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 November 30, 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 December 31, 2004, is set forth below:

 
Class
  
Number of Shares Outstanding
Class A Common Stock, Par Value $.01 Per Share
  
96,375,153
Class B Common Stock, Par Value $.01 Per Share
  
11,980,530
 

 
 
     
 
 

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)
 
   
November 30,
 
February 29,
  
   
2004
 
2004
 
ASSETS
         
CURRENT ASSETS:
             
Cash and cash investments
 
$
12,754
 
$
37,136
 
Accounts receivable, net
   
906,317
   
635,910
 
Inventories
   
1,443,430
   
1,261,378
 
Prepaid expenses and other
   
185,626
   
137,047
 
Total current assets
   
2,548,127
   
2,071,471
 
PROPERTY, PLANT AND EQUIPMENT, net
   
1,124,070
   
1,097,362
 
GOODWILL
   
1,562,762
   
1,540,637
 
INTANGIBLE ASSETS, net
   
748,106
   
744,978
 
OTHER ASSETS, net
   
96,819
   
104,225
 
Total assets
 
$
6,079,884
 
$
5,558,673
 
               
               
LIABILITIES AND STOCKHOLDERS' EQUITY
             
CURRENT LIABILITIES:
             
Notes payable to banks
 
$
226,058
 
$
1,792
 
Current maturities of long-term debt
   
85,838
   
267,245
 
Accounts payable
   
383,416
   
270,291
 
Accrued excise taxes
   
73,579
   
48,465
 
Other accrued expenses and liabilities
   
558,682
   
442,009
 
Total current liabilities
   
1,327,573
   
1,029,802
 
LONG-TERM DEBT, less current maturities
   
1,716,685
   
1,778,853
 
DEFERRED INCOME TAXES
   
206,429
   
187,410
 
OTHER LIABILITIES
   
159,954
   
184,989
 
STOCKHOLDERS' EQUITY:
             
Preferred Stock, $.01 par value-
  Authorized, 1,000,000 shares;
  Issued, 170,500 shares at November 30, 2004, and
  February 29, 2004 (Aggregate liquidation preference
  of $172,951 at November 30, 2004)
   
2
   
2
 
Class A Common Stock, $.01 par value-
  Authorized, 275,000,000 shares;
  Issued, 98,776,349 shares at November 30, 2004,
  and 97,150,219 shares at February 29, 2004
   
988
   
971
 
Class B Convertible Common Stock, $.01 par value-
  Authorized, 30,000,000 shares;
  Issued, 14,484,030 shares at November 30, 2004,
  and 14,564,630 shares at February 29, 2004
   
145
   
146
 
Additional paid-in capital
   
1,051,022
   
1,024,048
 
Retained earnings
   
1,231,676
   
1,010,193
 
Accumulated other comprehensive income
   
414,474
   
372,302
 
     
2,698,307
   
2,407,662
 
Less-Treasury stock-
             
Class A Common Stock, 2,482,058 shares at
  November 30, 2004, and 2,583,608 shares at
  February 29, 2004, at cost
   
(26,774
)
  
(27,786
)
Class B Convertible Common Stock, 2,502,900 shares
  at November 30, 2004, and February 29, 2004, at cost
   
(2,207
)
  
(2,207
)
     
(28,981
)
  
(29,993
)
Less-Unearned compensation-restricted stock awards
   
(83
)
  
(50
)
Total stockholders' equity
   
2,669,243
   
2,377,619
 
Total liabilities and stockholders' equity
 
$
6,079,884
 
$
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 Nine Months Ended November 30,
 
For the Three Months Ended November 30,
 
   
2004
 
2003
 
2004
 
2003
 
SALES
 
$
3,834,988
 
$
3,354,298
 
$
1,360,431
 
$
1,213,541
 
Less - Excise taxes
   
(785,031
)
  
(683,184
)
  
(274,720
)
  
