- Company achieves significant margin improvement FAIRPORT, N.Y.,
Jan. 7 /PRNewswire-FirstCall/ -- Constellation Brands, Inc.
(NYSE:STZNYSE:ASX:NYSE:CBR), the world's largest wine company and a
leading international producer and marketer of beverage alcohol,
today reported its fiscal 2009 third quarter results. "We are
pleased with our performance especially given the challenging
economic conditions that evolved over the course of the year,"
stated Rob Sands, Constellation Brands president and chief
executive officer. "We have significantly improved margins, grown
free cash flow, monetized assets and rapidly reduced debt." (Logo:
http://www.newscom.com/cgi-bin/prnh/20040119/STZLOGO ) On a
reported basis, the company recorded net income of $84 million, or
$0.38 diluted earnings per share ("EPS") for the quarter ended Nov.
30, 2008 ("third quarter 2009"), compared with net income of $120
million or $0.55 diluted EPS for the prior year. Constellation's
third quarter 2009 net income on a comparable basis, which excludes
restructuring charges, acquisition-related integration costs and
unusual items, totaled $132 million versus $121 million for the
prior year, with $0.60 diluted EPS for the quarter versus $0.55 for
the prior year. Third Quarter 2009 Net Sales Highlights* (in
millions) Reported Organic Constant Constant Net Currency Net
Currency Sales Change Change Sales Change Change ----- ------
------ ----- ------ ------ Consolidated $1,031 -6% 1% $977 -6% 1%
Branded Wine $849 -7% - $795 -9% -2% Spirits $111 -5% -5% $111 5%
5% Third Quarter 2009 Profit Highlights* (in millions, except per
share data) Reported Change Comparable Change -------- ------
---------- ------ Operating income $198 - $219 9% Equity in
earnings of equity method investees** $76 3% $76 2% Earnings before
interest and taxes (EBIT) - - $295 7% Operating margin 19.2% 110
bps 21.2% 290 bps Net income $84 -30% $132 9% Diluted earnings per
share $0.38 -31% $0.60 9% * Definitions of reported, comparable,
organic and constant currency, as well as reconciliations of
non-GAAP financial measures, are contained elsewhere in this news
release. ** Hereafter referred to as "equity earnings." Net Sales
Commentary Reported consolidated net sales decreased six percent
primarily due to the impact of year-over-year currency exchange
rate fluctuations. The net sales benefit from the acquisition of
the Clos du Bois and Wild Horse brands was essentially offset by
the divestiture of the Almaden, Inglenook and certain Pacific
Northwest wine brands, and certain spirits contract production
services. Organic net sales increased one percent on a constant
currency basis. The company continues to execute its strategy of
implementing price increases and SKU reductions in its key markets.
While these actions have unfavorably impacted volume growth, they
have enhanced worldwide wine margins and ROIC. Branded wine organic
net sales on a constant currency basis decreased two percent, which
includes a two percent increase for North America, an 11 percent
decrease for Europe and a two percent decrease for Australia/New
Zealand. "We believe that prioritizing profit margin, free cash
flow and ROIC is paramount in this environment and, on balance, an
appropriate tradeoff," commented Sands. Total spirits organic net
sales increased five percent for the quarter, led by a 60 percent
gain for SVEDKA Vodka. "As consumers seek quality and value from
established brands, mid-premium spirits such as SVEDKA and Black
Velvet continue to outperform their respective categories in the
marketplace and contribute significantly to our spirits business
performance," said Sands. "In particular, SVEDKA's ongoing stellar
growth rate illustrates the power of a brand that is connecting
with consumers in the U.S. from coast to coast." Operating Income,
Net Income, Diluted EPS Commentary Wines segment operating income
increased $20 million versus the prior year quarter. This increase
reflects the benefits of our pricing initiative and the
contribution from the Clos du Bois and Wild Horse brands, partially
offset by the divestiture of Almaden, Inglenook and certain Pacific
Northwest wine brands. The repositioning of the company's U.S.
portfolio to more premium brands and resulting synergies have
positively impacted profit margins. Spirits segment operating
income decreased $3 million primarily due to increased general and
administrative expenses. Constellation's equity earnings from its
50 percent interest in the Crown Imports joint venture totaled $62
million, which was even with the prior year third quarter. For
third quarter 2009, Crown Imports generated net sales of $555
million, an increase of one percent, and operating income of $124
million, which was flat with the prior year quarter. For third
quarter 2009, pre-tax restructuring charges, acquisition-related
integration costs and unusual items totaled $21 million compared to
$3 million for the prior year quarter. Interest expense decreased
five percent from $82 million for third quarter 2008 to $78 million
for third quarter 2009. On a year-to-date basis through November
2008, the company has generated free cash flow of $235 million,
compared with $173 million in the prior year. "Due primarily to
strong free cash flow, and the proceeds from asset dispositions
during the first nine months of fiscal 2009, total borrowings have
decreased by more than $475 million from fiscal year end 2008
levels, while our cash position increased by more than $160 million
during the same period," stated Bob Ryder, Constellation Brands
chief financial officer. "Subsequent to the third quarter, the
company prepaid $195 million in term loans under its senior credit
facility." As previously announced, the company expects to realize
approximately $50 million in after-tax cash proceeds from the gain
on settlement of certain foreign currency economic hedges during
fiscal 2009. The company's third quarter fiscal 2009 reported
results reflect an unfavorable $0.15 diluted EPS impact associated
with the recognition of income tax expense related to these hedge
transactions. Summary "Given the current macroeconomic environment
impacting our key markets, we are recalibrating our sales
expectations while taking appropriate actions to reduce costs and
capture the benefits from ongoing debt reduction to better ensure
that we will meet our future financial objectives," said Sands. As
a result, the company is tightening its comparable diluted EPS
range to $1.68 - $1.72 from the company's previous estimate of
$1.68 - $1.76. Outlook The table below sets forth management's
current diluted EPS expectations for fiscal year 2009 compared to
fiscal year 2008 actual results, both on a reported basis and a
comparable basis. Constellation Brands Fiscal Year 2009 Diluted
Earnings Per Share Outlook Reported Basis Comparable Basis FY09
FY08 FY09 FY08 Estimate Actual Estimate Actual Fiscal Year Ending
Feb. 28 or Feb. 29 $0.65 - $0.69 ($2.83) $1.68 - $1.72 $1.44
Full-year fiscal 2009 guidance includes the following current
assumptions: -- Net sales: mid single-digit growth in organic net
sales combined with the incremental benefit from the Beam Wine
Estates acquisition, impact of reporting the joint venture for the
Matthew Clark wholesale business under the equity method, and
divestiture of the Almaden, Inglenook and certain Pacific Northwest
wine brands, are expected to result in reported net sales
increasing low-to-mid single-digits from net sales for fiscal 2008
-- Interest expense: approximately $315 - $320 million -- Tax rate:
approximately 60 percent on a reported basis, which includes a
provision of approximately 14 percentage points related to the
recognition of income tax expense in connection with the gain on
settlement of certain foreign currency economic hedges and
approximately nine percentage points related to the company's
inability to recognize tax benefits on net operating losses
resulting primarily from the Australian initiative, or
approximately 37 percent on a comparable basis -- Weighted average
diluted shares outstanding: approximately 220 million -- Free cash
flow: $360 - $390 million Conference Call A conference call to
discuss third quarter 2009 results and outlook will be hosted by
President and Chief Executive Officer Rob Sands and Executive Vice
President and Chief Financial Officer Bob Ryder on Wednesday, Jan.
