* Net sales up 5% to $1.2 billion; branded business net sales up 8%
* Reported diluted EPS up 13% to $0.36
* Comparable basis diluted EPS up 3% to $0.31
* Company updates fiscal year 2007 EPS guidance
Constellation Brands, Inc. (NYSE: STZ, ASX: CBR), a leading international producer and marketer of beverage alcohol, today reported record first quarter net sales of $1.2 billion for the quarter ended May 31, 2006 (”first quarter 2007″), up five percent over prior year, or seven percent on a constant currency basis. Branded business net sales grew eight percent, or nine percent on a constant currency basis, driven by imported beers and branded wine in North America.
“We sprinted out of the starting gate this year with solid performance in our branded businesses,” said Richard Sands, Constellation Brands chairman and chief executive officer. “These results demonstrate the strength of our unsurpassed portfolio breadth, geographic diversity, distribution scale and innovation,” continued Sands. “With Vincor joining the Constellation family, Canada becomes our fifth core market and one which complements our existing geographic diversity while providing additional growth potential from a very stable and profitable market.”
First Quarter 2007 Financial Highlights*
(in millions, except per share data)
Reported Change Comparable Change
Operating income $143 +2% $165 +5%
Operating margin 12.4% -30 bps 14.3% -10 bps
Net income $86 +13% $75 +5%
Diluted EPS $0.36 +13% $0.31 +3%
First Quarter 2007 Net Sales Highlights*
(in millions)
Constant
Currency
Reported Change Change
Consolidated $1,156 +5% +7%
Branded business $909 +8% +9%
Branded wine $517 +4% +6%
Imported beers $308 +18% +18%
Spirits $83 -3% -3%
Wholesale and other $247 -3% 1%
* Definitions of reported, comparable and constant currency,
as well as reconciliations of non-GAAP financial measures, are
contained elsewhere in this news release.
Net Sales Commentary
Double-digit net sales growth of branded wine for North America (primarily
in the U.S.), drove an overall six percent increase in branded wine net sales
on a constant currency basis.
“We’re meeting consumer wine expectations around the world through a
combination of new product introductions, innovations in wine and packaging
and line and varietal extensions resulting from our extensive base of
consumer, distributor and retailer insights,” stated Sands. “Recently
introduced wines including Twin Fin, Monkey Bay, Four Emus and 3 blind moose,
have captured the imagination and sense of adventure within consumers and
illustrate a desire on their part to try new and different wines with brand
appeal, while varietal extensions such as Woodbridge Pinot Noir allow us to
build on the momentum and strength of established brands to satisfy consumer
demand for a greater variety of wines from around the world.”
Net sales of branded wine for Europe and for Australia/New Zealand
declined in the first quarter. Constellation is leveraging its strong
leadership position in these markets to grow market share over the long-term
and is focusing on opportunities to maximize profitability.
Net sales of the company’s wholesale and other business increased slightly
on a constant currency basis, including a slight increase in U.K. wholesale
net sales.
The double-digit increase in imported beers net sales is primarily due to
volume growth across Constellation’s Mexican beer portfolio, reflecting
continued robust consumer demand and strong shipments in advance of the key
summer selling season. “The import and craft beer businesses continue to be
industry growth drivers in the U.S.,” stated Sands. “We have the right
brands, in the right market, at the right time to maximize future growth
potential.”
Total spirits net sales decreased three percent for the first quarter.
Investments behind the company’s premium spirits brands, including Meukow
Cognac, Effen Vodka, Cocktails by Jenn, Ridgemont Reserve 1792 Bourbon, the 99
cordials line and Black Velvet Canadian Whisky, contributed to a three percent
increase in branded spirits, which was more than offset by a 23 percent
decrease in contract production services.
“We are engaged in a long-term premium spirits portfolio brand-building
effort illustrated by the addition of six new brands in the past 18 months,
and the current rollout of the black cherry flavor 99 schnapps,” explained
Sands. “We will continue to look for additional opportunities to expand our
premium spirits business while maintaining our leadership role in value
spirits.”
Operating Income, Net Income, Diluted EPS Commentary
The company incurred $3.6 million of stock-based compensation expense
(”stock compensation expense”) related to the company’s March 1, 2006 adoption
of Statement of Financial Accounting Standards No. 123(R), “Share-Based
Payment” (”SFAS 123(R)”).