(226,293
)
Net sales
   
3,049,957
   
2,671,114
   
1,085,711
   
987,248
 
COST OF PRODUCT SOLD
   
(2,196,148
)
  
(1,938,881
)
  
(772,047
)
  
(704,632
)
Gross profit
   
853,809
   
732,233
   
313,664
   
282,616
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
   
(401,116
)
  
(348,428
)
  
(130,333
)
  
(113,333
)
RESTRUCTURING AND RELATED CHARGES
   
(4,426
)
  
(27,487
)
  
(1,644
)
  
(8,088
)
Operating income
   
448,267
   
356,318
   
181,687
   
161,195
 
GAIN ON CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS  
  
-
   
1,181
   
-
   
-
 
EQUITY IN EARNINGS OF EQUITY METHOD INVESTEES
   
621
   
965
   
359
   
126
 
INTEREST EXPENSE, net
   
(91,332
)
  
(112,230
)
  
(30,651
)
  
(31,889
)
Income before income taxes
   
357,556
   
246,234
   
151,395
   
129,432
 
PROVISION FOR INCOME TAXES
   
(128,720
)
  
(88,641
)
  
(54,502
)
  
(46,592
)
NET INCOME
   
228,836
   
157,593
   
96,893
   
82,840
 
Dividends on preferred stock
   
(7,353
)
  
(3,294
)
  
(2,451
)
  
(2,450
)
INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
221,483
 
$
154,299
 
$
94,442
 
$
80,390
 
                           
                           
SHARE DATA:
                         
Earnings per common share:
                         
Basic - Class A Common Stock
 
$
2.08
 
$
1.58
 
$
0.88
 
$
0.77
 
Basic - Class B Common Stock
 
$
1.89
 
$
1.43
 
$
0.80
 
$
0.70
 
Diluted
 
$
1.97
 
$
1.51
 
$
0.83
 
$
0.73
 
Weighted average common shares outstanding:
                         
Basic - Class A Common Stock
   
95,392
   
86,832
   
96,012
   
93,255
 
Basic - Class B Common Stock
   
12,035
   
12,070
   
11,997
   
12,068
 
Diluted
   
116,005
   
104,559
   
116,726
   
114,196
 
                           
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 Nine Months Ended November 30,
 
   
2004
 
2003
 
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net income
 
$
228,836
 
$
157,593
 
               
Adjustments to reconcile net income to net cash provided by operating activities:
     
Depreciation of property, plant and equipment
   
65,121
   
58,666
 
Deferred tax provision
   
33,524
   
4,622
 
Amortization of intangible and other assets
   
8,491
   
18,713
 
Loss on disposal of assets
   
4,225
   
2,108
 
Noncash portion of loss on extinguishment of debt
   
1,799
   
800
 
Stock-based compensation expense
   
69
   
208
 
Amortization of discount on long-term debt
   
53
   
59
 
Equity in earnings of equity method investees
   
(621
)
  
(965
)
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
   
(258,052
)
  
(218,730
)
Inventories
   
(189,406
)
  
32,305
 
Prepaid expenses and other current assets
   
(3,400
)
  
13,417
 
Accounts payable
   
108,358
   
23,615
 
Accrued excise taxes
   
24,103
   
23,845
 
Other accrued expenses and liabilities
   
59,966
   
39,989
 
Other, net
   
(1,644
)
  
24,458
 
Total adjustments
   
(147,414
)
  
21,929
 
Net cash provided by operating activities
   
81,422
   
179,522
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
             
Purchases of property, plant and equipment
   
(78,356
)
  
(70,584
)
Purchases of businesses, net of cash acquired
   
(8,899
)
  
(1,070,074
)
Payment of accrued earn-out amount
   
(2,617
)
  
(2,035
)
Proceeds from sale of assets
   
1,225
   
11,085
 
Proceeds from sale of business
   
-
   
4,431
 
Proceeds from sale of marketable equity securities
   
-
   
790
 
Net cash used in investing activities
   
(88,647
)
  