7, 2009 at 10:00 a.m. (eastern). The conference call can be
accessed by dialing +973-935-8505 beginning 10 minutes prior to the
start of the call. A live listen-only webcast of the conference
call, together with a copy of this news release (including the
attachments) and other financial information that may be discussed
in the call will be available on the Internet at Constellation's
Web site: http://www.cbrands.com/ under "Investors," prior to the
call. Explanations Reported basis ("reported") operating income,
equity in earnings of equity method investees, net income and
diluted EPS are as reported under generally accepted accounting
principles. Operating income, equity in earnings of equity method
investees, net income and diluted EPS on a comparable basis
("comparable"), exclude restructuring charges, acquisition-related
integration costs and unusual items. The company's measure of
segment profitability excludes restructuring charges,
acquisition-related integration costs and unusual items, which is
consistent with the measure used by management to evaluate results.
The company discusses additional non-GAAP measures in this news
release, including constant currency net sales, organic net sales,
comparable basis EBIT and free cash flow. Tables reconciling
non-GAAP measures, together with definitions of these measures and
the reasons management uses these measures, are included in this
news release. About Constellation Brands Constellation Brands, Inc.
is a leading international producer and marketer of beverage
alcohol in the wine, spirits and imported beer categories, with
significant market presence in the U.S., Canada, U.K., Australia
and New Zealand. Based in Fairport, N.Y., the company has more than
250 brands in its portfolio, sales in approximately 150 countries
and operates more than 50 wineries, distilleries and distribution
facilities. It is the largest wine producer in the world; the
largest premium wine company in the U.S.; the largest wine company
in the U.K., Australia and Canada; the second largest wine company
in New Zealand; and the largest beer importer and marketer in the
U.S. through its Crown Imports joint venture with Mexico's Grupo
Modelo. Constellation Brands is an S&P 500 Index and Fortune
500(R) company. Major brands in the company's portfolio include
Corona Extra, Black Velvet Canadian Whisky, SVEDKA Vodka, Robert
Mondavi wines, Clos du Bois, Ravenswood, Blackstone, Hardys,
Banrock Station, Nobilo, Kim Crawford, Inniskillin, Jackson-Triggs
and Arbor Mist. To learn more about Constellation Brands and its
product portfolio visit the company's Web site at
http://www.cbrands.com/. Forward-Looking Statements The statements
made under the heading Outlook, as well as all other statements set
forth in this news release which are not historical facts regarding
Constellation's business strategy, future operations, financial
position, estimated revenues, projected costs, prospects, plans and
objectives of management, or information concerning expected
actions of third parties, are forward-looking statements
(collectively, the "Projections") that involve risks and
uncertainties that could cause actual results to differ materially
from those set forth in or implied by the Projections. During the
current quarter, Constellation may reiterate the Projections. Prior
to the start of the company's quiet period, which will begin at the
close of business on Feb. 20, 2009, the public can continue to rely
on the Projections as still being Constellation's current
expectations on the matters covered, unless Constellation publishes
a notice stating otherwise. During Constellation's "quiet period"
the Projections should not be considered to constitute the
company's expectations and should be considered historical,
speaking as of prior to the quiet period only and not subject to
update by the company. The Projections are based on management's
current expectations and, unless otherwise noted, do not take into
account the impact of any future acquisition, merger or any other
business combination, divestiture, restructuring or other strategic
business realignments, or financing that may be completed after the
date of this release. The Projections should not be construed in
any manner as a guarantee that such results will in fact occur. In
addition to the risks and uncertainties of ordinary business
operations, the Projections of the company contained in this news
release are subject to a number of risks and uncertainties,
including: -- successful integration of acquired businesses,
realization of expected synergies and completion of various
portfolio actions; -- achievement of all expected cost savings from
the company's various restructuring plans and realization of
expected asset sale proceeds from the sale of inventory and other
assets; -- accuracy of the bases for forecasts relating to joint
ventures and associated costs and capital investment requirements;
-- final management determinations and independent appraisals may
vary materially from current management estimates of the fair value
of assets acquired and liabilities assumed in the company's
acquisitions and from estimates of goodwill and intangible asset
impairment charges; -- restructuring charges, acquisition-related
integration costs, other one-time costs and purchase accounting
adjustments associated with integration and restructuring plans may
vary materially from management's current estimates due to
variations in one or more of anticipated headcount reductions,
contract terminations, costs or timing of plan implementation; --
raw material supply, production or shipment difficulties could
