the Outlook or Constellation's financial results or
expectations. The Quiet Period will extend until the day when Constellation's
next quarterly Earnings Release is published, presently scheduled for Tuesday,
January 6, 2004, after market hours.
ITEMS AFFECTING COMPARABILITY
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 pre-acquisition. For inventory
produced and sold after the acquisition date, the related manufacturer's profit
will accrue to the Company. The Company expects flow through of inventory
step-up to have an impact of approximately $0.12 per share for the current
fiscal year.
FINANCING COSTS - In connection with the Hardy acquisition, the Company
recorded amortization expense for deferred financing costs associated with
non-continuing financing, primarily related to the bridge loan agreement. The
Company expects this charge to be approximately $0.05 per share for the current
fiscal year.
RESTRUCTURING CHARGES - Restructuring charges resulted from the realignment
of business operations in the Company's wine division, as previously announced
in the fourth quarter of last fiscal year. The Company expects to incur charges
of approximately $0.05 per share for the current fiscal year.
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 shareholders. The Company expects this
charge to be approximately $0.01 per share for the current fiscal year.
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 expects this gain to be approximately $0.01
per share for the current fiscal year.
EXITING U.S. COMMODITY CONCENTRATE PRODUCT LINE - The Company has made a
decision to exit the commodity concentrate product line - located in Madera,
California. The commodity concentrate product line is facing declining sales and
profits and is not part of the Company's core business, beverage alcohol. The
Company will continue to produce and sell value-added, proprietary products such
as MegaColors. The Company expects this charge to be approximately $0.33 per
share for the current fiscal year, of which $0.10 will be charged to cost of
product sold and $0.23 will be recorded as restructuring charges. The Company
expects the restructuring project to improve overall profitability and asset
utilization resulting in increased return on invested capital, and to be
immediately cash flow positive. More than half the charges are non-cash charges.
FORWARD-LOOKING STATEMENTS
The statements made under the heading 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. 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
comparable basis for Third Quarter 2004 and Fiscal 2004, and (ii) the Company's
estimated diluted earnings per share on a reported (GAAP) basis for Third
Quarter 2004 and Fiscal 2004, 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 on-going assimilation of the Hardy business; final
management determinations and independent appraisals vary materially from
current management estimates and preliminary independent appraisals of the fair
value of the assets acquired and the liabilities assumed in the Hardy
acquisition; 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 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 28, 2003.
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. The Company is the largest multi-category supplier of
beverage alcohol in the United States; a leading producer and exporter of wine
from Australia and New Zealand; and both a major producer and independent drinks
wholesaler in the United Kingdom. Well-known brands in Constellation's
portfolio include: Corona Extra, Pacifico, St. Pauli Girl, Black Velvet,
Fleischmann's, Mr. Boston, Estancia, Simi, Ravenswood, Blackstone, Banrock
Station, Hardys, Nobilo, Alice White, Vendange, Almaden, Arbor Mist, Stowells
and Blackthorn.
CONFERENCE CALL DETAILS
A conference call to discuss the quarterly results will be hosted by
Chairman and CEO Richard Sands and Executive Vice President and CFO Tom Summer,
on Tuesday, September 30, 2003, 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) is available on the
Internet at Constellation's website: www.cbrands.com under "Investors."
