EXHIBIT 99.1
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[LOGO] CONSTELLATION
NEWS RELEASE CONTACTS:
Media Relations:
Philippa Dworkin - 585-218-3733
Investor Relations:
Mark Maring - 585-218-3668
CONSTELLATION REPORTS 34 PERCENT INCREASE IN NET SALES
FOR THIRD QUARTER
Investments in Growth Brands Drive Strong Sales
FAIRPORT, N.Y., JAN. 6, 2004 - Constellation Brands, Inc. (NYSE: STZ, ASX:
CBR), a leading international producer and marketer of beverage alcohol brands,
today reported record net sales of $987 million for its third quarter ended
November 30, 2003. Net sales increased 34 percent, led by the addition of wine
sales from the Hardy acquisition, double-digit growth in beer sales and the U.K.
wholesale business, and a positive two percent impact from currency.
Net income as reported under generally accepted accounting principles
("reported") for the third quarter increased $18 million or 29 percent to reach
$83 million and includes restructuring and related charges and unusual costs of
$8 million after tax. Net income on a comparable basis, excluding the
restructuring and related charges and unusual costs, increased 42 percent to
reach a record $91 million. Reported diluted earnings per share increased six
percent to reach $0.73 per share, including a $0.07 per share impact from the
restructuring and related charges and unusual costs. Excluding these charges,
diluted earnings per share increased 16 percent to reach $0.80 per share.
Chairman and Chief Executive Officer Richard Sands said, "Constellation's
strengths - our broad portfolio crossing three major beverage alcohol
categories, our vast geographical reach across North America, Europe and
Australasia, and our scale which provides strong routes-to-market - together
enabled us to grow at the high end of our expectations. On a
category-by-category basis, the beer pricing environment
2
remains strong and our price increase on select imported brands is being rolled
out market-by-market. The wine pricing environment continues to be competitive,
and our strategy of investing behind our growth brands continues to serve us
well. In spirits, we continue to see strong demand mainly driven by innovative
flavors and the resurgence of mixed drinks. With our breadth of product offering
and scale, we believe our portfolio is well positioned for growth ahead of the
overall industry."
Net income on a comparable basis and diluted earnings per share on a
comparable basis exclude restructuring and related charges and unusual costs. In
order to give investors better insight on underlying business trends from
continuing operations, the Company has included supplemental consolidated
statements of income on a comparable basis. A table reconciling these measures
and other related financial measures for the quarter 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 unusual costs, which is consistent with the measure used by
management to evaluate results.
CONSTELLATION BEERS AND SPIRITS RESULTS
Net sales for third quarter 2004 grew 11 percent to reach $307 million. A
17 percent increase in beer sales and a four percent increase in branded spirits
sales drove this growth, partially offset by a decline in bulk whisky and
contract production sales. Imported beer growth was the result of continued
consumer demand and strong wholesaler demand of Mexican beers prior to the
Company's previously announced January 2004 price increase. The four percent
increase in branded spirits sales was due to higher volume and a favorable mix
toward higher priced spirits brands, including Black Velvet Canadian Whisky,
Montezuma Tequila, Chi-Chi's prepared cocktails and the 99 Cordials range. The
decline in bulk whisky and contract production sales was due to a large spot
bulk whisky sale in the prior year period.
Operating income grew 21 percent to reach $72 million for the third quarter
due primarily to higher sales.
3
CONSTELLATION WINES RESULTS
Net sales for third quarter 2004 were $681 million compared to $462 million
the prior year, an increase of $218 million, or 47 percent. This increase was
driven primarily by the addition of sales from the Hardy acquisition. Pro forma
net sales for third quarter 2004, which include $150 million of Hardy sales in
the prior year period, increased 11 percent driven by increases in branded wines
and the U.K. wholesale business, and a positive six percent impact from
currency.