adversely affect the company's ability to supply its customers; --
increased competitive activities in the form of pricing,
advertising and promotions could adversely impact consumer demand
for the company's products and/or result in lower than expected
sales or higher than expected expenses; -- general economic,
geo-political and regulatory conditions, prolonged downturn in the
economic markets in the U.S. and in the company's major markets
outside the U.S., continuing instability in world financial
markets, or unanticipated environmental liabilities and costs; --
changes to accounting rules and tax laws, and other factors which
could impact the company's reported financial position or effective
tax rate; -- changes in interest rates and the inherent
unpredictability of currency fluctuations, commodity prices and raw
material costs; and -- other factors and uncertainties disclosed in
the company's filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the fiscal year ended
Feb. 29, 2008, which could cause actual future performance to
differ from current expectations. Constellation Brands, Inc. and
Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (in millions)
November February 30, 2008 29, 2008 --------- ----------- Assets
Current Assets: Cash and cash investments $181.3 $20.5 Accounts
receivable, net 813.4 731.6 Inventories 1,978.5 2,179.5 Prepaid
expenses and other 172.2 267.4 ----- ----- Total current assets
3,145.4 3,199.0 Property, plant and equipment, net 1,582.8 2,035.0
Goodwill 2,915.2 3,123.9 Intangible assets, net 1,041.0 1,190.0
Other assets, net 424.1 504.9 ----- ----- Total assets $9,108.5
$10,052.8 ======== ========= Liabilities and Stockholders' Equity
Current Liabilities: Notes payable to banks $206.0 $379.5 Current
maturities of long-term debt 451.6 229.3 Accounts payable 344.6
349.4 Accrued excise taxes 117.7 62.4 Other accrued expenses and
liabilities 608.5 697.7 ----- ----- Total current liabilities
1,728.4 1,718.3 Long-term debt, less current maturities 4,124.4
4,648.7 Deferred income taxes 551.2 535.8 Other liabilities 362.8
384.1 ----- ----- Total liabilities 6,766.8 7,286.9 Total
stockholders' equity 2,341.7 2,765.9 ------- ------- Total
liabilities and stockholders' equity $9,108.5 $10,052.8 ========
========= Constellation Brands, Inc. and Subsidiaries CONSOLIDATED
STATEMENTS OF OPERATIONS (in millions, except per share data) Three
Months Ended Nine Months Ended ------------------ -----------------
November November November November 30, 2008 30, 2007 30, 2008 30,
2007 --------- --------- --------- --------- Sales $1,306.9
$1,406.4 $3,758.1 $3,749.7 Excise taxes (275.7) (311.6) (838.6)
(861.1) ------ ------ ------ ------ Net sales 1,031.2 1,094.8
2,919.5 2,888.6 Cost of product sold (627.2) (702.9) (1,880.7)
(1,918.8) ------ ------ -------- -------- Gross profit 404.0 391.9
1,038.8 969.8 Selling, general and administrative expenses (200.5)
(192.1) (659.2) (580.2) Impairment of intangible assets - - (21.8)
- Restructuring charges (4.3) 0.1 (40.3) (0.7) Acquisition-related
integration costs (1.5) (1.6) (7.6) (5.2) ---- ---- ---- ----
Operating income 197.7 198.3 309.9 383.7 Equity in earnings of
equity method investees 76.3 74.2 218.5 230.1 Interest expense, net
(78.4) (82.4) (245.7) (248.8) ----- ----- ------ ------ Income
before income taxes 195.6 190.1 282.7 365.0 Provision for income
taxes (112.1) (70.5) (177.3) (143.5) ------ ----- ------ ------ Net
income $83.5 $119.6 $105.4 $221.5 ===== ====== ====== ======
Earnings Per Common Share: Basic - Class A Common Stock $0.39 $0.56
$0.49 $1.02 Basic - Class B Common Stock $0.35 $0.51 $0.45 $0.92
Diluted - Class A Common Stock $0.38 $0.55 $0.48 $0.99 Diluted -
Class B Common Stock $0.35 $0.50 $0.44 $0.91 Weighted Average
Common Shares Outstanding: Basic - Class A Common Stock 194.451
191.578 193.656 196.191 Basic - Class B Common Stock 23.744 23.809
23.756 23.817 Diluted - Class A Common Stock 220.006 219.432
219.970 224.093 Diluted - Class B Common Stock 23.744 23.809 23.756
23.817 Constellation Brands, Inc. and Subsidiaries CONSOLIDATED
STATEMENTS OF CASH FLOWS (in millions) Nine Months Ended
----------------- November November 30, 2008 30, 2007 --------
-------- Cash Flows From Operating Activities Net income $105.4
$221.5 Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation of property, plant and equipment
109.2 109.3 Write-down of inventory associated with the Australian
Initiative 47.6 - Stock-based compensation expense 34.1 24.1 Loss
(gain) on disposal or impairment of long-lived assets, net 29.3
(4.9) Impairment of intangible assets 21.8 - Loss on businesses
sold 15.8 6.8 Amortization of intangible and other assets 10.0 8.2
Deferred tax provision 9.6 29.9 Equity in earnings of equity method
investees, net of distributed earnings 8.6 10.5 Change in operating
assets and liabilities, net of effects from purchases and sales of
businesses: Accounts receivable, net (187.4) (200.2) Inventories
(176.6) (58.5) Prepaid expenses and other current assets 16.4 10.7
Accounts payable 38.3 48.7 Accrued excise taxes 75.9 46.9 Other
accrued expenses and liabilities 39.5 54.8 Other, net 133.4 (55.5)
----- ----- Total adjustments 225.5 30.8 ----- ---- Net cash
provided by operating activities 330.9 252.3 ----- ----- Cash Flows
From Investing Activities Proceeds from sales of businesses 204.2
3.0 Capital distributions from equity method investees 20.7 -
Proceeds from sales of assets 18.9 8.7 Purchases of businesses, net
of cash acquired 0.2 (389.7) Purchases of property, plant and
equipment (95.6) (79.5) Investment in equity method investee (1.0)
(1.5) Payment of accrued earn-out amount - (4.0) Proceeds from
