FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2004

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
 
Commission File Number 001-08495
 
 
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
16-0716709
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
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)
 
 
(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x   No  o

The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of September 30, 2004, is set forth below:

 
Class
 
Number of Shares Outstanding
Class A Common Stock, Par Value $.01 Per Share
 
95,935,580
Class B Common Stock, Par Value $.01 Per Share
 
11,984,930

 
     

 
 
PART I - FINANCIAL INFORMATION
 
           
Item 1.    Financial Statements
         
           
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(in thousands, except share and per share data)
 
(unaudited)
 
           
   
August 31,
 
February 29,
 
   
2004
 
2004
 
ASSETS
         
CURRENT ASSETS:
         
Cash and cash investments
 
$
9,768
 
$
37,136
 
Accounts receivable, net
   
789,081
   
635,910
 
Inventories
   
1,318,748
   
1,261,378
 
Prepaid expenses and other
   
176,999
   
137,047
 
Total current assets
   
2,294,596
   
2,071,471
 
PROPERTY, PLANT AND EQUIPMENT, net
   
1,061,278
   
1,097,362
 
GOODWILL
   
1,491,925
   
1,540,637
 
INTANGIBLE ASSETS, net
   
720,037
   
744,978
 
OTHER ASSETS, net
   
87,814
   
104,225
 
Total assets
 
$
5,655,650
 
$
5,558,673
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
CURRENT LIABILITIES:
             
Notes payable to banks
 
$
193,596
 
$
1,792
 
Current maturities of long-term debt
   
79,343
   
267,245
 
Accounts payable
   
403,073
   
270,291
 
Accrued excise taxes
   
69,598
   
48,465
 
Other accrued expenses and liabilities
   
457,658
   
442,009
 
Total current liabilities
   
1,203,268
   
1,029,802
 
LONG-TERM DEBT, less current maturities
   
1,720,588
   
1,778,853
 
DEFERRED INCOME TAXES
   
197,835
   
187,410
 
OTHER LIABILITIES
   
152,790
   
184,989
 
STOCKHOLDERS' EQUITY:
             
Preferred Stock, $.01 par value-
             
Authorized, 1,000,000 shares;
             
Issued, 170,500 shares at August 31, 2004, and
             
February 29, 2004 (Aggregate liquidation preference
             
of $172,951 at August 31, 2004)
   
2
   
2
 
Class A Common Stock, $.01 par value-
             
Authorized, 275,000,000 shares;
             
Issued, 98,301,048 shares at August 31, 2004,
             
and 97,150,219 shares at February 29, 2004
   
983
   
971
 
Class B Convertible Common Stock, $.01 par value-
             
Authorized, 30,000,000 shares;
             
Issued, 14,550,230 shares at August 31, 2004,
             
and 14,564,630 shares at February 29, 2004
   
146
   
146
 
Additional paid-in capital
   
1,043,467
   
1,024,048
 
Retained earnings
   
1,137,234
   
1,010,193
 
Accumulated other comprehensive income
   
228,354
   
372,302
 
     
2,410,186
   
2,407,662
 
Less-Treasury stock-
             
Class A Common Stock, 2,485,307 shares at
             
August 31, 2004, and 2,583,608 shares at
             
February 29, 2004, at cost
   
(26,810
)
 
(27,786
)
Class B Convertible Common Stock, 2,502,900 shares
             
at August 31, 2004, and February 29, 2004, at cost
   
(2,207
)
 
(2,207
)
     
(29,017
)
 
(29,993
)
Less-Unearned compensation-restricted stock awards
   
-
   
(50
)
Total stockholders' equity
   
2,381,169
   
2,377,619
 
Total liabilities and stockholders' equity
 
$
5,655,650
 
$
5,558,673
 
               
The accompanying notes are an integral part of these statements.
 

 
  1  

 


CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
 
(in thousands, except per share data)
 
(unaudited)
 
                   
   
For the Six Months Ended August 31,
 
For the Three Months Ended August 31,
 
   
2004
 
2003
 
2004
 
2003
 
SALES
 
$
2,474,557
 
$
2,140,757
 
$
1,300,242
 
$
1,150,517
 
Less - Excise taxes
   
(510,311
)
 
(456,891
)
 
(263,301
)
 
(239,453
)
Net sales
   
1,964,246
   
1,683,866
   
1,036,941
   
911,064
 
COST OF PRODUCT SOLD
   
(1,424,101
)
 
(1,234,249
)
 
(747,258
)
 
(670,532
)
Gross profit
   
540,145
   
449,617
   
289,683
   
240,532
 
SELLING, GENERAL AND ADMINISTRATIVE
                         
EXPENSES
   
(270,783
)
 
(235,095
)
 
(132,355
)
 
(127,293
)
RESTRUCTURING AND RELATED CHARGES
   
(2,782
)
 
(19,399
)
 
(1,169
)
 
(17,083
)
Operating income
   
266,580
   
195,123
   
156,159
   
96,156
 
GAIN ON CHANGE IN FAIR VALUE OF
                         
DERIVATIVE INSTRUMENTS
   
-
   
1,181
   
-
   
-
 
EQUITY IN EARNINGS OF EQUITY
                         
METHOD INVESTEES
   
262
   
839
   
200
   
511
 
INTEREST EXPENSE, net
   
(60,681
)
 
(80,341
)
 
(30,400
)
 
(41,098
)
Income before income taxes
   
206,161
   
116,802
   
125,959
   
55,569
 
PROVISION FOR INCOME TAXES
   
(74,218
)
 
(42,049
)
 
(45,345
)
 
(20,005
)
NET INCOME
   
131,943
   
74,753
   
80,614
   
35,564
 
Dividends on preferred stock
   
(4,902
)
 
(844
)
 
(2,451
)
 
(844
)
INCOME AVAILABLE TO COMMON
                         
STOCKHOLDERS
 
$
127,041
 
$
73,909
 
$
78,163
 
$
34,720
 
                           
                           
SHARE DATA:
                         
Earnings per common share:
                         
Basic - Class A Common Stock
 
$
1.20
 
$
0.78
 
$
0.73
 
$
0.36
 
Basic - Class B Common Stock
 
$
1.09
 
$
0.71
 
$
0.67
 
$
0.32
 
Diluted
 
$
1.14
 
$
0.75
 
$
0.69
 
$
0.34
 
Weighted average common shares outstanding:
                         
Basic - Class A Common Stock
   
95,085
   
83,655
   
95,451
   
86,502
 
Basic - Class B Common Stock
   
12,054
   
12,071
   
12,049
   
12,070
 
Diluted
   
115,588
   
99,916
   
116,147
   
104,131
 
                           
The accompanying notes are an integral part of these statements.