On a pro forma basis branded wines increased by four percent as a result
of:
- 16 percent growth in wine in the United Kingdom, led by Australian brands
Banrock Station, Hardy VR and Hardy Crest, and California brand Echo
Falls, and
- greater than 20 percent growth in premium wines in the United States from
brands such as Ravenswood, Blackstone, Simi and Franciscan from
California, and Alice White and Hardys Stamp from Australia.
Operating income for third quarter 2004 was $113 million, an increase of 49
percent. The increase was driven primarily by the additional sales from the
Hardy acquisition.
CORPORATE OPERATIONS AND OTHER RESULTS
Corporate expenses increased 53 percent to $11 million. The increase was
due primarily to an increase in general corporate expenses to support the
Company's growth.
OUTLOOK
The following statements are management's current diluted earnings per
share expectations both on a reported basis and comparable basis for the fourth
quarter ending February 29, 2004 and fiscal year ending February 29, 2004:
- - Diluted earnings per share on a reported basis for fourth quarter 2004 are
expected to be within a range of $0.48 to $0.53 versus $0.56 for fourth
quarter 2003.
- - Diluted earnings per share on a reported basis for fiscal 2004 are
expected to be within a range of $1.99 to $2.04 versus $2.19 for fiscal
2003.
4
- - Diluted earnings per share on a comparable basis for fourth quarter 2004
are expected to be within a range of $0.51 to $0.56 versus $0.44 for
fourth quarter 2003.
- - Diluted earnings per share on a comparable basis for fiscal 2004 are
expected to be within a range of $2.45 to $2.50 versus $2.07 for fiscal
2003.
A reconciliation of reported estimates to comparable estimates is included
in this media release.
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, Estancia, Simi, Ravenswood, Blackstone, Banrock Station, Hardys,
Nobilo, Alice White, Vendange, Almaden, Arbor Mist, Stowells and Blackthorn.
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 February 15, 2004, 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 February 15, 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
5
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 fourth quarter 2004 and fiscal 2004,
and (ii) the Company's estimated diluted earnings per share on a comparable
basis for fourth 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.
6
CONFERENCE CALL DETAILS
A conference call to discuss the quarterly results will be hosted by
Chairman & CEO Richard Sands and Executive Vice President and Chief Financial
Officer Tom Summer on Tuesday, January 6, 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) is
available on the Internet at Constellation's website: www.cbrands.com under
"Investors."
7
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
November 30, February 28,
2003 2003
------------ ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash investments $ 38,375 $ 13,810
Accounts receivable, net 768,096 399,095
Inventories, net 1,291,979 819,912
Prepaid expenses and other 117,946 97,284
------------ ------------
Total current assets 2,216,396 1,330,101
PROPERTY, PLANT AND EQUIPMENT, net 1,047,982 602,469
GOODWILL 1,546,380 722,223
INTANGIBLE ASSETS, net 701,267 382,428
OTHER ASSETS 112,255 159,109
------------ ------------
Total assets $ 5,624,280 $ 3,196,330
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 168,041 $ 2,623
Current maturities of long-term debt 65,833 71,264
Accounts payable 340,070 171,073
Accrued excise taxes 63,877 36,421
Other accrued expenses and liabilities 475,503 303,827
------------ ------------
Total current liabilities 1,113,324 585,208
LONG-TERM DEBT, less current maturities 1,970,819 1,191,631
DEFERRED INCOME TAXES 169,462 145,239
OTHER LIABILITIES 165,738 99,268
STOCKHOLDERS' EQUITY 2,204,937 1,174,984
------------ ------------
Total liabilities and stockholders' equity $ 5,624,280 $ 3,196,330
============ ============
8
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
November 30, November 30, Percent
2003 2002 Change
------------- ------------- -------
Sales $ 1,213,541 $ 969,759 25%
Excise taxes (226,293) (231,380) -2%