(1,126,387
)
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Principal payments of long-term debt
   
(254,606
)
  
(1,240,395
)
Payment of preferred stock dividends
   
(7,353
)
  
-
 
Payment of issuance costs of long-term debt
   
(901
)
  
(34,147
)
Net proceeds from notes payable
   
219,953
   
165,209
 
Exercise of employee stock options
   
25,257
   
23,756
 
Proceeds from employee stock purchases
   
2,441
   
1,822
 
Proceeds from issuance of long-term debt
   
-
   
1,600,000
 
Proceeds from equity offerings, net of fees
   
-
   
426,069
 
Net cash (used in) provided by financing activities
   
(15,209
)
  
942,314
 
               
Effect of exchange rate changes on cash and cash investments
   
(1,948
)
  
29,116
 
               
NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS
   
(24,382
)
  
24,565
 
CASH AND CASH INVESTMENTS, beginning of period
   
37,136
   
13,810
 
CASH AND CASH INVESTMENTS, end of period
 
$
12,754
 
$
38,375
 
               
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
     
Fair value of assets acquired, including cash acquired
 
$
14,906
 
$
1,790,142
 
Liabilities assumed
   
(6,007
)
  
(633,356
)
Net assets acquired
   
8,899
   
1,156,786
 
Less - stock issuance
   
-
   
(77,243
)
Less - direct acquisition costs accrued or previously paid
   
-
   
(7,964
)
Less - cash acquired
   
-
   
(1,505
)
Net cash paid for purchases of businesses
 
$
8,899
 
$
1,070,074
 
               
The accompanying notes are an integral part of these statements.

 
 
  3  
 

 
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 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 Current Report on Form 8-K dated August 19, 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. Earnings per share - basic reflects the application of EITF No. 03-6 and has been computed using the two-class method for all periods presented. Earnings 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 nine months ended November 30, 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:


   
November 30,
2004
  
February 29,
2004
  
(in thousands)
          
Raw materials and supplies
  
$
109,702
  
$
49,633
  
In-process inventories
    
817,059
    
803,200
  
Finished case goods
    
516,669
    
408,545
  
   
$
1,443,430
  
$
1,261,378
  

 
5) GOODWILL:

The changes in the carrying amount of goodwill for the nine months ended November 30, 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
    
4,000
    
-
    
4,000
  
Foreign currency translation adjustments
    
14,344
    
1,620
    
15,964
  
Purchase price earn-out
    
2,161
    
-
    
2,161
  
Balance, November 30, 2004
  
$
1,427,855
  
$
134,907
  
$
1,562,762
  

 

6) INTANGIBLE ASSETS:

The major components of intangible assets are:

   
November 30, 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
  
$
2,128
  
$
12,883
  
$
4,455
  
Other
    
4,023
    
47
    
4,021
    
64
  
Total
  
$
16,906
    
2,175
  
$
16,904
    
4,519
  
                           
Nonamortizable intangible assets:
                          
Trademarks
          
727,519
          
722,047
  
Agency relationships
          
18,412
          
18,412
  
Total
          
745,931
          
740,459
  
Total intangible assets
        
$
748,106
        
$
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 $2.3 million and $1.5 million for the nine months ended November 30, 2004, and November 30, 2003, respectively, and $0.7 million and $0.6 million for the three months ended November 30, 2004, and November 30, 2003, respectively. Estimated amortization expense for the remaining three months of fiscal 2005 and for each of the five succeeding fiscal years is as follows:

(in thousands)
      
2005
  
$
478
  
2006
  
$
1,319
  
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. Subsequent to November 30, 2004, the Company entered into a new senior credit facility (see Note 17).