 
  2  

 


CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(in thousands)
 
(unaudited)
 
           
   
For the Six Months Ended August 31,
 
   
2004
 
2003
 
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net income
 
$
131,943
 
$
74,753
 
               
Adjustments to reconcile net income to net cash provided by
             
operating activities:
             
Depreciation of property, plant and equipment
   
43,311
   
38,902
 
Deferred tax provision
   
14,884
   
2,811
 
Amortization of intangible and other assets
   
5,756
   
14,041
 
Loss on disposal of assets
   
2,813
   
468
 
Noncash portion of loss on extinguishment of debt
   
1,799
   
800
 
Stock-based compensation expense
   
53
   
183
 
Amortization of discount on long-term debt
   
35
   
28
 
Equity in earnings of equity method investees
   
(262
)
 
(839
)
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
   
(169,792
)
 
(99,984
)
Inventories
   
(119,808
)
 
77,826
 
Prepaid expenses and other current assets
   
(36,251
)
 
14,155
 
Accounts payable
   
145,195
   
(44,289
)
Accrued excise taxes
   
22,085
   
13,906
 
Other accrued expenses and liabilities
   
20,502
   
(13,305
)
Other, net
   
(8,113
)
 
10,140
 
Total adjustments
   
(77,793
)
 
13,662
 
Net cash provided by operating activities
   
54,150
   
88,415
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
             
Purchases of property, plant and equipment
   
(50,910
)
 
(46,444
)
Payment of accrued earn-out amount
   
(1,339
)
 
(978
)
Proceeds from sale of assets
   
1,024
   
10,150
 
Purchases of businesses, net of cash acquired
   
-
   
(1,069,166
)
Proceeds from sale of marketable equity securities
   
-
   
777
 
Net cash used in investing activities
   
(51,225
)
 
(1,105,661
)
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Principal payments of long-term debt
   
(234,676
)
 
(1,021,688
)
Payment of preferred stock dividends
   
(4,902
)
 
-
 
Payment of issuance costs of long-term debt
   
(901
)
 
(33,473
)
Net proceeds from notes payable
   
192,472
   
32,407
 
Exercise of employee stock options
   
17,351
   
15,227
 
Proceeds from employee stock purchases
   
2,432
   
1,817
 
Proceeds from issuance of long-term debt
   
-
   
1,600,000
 
Proceeds from equity offerings, net of fees
   
-
   
426,359
 
Net cash (used in) provided by financing activities
   
(28,224
)
 
1,020,649
 
               
Effect of exchange rate changes on cash and cash investments
   
(2,069
)
 
30,252
 
               
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS
   
(27,368
)
 
33,655
 
CASH AND CASH INVESTMENTS, beginning of period
   
37,136
   
13,810
 
CASH AND CASH INVESTMENTS, end of period
 
$
9,768
 
$
47,465
 
               
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
             
AND FINANCING ACTIVITIES:
             
Fair value of assets acquired, including cash acquired
 
$
-
 
$
1,804,875
 
Liabilities assumed
   
-
   
(648,089
)
Net assets acquired
   
-
   
1,156,786
 
Less - stock issuance
   
-
   
(77,243
)
Less - direct acquisition costs accrued or previously paid
   
-
   
(8,872
)
Less - cash acquired
   
-
   
(1,505
)
Net cash paid for purchases of businesses
 
$
-
 
$
1,069,166
 
               
The accompanying notes are an integral part of these statements.
 

 
  3  

 

 


CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004

1) MANAGEMENT’S REPRESENTATIONS:

The consolidated financial statements included herein have been prepared by Constellation Brands, Inc. and its subsidiaries (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect, in the opinion of the Company, all adjustments necessary to present fairly the financial information for the Company. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2004. Results of operations for interim periods are not necessarily indicative of annual results.

2) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:

In December 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (revised December 2003) ("FIN No. 46(R)"), "Consolidation of Variable Interest Entities—an interpretation of ARB No. 51". FIN No. 46(R) supersedes FASB Interpretation No. 46 ("FIN No. 46"), "Consolidation of Variable Interest Entities". FIN No. 46(R) retains many of the basic concepts introduced in FIN No. 46; however, it also introduces a new scope exception for certain types of entities that qualify as a business as defined in FIN No. 46(R) and revises the method of calculating expected losses and residual returns for determination of primary beneficiaries, including new guidance for assessing variable interests. The adoption of FIN No. 46(R) did not have a material impact on the Company’s consolidated financial statements.

Effective June 1, 2004, the Company adopted EITF Issue No. 03-6 ("EITF No. 03-6"), "Participating Securities and the Two-Class Method under FASB Statement No. 128." EITF No. 03-6 clarifies what is meant by a "participating security" provides guidance on applying the two-class method for computing earnings per share, and requires affected companies to retroactively restate earnings per share amounts for all periods presented.

The Company has two classes of common stock: Class A Common Stock and Class B Convertible Common Stock. With respect to dividend rights, the Class A Common Stock is entitled to cash dividends of at least ten percent higher than those declared and paid on the Class B Convertible Common Stock. Therefore, under EITF No. 03-6, the Class B Convertible Common Stock is considered a participating security requiring the use of the two-class method for the computation of net income per share - basic, rather than the if-converted method as previously used. In addition, the shares of Class B Convertible Common Stock are considered to be participating convertible securities since the shares of Class B Convertible Common Stock are convertible into shares of Class A Common Stock on a one-to-one basis at any time at the option of the holder. The two-class computation method for each period reflects the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the minimum dividend rights of each class of stock. Net income per share - basic reflects the application of EITF No. 03-6 and has been computed using the two-class method for all period presented. Net income per share - diluted continues to be computed using the if-converted method. (See Note 10).