formation of joint venture - 185.6 Other investing activities 9.9 -
--- --- Net cash provided by (used in) investing activities 157.3
(277.4) ----- ------ Cash Flows From Financing Activities Principal
payments of long-term debt (225.2) (168.6) Net repayment of notes
payable (137.4) (57.6) Exercise of employee stock options 25.5 17.7
Excess tax benefits from stock-based payment awards 7.0 11.4
Proceeds from employee stock purchases 2.9 3.0 Proceeds from
issuance of long-term debt - 716.1 Purchases of treasury stock -
(500.0) Payment of financing costs of long-term debt - (6.1) ---
---- Net cash (used in) provided by financing activities (327.2)
15.9 ------ ---- Effect of exchange rate changes on cash and cash
investments (0.2) 0.6 ---- --- Net increase (decrease) in cash and
cash investments 160.8 (8.6) Cash and cash investments, beginning
of period 20.5 33.5 ---- ---- Cash and cash investments, end of
period $181.3 $24.9 ====== ===== Constellation Brands, Inc. and
Subsidiaries SEGMENT INFORMATION (in millions) Three Months Ended
------------------ November November Percent 30, 2008 30, 2007
Change ----------- ----------- Segment Net Sales and Operating
Income Constellation Wines Branded wine net sales $848.7 $911.3
(7%) Wholesale and other net sales 71.1 66.1 8% ---- ---- Segment
net sales $919.8 $977.4 (6%) Operating income $221.8 $201.9 10% %
Net sales 24.1% 20.7% Equity in earnings of equity method investees
$14.6 $13.2 11% Constellation Spirits Segment net sales $111.4
$117.4 (5%) Operating income $18.7 $21.4 (13%) % Net sales 16.8%
18.2% Crown Imports Segment net sales $554.7 $547.7 1% Operating
income $123.5 $123.0 - % Net sales 22.3% 22.5% Consolidation and
Eliminations Segment net sales $(554.7) $(547.7) 1% Operating
income $(123.5) $(123.0) - Equity in earnings of Crown Imports
$61.7 $61.7 - Corporate Operations and Other Consolidated net sales
$1,031.2 $1,094.8 (6%) Operating income $(21.9) $(22.9) (4%) % Net
sales 2.1% 2.1% Nine Months Ended ----------------- November
November Percent 30, 2008 30, 2007 Change ----------- -----------
Segment Net Sales and Operating Income Constellation Wines Branded
wine net sales $2,396.5 $2,270.1 6% Wholesale and other net sales
196.9 299.4 (34%) ----- ----- Segment net sales $2,593.4 $2,569.5
1% Operating income $515.3 $413.0 25% % Net sales 19.9% 16.1%
Equity in earnings of equity method investees $16.8 $17.1 (2%)
Constellation Spirits Segment net sales $326.1 $319.1 2% Operating
income $52.8 $58.1 (9%) % Net sales 16.2% 18.2% Crown Imports
Segment net sales $1,959.3 $1,928.5 2% Operating income $410.9
$426.6 (4%) % Net sales 21.0% 22.1% Consolidation and Eliminations
Segment net sales $(1,959.3) $(1,928.5) 2% Operating income
$(410.9) $(426.6) (4%) Equity in earnings of Crown Imports $205.8
$213.9 (4%) Corporate Operations and Other Consolidated net sales
$2,919.5 $2,888.6 1% Operating income $(72.1) $(63.3) 14% % Net
sales 2.5% 2.2% Constellation Brands, Inc. and Subsidiaries
GEOGRAPHIC INFORMATION (in millions) Three Months Ended Constant
------------------ Currency November November Percent Currency
Percent 30, 2008 30, 2007 Change Impact Change(3) -------- --------
Geographic Net Sales (1)(2) North America $780.0 $766.9 2% (2%) 4%
Branded wine $630.3 $622.4 1% (2%) 4% Spirits $111.4 $117.4 (5%) -
(5%) Wholesale and other $38.3 $27.1 41% (6%) 47% Europe $163.3
$215.6 (24%) (17%) (7%) Branded wine $133.8 $183.0 (27%) (16%)
(11%) Wholesale and other $29.5 $32.6 (10%) (20%) 11% Australia/New
Zealand $87.9 $112.3 (22%) (17%) (4%) Branded wine $84.6 $105.9
(20%) (18%) (2%) Wholesale and other $3.3 $6.4 (48%) (11%) (38%)
Three Months Ended ------------------ November November Percent 30,
2008 30, 2007 Change -------- -------- Branded Wine Geographic Net
Sales (1)(2) North America $630.3 $622.4 1% Europe 133.8 183.0
(27%) Australia/New Zealand 84.6 105.9 (20%) ---- -----
Consolidated branded wine net sales $848.7 $911.3 (7%) ======
====== Organic Constant Acquis- Divest- Currency ition iture
Currency Percent Impact(4) Impact(5) Impact Change(3) Branded Wine
Geographic Net Sales (1)(2) North America 9% (6%) (2%) 2% Europe -
- (16%) (11%) Australia/New Zealand - - (18%) (2%) Consolidated
branded wine net sales 6% (4%) (7%) (2%) Nine Months Ended Constant
----------------- Currency November November Percent Currency
Percent 30, 2008 30, 2007 Change Impact Change(3) -------- --------
Geographic Net Sales (1)(2) North America $2,098.6 $1,877.1 12% -
12% Branded wine $1,695.7 $1,503.9 13% - 13% Spirits $326.1 $319.1
2% - 2% Wholesale and Other $76.8 $54.1 42% (1%) 43% Europe $536.5
$712.2 (25%) (6%) (19%) Branded wine $429.9 $489.1 (12%) (7%) (5%)
Wholesale and other $106.6 $223.1 (52%) (3%) (49%) Australia/New
Zealand $284.4 $299.3 (5%) - (5%) Branded wine $270.9 $277.1 (2%) -
(2%) Wholesale and other $13.5 $22.2 (39%) 2% (41%) Nine Months
Ended ----------------- November November Percent 30, 2008 30, 2007
Change -------- -------- Branded Wine Geographic Net Sales (1)(2)
North America $1,695.7 $1,503.9 13% Europe 429.9 489.1 (12%)
Australia/New Zealand 270.9 277.1 (2%) ----- ----- Consolidated
branded wine net sales $2,396.5 $2,270.1 6% ======== ========
Organic Constant Acquis- Divest- Currency ition iture Currency
Percent Impact(4) Impact(5) Impact Change(3) Branded Wine
Geographic Net Sales (1)(2) North America 10% (7%) - 10% Europe -
2% (7%) (7%) Australia/New Zealand - - - (2%) Consolidated branded
wine net sales 6% (4%) (2%) 5% (1) Refer to discussion under
"Reconciliation of Reported, Organic and Constant Currency Net
Sales" on following page for definition of constant currency net
sales and organic constant currency net sales and reasons for use.