Wines segment operating margin declined 20 basis points due to the
aforementioned stock compensation expense and an increase in duty costs in the
U.K. at the end of March.
Beers and Spirits segment operating margin declined 80 basis points for
the quarter due primarily to higher transportation costs for the company’s
imported beers, overall product mix within the segment, and the aforementioned
stock compensation expense.
As previously announced, Constellation entered into a foreign currency
forward contract in connection with the acquisition of Vincor (see discussion
below) to fix the U.S. dollar cost of the acquisition and payment of certain
outstanding indebtedness. The May 31, 2006 mark-to-market adjustment of the
forward contract resulted in a first quarter pre-tax gain of $52.5 million.
The company also recorded a pre-tax loss of $14.1 million on the previously
announced divestiture of its Strathmore water business. The diluted EPS
impacts of the aforementioned items were a gain of $0.14 and a loss of $0.07,
respectively.
The reported effective tax rate for first quarter 2007 was 41.8 percent
compared with 17.7 percent for first quarter 2006. The comparable basis
effective tax rate was 36.0 percent for first quarter 2007 versus 35.6 percent
for the prior year period.
Vincor Acquisition
As previously announced, on June 5, 2006, Constellation completed the
acquisition of all of the issued and outstanding common shares of Vincor
International Inc. (”Vincor”) for C$1.227 billion. The total transaction
value was C$1.58 billion (USD $1.44 billion), which included Vincor’s net debt
of C$344 million and Constellation’s estimated transaction fees of
approximately C$13 million.
Summary
“We’re confident in our ability to deliver solid EPS growth for the year
on a comparable basis, despite comparison challenges for stock compensation
expense, increased U.K. duty, interest and taxes that we planned at the outset
of the year,” said Sands. “We are going to continue to build upon our
leadership position in beverage alcohol and complement our organic growth with
strategic acquisitions, improve our return on invested capital and create
value.”
Outlook
The table below sets forth management’s current diluted earnings per share
expectations compared to actual results both on a reported basis and a
comparable basis for the periods presented. For comparison purposes, the
table also provides actual comparable basis diluted earnings per share,
including pro forma stock compensation expense, as though the company had
adopted SFAS 123(R) for the periods presented. All amounts presented in the
table exclude the impact of the Vincor acquisition discussed above.
The development of integration plans, purchase accounting estimates and
other estimates, related to the Vincor acquisition is progressing on schedule.
Constellation expects to incur one-time cash and non-cash charges relating to
the integration of Vincor into its business and during mid-July expects to
announce integration plans for the Vincor acquisition, and update its fiscal
2007 guidance to reflect the impact of those plans. The company continues to
expect the total impact of the Vincor acquisition to be modestly accretive to
comparable basis diluted earnings per share for fiscal 2007. This accretion
assumes approximately $75 million of incremental interest expense resulting
from the approximately $1.44 billion increase in debt associated with the
acquisition.
With respect to the table, reconciliations of reported information to
comparable information and to comparable information, including pro forma
stock compensation expense, are included in this news release.
Constellation Brands Second Quarter and Fiscal Year 2007
Diluted Earnings Per Share Outlook
Comparable
Basis, Including
Reported Basis Comparable Basis Pro Forma Stock
Compensation
Expense
FY07 FY06 FY07 FY06 FY06
Estimate Actual Estimate Actual Actual
Second
Quarter
Ending
Aug. 31 $0.39 - $0.41 $0.34 $0.42 - $0.44 $0.41 $0.41
Fiscal
Year
Ending
Feb. 28 $1.65 - $1.73 $1.36 $1.70 - $1.78 $1.59 $1.44
Full-year fiscal 2007 guidance includes the following assumptions which
exclude the impact of the Vincor acquisition:
* Net sales growth: six to eight percent
* Interest expense: $180 - $190 million
* Stock compensation expense: approximately $12 million
* Tax rate: approximately 37.8 percent on a reported basis, which includes
a provision of 1.3 percent related to the sale of Strathmore water, or
36.5 percent on a comparable basis
* Weighted average diluted shares outstanding: approximately 241 million
* Free cash flow: $270 - $290 million
Conference Call
A conference call to discuss first quarter 2007 results and outlook for
fiscal 2007 will be hosted by Chairman and Chief Executive Officer Richard
Sands and Executive Vice President and Chief Financial Officer Tom Summer on
Thursday, June 29, 2006 at 5:00 p.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: www.cbrands.com under “Investors,” prior
to the call.