 
  4  

 

3) ACQUISITIONS:

On March 27, 2003, the Company acquired control of BRL Hardy Limited, now known as Hardy Wine Company Limited ("Hardy"), and on April 9, 2003, the Company completed its acquisition of all of Hardy’s outstanding capital stock. As a result of the acquisition of Hardy, the Company also acquired the remaining 50% ownership of Pacific Wine Partners LLC ("PWP"), the joint venture the Company established with Hardy in July 2001. The acquisition of Hardy along with the remaining interest in PWP is referred to together as the "Hardy Acquisition." Through this acquisition, the Company acquired one of Australia’s largest wine producers with interests in wineries and vineyards in most of Australia’s major wine regions as well as New Zealand and the United States and Hardy's marketing and sales operations in the United Kingdom.

Total consideration paid in cash and Class A Common Stock to the Hardy shareholders was $1,137.4 million. Additionally, the Company recorded direct acquisition costs of $17.4 million. The acquisition date for accounting purposes is March 27, 2003. The Company has recorded a $1.6 million reduction in the purchase price to reflect imputed interest between the accounting acquisition date and the final payment of consideration. This charge is included as interest expense in the Consolidated Statement of Income for the six months ended August 31, 2003. The cash portion of the purchase price paid to the Hardy shareholders and optionholders ($1,060.2 million) was financed with $660.2 million of borrowings under the Company's then existing credit agreement and $400.0 million of borrowings under the Company’s then existing bridge loan agreement. Additionally, the Company issued 3,288,913 shares of the Company’s Class A Common Stock, which were valued at $77.2 million based on the simple average of the closing market price of the Company’s Class A Common Stock beginning two days before and ending two days after April 4, 2003, the day the Hardy shareholders elected the form of consideration they wished to receive. The purchase price was based primarily on a discounted cash flow analysis that contemplated, among other things, the value of a broader geographic distribution in strategic international markets and a presence in the important Australian winemaking regions. The Company and Hardy have complementary businesses that share a common growth orientation and operating philosophy. The Hardy Acquisition supports the Company’s strategy of growth and breadth across categories and geographies, and strengthens its competitive position in its core markets. The purchase price and resulting goodwill were primarily based on the growth opportunities of the brand portfolio of Hardy. In particular, the Company believes there are growth opportunities for Australian wines in the United Kingdom, United States and other wine markets. This acquisition supports the Company’s strategy of driving long-term growth and positions the Company to capitalize on the growth opportunities in "new world" wine markets.

The results of operations of Hardy and PWP are reported in the Constellation Wines segment and have been included in the Consolidated Statements of Income since the accounting acquisition date.

The following table summarizes the fair values of the assets acquired and liabilities assumed in the Hardy Acquisition at March 27, 2003, as adjusted for the final appraisal:

(in thousands)
     
Current assets
 
$
535,374
 
Property, plant and equipment
   
332,125
 
Other assets
   
27,672
 
Trademarks
   
265,583
 
Goodwill
   
613,805
 
Total assets acquired
   
1,774,559
 
         
Current liabilities
   
294,692
 
Long-term liabilities
   
326,646
 
Total liabilities acquired
   
621,338
 
         
Net assets acquired
 
$
1,153,221
 


 
  5  

 

The trademarks are not subject to amortization. None of the goodwill is expected to be deductible for tax purposes.

 
4) INVENTORIES:

Inventories are stated at the lower of cost (computed in accordance with the first-in, first-out method) or market. Elements of cost include materials, labor and overhead and consist of the following:

   
August 31,
2004
 
February 29,
2004
 
(in thousands)
             
Raw materials and supplies
 
$
62,050
 
$
49,633
 
In-process inventories
   
794,091
   
803,200
 
Finished case goods
   
462,607
   
408,545
 
   
$
1,318,748
 
$
1,261,378
 


5) GOODWILL:

The changes in the carrying amount of goodwill for the six months ended August 31, 2004, are as follows:

   
Constellation
Wines
 
Constellation
Beers and
Spirits
 
Consolidated
 
(in thousands)
                   
Balance, February 29, 2004
 
$
1,407,350
 
$
133,287
 
$
1,540,637
 
Purchase accounting allocations
   
(2,005
)
 
-
   
(2,005
)
Foreign currency translation adjustments
   
(48,179
)
 
215
   
(47,964
)
Purchase price earn-out
   
1,257
   
-
   
1,257
 
Balance, August 31, 2004
 
$
1,358,423
 
$
133,502
 
$
1,491,925
 

 
6) INTANGIBLE ASSETS:

The major components of intangible assets are:

   
August 31, 2004
 
February 29, 2004
 
   
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
(in thousands)
                 
Amortizable intangible assets:
                 
Distribution agreements
 
$
12,883
 
$
2,869
 
$
12,883
 
$
4,455
 
Other
   
4,021
   
52
   
4,021
   
64
 
Total
 
$
16,904
   
2,921
 
$
16,904
   
4,519
 
                           
Nonamortizable intangible assets:
                         
Trademarks
         
698,704
         
722,047
 
Agency relationships
         
18,412
         
18,412
 
Total
         
717,116
         
740,459
 
Total intangible assets
       
$
720,037
       
$
744,978
 
 
 

 
  6  

 

The difference between the gross carrying amount and net carrying amount for each item presented is attributable to accumulated amortization. Amortization expense for intangible assets was $1.6 million and $0.9 million for the six months ended August 31, 2004, and August 31, 2003, and $0.9 million and $0.5 million for the three months ended August 31, 2004, and August 31, 2003, respectively. Estimated amortization expense for the remaining six months of fiscal 2005 and for each of the five succeeding fiscal years is as follows:

(in thousands)
     
2005
 
$
1,225
 
2006
 
$
1,318
 
2007
 
$
341
 
2008
 
$
25
 
2009
 
$
12
 
2010
 
$
-
 

 
7) BORROWINGS:

Senior credit facility -
In connection with the Hardy Acquisition, on January 16, 2003, the Company, certain subsidiaries of the Company, JPMorgan Chase Bank, as a lender and administrative agent, and certain other agents, lenders, and financial institutions entered into a new credit agreement, which since has been amended (or amended and restated) in March 2003, October 2003, February 2004 and August 2004 (as amended and restated in August 2004, the "Credit Agreement"). The Credit Agreement provides for aggregate credit facilities of $1.2 billion consisting of a $345.0 million Tranche A Term Loan facility due in February 2008, a $500.0 million Tranche B Term Loan facility due in November 2008 and a $400.0 million Revolving Credit facility (including an Australian Dollar revolving sub-facility of up to A$10.0 million and a sub-facility for letters of credit of up to $40.0 million) which expires on February 29, 2008. The Company uses the Revolving Credit facility under the Credit Agreement to fund its working capital needs on an on-going basis. In August 2004 the then outstanding principal balance under both the Tranche A and Tranche B Term Loan facilities was refinanced on essentially the same terms as the credit agreement in effect prior to August 2004 but at a lower Applicable Rate (as such term is defined in the Credit Agreement) and the remaining payment schedule of the Tranche B Term Loan facility was modified.
 