------------- -------------
Net sales 987,248 738,379 34%
Cost of product sold (704,632) (524,885) 34%
------------- -------------
Gross profit 282,616 213,494 32%
Selling, general and administrative expenses (113,333) (85,470) 33%
Restructuring and related charges (8,088) - N/A
------------- -------------
Operating income 161,195 128,024 26%
Equity in earnings of joint ventures 126 4,182 -97%
Interest expense, net (31,889) (26,202) 22%
------------- -------------
Income before income taxes 129,432 106,004 22%
Provision for income taxes (46,592) (41,660) 12%
------------- -------------
Net income 82,840 64,344 29%
Dividends on preferred stock (2,450) - N/A
------------- -------------
Income available to common stockholders $ 80,390 $ 64,344 25%
============= =============
Earnings per common share:
Basic $ 0.76 $ 0.71 7%
Diluted $ 0.73 $ 0.69 6%
Weighted average common shares outstanding:
Basic 105,323 90,323 17%
Diluted 114,196 93,083 23%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 229,538 $ 195,585 17%
Spirits 77,165 80,495 -4%
------------- -------------
Net sales $ 306,703 $ 276,080 11%
Constellation Wines
Branded wine $ 460,805 $ 282,320 63%
Wholesale and other 219,740 179,979 22%
------------- -------------
Net sales $ 680,545 $ 462,299 47%
------------- -------------
Consolidated net sales $ 987,248 $ 738,379 34%
============= =============
Operating income:
Constellation Beers and Spirits $ 72,228 $ 59,572 21%
Constellation Wines 112,722 75,433 49%
Corporate Operations and Other (10,669) (6,981) 53%
Restructuring and related charges
and unusual costs (a) (13,136) - N/A
------------- -------------
Consolidated operating income $ 161,195 $ 128,024 26%
============= =============
(a) Restructuring and related charges and unusual costs for the three months
ended November 30, 2003, include the flow through of inventory step-up
associated with the Hardy acquisition of $2,720, financing costs of
$2,328 and restructuring and related charges of $8,088.
9
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
November 30, November 30, Percent
2003 2002 Change
------------- ------------- -------
Sales $ 1,213,541 $ 969,759 25%
Excise taxes (226,293) (231,380) -2%
------------- -------------
Net sales 987,248 738,379 34%
Cost of product sold (701,912) (524,885) 34%
------------- -------------
Gross profit 285,336 213,494 34%
Selling, general and administrative expenses (111,005) (85,470) 30%
Restructuring and related charges - - N/A
------------- -------------
Operating income 174,331 128,024 36%
Equity in earnings of joint ventures 126 4,182 -97%
Interest expense, net (31,889) (26,202) 22%
------------- -------------
Income before income taxes 142,568 106,004 34%
Provision for income taxes (51,324) (41,660) 23%
------------- -------------
Net income 91,244 64,344 42%
Dividends on preferred stock (2,450) - N/A
------------- -------------
Income available to common stockholders $ 88,794 $ 64,344 38%
============= =============
Earnings per common share:
Basic $ 0.84 $ 0.71 18%
Diluted $ 0.80 $ 0.69 16%
Weighted average common shares outstanding:
Basic 105,323 90,323 17%
Diluted 114,196 93,083 23%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 229,538 $ 195,585 17%
Spirits 77,165 80,495 -4%
------------- -------------
Net sales $ 306,703 $ 276,080 11%
Constellation Wines
Branded wine $ 460,805 $ 282,320 63%
Wholesale and other 219,740 179,979 22%
------------- -------------
Net sales $ 680,545 $ 462,299 47%
------------- -------------
Consolidated net sales $ 987,248 $ 738,379 34%
============= =============
Operating income:
Constellation Beers and Spirits $ 72,228 $ 59,572 21%
Constellation Wines 112,772 75,433 49%
Corporate Operations and Other (10,669) (6,981) 53%
Restructuring and related charges
and unusual costs - - N/A
------------- -------------
Consolidated operating income $ 174,331 $ 128,024 36%
============= =============
(a) Excludes the flow through of inventory step-up associated with the Hardy
acquisition, restructuring and related charges and financing costs
associated with the Hardy acquisition for the three months ended November
30, 2003.