(2) Net sales are attributed to countries based on the location of
the selling company. (3) May not sum due to rounding as each item
is computed independently. (4) Acquisition impact includes net
sales of branded wine acquired in the BWE Acquisition for the
period September 1, 2008, through November 30, 2008, included in
the three months ended November 30, 2008, and March 1, 2008,
through November 30, 2008, included in the nine months ended
November 30, 2008. (5) Divestiture impact includes (i) the removal
of Almaden and Inglenook branded wine net sales for the period
September 1, 2007, through November 30, 2007, included in the three
months ended November 30, 2007, and for the period March 1, 2007,
through November 30, 2007, included in the nine months ended
November 30, 2007; (ii) the removal of branded wine net sales
associated with the Pacific Northwest brands for the period
September 1, 2007, through November 30, 2007, included in the three
months ended November 30, 2007, and for the period June 1, 2007,
through November 30, 2007, included in the nine months ended
November 30, 2007; and (iii) the add-back of U.K. branded wine net
sales previously sold through the U.K. wholesale business for the
period March 1, 2007, through April 16, 2007, included in the nine
months ended November 30, 2007. Constellation Brands, Inc. and
Subsidiaries RECONCILIATION OF REPORTED, ORGANIC AND CONSTANT
CURRENCY NET SALES (in millions) As the company formed its U.K.
wholesale joint venture on April 17, 2007; acquired BWE on December
17, 2007; sold its Almaden and Inglenook wine brands on February
28, 2008; sold certain Pacific Northwest wine brands on June 5,
2008; and exited certain spirits production contracts in connection
with the sale of a Canadian distilling facility on August 31, 2008,
organic net sales for the respective periods are defined by the
company as reported net sales plus/less net sales of U.K.
wholesale, U.K. branded wine, BWE products, Almaden and Inglenook
branded wine, Pacific Northwest brands, or contract production
services, as appropriate. As the company acquired Svedka on March
19, 2007, organic net sales for the nine months ended November 30,
2008, have not been adjusted for net sales of Svedka products
during the period March 1, 2008, through March 18, 2008, as amounts
are not significant. Organic net sales and percentage increase
(decrease) in constant currency net sales (which excludes the
impact of year over year currency exchange rate fluctuations) are
provided because management uses this information in monitoring and
evaluating the underlying business trends of the continuing
operations of the company. In addition, the company believes this
information provides investors better insight on underlying
business trends and results in order to evaluate year over year
financial performance. Three Months Ended Constant
------------------ Currency November November Percent Currency
Percent 30, 2008 30, 2007 Change Impact Change(1) -------- --------
Consolidated Net Sales Branded wine $848.7 $911.3 (7%) (7%) -
Wholesale and other 71.1 66.1 8% (13%) 21% Spirits 111.4 117.4 (5%)
- (5%) ----- ----- Consolidated reported net sales 1,031.2 1,094.8
(6%) (7%) 1% Less: BWE (2) (53.8) - Less: U.K. wholesale, net of
U.K. branded wine (3) - - Less: Almaden and Inglenook branded wine
net sales (4) - (31.1) Less: Pacific Northwest branded wine net
sales (5) - (9.1) Less: Spirits contract production services net
sales (6) - (11.1) --- ----- Consolidated organic net sales $977.4
$1,043.5 (6%) (7%) 1% ====== ======== Branded Wine Net Sales
Branded wine reported net sales $848.7 $911.3 (7%) (7%) - Less: BWE
(2) (53.8) - Plus: U.K. branded wine (3) - - Less: Almaden and
Inglenook branded wine net sales (4) - (31.1) Less: Pacific
Northwest branded wine net sales (5) - (9.1) --- ---- Branded wine
organic net sales $794.9 $871.1 (9%) (7%) (2%) ====== ======
Wholesale and Other Net Sales Wholesale and other reported net
sales $71.1 $66.1 8% (13%) 21% Less: U.K. wholesale (3) - - --- ---
Wholesale and other organic net sales $71.1 $66.1 8% (13%) 21%
===== ===== Spirits Net Sales Spirits reported Net sales $111.4
$117.4 (5%) - (5%) Less: Spirits contract production services net
sales (6) - (11.1) --- ----- Spirits organic net sales $111.4
$106.3 5% - 5% ====== ====== Nine Months Ended Constant
----------------- Currency November November Percent Currency
Percent 30, 2008 30, 2007 Change Impact Change(1) -------- --------
Consolidated Net Sales Branded wine $2,396.5 $2,270.1 6% (2%) 7%
Wholesale and other 196.9 299.4 (34%) (3%) (32%) Spirits 326.1
319.1 2% - 2% ----- ----- Consolidated reported net sales 2,919.5
2,888.6 1% (2%) 3% Less: BWE (2) (147.3) - Less: U.K. wholesale,
net of U.K. branded wine (3) - (117.1) Less: Almaden and Inglenook
branded wine net sales (4) - (82.4) Less: Pacific Northwest branded
wine net sales (5) - (15.8) Less: Spirits contract production
services net sales (6) - (11.1) --- ----- Consolidated organic net
sales $2,772.2 $2,662.2 4% (2%) 6% ======== ======== Branded Wine
Net Sales Branded wine reported net sales $2,396.5 $2,270.1 6% (2%)
7% Less: BWE (2) (147.3) - Plus: U.K. branded wine (3) - 8.4 Less:
Almaden and Inglenook branded wine net sales (4) - (82.4) Less:
Pacific Northwest branded wine net sales (5) - (15.8) --- -----
Branded wine organic net sales $2,249.2 $2,180.3 3% (2%) 5%
======== ======== Wholesale and Other Net Sales Wholesale and other
reported net sales $196.9 $299.4 (34%) (3%) (32%) Less: U.K.
wholesale (3) - (125.5) --- ------ Wholesale and other organic net
sales $196.9 $173.9 13% (4%) 18% ====== ====== Spirits Net Sales
Spirits reported net sales $326.1 $319.1 2% - 2% Less: Spirits
contract production services net sales (6) - (11.1) --- -----
Spirits organic net sales $326.1 $308.0 6% - 6% ====== ====== (1)
May not sum due to rounding as each item is computed independently.