Explanations
Reported basis (”reported”) operating income, net income and diluted
earnings per share are as reported under generally accepted accounting
principles. Operating income, net income and diluted earnings per share on a
comparable basis (”comparable”), exclude acquisition-related integration
costs, restructuring and related charges and unusual items. The company’s
measure of segment profitability excludes acquisition-related integration
costs, restructuring and related charges 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, adjusted EBIT, free cash flow and
comparable basis diluted earnings per share, including pro forma stock
compensation expense.
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 brands with a broad portfolio across the wine,
spirits and imported beer categories. Well-known brands in Constellation’s
portfolio include: Almaden, Arbor Mist, Vendange, Woodbridge by Robert
Mondavi, Hardys, Goundrey, Nobilo, Kim Crawford, Alice White, Ruffino, Kumala,
Robert Mondavi Private Selection, Rex Goliath, Toasted Head, Blackstone,
Ravenswood, Estancia, Franciscan Oakville Estate, Inniskillin, Jackson-Triggs,
Simi, Robert Mondavi Winery, Stowells, Blackthorn, Black Velvet, Mr. Boston,
Fleischmann’s, Paul Masson Grande Amber Brandy, Chi-Chi’s, 99 Schnapps,
Ridgemont Reserve 1792, Effen Vodka, Corona Extra, Corona Light, Pacifico,
Modelo Especial, Negra Modelo, St. Pauli Girl, Tsingtao. For additional
information about Constellation Brands, as well as its product portfolio,
visit the company’s Web site at www.cbrands.com.
Forward-looking statements
The statements made under the heading Outlook, as well as all other
statements set forth in this press release which are not historical facts are
forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from those set forth in or implied
by the forward-looking statements.
Constellation may reiterate the estimates set forth above under the
heading Outlook and elsewhere in this news release (collectively, the
“Projections”). In addition, as noted above, during mid-July, the company
expects to announce integration plans for the Vincor acquisition, and update
its fiscal 2007 guidance to reflect the impact of those plans. Prior to any
such update, 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. Following any such
update, the Projections as set forth in this news release should not be
considered to constitute the company’s expectations.
At the close of business on August 18, 2006, Constellation will observe a
“quiet period” during which the Projections, as updated if applicable, should
not be considered to constitute the company’s expectations. During the quiet
period, the Projections, as updated if applicable, should be considered to be
historical, speaking as of prior to the quiet period only and not subject to
update by the company.
The company’s forward-looking statements are based on management’s current
expectations and, unless otherwise noted, do not take into account the impact
of any future acquisition, merger or any other business combination,
divestiture or financing that may be completed after the date of this release.
Any projections of future results of operations, and in particular, (i) the
company’s estimated diluted earnings per share on a reported basis for fiscal
2007 and second quarter 2007, and (ii) the company’s estimated diluted
earnings per share on a comparable basis for fiscal 2007 and second quarter
2007, should not be construed in any manner as a guarantee that such results
will in fact occur. In addition to the risks and uncertainties of ordinary
business operations, the forward-looking statements of the company contained
in this press release are also subject to the following risks and
uncertainties: the company achieving certain sales projections and meeting
certain cost targets; wholesalers and retailers may give higher priority to
products of the company’s competitors; raw material supply, production or
shipment difficulties could adversely affect the company’s ability to supply
its customers; increased competitive activities in the form of pricing,
advertising and promotions could adversely impact consumer demand for the
company’s products and/or result in higher than expected selling, general and
administrative expenses; a general decline in alcohol consumption; increases
in excise and other taxes on beverage alcohol products; and changes in
interest rates and foreign currency exchange rates. In addition, the company
may not achieve all of the expected cost savings related to its announced
global wine restructuring due to lower than anticipated reductions in
headcount or other expenses, or a delay or greater than anticipated costs in
the implementation of the restructuring. Also, risks and uncertainties
include factors relating to Constellation’s ability to integrate Vincor’s
business successfully and realize expected synergies, the continued strength
of Vincor’s relationships with its employees, suppliers and customers, and the
accuracy of the bases for forecasts relating to Vincor’s business.
For additional information about risks and uncertainties that could
adversely affect the company’s forward-looking statements, please refer to the
company’s filings with the Securities and Exchange Commission, including its
Annual Report on Form 10-K for the fiscal year ended Feb. 28, 2006, which
contain a discussion of additional factors that may affect Constellation’s
business. The factors discussed in these reports could cause actual future
performance to differ from current expectations.