10
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
ON A REPORTED BASIS
(in thousands, except per share data)
For the Nine For the Nine
Months Ended Months Ended
November 30, November 30, Percent
2003 2002 Change
------------ ------------ -------
Sales $ 3,354,298 $ 2,729,219 23%
Excise taxes (683,184) (650,641) 5%
------------ ------------
Net sales 2,671,114 2,078,578 29%
Cost of product sold (1,938,881) (1,495,096) 30%
------------ ------------
Gross profit 732,233 583,482 25%
Selling, general and administrative expenses (348,428) (263,847) 32%
Restructuring and related charges (27,487) - N/A
------------ ------------
Operating income 356,318 319,635 11%
Gain on change in fair value of derivative instruments 1,181 - N/A
Equity in earnings of joint ventures 965 10,093 -90%
Interest expense, net (112,230) (80,494) 39%
------------ ------------
Income before income taxes 246,234 249,234 -1%
Provision for income taxes (88,641) (97,949) -10%
------------ ------------
Net income 157,593 151,285 4%
Dividends on preferred stock (3,294) - N/A
------------ ------------
Income available to common stockholders $ 154,299 $ 151,285 2%
============ ============
Earnings per common share:
Basic $ 1.56 $ 1.69 -8%
Diluted $ 1.51 $ 1.63 -7%
Weighted average common shares outstanding:
Basic 98,902 89,617 10%
Diluted 104,559 92,669 13%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 684,216 $ 615,098 11%
Spirits 219,874 219,381 0%
------------ ------------
Net sales $ 904,090 $ 834,479 8%
Constellation Wines
Branded wine $ 1,155,170 $ 733,450 57%
Wholesale and other 611,854 510,649 20%
------------ ------------
Net sales $ 1,767,024 $ 1,244,099 42%
------------ ------------
Consolidated net sales $ 2,671,114 $ 2,078,578 29%
============ ============
Operating income:
Constellation Beers and Spirits $ 202,228 $ 175,548 15%
Constellation Wines 258,208 166,512 55%
Corporate Operations and Other (30,978) (22,425) 38%
Restructuring and related charges
and unusual costs (a) (73,140) - N/A
------------ ------------
Consolidated operating income $ 356,318 $ 319,635 11%
============ ============
(a) Restructuring and related charges and unusual costs for the nine months
ended November 30, 2003, include the flow through of inventory step-up
associated with the Hardy acquisition of $17,254, financing costs of
$11,572 and restructuring and related charges of $44,314.