As of November 30, 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
  
$
15,000
  
$
-
  
$
15,000
  
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
  
   
$
315,000
  
$
500,000
  
$
815,000
  

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 November 30, 2004, the LIBOR margin for the Revolving Credit facility was 1.50%, the LIBOR margin for the Tranche A Term Loan facility was 1.25%, and the LIBOR margin on the Tranche B Term Loan facility was 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 November 30, 2004, the Company is in compliance with all of its covenants under its Credit Agreement.

As of November 30, 2004, under the Credit Agreement, the Company had outstanding Tranche A Term Loans of $315.0 million bearing a weighted average interest rate of 3.3%, Tranche B Term Loans of $500.0 million bearing a weighted average interest rate of 3.5%, $160.0 million of revolving loans bearing a weighted average interest rate of 3.9%, undrawn revolving letters of credit of $23.7 million, and $216.3 million in revolving loans available to be drawn.

Subsidiary facilities -
The Company has additional line of credit facilities totaling $203.3 million as of November 30, 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 November 30, 2004, amounts outstanding under the subsidiary revolving credit facilities were $65.7 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 nine months ended November 30, 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.

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 Nine Months
Ended November 30,
  
For the Three Months
Ended November 30,
  
   
2004
  
2003
  
2004
  
2003
  
(in thousands)
                  
Service cost
  
$
1,639
  
$
1,652
  
$
565
  
$
551
  
Interest cost
    
12,078
    
10,854
    
4,070
    
3,618
  
Expected return on plan assets
    
(12,755
)
  
(11,367
)
  
(4,297
)
  
(3,789
)
Amortization of prior service cost
    
1,739
    
6
    
583
    
2
  
Recognized net actuarial loss
    
155
    
1,515
    
55
    
505
  
Net periodic benefit cost
  
$
2,856
  
$
2,660
  
$
976
  
$
887
  
 

 
  8  
 

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 Nine Months
Ended November 30,
  
For the Three Months
Ended November 30,
  
   
2004
  
2003
  
2004
  
2003
  
(in thousands)
                  
Service cost
  
$
157
  
$
111
  
$
54
  
$
37
  
Interest cost
    
252
    
211
    
86
    
70
  
Amortization of prior service cost
    
6
    
5
    
2
    
2
  
Recognized net actuarial loss
    
17
    
15
    
6
    
5
  
Net periodic benefit cost
  
$
432
  
$
342
  
$
148
  
$
114
  
 
Contributions of $2.7 million and $1.0 million have been made by the Company to fund its defined benefit pension plans for the nine months and three months ended November 30, 2004, respectively. The Company presently anticipates contributing an additional $0.9 million to fund its defined benefit pension plans in Fiscal 2005, resulting in total employer contributions of $3.6 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 Nine Months
Ended November 30,
  
For the Three Months
Ended November 30,
  
   
2004
  
2003
  
2004
  
2003
  
(in thousands, except per share data)
                  
Net income
  
$
228,836
  
$
157,593
  
$
96,893
  
$
82,840
  
Dividends on preferred stock
    
(7,353
)
  
(3,294
)
  
(2,451
)
  
(2,450
)
Income available to common stockholders
  
$
221,483
  
$
154,299
  
$
94,442
  
$
80,390
  
                           
Weighted average common shares outstanding - basic:
                          
Class A Common Stock
    
95,392
    
86,832
    
96,012
    
93,255
  
Class B Convertible Common Stock
    
12,035
    
12,070
    
11,997
    
12,068
  
Total weighted average common shares outstanding - basic
    
107,427
    
98,902
    
108,009
    
105,323
  
Stock options
    
3,586
    
3,227
    
3,725
    
3,484
  
Preferred stock
    
4,992
    
2,430
    
4,992
    
5,389
  
Weighted average common shares outstanding - diluted
    
116,005
    
104,559
    
116,726
    
114,196
  
                           
Earnings per common share - basic:
                          