As of August 31, 2004, the required principal repayments of the Tranche A Term Loan and the Tranche B Term Loan are as follows:
 
   
Tranche A
Term Loan
 
Tranche B
Term Loan
 
Total
 
(in thousands)
             
2005
 
$
30,000
 
$
-
 
$
30,000
 
2006
   
80,000
   
5,000
   
85,000
 
2007
   
100,000
   
5,000
   
105,000
 
2008
   
120,000
   
125,313
   
245,313
 
2009
   
-
   
364,687
   
364,687
 
   
$
330,000
 
$
500,000
 
$
830,000
 

The rate of interest payable, at the Company’s option, is LIBOR plus a margin, the federal funds rate plus a margin, or the prime rate plus a margin. The margin is adjustable based upon the Company’s Debt Ratio (as defined in the Credit Agreement) and, with respect to LIBOR borrowings, ranges between 1.00% and 2.50%. As of August 31, 2004, the LIBOR margin for the Revolving Credit facility is 1.75%, the LIBOR margin for the Tranche A Term Loan facility is 1.25%, and the LIBOR margin on the Tranche B Term Loan facility is 1.50%.


 
  7  

 

The Company’s obligations are guaranteed by certain subsidiaries of the Company ("Guarantors") and the Company is obligated to pledge collateral of (i) 100% of the capital stock of all of the Company’s U.S. subsidiaries and certain foreign subsidiaries and (ii) 65% of the voting capital stock of certain other foreign subsidiaries of the Company.

The Company and its subsidiaries are subject to customary lending covenants including those restricting additional liens, the incurrence of additional indebtedness (including guarantees of indebtedness), the sale of assets, the payment of dividends, transactions with affiliates and the making of certain investments, in each case subject to baskets, exceptions and/or thresholds. The primary financial covenants require the maintenance of a debt coverage ratio, a senior debt coverage ratio, a fixed charge ratio and an interest coverage ratio. As of August 31, 2004, the Company is in compliance with all of its covenants under its Credit Agreement.

As of August 31, 2004, under the Credit Agreement, the Company had outstanding Tranche A Term Loans of $330.0 million bearing a weighted average interest rate of 3.2%, Tranche B Term Loans of $500.0 million bearing a weighted average interest rate of 3.5%, $139.0 million of revolving loans bearing a weighted average interest rate of 3.2%, undrawn revolving letters of credit of $26.9 million, and $234.1 million in revolving loans available to be drawn.

Subsidiary facilities -
The Company has additional line of credit facilities totaling $155.7 million as of August 31, 2004. These lines support the borrowing needs of certain of the Company’s foreign subsidiary operations. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions. As of August 31, 2004, amounts outstanding under the subsidiary revolving credit facilities were $54.6 million.

Redemption of senior subordinated notes -
On March 4, 1999, the Company issued $200.0 million aggregate principal amount of 8 1/2% Senior Subordinated Notes due March 2009 ("Senior Subordinated Notes"). The Senior Subordinated Notes were redeemable at the option of the Company, in whole or in part, at any time on or after March 1, 2004. As of February 29, 2004, the Company had outstanding $200.0 million aggregate principal amount of Senior Subordinated Notes. On February 10, 2004, the Company issued a Notice of Redemption for its Senior Subordinated Notes. The Senior Subordinated Notes were redeemed with proceeds from the Revolving Credit facility on March 11, 2004, at 104.25% of par plus accrued interest. During the six months ended August 31, 2004, in connection with this redemption, the Company recorded a charge of $10.3 million in selling, general and administrative expenses for the call premium and the remaining unamortized financing fees associated with the original issuance of the Senior Subordinated Notes.

Guarantees -
A foreign subsidiary of the Company has guaranteed debt of a joint venture in the maximum amount of $3.8 million as of August 31, 2004. The liability for this guarantee is not material and the Company does not have any collateral from this entity.
 

 
  8  

 

8) RETIREMENT SAVINGS PLANS AND POSTRETIREMENT BENEFIT PLANS:

Net periodic benefit costs reported in the Consolidated Statements of Income for the Company’s defined benefit pension plans include the following components:

   
For the Six Months
Ended August 31,
 
For the Three Months
Ended August 31,
 
   
2004
 
2003
 
2004
 
2003
 
(in thousands)
                 
Service cost
 
$
1,074
 
$
1,101
 
$
531
 
$
550
 
Interest cost
   
8,008
   
7,236
   
4,033
   
3,618
 
Expected return on plan assets
   
(8,458
)
 
(7,578
)
 
(4,257
)
 
(3,789
)
Amortization of prior service cost
   
1,156
   
4
   
583
   
2
 
Recognized net actuarial loss
   
100
   
1,010
   
50
   
505
 
Net periodic benefit cost
 
$
1,880
 
$
1,773
 
$
940
 
$
886
 


      Net periodic benefit costs reported in the Consolidated Statements of Income for the Company’s unfunded postretirement benefit plans include the following components:

   
For the Six Months
Ended August 31,
 
For the Three Months
Ended August 31,
 
   
2004
 
2003
 
2004
 
2003
 
(in thousands)
                 
Service cost
 
$
103
 
$
74
 
$
51
 
$
37
 
Interest cost
   
166
   
141
   
83
   
70
 
Expected return on plan assets
   
-
   
-
   
-
   
-
 
Amortization of prior service cost
   
4
   
3
   
2
   
2
 
Recognized net actuarial loss
   
11
   
10
   
6
   
5
 
Net periodic benefit cost
 
$
284
 
$
228
 
$
142
 
$
114
 

Contributions of $1.7 million and $0.9 million have been made by the Company to fund its pension plans for the six months and three months ended August 31, 2004, respectively. The Company presently anticipates contributing an additional $1.7 million to fund its pension plans in Fiscal 2005, resulting in total employer contributions of $3.4 million for Fiscal 2005.