(2) For the period September 1, 2008, through November 30, 2008,
included in the three months ended November 30, 2008, and March 1,
2008, through November 30, 2008, included in the nine months ended
November 30, 2008. (3) For the period March 1, 2007, through April
16, 2007, included in the nine months ended November 30, 2007. (4)
For the period September 1, 2007, through November 30, 2007,
included in the three months ended November 30, 2007, and March 1,
2007, through November 30, 2007, included in the nine months ended
November 30, 2007. (5) For the period September 1, 2007, through
November 30, 2007, included in the three months ended November 30,
2007, and June 1, 2007, through November 30, 2007, included in the
nine months ended November 30, 2007. (6) For the period September
1, 2007, through November 30, 2007, included in the three months
and nine months ended November 30, 2007. Constellation Brands, Inc.
and Subsidiaries RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL
MEASURES (1) (in millions, except per share data) Three Months
Ended November 30, 2008 ------------------------------------
Compar- Strategic able Reported Inven- Business Basis Basis tory
Realign- Other (Non- (GAAP) Step-up ment(2) (3) GAAP) --------
------- --------- ----- ------- Net sales $1,031.2 $1,031.2 Cost of
product sold (627.2) 6.1 2.3 (618.8) ------ --- --- --- ------
Gross profit 404.0 6.1 2.3 - 412.4 Selling, general and
administrative expenses ("SG&A") (200.5) 6.7 (193.8) Impairment
of intangible assets - - Restructuring charges (4.3) 4.3 -
Acquisition-related integration costs (1.5) 1.5 - ---- --- --- ---
--- Operating income 197.7 6.1 14.8 - 218.6 Equity in earnings of
equity method investees 76.3 76.3 ---- EBIT 294.9 Interest expense,
net (78.4) (78.4) ----- --- ---- --- ----- Income before income
taxes 195.6 6.1 14.8 - 216.5 Provision for income taxes (112.1)
(2.3) (2.5) 32.4 (84.5) ------ ---- ---- ---- ----- Net income
$83.5 $3.8 $12.3 $32.4 $132.0 ===== ==== ===== ===== ====== Diluted
earnings per common share $0.38 $0.02 $0.06 $0.15 $0.60 ===== =====
===== ===== ===== Weighted average common shares outstanding -
diluted 220.006 220.006 220.006 220.006 220.006 ======= =======
======= ======= ======= Gross margin 39.2% 40.0% SG&A as a
percent of net sales 19.4% 18.8% Operating margin 19.2% 21.2%
Effective tax rate 57.3% 39.0% ---- ---- Three Months Ended
November 30, 2007 ------------------------------------ Compar-
Strategic able Reported Inven- Business Basis Basis tory Realign-
(Non- (GAAP) Step-up ment(2) Other GAAP) -------- ------- ---------
----- ------- Net sales $1,094.8 $1,094.8 Cost of product sold
(702.9) 2.9 2.5 (697.5) ------ --- --- --- ------ Gross profit
391.9 2.9 2.5 - 397.3 Selling, General and administrative expenses
("SG&A") (192.1) (4.8) (196.9) Impairment of intangible assets
- - Restructuring charges 0.1 (0.1) - Acquisition-related
integration costs (1.6) 1.6 - ---- --- --- --- - Operating income
198.3 2.9 (0.8) - 200.4 Equity in earnings of equity method
investees 74.2 0.7 74.9 ---- EBIT 275.3 Interest expense, net
(82.4) (82.4) ----- --- ---- --- ----- Income before income taxes
190.1 3.6 (0.8) - 192.9 Provision for income taxes (70.5) (1.2) 0.2
- (71.5) ----- ---- --- --- ----- Net income $119.6 $2.4 $(0.6) $-
$121.4 ====== ==== ===== == ====== Diluted earnings per common
share $0.55 $0.01 $- $- $0.55 ===== ===== == == ===== Weighted
average common shares outstanding - diluted 219.432 219.432 219.432
219.432 219.432 ======= ======= ======= ======= ======= Gross
margin 35.8% 36.3% SG&A as a percent of net sales 17.5% 18.0%
Operating margin 18.1% 18.3% Effective tax rate 37.1% 37.1% ----
---- Percent Percent Change - Change - Reported Comparable Basis
(GAAP) Basis (Non-GAAP) ------------ ---------------- Net sales
(6%) (6%) Cost of product sold (11%) (11%) Gross profit 3% 4%
Selling, general and administrative expenses ("SG&A") 4% (2%)
Impairment of intangible assets N/A N/A Restructuring charges NM
N/A Acquisition-related integration costs (6%) N/A Operating income
- 9% Equity in earnings of equity method investees 3% 2% EBIT N/A
7% Interest expense, net (5%) (5%) Income before income taxes 3%
12% Provision for income taxes 59% 18% Net income (30%) 9% Diluted
earnings per common share (31%) 9% Weighted average common shares
outstanding - diluted Gross margin SG&A as a percent of net
sales Operating margin Effective tax rate NM = Not Meaningful
Constellation Brands, Inc. and Subsidiaries RECONCILIATIONS OF GAAP
TO NON-GAAP FINANCIAL MEASURES (1) (in millions, except per share
data) Nine Months Ended November 30, 2008
----------------------------------- Compar- Strategic able Reported
Inven- Business Basis Basis tory Realign- Other (Non- (GAAP)
Step-up ment(4) (5) GAAP) --------- ------- ---------- -----
------- Net sales $2,919.5 $2,919.5 Cost of product sold (1,880.7)
16.7 56.2 0.1 (1,807.7) -------- ---- ---- --- -------- Gross
profit 1,038.8 16.7 56.2 0.1 1,111.8 Selling, general and
administrative expenses ("SG&A") (659.2) 43.4 (615.8)
Impairment of intangible assets (21.8) 21.8 - Restructuring charges
(40.3) 40.3 - Acquisition-related integration costs (7.6) 7.6 -
---- ---- --- --- --- Operating income 309.9 16.7 169.3 0.1 496.0
Equity in earnings of equity method investees 218.5 4.1 222.6 -----
EBIT 718.6 Interest expense, net (245.7) (245.7) ------ ---- -----
--- ------ Income before income taxes 282.7 16.7 169.3 4.2 472.9
Provision for income taxes (177.3) (6.3) (17.1) 32.4 (168.3) ------
---- ----- ---- ------ Net income $105.4 $10.4 $152.2 $36.6 $304.6