Class A Common Stock
  
$
2.08
  
$
1.58
  
$
0.88
  
$
0.77
  
Class B Convertible Common Stock
  
$
1.89
  
$
1.43
  
$
0.80
  
$
0.70
  
Earnings per common share - diluted
  
$
1.97
  
$
1.51
  
$
0.83
  
$
0.73
  

Stock options to purchase 0.1 million shares of Class A Common Stock at a weighted average price per share of $37.55 and $30.82 were outstanding during the nine months ended November 30, 2004, and November 30, 2003, respectively, 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. Stock options to purchase 0.1 million shares of Class A Common Stock at a weighted average price per share of $31.01 were outstanding during the three months ended November 30, 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 three months ended November 30, 2004.

 
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 Statement of Financial Accounting Standards No. 123 (revised 2004) ("SFAS No. 123(R)"), "Share-Based Payment," which will become effective for the Company beginning September 1, 2005.) 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 Nine Months
Ended November 30,
  
For the Three Months
Ended November 30,
  
   
2004
  
2003
  
2004
  
2003
  
(in thousands, except per share data)
                  
Net income, as reported
  
$
228,836
  
$
157,593
  
$
96,893
  
$
82,840
  
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects
    
42
    
135
    
10
    
15
  
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
    
(16,854
)
  
(7,298
)
  
(6,378
)
  
(2,489
)
Pro forma net income
  
$
212,024
  
$
150,430
  
$
90,525
  
$
80,366
  
                           
Earnings per common share - basic:
                          
Class A Common Stock, as reported
  
$
2.08
  
$
1.58
  
$
0.88
  
$
0.77
  
Class B Convertible Common Stock, as reported
  
$
1.89
  
$
1.43
  
$
0.80
  
$
0.70
  
                           
Class A Common Stock, pro forma
  
$
1.92
  
$
1.50
  
$
0.82
  
$
0.75
  
Class B Convertible Common Stock, pro forma
  
$
1.75
  
$
1.37
  
$
0.75
  
$
0.68
  
                           
Earnings per common share - diluted, as reported
  
$
1.97
  
$
1.51
  
$
0.83
  
$
0.73
  
Earnings per common share - diluted, pro forma
  
$
1.82
  
$
1.44
  
$
0.77
  
$
0.70
  


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 Nine Months
Ended November 30,
  
For the Three Months
Ended November 30,
  
   
2004
  
2003
  
2004
  
2003
  
(in thousands)
                  
Net income
  
$
228,836
  
$
157,593
  
$
96,893
  
$
82,840
  
Other comprehensive income, net of tax:
                          
Foreign currency translation adjustments
    
55,077
    
320,237
    
179,322
    
214,120
  
Cash flow hedges:
                          
Net derivative (losses) gains, net of tax benefit (expense) of $7,920, ($13,936), ($2,027) and ($4,787), respectively
    
(17,997
)
  
32,432
    
5,100
    
11,137
  
Reclassification adjustments, net of tax (expense) benefit of ($2,603), $886, ($1,944) and $275, respectively
    
5,989
    
(1,939
)
  
4,555
    
(596
)
Net cash flow hedges
    
(12,008
)
  
30,493
    
9,655
    
10,541
  
Unrealized gains (losses) on marketable equity securities, net of tax (expense) benefit of ($278), $303, ($262) and ($44), respectively
    
649
    
(708
)
  
610
    
102
  
Minimum pension liability adjustment, net of tax benefit of $741, $1,838, $1,554 and $1,690, respectively
    
(1,546
)
  
(4,139
)
  
(3,467
)
  
(3,868
)
Total comprehensive income
  
$
271,008
  
$
503,476
  
$
283,013
  
$
303,735
  


 
  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) Gain
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
    
55,077
    
(12,008
)
  
649
    
(1,546
)
  
42,172
  
Balance, November 30, 2004
  
$
449,049
  
$
24,941
  
$
217
  
$
(59,733
)
$
414,474
  

The Company has an investment in marketable equity securities with an aggregate fair value of $15.8 million and $14.8 million as of November 30, 2004, and February 29, 2004, respectively.  The investment is classified as an available-for-sale security and is included in prepaid expenses and other on the Company's Consolidated Balance Sheet as of November 30, 2004, and February 29, 2004. As such, gross unrealized gains of $0.3 million and $0.6 million as of November 30, 2004, and February 29, 2004, respectively, 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 nine months and three months ended November 30, 2004. Realized gains on sales of securities during the nine months and three months ended November 30, 2003, are immaterial.