 
9) STOCKHOLDERS’ EQUITY:

Long-term stock incentive plan -
At the Company’s Annual Meeting of Stockholders held on July 20, 2004, stockholders approved the amendment to the Company’s Long-Term Stock Incentive Plan to increase the aggregate number of shares of the Class A Stock available for awards under the plan from 28,000,000 shares to 40,000,000 shares.

10) EARNINGS PER COMMON SHARE:

Basic earnings per common share exclude the effect of common stock equivalents and are computed using the two-class computation method as discussed in Note 2. Diluted earnings per common share reflect the potential dilution that could result if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per common share assume the exercise of stock options using the treasury stock method and the conversion of Class B Convertible Common Stock and Preferred Stock using the if-converted method.


 
  9  

 

The computation of basic and diluted earnings per common share is as follows:

   
For the Six Months
Ended August 31,
 
For the Three Months
Ended August 31,
 
   
2004
 
2003
 
2004
 
2003
 
(in thousands, except per share data)
                 
Net income
 
$
131,943
 
$
74,753
 
$
80,614
 
$
35,564
 
Dividends on preferred stock
   
(4,902
)
 
(844
)
 
(2,451
)
 
(844
)
Income available to common stockholders
 
$
127,041
 
$
73,909
 
$
78,163
 
$
34,720
 
                           
Weighted average common shares outstanding - basic:
                         
Class A Common Stock
   
95,085
   
83,655
   
95,451
   
86,502
 
Class B Common Convertible Stock
   
12,054
   
12,071
   
12,049
   
12,070
 
Total weighted average common shares outstanding - basic
   
107,139
   
95,726
   
107,500
   
98,572
 
Stock options
   
3,457
   
3,101
   
3,655
   
3,381
 
Preferred stock
   
4,992
   
1,089
   
4,992
   
2,178
 
Weighted average common shares outstanding - diluted
   
115,588
   
99,916
   
116,147
   
104,131
 
                           
Earnings per common share - basic:
                         
Class A Common Stock
 
$
1.20
 
$
0.78
 
$
0.73
 
$
0.36
 
Class B Common Convertible Stock
 
$
1.09
 
$
0.71
 
$
0.67
 
$
0.32
 
Earnings per common share - diluted
 
$
1.14
 
$
0.75
 
$
0.69
 
$
0.34
 

Stock options to purchase 0.9 million shares of Class A Common Stock at a weighted average price per share of $27.58 were outstanding during the six months ended August 31, 2003, but were not included in the computation of the diluted earnings per common share because the stock options’ exercise price was greater than the average market price of the Class A Common Stock for the period. There were no anti-dilutive options outstanding during the six months ended August 31, 2004. In addition, there were no anti-dilutive options outstanding during the three months ended August 31, 2004, or August 31, 2003.

11) STOCK-BASED COMPENSATION:

The Company applies the intrinsic value method described in Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based employee compensation plans. In accordance with APB No. 25, the compensation cost for stock options is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. Options granted under the Company’s plans have an exercise price equal to the market value of the underlying common stock on the date of grant; therefore, no incremental compensation expense has been recognized for grants made to employees under the Company’s stock option plans. The Company utilizes the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," as amended. (See Note 16 for additional discussion regarding a proposed statement dealing with Share Based Payments.) The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.


 
  10  

 

   
For the Six Months
Ended August 31,
 
For the Three Months
Ended August 31,
 
   
2004
 
2003
 
2004
 
2003
 
(in thousands, except per share data)
                 
Net income, as reported
 
$
131,943
 
$
74,753
 
$
80,614
 
$
35,564
 
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects
   
32
   
120
   
17
   
15
 
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
   
(10,476
)
 
(4,809
)
 
(7,842
)
 
(2,344
)
Pro forma net income
 
$
121,499
 
$
70,064
 
$
72,789
 
$
33,235
 
                           
Earnings per common share - basic:
                         
Class A Common Stock, as reported
 
$
1.20
 
$
0.78
 
$
0.73
 
$
0.36
 
Class B Common Convertible Stock, as reported
 
$
1.09
 
$
0.71
 
$
0.67
 
$
0.32
 
                           
Class A Common Stock, pro forma
 
$
1.10
 
$
0.73
 
$
0.66
 
$
0.33
 
Class B Common Convertible Stock, pro forma
 
$
1.00
 
$
0.67
 
$
0.60
 
$
0.30
 
                           
Earnings per common share - diluted, as reported
 
$
1.14
 
$
0.75
 
$
0.69
 
$
0.34
 
Earnings per common share - diluted, pro forma
 
$
1.05
 
$
0.70
 
$
0.63
 
$
0.32
 


 
12) COMPREHENSIVE INCOME:

Comprehensive income consists of net income, foreign currency translation adjustments, net unrealized gains or losses on derivative instruments, net unrealized gains or losses on available-for-sale marketable equity securities and minimum pension liability adjustments. The reconciliation of net income to comprehensive income is as follows:
 
   
For the Six Months
Ended August 31,
 
For the Three Months
Ended August 31,
 
   
2004
 
2003
 
2004
 
2003
 
(in thousands)
                 
Net income
 
$
131,943
 
$
74,753
 
$
80,614
 
$
35,564
 
Other comprehensive income, net of tax:
                         
Foreign currency translation adjustments
   
(124,245
)
 
106,117
   
(19,500
)
 
(21,654
)
Cash flow hedges:
                         
Net derivative (losses) gains, net of tax benefit (expense) of $9,948, ($9,148), $484 and ($2,127), respectively
   
(23,097
)
 
21,295
   
(1,201
)
 
8,813
 
Reclassification adjustments, net of tax expense (benefit) of $659, ($612), ($844) and ($612), respectively
   
1,434
   
(1,343
)
 
(1,977
)
 
(1,343
)
Net cash flow hedges
   
(21,663
)
 
19,952
   
(3,178
)
 
7,470
 
Unrealized gains (losses) on marketable equity securities, net of tax (expense) benefit of ($17), $347, ($62) and $347, respectively
   