11
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
ON A COMPARABLE BASIS (a)
(in thousands, except per share data)
For the Nine For the Nine
Months Ended Months Ended
November 30, November 30, Percent
2003 2002 Change
------------ ------------ -------
Sales $ 3,354,298 $ 2,729,219 23%
Excise taxes (683,184) (650,641) 5%
------------ ------------
Net sales 2,671,114 2,078,578 29%
Cost of product sold (1,904,800) (1,495,096) 27%
------------ ------------
Gross profit 766,314 583,482 31%
Selling, general and administrative expenses (336,856) (263,847) 28%
Restructuring and related charges - - N/A
------------ ------------
Operating income 429,458 319,635 34%
Gain on change in fair value of derivative instruments - - N/A
Equity in earnings of joint ventures 965 10,093 -90%
Interest expense, net (110,572) (80,494) 37%
------------ ------------
Income before income taxes 319,851 249,234 28%
Provision for income taxes (115,146) (97,949) 18%
------------ ------------
Net income 204,705 151,285 35%
Dividends on preferred stock (3,294) - N/A
------------ ------------
Income available to common stockholders $ 201,411 $ 151,285 33%
============ ============
Earnings per common share:
Basic $ 2.04 $ 1.69 21%
Diluted $ 1.96 $ 1.63 20%
Weighted average common shares outstanding:
Basic 98,902 89,617 10%
Diluted 104,559 92,669 13%
Segment Information:
Net sales:
Constellation Beers and Spirits
Imported beers $ 684,216 $ 615,098 11%
Spirits 219,874 219,381 0%
------------ ------------
Net sales $ 904,090 $ 834,479 8%
Constellation Wines
Branded wine $ 1,155,170 $ 733,450 57%
Wholesale and other 611,854 510,649 20%
------------ ------------
Net sales $ 1,767,024 $ 1,244,099 42%
------------ ------------
Consolidated net sales $ 2,671,114 $ 2,078,578 29%
============ ============
Operating income:
Constellation Beers and Spirits $ 202,228 $ 175,548 15%
Constellation Wines 258,208 166,512 55%
Corporate Operations and Other (30,978) (22,425) 38%
Restructuring and related charges
and unusual costs - - N/A
------------ ------------
Consolidated operating income $ 429,458 $ 319,635 34%
============ ============
(a) Excludes the flow through of inventory step-up associated with the Hardy
acquisition, restructuring and related 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 the nine
months ended November 30, 2003.
12
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Nine For the Nine
Months Ended Months Ended
November 30, November 30,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 157,593 $ 151,285
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 58,666 41,174
Amortization of intangible and other assets 18,713 4,409
Deferred tax provision 4,622 4,062
Loss on extinguishment of debt 800 -
Loss on sale of assets 2,108 1,956
Stock-based compensation expense 208 75
Amortization of discount on long-term debt 59 46
Gain on change in fair value of derivative
instruments (1,181) -
Equity in earnings of joint ventures (965) (10,093)
Change in operating assets and liabilities, net
of effects from purchases of businesses:
Accounts receivable, net (218,730) (81,470)
Inventories, net 32,305 (102,901)
Prepaid expenses and other current assets 13,417 (14,029)
Accounts payable 23,615 57,198
Accrued excise taxes 23,845 (8,972)
Other accrued expenses and liabilities 39,989 100,812
Other assets and liabilities, net 24,458 3,712
------------ ------------
Total adjustments 21,929 (4,021)
------------ ------------
Net cash provided by operating activities 179,522 147,264
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (1,070,074) -
Purchases of property, plant and equipment (70,584) (51,833)
Payment of accrued earn-out amount (2,035) (1,674)
Proceeds from sale of assets 11,085 977
Proceeds from sale of business 4,431 -
Proceeds from sale of marketable equity securities 790 -
------------ ------------
Net cash used in investing activities (1,126,387) (52,530)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,600,000 10,000
Proceeds from equity offerings, net of fees 426,069 -
Net proceeds from (repayments of) notes payable 165,209 (49,429)
Exercise of employee stock options 23,756 25,539
Proceeds from employee stock purchases 1,822 1,319
Principal payments of long-term debt (1,240,395) (62,519)
Payment of issuance costs of long-term debt (34,147) (10)
------------ ------------