13) RESTRUCTURING AND RELATED CHARGES:

For the nine months ended November 30, 2004, the Company recorded $4.4 million of restructuring and related charges associated with the restructuring plan of the Constellation Wines segment. Restructuring and related charges resulted from (i) the further realignment of business operations as previously announced in fiscal 2004, and (ii) the Company’s July 2003 decision to exit the commodity concentrate product line in the U.S., and included $1.6 million of employee termination benefit costs (net of reversal of prior accruals of $0.2 million), $0.6 million of grape contract termination costs, $0.9 million of facility consolidation and relocation costs, and other related charges of $1.3 million. For the nine months ended November 30, 2003, the Company recorded $27.5 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 recorded restructuring and related charges of $1.6 million for the three months ended November 30, 2004, including $0.2 million of employee termination benefit costs, $0.6 million of grape contract termination costs, $0.3 million of facility consolidation and relocation costs, and other related charges of $0.5 million. For the three months ended November 30, 2003, the Company recorded $8.1 million of restructuring and related charges associated with the restructuring plan of the Constellation Wines segment.

The Company estimates that the completion of the restructuring actions will include (i) a total of $9.2 million of employee termination benefit costs through February 28, 2005, of which $8.4 million has been incurred through November 30, 2004, (ii) a total of $18.3 million of grape contract termination costs through February 28, 2005, of which $18.3 million has been incurred through November 30, 2004, and (iii) a total of $3.9 million of facility consolidation and relocation costs through February 28, 2005, of which $2.8 million has been incurred through November 30, 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 $2.3 million during the year ending February 28, 2005, of which $1.3 million has been incurred through November 30, 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
  
Restructuring charges
    
211
    
599
    
294
    
1,104
  
Cash expenditures
    
(642
)
  
(1,282
)
  
(294
)
  
(2,218
)
Foreign currency adjustments
    
(27
)
  
-
    
-
    
(27
)
Balance, November 30, 2004
  
$
452
  
$
365
  
$
-
  
$
817
  
 

 

 
  13  
 

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 November 30, 2004, and February 29, 2004, the condensed consolidating statements of income for the nine months and three months ended November 30, 2004, and November 30, 2003, and the condensed consolidating statements of cash flows for the nine months ended November 30, 2004, and November 30, 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 Current Report on Form 8-K dated August 19, 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.

   
Parent
Company
  
Subsidiary
Guarantors
  
Subsidiary
Nonguarantors
  
Eliminations
  
Consolidated
  
(in thousands)
                      
Condensed Consolidating Balance Sheet at November 30, 2004
  
Current assets:
                      
Cash and cash investments
  
$
2,313
  
$
2,206
  
$
8,235
  
$
-
  
$
12,754
  
Accounts receivable, net
    
136,735
    
229,574
    
540,008
    
-
    
906,317
  
Inventories
    
29,830
    
765,238
    
660,514
    
(12,152
)
  
1,443,430
  
Prepaid expenses and other
    
12,394
    
125,941
    
47,291
    
-
    
185,626
  
Intercompany (payable) receivable
    
(479,614
)
  
(115,333
)
  
594,947
    
-
    
-
  
Total current assets
    
(298,342
)
  
1,007,626
    
1,850,995
    
(12,152
)
  