39
   
(810
)
 
(143
)
 
(810
)
    Minimum pension liability adjustment, net of tax (expense) benefit of ($813), $148, ($316) and ($874), respectively
   
1,921
   
(271
)
 
790
   
1,547
 
Total comprehensive (loss) income
 
$
(12,005
)
$
199,741
 
$
58,583
 
$
22,117
 


 
  11  

 

Accumulated other comprehensive income (loss) ("AOCI"), net of tax effects, includes the following components:
 
   
Foreign
Currency
Translation
Adjustments
 
Net
Unrealized
Gains on
Derivatives
 
Unrealized
Loss on
Marketable
Equity
Securities
 
Minimum
Pension
Liability
Adjustment
 
Accumulated
Other
Comprehensive
Income (Loss)
 
(in thousands)
                     
Balance, February 29, 2004
 
$
393,972
 
$
36,949
 
$
(432
)
$
(58,187
)
$
372,302
 
Current period change
   
(124,245
)
 
(21,663
)
 
39
   
1,921
   
(143,948
)
Balance, August 31, 2004
 
$
269,727
 
$
15,286
 
$
(393
)
$
(56,266
)
$
228,354
 

The Company has an investment in marketable equity securities with an aggregate fair value of $13.6 million and $14.8 million as of August 31, 2004, and February 29, 2004, respectively, which is classified as an available-for-sale security. As such, gross unrealized losses of $0.6 million as of August 31, 2004, and February 29, 2004, are included, net of applicable income taxes, within AOCI. The Company uses the average cost method as its basis on which cost is determined in computing realized gains or losses. There were no realized gains or losses on sales of securities during the six months and three months ended August 31, 2004. Realized gains on sales of securities during the six months and three months ended August 31, 2003, are immaterial.

13)       RESTRUCTURING AND RELATED CHARGES:

For the six months ended August 31, 2004, the Company recorded $2.8 million of restructuring and related charges associated with the restructuring plan of the Constellation Wines segment. Restructuring and related charges resulted from the further realignment of business operations as previously announced in fiscal 2004, and included $1.4 million of employee termination benefit costs (net of reversal of prior accruals of $0.2 million), $0.6 million of facility consolidation and relocation costs, and other related charges of $0.8 million. For the six months ended August 31, 2003, the Company recorded $19.4 million of restructuring and related charges associated with the restructuring plan of the Constellation Wines segment. In addition, in connection with the Company’s decision to exit the commodity concentrate product line in the U.S., the Company recorded a write-down of commodity concentrate inventory of $16.8 million for the three months ended August 31, 2003, which was recorded in cost of product sold.

The Company recorded restructuring and related charges of $1.6 million for the three months ended May 31, 2004, including $1.2 million of employee termination benefit costs, $0.3 million of facility consolidation and relocation costs, and other related charges of $0.1 million. For the three months ended May 31, 2003, the Company recorded $2.3 million of restructuring and related charges associated with the restructuring plan of the Constellation Wines segment.

The Company recorded restructuring and related charges of $1.2 million for the three months ended August 31, 2004, including $0.2 million of employee termination benefit costs (net of reversal of prior accruals of $0.2 million), $0.3 million of facility consolidation and relocation costs, and other related charges of $0.7 million. For the three months ended August 31, 2003, the Company recorded $17.1 million of restructuring and related charges associated with the restructuring plan of the Constellation Wines segment.


 
  12  

 

The Company estimates that the completion of the restructuring actions will include (i) a total of $9.0 million of employee termination benefit costs through February 28, 2005, of which $8.2 million has been incurred through August 31, 2004, (ii) a total of $18.0 million of grape contract termination costs through February 28, 2005, of which $17.7 million has been incurred through August 31, 2004, and (iii) a total of $4.9 million of facility consolidation and relocation costs through February 28, 2005, of which $2.5 million has been incurred through August 31, 2004. The Company has incurred other costs related to the restructuring plan for the disposal of fixed assets and other costs of realigning the business operations of the Constellation Wines segment. The Company expects to incur additional costs of realigning the business operations of $1.7 million during the year ending February 28, 2005, of which $0.8 million has been incurred through August 31, 2004.

The following table illustrates the changes in the restructuring liability balance since February 29, 2004:

 
   
Employee
Termination
Benefit
Costs
 
Grape
Contract
Termination
Costs
 
Facility
Consolidation/
Relocation
Costs
 
Total
 
(in thousands)
                 
Balance, February 29, 2004
 
$
1,539
 
$
1,048
 
$
-
 
$
2,587
 
Restructuring charges
   
1,231
   
-
   
256
   
1,487
 
Cash expenditures
   
(1,575
)
 
-
   
(256
)
 
(1,831
)
Foreign currency adjustments
   
(55
)
 
-
   
-
   
(55
)
Balance, May 31, 2004
   
1,140
   
1,048
   
-
   
2,188
 
Restructuring charges
   
382
   
-
   
358
   
740
 
Reversal of prior accruals
   
(228
)
 
-
   
-
   
(228
)
Cash expenditures
   
(373
)
 
-
   
(358
)
 
(731
)
Foreign currency adjustments
   
(11
)
 
-
   
-
   
(11
)
Balance, August 31, 2004
 
$
910
 
$
1,048
 
$
-
 
$
1,958
 


14) CONDENSED CONSOLIDATING FINANCIAL INFORMATION:

Subsequent to February 29, 2004, four subsidiaries of the Company which were previously included as Subsidiary Nonguarantors (as defined below) became Subsidiary Guarantors (as defined below) under the Company’s existing indentures. As such, the following information sets forth the condensed consolidating balance sheets of the Company as of August 31, 2004, and February 29, 2004, the condensed consolidating statements of income for the six months and three months ended August 31, 2004, and August 31, 2003, and the condensed consolidating statements of cash flows for the six months ended August 31, 2004, and August 31, 2003, for the Company, the parent company, the combined subsidiaries of the Company which guarantee the Company’s senior notes and senior subordinated notes ("Subsidiary Guarantors") and the combined subsidiaries of the Company which are not Subsidiary Guarantors, primarily Matthew Clark and Hardy and their subsidiaries, which are included in the Constellation Wines segment ("Subsidiary Nonguarantors"), as if the new Subsidiary Guarantors had been in place as of and for all periods presented. The Subsidiary Guarantors are wholly owned and the guarantees are full, unconditional, joint and several obligations of each of the Subsidiary Guarantors. Separate financial statements for the Subsidiary Guarantors of the Company are not presented because the Company has determined that such financial statements would not be material to investors. The accounting policies of the parent company, the Subsidiary Guarantors and the Subsidiary Nonguarantors are the same as those described for the Company in the Summary of Significant Accounting Policies in Note 1 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2004, and include the recently adopted accounting pronouncements described in Note 2 herein. There are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to the Company in the form of cash dividends, loans or advances.
 