Net cash provided by (used in)
financing activities 942,314 (75,100)
------------ ------------
Effect of exchange rate changes on cash and
cash investments 29,116 1,341
------------ -------------
NET INCREASE IN CASH AND CASH INVESTMENTS 24,565 20,975
CASH AND CASH INVESTMENTS, beginning of period 13,810 8,961
------------ -------------
CASH AND CASH INVESTMENTS, end of period $ 38,375 $ 29,936
============ =============
13
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 Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
November 30, November 30, November 30, November 30,
2003 Margin 2002 Margin 2003 Margin 2002 Margin
------------- ------ ------------- ------ ------------ ------ ------------ ------
Reported net sales $ 987,248 100% $ 738,379 100% $ 2,671,114 100% $ 2,078,578 100%
============= ============= ============ ============
Reported gross profit $ 282,616 28.6% $ 213,494 28.9% $ 732,233 27.4% $ 583,482 28.1%
Inventory step-up 2,720 0.3% - 17,254 0.7% -
Concentrate inventory
write-down - 0.0% - 16,827 0.6% -
------------- ------------- ------------ ------------
Comparable gross profit $ 285,336 28.9% $ 213,494 28.9% $ 766,314 28.7% $ 583,482 28.1%
============= ============= ============ ============
Reported operating income $ 161,195 16.3% $ 128,024 17.3% $ 356,318 13.3% $ 319,635 15.4%
Inventory step-up 2,720 0.3% - 17,254 0.7% -
Concentrate inventory
write-down - 0.0% - 16,827 0.6% -
Financing costs 2,328 0.3% - 11,572 0.5% -
Restructuring charges 8,088 0.8% - 27,487 1.0% -
------------- ------------- ------------- ------------
Comparable operating income $ 174,331 17.7% $ 128,024 17.3% $ 429,458 16.1% $ 319,635 15.4%
============= ============= ============= ============
Reported net income $ 82,840 8.4% $ 64,344 8.7% $ 157,593 5.9% $ 151,285 7.3%
Inventory step-up 1,741 0.2% - 11,043 0.4% -
Concentrate inventory
write-down - 0.0% - 10,769 0.4% -
Financing costs 1,490 0.1% - 7,406 0.3% -
Restructuring charges 5,176 0.5% - 17,592 0.7% -
Imputed interest charge - 0.0% - 1,061 0.0% -
Gain on derivative
instruments - 0.0% - (756) 0.0% -
------------- ------------- ------------- ------------
Comparable net income $ 91,247 9.2% $ 64,344 8.7% $ 204,708 7.7% $ 151,285 7.3%
============= ============= ============= ============
Reported Diluted EPS $ 0.73 $ 0.69 $ 1.51 $ 1.63
Inventory step-up 0.01 - 0.11 -
Concentrate inventory
write-down - - 0.10 -
Financing costs 0.01 - 0.07 -
Restructuring charges 0.05 - 0.17 -
Imputed interest charge - - 0.01 -
Gain on derivative
instruments - - (0.01) -
------------- ------------- ------------- ------------
Comparable Diluted EPS $ 0.80 $ 0.69 $ 1.96 $ 1.63
============= ============= ============= ============
14
RECONCILIATION OF REPORTED AND COMPARABLE DILUTED EARNINGS PER SHARE GUIDANCE
Range for the Quarter Range for the Year
Ending February 29, 2004 Ending February 29, 2004
---------------------------- ---------------------------
Forecasted reported diluted earnings
per share $ 0.48 $ 0.53 $ 1.99 $ 2.04
Inventory step-up - - 0.10 0.10
Concentrate inventory write-down - - 0.10 0.10
Financing costs - - 0.07 0.07
Restructuring charges 0.03 0.03 0.19 0.19
Imputed interest charge - - 0.01 0.01
Gain on derivative instruments - - (0.01) (0.01)
------------- ------------- ------------- ------------
Forecasted comparable diluted earnings
per share $ 0.51 $ 0.56 $ 2.45 $ 2.50
============= ============= ============= ============
For the For the
Quarter Ended Year Ended
February 28, February 28,
2003 2003
------------- -------------
Reported diluted earnings per share $ 0.56 $ 2.19
Gain on derivative instruments (0.12) (0.12)
------------- -------------
Comparable diluted earnings per share $ 0.44 $ 2.07
============= =============
15
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 $0.10 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 $0.07 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 $0.04 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 Hardy 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.
16
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 $0.25 per
share for the current fiscal year, of which $0.10 will be charged to cost of
product sold and $0.15 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 is cash flow
positive. More than half the charges are non-cash charges.