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOLLOW
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
August 31, 2003 February 28, 2003
--------------- -----------------
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 47,465 $ 13,810
Accounts receivable, net 615,470 399,095
Inventories, net 1,198,350 819,912
Prepaid expenses and other 108,883 97,284
--------------- -----------------
Total current assets 1,970,168 1,330,101
PROPERTY, PLANT AND EQUIPMENT, net 991,990 602,469
GOODWILL 1,305,218 722,223
INTANGIBLE ASSETS, net 834,331 382,428
OTHER ASSETS 96,983 159,109
--------------- -----------------
Total assets $ 5,198,690 $ 3,196,330
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 35,092 $ 2,623
Current maturities of long-term debt 81,997 71,264
Accounts payable 255,840 171,073
Accrued excise taxes 51,578 36,421
Other accrued expenses and liabilities 429,576 303,827
--------------- -----------------
Total current liabilities 854,083 585,208
LONG-TERM DEBT, less current maturities 2,146,928 1,191,631
DEFERRED INCOME TAXES 151,319 145,239
OTHER LIABILITIES 151,633 99,268
STOCKHOLDERS' EQUITY 1,894,727 1,174,984
--------------- -----------------
Total liabilities and stockholders' equity $ 5,198,690 $ 3,196,330
=============== =================
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
ON A REPORTED BASIS
(in thousands, except per share data)
For the Six For the Six
Months Ended Months Ended Percent
August 31, 2003 August 31, 2002 Change
--------------- --------------- -------
Gross sales $ 2,137,280 $ 1,759,460 21%
Excise taxes (456,891) (419,261) 9%
--------------- ---------------
Net sales 1,680,389 1,340,199 25%
Cost of product sold (1,234,249) (970,211) 27%
--------------- ---------------
Gross profit 446,140 369,988 21%
Selling, general and administrative expenses (231,618) (178,377) 30%
Restructuring charges (19,399) - N/A
--------------- ---------------
Operating income 195,123 191,611 2%
Gain on change in fair value of derivative instruments 1,181 - N/A
Equity in earnings of joint ventures 839 5,911 -86%
Interest expense, net (80,341) (54,292) 48%
--------------- ---------------
Income before income taxes 116,802 143,230 -18%
Provision for income taxes (42,049) (56,289) -25%
--------------- ---------------
Net income 74,753 86,941 -14%
Dividends on preferred stock (844) - N/A
--------------- ---------------
Income available to common stockholders $ 73,909 $ 86,941 -15%
=============== ===============
Earnings per common share:
Basic $ 0.77 $ 0.97 -21%
Diluted $ 0.75 $ 0.94 -20%
Weighted average common shares outstanding:
Basic 95,726 89,268 7%
Diluted 99,803 92,550 8%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 454,678 $ 419,513 8%
Spirits 142,709 138,886 3%
--------------- ---------------
Net sales $ 597,387 $ 558,399 7%
Constellation Wines
Branded wine $ 692,765 $ 451,130 54%
Wholesale and other 390,237 330,670 18%
--------------- ---------------
Net sales $ 1,083,002 $ 781,800 39%
--------------- ---------------
Consolidated net sales $ 1,680,389 $ 1,340,199 25%
=============== ===============
Operating income:
Constellation Beers and Spirits $ 130,000 $ 115,976 12%
Constellation Wines 145,436 91,079 60%
Corporate Operations (20,309) (15,444) 32%
Restructuring and unusual costs (a) (60,004) - N/A
--------------- ---------------
Consolidated operating income $ 195,123 $ 191,611 2%
=============== ===============
(a) Restructuring and unusual costs for Six Months 2004 include the flow
through of inventory step-up associated with the Hardy acquisition of
$14,534, financing costs of $9,244 and restructuring charges of $36,226.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
ON A COMPARABLE BASIS (a)
(in thousands, except per share data)
For the Six For the Six
Months Ended Months Ended Percent
August 31, 2003 August 31, 2002 Change
--------------- --------------- -------
Gross sales $ 2,137,280 $ 1,759,460 21%
Excise taxes (456,891) (419,261) 9%
--------------- ---------------
Net sales 1,680,389 1,340,199 25%
Cost of product sold (1,202,888) (970,211) 24%
--------------- ---------------
Gross profit 477,501 369,988 29%
Selling, general and administrative expenses (222,374) (178,377) 25%
Restructuring charges - - N/A
--------------- ---------------
Operating income 255,127 191,611 33%
Gain on change in fair value of derivative instruments - - N/A
Equity in earnings of joint ventures 839 5,911 -86%
Interest expense, net (78,683) (54,292) 45%
--------------- ---------------
Income before income taxes 177,283 143,230 24%
Provision for income taxes (63,822) (56,289) 13%
--------------- ---------------
Net income 113,461 86,941 31%
Dividends on preferred stock (844) - N/A
--------------- ---------------
Income available to common stockholders $ 112,617 $ 86,941 30%
=============== ===============
Earnings per common share:
Basic $ 1.18 $ 0.97 22%
Diluted $ 1.14 $ 0.94 21%
Weighted average common shares outstanding:
Basic 95,726 89,268 7%
Diluted 99,803 92,550 8%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 454,678 $ 419,513 8%
Spirits 142,709 138,886 3%
--------------- ---------------
Net sales $ 597,387 $ 558,399 7%
Constellation Wines
Branded wine $ 692,765 $ 451,130 54%
Wholesale and other 390,237 330,670 18%
--------------- ---------------
Net sales $ 1,083,002 $ 781,800 39%
--------------- ---------------
Consolidated net sales $ 1,680,389 $ 1,340,199 25%
=============== ===============
Operating income:
Constellation Beers and Spirits $ 130,000 $ 115,976 12%
Constellation Wines 145,436 91,079 60%
Corporate Operations (20,309) (15,444) 32%
Restructuring and unusual costs - -
--------------- ---------------
Consolidated operating income $ 255,127 $ 191,611 33%
=============== ===============
(a) Excludes the flow through of inventory step-up associated with the Hardy
acquisition, restructuring charges, financing costs and the imputed
interest charge associated with the Hardy acquisition, and the gain on
change in fair value of derivative instruments for Six Months 2004.