 
  13  

 
 

   
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
 
(in thousands)
                     
Condensed Consolidating Balance Sheet at August 31, 2004
 
Current assets:
                     
Cash and cash investments
 
$
737
 
$
1,291
 
$
7,740
 
$
-
 
$
9,768
 
Accounts receivable, net
   
115,653
   
211,396
   
462,032
   
-
   
789,081
 
Inventories
   
12,665
   
697,885
   
618,212
   
(10,014
)
 
1,318,748
 
Prepaid expenses and other
   
15,856
   
110,297
   
50,846
   
-
   
176,999
 
Intercompany (payable) receivable
   
(468,880
)
 
(102,263
)
 
571,143
   
-
   
-
 
Total current assets
   
(323,969
)
 
918,606
   
1,709,973
   
(10,014
)
 
2,294,596
 
Property, plant and equipment, net
   
50,640
   
412,557
   
598,081
   
-
   
1,061,278
 
Investments in subsidiaries
   
4,402,623
   
1,801,493
   
-
   
(6,204,116
)
 
-
 
Goodwill
   
51,172
   
583,079
   
857,674
   
-
   
1,491,925
 
Intangible assets, net
   
10,572
   
386,851
   
322,614
   
-
   
720,037
 
Other assets, net
   
31,062
   
2,341
   
54,411
   
-
   
87,814
 
Total assets
 
$
4,222,100
 
$
4,104,927
 
$
3,542,753
 
$
(6,214,130
)
$
5,655,650
 
                                 
Current liabilities:
                               
Notes payable to banks
 
$
139,000
 
$
-
 
$
54,596
 
$
-
 
$
193,596
 
Current maturities of long-term debt
   
72,565
   
3,482
   
3,296
   
-
   
79,343
 
Accounts payable
   
35,897
   
112,812
   
254,364
   
-
   
403,073
 
Accrued excise taxes
   
8,676
   
32,619
   
28,303
   
-
   
69,598
 
Other accrued expenses and liabilities
   
116,004
   
70,050
   
271,272
   
332
   
457,658
 
Total current liabilities
   
372,142
   
218,963
   
611,831
   
332
   
1,203,268
 
Long-term debt, less current maturities
   
1,686,496
   
6,488
   
27,604
   
-
   
1,720,588
 
Deferred income taxes
   
45,480
   
120,792
   
31,563
   
-
   
197,835
 
Other liabilities
   
3,885
   
22,143
   
126,762
   
-
   
152,790
 
Stockholders’ equity:
                               
Preferred stock
   
2
   
-
   
-
   
-
   
2
 
Class A and Class B common stock
   
1,129
   
6,443
   
141,573
   
(148,016
)
 
1,129
 
Additional paid-in capital
   
1,043,467
   
1,952,157
   
2,415,934
   
(4,368,091
)
 
1,043,467
 
Retained earnings
   
1,148,441
   
1,588,158
   
99,851
   
(1,699,216
)
 
1,137,234
 
Accumulated other comprehensive (loss) income
   
(49,925
)
 
189,783
   
87,635
   
861
   
228,354
 
Treasury stock and other
   
(29,017
)
 
-
   
-
   
-
   
(29,017
)
Total stockholders’ equity
   
2,114,097
   
3,736,541
   
2,744,993
   
(6,214,462
)
 
2,381,169
 
Total liabilities and stockholders’ equity
 
$
4,222,100
 
$
4,104,927
 
$
3,542,753
 
$
(6,214,130
)
$
5,655,650
 
                                 
Condensed Consolidating Balance Sheet at February 29, 2004
Current assets:
                               
Cash and cash investments
 
$
1,048
 
$
4,664
 
$
31,424
 
$
-
 
$
37,136
 
Accounts receivable, net
   
137,422
   
145,152
   
353,336
   
-
   
635,910
 
Inventories
   
9,922
   
696,928
   
561,900
   
(7,372
)
 
1,261,378
 
Prepaid expenses and other
   
8,734
   
72,788
   
55,525
   
-
   
137,047
 
Intercompany (payable) receivable
   
(381,765
)
 
(176,470
)
 
558,235
   
-
   
-
 
Total current assets
   
(224,639
)
 
743,062
   
1,560,420
   
(7,372
)
 
2,071,471
 
Property, plant and equipment, net
   
50,022
   
409,852
   
637,488
   
-
   
1,097,362
 
Investments in subsidiaries
   
4,270,871
   
1,757,700
   
-
   
(6,028,571
)
 
-
 
Goodwill
   
50,338
   
586,259
   
904,040
   
-
   
1,540,637
 
Intangible assets, net
   
10,572
   
385,581
   
348,825
   
-
   
744,978
 
Other assets, net
   
36,041
   
2,146
   
66,038
   
-
   
104,225
 
Total assets
 
$
4,193,205
 
$
3,884,600
 
$
3,516,811
 
$
(6,035,943
)
$
5,558,673
 

 
  14  

 


   
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
 
(in thousands)
                     
Current liabilities:
                     
Notes payable to banks
 
$
-
 
$
-
 
$
1,792
 
$
-
 
$
1,792
 
Current maturities of long-term debt
   
260,061
   
3,949
   
3,235
   
-
   
267,245
 
Accounts payable
   
33,631
   
67,459
   
169,201
   
-
   
270,291
 
Accrued excise taxes
   
8,005
   
15,344
   
25,116
   
-
   
48,465
 
Other accrued expenses and liabilities
   
151,534
   
23,352
   
267,123
   
-
   
442,009
 
Total current liabilities
   
453,231
   
110,104
   
466,467
   
-
   
1,029,802
 
Long-term debt, less current maturities
   
1,739,221
   
8,510
   
31,122
   
-
   
1,778,853
 
Deferred income taxes
   
56,815
   
119,704
   
10,891
   
-
   
187,410
 
Other liabilities
   
6,209
   
21,646
   
157,134
   
-
   
184,989
 
Stockholders’ equity:
                               
