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 ------------- CONSTELLATION BRANDS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) 001-08495 ------------------------ (Commission File Number) Delaware 16-0716709 ---------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation) Identification No.) 370 Woodcliff Drive, Suite 300, Fairport, New York 14450 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) (585) 218-3600 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------- (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 ------------ ----------------- 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 ============ ============
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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.
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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 ============= =============
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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.
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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. 12 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.