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
August 31, 2003 August 31, 2002 Change
--------------- --------------- -------
Gross sales $ 1,148,213 $ 898,997 28%
Excise taxes (239,453) (209,191) 14%
--------------- ---------------
Net sales 908,760 689,806 32%
Cost of product sold (670,532) (496,544) 35%
--------------- ---------------
Gross profit 238,228 193,262 23%
Selling, general and administrative expenses (124,989) (87,616) 43%
Restructuring charges (17,083) - N/A
--------------- ---------------
Operating income 96,156 105,646 -9%
Equity in earnings of joint ventures 511 3,172 -84%
Interest expense, net (41,098) (27,151) 51%
--------------- ---------------
Income before income taxes 55,569 81,667 -32%
Provision for income taxes (20,005) (32,095) -38%
--------------- ---------------
Net income 35,564 49,572 -28%
Dividends on preferred stock (844) - N/A
--------------- ---------------
Income available to common stockholders $ 34,720 $ 49,572 -30%
=============== ===============
Earnings per common share:
Basic $ 0.35 $ 0.55 -36%
Diluted $ 0.34 $ 0.53 -36%
Weighted average common shares outstanding:
Basic 98,572 89,691 10%
Diluted 104,131 93,029 12%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 247,414 $ 219,807 13%
Spirits 72,504 66,687 9%
--------------- ---------------
Net sales $ 319,918 $ 286,494 12%
Constellation Wines
Branded wine $ 382,755 $ 237,119 61%
Wholesale and other 206,087 166,193 24%
--------------- ---------------
Net sales $ 588,842 $ 403,312 46%
--------------- ---------------
Consolidated net sales $ 908,760 $ 689,806 32%
=============== ===============
Operating income:
Constellation Beers and Spirits $ 70,117 $ 61,555 14%
Constellation Wines 84,413 52,241 62%
Corporate Operations (10,238) (8,150) 26%
Restructuring and unusual costs (a) (48,136) - N/A
--------------- ---------------
Consolidated operating income $ 96,156 $ 105,646 -9%
=============== ===============
(a) Restructuring and unusual costs for Second Quarter 2004 include the flow
through of inventory step-up associated with the Hardy acquisition of
$9,017, financing costs of $5,209 and restructuring charges of $33,910.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
ON A COMPARABLE BASIS (a)
(in thousands, except per share data)
For the Three For the Three
Months Ended Months Ended Percent
August 31, 2003 August 31, 2002 Change
--------------- --------------- -------
Gross sales $ 1,148,213 $ 898,997 28%
Excise taxes (239,453) (209,191) 14%
--------------- ---------------
Net sales 908,760 689,806 32%
Cost of product sold (644,688) (496,544) 30%
--------------- ---------------
Gross profit 264,072 193,262 37%
Selling, general and administrative expenses (119,780) (87,616) 37%
Restructuring charges - - N/A
--------------- ---------------
Operating income 144,292 105,646 37%
Equity in earnings of joint ventures 511 3,172 -84%
Interest expense, net (41,098) (27,151) 51%
--------------- ---------------
Income before income taxes 103,705 81,667 27%
Provision for income taxes (37,334) (32,095) 16%
--------------- ---------------
Net income 66,371 49,572 34%
Dividends on preferred stock (844) - N/A
--------------- ---------------
Income available to common shareholders $ 65,527 $ 49,572 32%
=============== ===============
Earnings per common share:
Basic $ 0.66 $ 0.55 20%
Diluted $ 0.64 $ 0.53 21%
Weighted average common shares outstanding:
Basic 98,572 89,691 10%
Diluted 104,131 93,029 12%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 247,414 $ 219,807 13%
Spirits 72,504 66,687 9%
--------------- ---------------
Net sales $ 319,918 $ 286,494 12%
Constellation Wines
Branded wine $ 382,755 $ 237,119 61%
Wholesale and other 206,087 166,193 24%
--------------- ---------------
Net sales $ 588,842 $ 403,312 46%
--------------- ---------------
Consolidated net sales $ 908,760 $ 689,806 32%
=============== ===============
Operating income:
Constellation Beers and Spirits $ 70,117 $ 61,555 14%
Constellation Wines 84,413 52,241 62%
Corporate Operations (10,238) (8,150) 26%
Restructuring and unusual costs - -
--------------- ----------------
Consolidated operating income $ 144,292 $ 105,646 37%
=============== ================
(a) Excludes the flow through of inventory step-up associated with the Hardy
acquisition, restructuring charges, financing costs and the imputed
interest charge associated with the Hardy acquisition, and the gain on
change in fair value of derivative instruments for Second Quarter 2004.