2,548,127
  
Property, plant and equipment, net
    
36,280
    
430,145
    
657,645
    
-
    
1,124,070
  
Investments in subsidiaries
    
4,475,606
    
1,845,149
    
-
    
(6,320,755
)
  
-
  
Goodwill
    
-
    
636,117
    
926,645
    
-
    
1,562,762
  
Intangible assets, net
    
-
    
396,677
    
351,429
    
-
    
748,106
  
Other assets, net
    
31,531
    
2,338
    
62,950
    
-
    
96,819
  
Total assets
  
$
4,245,075
  
$
4,318,052
  
$
3,849,664
  
$
(6,332,907
)
$
6,079,884
  
                                 
Current liabilities:
                                
Notes payable to banks
  
$
160,000
  
$
-
  
$
66,058
  
$
-
  
$
226,058
  
Current maturities of long-term debt
    
78,816
    
3,546
    
3,476
    
-
    
85,838
  
Accounts payable
    
2,856
    
161,328
    
219,232
    
-
    
383,416
  
Accrued excise taxes
    
9,056
    
28,470
    
36,053
    
-
    
73,579
  
Other accrued expenses and liabilities
    
115,347
    
108,294
    
334,212
    
829
    
558,682
  
Total current liabilities
    
366,075
    
301,638
    
659,031
    
829
    
1,327,573
  
Long-term debt, less current maturities
    
1,681,821
    
6,490
    
28,374
    
-
    
1,716,685
  
Deferred income taxes
    
(14,978
)
  
188,880
    
32,527
    
-
    
206,429
  
Other liabilities
    
968
    
25,598
    
133,388
    
-
    
159,954
  

 
  14  
 


   
Parent
Company
  
Subsidiary
Guarantors
  
Subsidiary
Nonguarantors
  
Eliminations
  
Consolidated
  
 
(in thousands)
                      
Stockholders’ equity:
                      
Preferred stock
    
2
    
-
    
-
    
-
    
2
  
Class A and Class B common stock
    
1,133
    
6,443
    
141,573
    
(148,016
)
  
1,133
  
Additional paid-in capital
    
1,051,022
    
1,952,158
    
2,415,934
    
(4,368,092
)
  
1,051,022
  
Retained earnings
    
1,246,133
    
1,661,140
    
143,507
    
(1,819,104
)
  
1,231,676
  
Accumulated other comprehensive (loss) income
    
(58,037
)
  
175,705
    
295,330
    
1,476
    
414,474
  
Treasury stock and other
    
(29,064
)
  
-
    
-
    
-
    
(29,064
)
Total stockholders’ equity
    
2,211,189
    
3,795,446
    
2,996,344
    
(6,333,736
)
  
2,669,243
  
Total liabilities and stockholders’ equity
  
$
4,245,075
  
$
4,318,052
  
$
3,849,664
  
$
(6,332,907
)
$
6,079,884
  
                                 
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
    
(304,555
)
  
(253,680
)
  
558,235
    
-
    
-
  
Total current assets
    
(147,429
)
  
665,852
    
1,560,420
    
(7,372
)
  
2,071,471
  
Property, plant and equipment, net
    
33,722
    
426,152
    
637,488
    
-
    
1,097,362
  
Investments in subsidiaries
    
4,270,871
    
1,757,700
    
-
    
(6,028,571
)
  
-
  
Goodwill
    
-
    
636,597
    
904,040
    
-
    
1,540,637
  
Intangible assets, net
    
-
    
396,153
    
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
  
                                 
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
  

 
  15  
 


   
Parent
Company
  
Subsidiary
Guarantors
  
Subsidiary
Nonguarantors
  
Eliminations
  
Consolidated
  
 (in thousands)  
Condensed Consolidating Statement of Income for the Nine Months Ended November 30, 2004
  
Sales
  
$
600,787
  
$
1,642,333
  
$
1,927,756
  
$
(335,888
)
$
3,834,988
  
Less - excise taxes
    
(107,996
)
  