====== ===== ====== ===== ====== Diluted earnings per common share
$0.48 $0.05 $0.69 $0.17 $1.38 ===== ===== ===== ===== =====
Weighted average common shares outstanding - diluted 219.970
219.970 219.970 219.970 219.970 ======= ======= ======= =======
======= Gross margin 35.6% 38.1% SG&A as a percent of net sales
22.6% 21.1% Operating margin 10.6% 17.0% Effective tax rate 62.7%
35.6% ---- ---- Nine Months Ended November 30, 2007
----------------------------------- Compar- Strategic able Reported
Inven- Business Basis Basis tory Realign- (Non- (GAAP) Step-up
ment(4) Other GAAP) --------- ------- ---------- ----- ------- Net
sales $2,888.6 $2,888.6 Cost of product sold (1,918.8) 8.1 6.8 0.1
(1,903.8) -------- --- --- --- -------- Gross profit 969.8 8.1 6.8
0.1 984.8 Selling, general and administrative expenses ("SG&A")
(580.2) 3.2 (577.0) Impairment of intangible assets - -
Restructuring charges (0.7) 0.7 - Acquisition-related integration
costs (5.2) 5.2 - ---- --- --- --- --- Operating income 383.7 8.1
15.9 0.1 407.8 Equity in earnings of equity method investees 230.1
0.9 231.0 ----- EBIT 638.8 Interest expense, net (248.8) (248.8)
------ --- ---- --- ------ Income before income taxes 365.0 9.0
15.9 0.1 390.0 Provision for income taxes (143.5) (3.2) 4.0 (0.1)
(142.8) ------ ---- --- ---- ------ Net income $221.5 $5.8 $19.9 $-
$247.2 ====== ==== ===== == ====== Diluted earnings per common
share $0.99 $0.03 $0.09 $- $1.10 ===== ===== ===== == =====
Weighted average common shares outstanding - diluted 224.093
224.093 224.093 224.093 224.093 ======= ======= ======= =======
======= Gross margin 33.6% 34.1% SG&A as a percent of net sales
20.1% 20.0% Operating margin 13.3% 14.1% Effective tax rate 39.3%
36.6% ---- ---- Percent Percent Change - Change - Reported
Comparable Basis (GAAP) Basis (Non-GAAP) ------------
---------------- Net sales 1% 1% Cost of product sold (2%) (5%)
Gross profit 7% 13% Selling, general and administrative expenses
("SG&A") 14% 7% Impairment of intangible assets N/A N/A
Restructuring charges NM N/A Acquisition-related integration costs
46% N/A Operating income (19%) 22% Equity in earnings of equity
method investees (5%) (4%) EBIT N/A 12% Interest expense, net (1%)
(1%) Income before income taxes (23%) 21% Provision for income
taxes 24% 18% Net income (52%) 23% Diluted earnings per common
share (52%) 25% Weighted average common shares outstanding -
diluted Gross margin SG&A as a percent of net sales Operating
margin Effective tax rate Constellation Brands, Inc. and
Subsidiaries RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
(continued) NOTES (1) The company reports its financial results in
accordance with generally accepted accounting principles in the
U.S. ("GAAP"). However, non-GAAP financial measures, as defined in
the reconciliation tables above, are provided because management
uses this information in evaluating the results of the continuing
operations of the company and/or internal goal setting. In
addition, the company believes this information provides investors
better insight on underlying business trends and results in order
to evaluate year over year financial performance. See the tables
above for supplemental financial data and corresponding
reconciliations of these non-GAAP financial measures to GAAP
financial measures for the three months and nine months ended
November 30, 2008, and November 30, 2007. Non-GAAP financial
measures should be viewed in addition to, and not as an alternative
for, the company's reported results prepared in accordance with
GAAP. Please refer to the company's Web site at
http://www.cbrands.com/CBI/investors.htm for more detailed
description and further discussion of these non-GAAP financial
measures. (2) For the three months ended November 30, 2008,
strategic business realignment items consist primarily of costs
recognized by the company in connection with its Australian
initiative of $6.1 million, net of a tax benefit of $0.0 million,
and its Fiscal 2007 Wine Plan of $5.0 million, net of a tax benefit
of $1.8 million. For the three months ended November 30, 2007,
strategic business realignment items primarily include a realized
gain on a prior asset sale of $3.3 million, net of additional tax
expense of $1.5 million, partially offset by costs recognized by
the company primarily in connection with (i) the Fiscal 2008 Plan
of $1.2 million, net of a tax benefit of $0.6 million, (ii) the
Fiscal 2007 Wine Plan of $0.8 million, net of a tax benefit of $0.4
million, and (iii) the Vincor Plan of $0.5 million, net of a tax
benefit of $0.2 million. (3) For the three months ended November
30, 2008, other consists of $32.4 million associated with the
recognition of income tax expense in connection with the gain on
settlement of certain foreign currency economic hedges. (4) For the
nine months ended November 30, 2008, strategic business realignment
items consist primarily of (i) costs recognized by the company in
connection with the Australian initiative of $110.1 million, net of
a tax benefit of $0.6 million, the Fiscal 2007 Wine Plan of $9.2
million, net of a tax benefit of $3.6 million, and the Fiscal 2008
Plan of $8.9 million, net of a tax benefit of $3.2 million; and
(ii) the loss in connection with the disposal of the Pacific
Northwest wine brands of $17.1 million, net of a tax benefit of
$6.1 million. For the nine months ended November 30, 2007,
strategic business realignment items primarily include a loss on
disposal in connection with the company's contribution of its U.K.