Preferred stock
   
2
   
-
   
-
   
-
   
2
 
Class A and Class B common stock
   
1,117
   
6,443
   
141,573
   
(148,016
)
 
1,117
 
Additional paid-in capital
   
1,024,048
   
1,977,179
   
2,418,614
   
(4,395,793
)
 
1,024,048
 
Retained earnings
   
1,017,565
   
1,431,384
   
53,378
   
(1,492,134
)
 
1,010,193
 
Accumulated other comprehensive (loss) income
   
(74,960
)
 
209,630
   
237,632
   
-
   
372,302
 
Treasury stock and other
   
(30,043
)
 
-
   
-
   
-
   
(30,043
)
Total stockholders’ equity
   
1,937,729
   
3,624,636
   
2,851,197
   
(6,035,943
)
 
2,377,619
 
Total liabilities and stockholders’ equity
 
$
4,193,205
 
$
3,884,600
 
$
3,516,811
 
$
(6,035,943
)
$
5,558,673
 
 
Condensed Consolidating Statement of Income for the Six Months Ended August 31, 2004
Sales
 
$
386,014
 
$
1,043,690
 
$
1,222,083
 
$
(177,230
)
$
2,474,557
 
Less - excise taxes
   
(66,335
)
 
(224,885
)
 
(219,091
)
 
-
   
(510,311
)
Net sales
   
319,679
   
818,805
   
1,002,992
   
(177,230
)
 
1,964,246
 
Cost of product sold
   
(292,303
)
 
(487,190
)
 
(818,003
)
 
173,395
   
(1,424,101
)
Gross profit
   
27,376
   
331,615
   
184,989
   
(3,835
)
 
540,145
 
Selling, general and administrative expenses
   
(72,987
)
 
(102,139
)
 
(95,657
)
 
-
   
(270,783
)
Restructuring and related charges
   
-
   
(1,535
)
 
(1,247
)
 
-
   
(2,782
)
Operating (loss) income
   
(45,611
)
 
227,941
   
88,085
   
(3,835
)
 
266,580
 
Gain on change in fair value of derivative instruments
   
-
   
-
   
-
   
-
   
-
 
Equity in earnings of equity method investees and subsidiaries
   
156,774
   
46,473
   
262
   
(203,247
)
 
262
 
Interest income (expense), net
   
10,796
   
(55,596
)
 
(15,881
)
 
-
   
(60,681
)
Income before income taxes
   
121,959
   
218,818
   
72,466
   
(207,082
)
 
206,161
 
Benefit from (provision for) income taxes
   
13,819
   
(62,044
)
 
(25,993
)
 
-
   
(74,218
)
Net income
   
135,778
   
156,774
   
46,473
   
(207,082
)
 
131,943
 
Dividends on preferred stock
   
(4,902
)
 
-
   
-
   
-
   
(4,902
)
Income available to common stockholders
 
$
130,876
 
$
156,774
 
$
46,473
 
$
(207,082
)
$
127,041
 

 
  15  

 


   
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
 
(in thousands)
                     
Condensed Consolidating Statement of Income for the Six Months Ended August 31, 2003
 
Sales
 
$
379,913
 
$
1,109,997
 
$
852,076
 
$
(201,229
)
$
2,140,757
 
Less - excise taxes
   
(65,204
)
 
(215,308
)
 
(176,379
)
 
-
   
(456,891
)
Net sales
   
314,709
   
894,689
   
675,697
   
(201,229
)
 
1,683,866
 
Cost of product sold
   
(278,296
)
 
(616,823
)
 
(540,167
)
 
201,037
   
(1,234,249
)
Gross profit
   
36,413
   
277,866
   
135,530
   
(192
)
 
449,617
 
Selling, general and administrative expenses
   
(62,985
)
 
(98,601
)
 
(73,509
)
 
-
   
(235,095
)
Restructuring and related charges
   
-
   
(18,095
)
 
(1,304
)
 
-
   
(19,399
)
Operating (loss) income
   
(26,572
)
 
161,170
   
60,717
   
(192
)
 
195,123
 
Gain on change in fair value of derivative instruments
   
1,181
   
-
   
-
   
-
   
1,181
 
Equity in earnings of equity method investees and subsidiaries
   
93,096
   
38,599
   
299
   
(131,155
)
 
839
 
Interest income (expense), net
   
1,167
   
(76,531
)
 
(4,977
)
 
-
   
(80,341
)
Income before income taxes
   
68,872
   
123,238
   
56,039
   
(131,347
)
 
116,802
 
Benefit from (provision for) income taxes
   
6,073
   
(30,142
)
 
(17,980
)
 
-
   
(42,049
)
Net income
   
74,945
   
93,096
   
38,059
   
(131,347
)
 
74,753
 
Dividends on preferred stock
   
(844
)
 
-
   
-
   
-
   
(844
)
Income available to common stockholders
 
$
74,101
 
$
93,096
 
$
38,059
 
$
(131,347
)
$
73,909
 
                                 
Condensed Consolidating Statement of Income for the Three Months Ended August 31, 2004
Sales
 
$
215,474
 
$
554,942
 
$
636,445
 
$
(106,619
)
$
1,300,242
 
Less - excise taxes
   
(34,480
)
 
(115,666
)
 
(113,155
)
 
-
   
(263,301
)
Net sales
   
180,994
   
439,276
   
523,290
   
(106,619
)
 
1,036,941
 
Cost of product sold
   
(161,191
)
 
(263,446
)
 
(426,237
)
 
103,616
   
(747,258
)
Gross profit
   
19,803
   
175,830
   
97,053
   
(3,003
)
 
289,683
 
Selling, general and administrative expenses
   
(34,143
)
 
(50,072
)
 
(48,140
)
 
-
   
(132,355
)
Restructuring and related charges
   
-
   
(234
)
 
(935
)
 
-
   
(1,169
)
Operating (loss) income
   
(14,340
)
 
125,524
   
47,978
   
(3,003
)
 
156,159
 
Gain on change in fair value of derivative instruments
   
-
   
-
   
-
   
-