(335,072
)
  
(341,963
)
  
-
    
(785,031
)
Net sales
    
492,791
    
1,307,261
    
1,585,793
    
(335,888
)
  
3,049,957
  
Cost of product sold
    
(398,265
)
  
(834,829
)
  
(1,291,857
)
  
328,803
    
(2,196,148
)
Gross profit
    
94,526
    
472,432
    
293,936
    
(7,085
)
  
853,809
  
Selling, general and administrative expenses
    
(106,653
)
  
(156,631
)
  
(137,832
)
  
-
    
(401,116
)
Restructuring and related charges
    
-
    
(2,313
)
  
(2,113
)
  
-
    
(4,426
)
Operating (loss) income
    
(12,127
)
  
313,488
    
153,991
    
(7,085
)
  
448,267
  
Gain on change in fair value of derivative instruments
    
-
    
-
    
-
    
-
    
-
  
Equity in earnings of equity method investees and subsidiaries
    
229,756
    
90,129
    
621
    
(319,885
)
  
621
  
Interest income (expense), net
    
16,199
    
(82,701
)
  
(24,830
)
  
-
    
(91,332
)
Income before income taxes
    
233,828
    
320,916
    
129,782
    
(326,970
)
  
357,556
  
Benefit from (provision for) income taxes
    
2,093
    
(91,160
)
  
(39,653
)
  
-
    
(128,720
)
Net income
    
235,921
    
229,756
    
90,129
    
(326,970
)
  
228,836
  
Dividends on preferred stock
    
(7,353
)
  
-
    
-
    
-
    
(7,353
)
Income available to common stockholders
  
$
228,568
  
$
229,756
  
$
90,129
  
$
(326,970
)
$
221,483
  
                                 
Condensed Consolidating Statement of Income for the Nine Months Ended November 30, 2003
Sales
  
$
603,162
  
$
1,625,571
  
$
1,345,163
  
$
(219,598
)
$
3,354,298
  
Less - excise taxes
    
(106,045
)
  
(328,476
)
  
(248,663
)
  
-
    
(683,184
)
Net sales
    
497,117
    
1,297,095
    
1,096,500
    
(219,598
)
  
2,671,114
  
Cost of product sold
    
(428,529
)
  
(859,180
)
  
(863,918
)
  
212,746
    
(1,938,881
)
Gross profit
    
68,588
    
437,915
    
232,582
    
(6,852
)
  
732,233
  
Selling, general and administrative expenses
    
(92,452
)
  
(138,051
)
  
(117,925
)
  
-
    
(348,428
)
Restructuring and related charges
    
-
    
(26,061
)
  
(1,426
)
  
-
    
(27,487
)
Operating (loss) income
    
(23,864
)
  
273,803
    
113,231
    
(6,852
)
  
356,318
  
Gain on change in fair value of derivative instruments
    
1,181
    
-
    
-
    
-
    
1,181
  
Equity in earnings of equity method investees and subsidiaries
    
177,392
    
75,395
    
425
    
(252,247
)
  
965
  
Interest income (expense), net
    
9,256
    
(116,730
)
  
(4,756
)
  
-
    
(112,230
)
Income before income taxes
    
163,965
    
232,468
    
108,900
    
(259,099
)
  
246,234
  
Benefit from (provision for) income taxes
    
480
    
(55,076
)
  
(34,045
)
  
-
    
(88,641
)
Net income
    
164,445
    
177,392
    
74,855
    
(259,099
)
  
157,593
  
Dividends on preferred stock
    
(3,294
)
  
-
    
-
    
-
    
(3,294
)
Income available to common stockholders
  
$
161,151
  
$
177,392
  
$
74,855
  
$
(259,099
)
$
154,299
  

 
  16  
 


   
Parent
Company
  
Subsidiary
Guarantors
  
Subsidiary
Nonguarantors