wholesale business of $13.8 million, including $7.2 million
additional tax expense, and costs recognized by the company
primarily in connection with (i) the Fiscal 2007 Wine Plan of $3.3
million, net of a tax benefit of $1.5 million, (ii) the Vincor Plan
of $2.9 million, net of a tax benefit of $1.4 million, (iii) the
Fiscal 2006 Plan of $1.9 million, net of a tax benefit of $1.2
million, and (iv) the Fiscal 2008 Plan of $1.2 million, net of a
tax benefit of $0.6 million, partially offset by a realized gain on
a prior asset sale of $3.3 million, net of additional tax expense
of $1.5 million. (5) For the nine months ended November 30, 2008,
other consists primarily of $32.4 million associated with the
recognition of income tax expense in connection with the gain on
settlement of certain foreign currency economic hedges, and $4.1
million, net of a tax benefit of $0.0 million, associated with the
impairment of an Australian equity method investment. DEFINITIONS
Australian Initiative The company's plan announced in August 2008
to sell certain assets and implement operational changes designed
to improve the efficiencies and returns associated with its
Australian business. Fiscal 2008 Plan The company's plan announced
in November 2007 to streamline certain of its international
operations, primarily in Australia, and its plan announced in
January 2008 to streamline certain of its operations in the U.S.,
primarily in connection with the restructuring and integration of
the operations of BWE (collectively, the "Fiscal 2008 Plan").
Fiscal 2007 Wine Plan The company's plan announced in August 2006
to invest in new distribution and bottling facilities in the U.K.
and to streamline certain Australian wine operations (collectively,
the "Fiscal 2007 Wine Plan"). Vincor Plan The company's plan
announced in July 2006 to restructure and integrate the operations
of Vincor International Inc. (the "Vincor Plan"). Fiscal 2006 Plan
The company's worldwide wine reorganization plan announced in
fiscal 2006, including its program to consolidate certain west
coast production processes in the U.S. (collectively, the "Fiscal
2006 Plan"). Constellation Brands, Inc. and Subsidiaries
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (continued)
GUIDANCE - DILUTED EARNINGS PER SHARE AND FREE CASH FLOW (in
millions, except per share data) Range for the Year Diluted
Earnings Per Share Guidance Ending February 28, 2009
------------------------ Forecasted diluted earnings per share -
reported basis (GAAP) $0.65 $0.69 Inventory step-up 0.06 0.06
Strategic business realignment (1) 0.77 0.77 Other (2) 0.20 0.20
---- ---- Forecasted diluted earnings per share - comparable basis
(Non-GAAP) (3) $1.68 $1.72 ===== ===== Actual for the Year Ended
February 29, 2008 ----------------- Diluted earnings per share -
reported basis (GAAP) $(2.83) Inventory step-up 0.03 Strategic
business realignment (1) 0.31 Other (2) 3.85 Impact of
anti-dilutive potential common shares (4) 0.08 ---- Diluted
earnings per share - comparable basis (Non-GAAP) (3) $1.44 =====
(1) Includes $0.53, $0.08, $0.06, $0.06, $0.02 and $0.01 diluted
earnings per share for the year ending February 28, 2009,
associated with the Australian initiative, the loss in connection
with the disposal of the Pacific Northwest wine brands, the Fiscal
2007 Wine Plan, the Fiscal 2008 Plan, the loss in connection with
the sale of a nonstrategic Canadian distilling facility, and other
previously announced restructuring plans, respectively. Includes
$0.12, $0.11, $0.06, $0.02, $0.02 and ($0.02) diluted earnings per
share for the year ended February 29, 2008, associated with the
loss on disposal of the Almaden and Inglenook wine brands, the
Fiscal 2008 Plan, the loss on disposal in connection with the
company's contribution of its U.K. wholesale business to the
Matthew Clark joint venture and the company's provision for income
taxes in connection with the repatriation of proceeds associated
with this transaction, the Fiscal 2007 Wine Plan, other previously
announced restructuring plans, and the realized gain on a prior
asset sale, respectively.(3) (2) Includes $0.18 and $0.02 diluted
earnings per share for the year ending February 28, 2009,
associated with the recognition of income tax expense in connection
with the gain on settlement of certain foreign currency economic
hedges and the Australian initiative for impairment of an equity
method investment, respectively. Includes $3.57, $0.23, $0.07,
$0.02 and ($0.05) diluted earnings per share for the year ended
February 29, 2008, associated with an impairment of goodwill and
intangible assets, a valuation allowance against net operating loss
carryforwards in Australia, an impairment of an equity method
investment, a loss on write-off of certain property, plant and
equipment, and a tax benefit related to prior period stock option
exercises.(3) (3) May not sum due to rounding as each item is
computed independently. (4) In accordance with the antidilution
provisions of SFAS No. 128, the dilutive impact of potential common
shares is excluded from the company's reported diluted earnings per
share calculation for the year ended February 29, 2008. As a result
of the company having net income on a comparable basis for the year
ended February 29, 2008, the dilutive impact of potential common
shares is included in the company's comparable diluted earnings per
share calculation. Free Cash Flow Guidance Free cash flow, as
defined in the reconciliation below, is considered a liquidity
measure and is considered to provide useful information to
investors about the amount of cash generated, which can then be
used, after required debt service and dividend payments, for other
general corporate purposes. A limitation of free cash flow is that
it does not represent the total increase or decrease in the cash
balance for the period. Free cash flow should be considered in
addition to, not as a substitute for, or superior to, cash flow
from operating activities prepared in accordance with GAAP. Range
for the Year Ending February 28, 2009 ------------------------ Net
cash provided by operating activities (GAAP) $510.0 $560.0
Purchases of property, plant and equipment (150.0) (170.0) ------
------ Free cash flow (Non-GAAP) $360.0 $390.0 ====== ====== Actual
for the Actual for the Nine Months Nine Months Ended November Ended
November 30, 2008 30, 2007 --------------- --------------- Net cash
provided by operating activities (GAAP) $330.9 $252.3 Purchases of
property, plant and equipment (95.6) (79.5) ----- ----- Free cash
flow (Non-GAAP) $235.3 $172.8 ====== ======
http://www.newscom.com/cgi-bin/prnh/20040119/STZLOGODATASOURCE:
Constellation Brands, Inc. CONTACT: Media, Mike Martin,
+1-585-218-3669, Angie Blackwell, +1-585-218-3842, or Investor
Relations, Patty Yahn-Urlaub, +1-585-218-3838, Bob Czudak,
+1-585-218-3668 Web Site: http://www.cbrands.com/
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