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 charges (including exiting
the U.S. commodity concentrate product line), and the gain on change 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 For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
August 31, 2003 Margin August 31, 2002 Margin August 31, 2003 Margin August 31, 2002 Margin
--------------- ------ --------------- ------- --------------- ------ --------------- ------
Reported net sales $ 908,760 100% $ 689,806 100% $ 1,680,389 100% $ 1,340,199 100%
=============== =============== =============== ===============
Reported gross profit $ 238,228 26.2% $ 193,262 28.0% $ 446,140 26.5% $ 369,988 27.6%
Inventory step-up 9,017 1.0% - 14,534 0.9% -
Concentrate inventory
write-down 16,827 1.9% - 16,827 1.0% -
--------------- --------------- --------------- ---------------
Comparable gross profit $ 264,072 29.1% $ 193,262 28.0% $ 477,501 28.4% $ 369,988 27.6%
=============== =============== =============== ===============
Reported operating income $ 96,156 10.6% $ 105,646 15.3% $ 195,123 11.6% $ 191,611 14.3%
Inventory step-up 9,017 1.0% - 14,534 0.9% -
Concentrate inventory
write-down 16,827 1.8% - 16,827 1.0% -
Financing costs 5,209 0.6% - 9,244 0.6% -
Restructuring charges 17,083 1.9% - 19,399 1.2% -
--------------- --------------- --------------- ---------------
Comparable operating income $ 144,292 15.9% $ 105,646 15.3% $ 255,127 15.2% $ 191,611 14.3%
=============== =============== =============== ===============
Reported net income $ 35,564 3.9% $ 49,572 7.2% $ 74,753 4.4% $ 86,941 6.5%
Inventory step-up 5,771 0.6% - 9,302 0.6% -
Concentrate inventory
write-down 10,769 1.2% - 10,769 0.6% -
Financing costs 3,334 0.4% - 5,916 0.4% -
Restructuring charges 10,933 1.2% - 12,416 0.7% -
Imputed interest charge - - 1,061 0.1% -
Gain on derivative
instruments - - (756) 0.0% -
--------------- --------------- --------------- ---------------
Comparable net income $ 66,371 7.3% $ 49,572 7.2% $ 113,461 6.8% $ 86,941 6.5%
=============== =============== =============== ===============
Reported Diluted EPS $ 0.34 $ 0.53 $ 0.75 $ 0.94
Inventory step-up 0.06 - 0.09 -
Concentrate inventory
write-down 0.10 - 0.12 -
Financing costs 0.03 - 0.06 -
Restructuring charges 0.11 - 0.12 -
Imputed interest charge - - 0.01 -
Gain on derivative
instruments - - (0.01) -
--------------- --------------- --------------- ---------------
Comparable Diluted EPS $ 0.64 $ 0.53 $ 1.14 $ 0.94
=============== =============== =============== ===============
RECONCILIATION OF REPORTED AND COMPARABLE DILUTED EARNINGS PER SHARE GUIDANCE
Range for the Quarter Range for the Year
Ending November 30, 2003 Ending February 29, 2004
------------------------ ------------------------
Forecasted reported diluted earnings per share $ 0.65 $ 0.69 $ 1.89 $ 1.96
Inventory step-up 0.02 0.02 0.12 0.12
Concentrate inventory write-down - - 0.10 0.10
Financing costs - - 0.05 0.05
Restructuring charges 0.09 0.09 0.28 0.28
Imputed interest charge - - 0.01 0.01
Gain on derivative instruments - - (0.01) (0.01)
---------- ---------- ---------- ----------
Forecasted comparable diluted earnings per share $ 0.76 $ 0.80 $ 2.44 $ 2.51
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