Constellation Brands, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
May 31, February 28,
2006 2006
Assets
Current Assets:
Cash and cash investments $37.5 $10.9
Accounts receivable, net 854.2 771.9
Inventories 1,751.1 1,704.4
Prepaid expenses and other 278.7 213.7
Total current assets 2,921.5 2,700.9
Property, plant and equipment, net 1,442.7 1,425.3
Goodwill 2,204.1 2,193.6
Intangible assets, net 886.9 883.9
Other assets, net 216.3 196.9
Total assets $7,671.5 $7,400.6
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable to banks $164.3 $79.9
Current maturities of long-term debt 214.3 214.1
Accounts payable 365.0 312.8
Accrued excise taxes 68.2 76.7
Other accrued expenses and liabilities 625.3 614.6
Total current liabilities 1,437.1 1,298.1
Long-term debt, less current maturities 2,481.8 2,515.8
Deferred income taxes 373.6 371.2
Other liabilities 259.0 240.3
Total liabilities 4,551.5 4,425.4
Total stockholders' equity 3,120.0 2,975.2
Total liabilities and stockholders'
equity $7,671.5 $7,400.6
Constellation Brands, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
Three Months Ended
May 31, May 31,
2006 2005
Sales $1,430.2 $1,366.3
Excise taxes (274.3) (269.8)
Net sales 1,155.9 1,096.5
Cost of product sold (837.3) (790.5)
Gross profit 318.6 306.0
Selling, general and administrative
expenses (172.6) (157.9)
Restructuring and related charges (2.3) (1.9)
Acquisition-related integration costs (0.7) (6.4)
Operating income 143.0 139.8
Equity in earnings (loss) of equity
method investees 0.1 (0.5)
Gain on change in fair value of
derivative instrument 52.5 -
Interest expense, net (48.7) (47.3)
Income before income taxes 146.9 92.0
Provision for income taxes (61.4) (16.3)
Net income 85.5 75.7
Dividends on preferred stock (2.5) (2.5)
Income available to common
stockholders $83.0 $73.2
Earnings Per Common Share:
Basic - Class A Common Stock $0.38 $0.34
Basic - Class B Common Stock $0.34 $0.31
Diluted $0.36 $0.32
Weighted Average Common Shares Outstanding:
Basic - Class A Common Stock 199.571 195.567
Basic - Class B Common Stock 23.853 23.955
Diluted 240.069 238.154
Constellation Brands, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Three Months Ended
May 31, May 31,
2006 2005
Cash Flows From Operating Activities
Net income $85.5 $75.7
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation of property, plant and
equipment 26.7 27.5
Loss on disposal of business 17.3 -
Deferred tax provision 15.6 13.5
Stock-based compensation expense 3.6 -
Amortization of intangible and other
assets 2.0 1.8
Loss on disposal of assets 0.3 1.4
Gain on change in fair value of
derivative instrument (52.5) -
Equity in (earnings) loss of equity
method investees (0.1) 0.5
Proceeds from early termination of
derivative instruments - 30.3
Change in operating assets and
liabilities, net of effects
from purchases and sales of businesses:
Accounts receivable, net (66.4) 8.5
Inventories (31.3) (113.0)
Prepaid expenses and other current
assets (10.9) (3.6)
Accounts payable 45.4 70.1
Accrued excise taxes (9.7) (14.0)
Other accrued expenses and liabilities (11.1) (35.7)
Other, net (7.7) (3.0)
Total adjustments (78.8) (15.7)
Net cash provided by operating
activities 6.7 60.0
Cash Flows From Investing Activities
Purchases of property, plant and
equipment (45.1) (31.8)
Payment of accrued earn-out amount (1.1) (1.6)
Proceeds from sales of businesses 28.0 17.8
Proceeds from sales of assets 0.7 92.8
Proceeds from sales of equity method
investment - 35.2
Investment in equity method investee - (2.3)
Other investing activities (2.1) -
Net cash (used in) provided by
investing activities (19.6) 110.1
Cash Flows From Financing Activities
Net proceeds from notes payable 83.9 46.3
Exercise of employee stock options 8.6 8.7
Excess tax benefits from share-based
payment awards 1.7 -
Principal payments of long-term debt (52.6) (219.5)
Payment of preferred stock dividends (2.5) (2.5)
Net cash provided by (used in)
financing activities 39.1 (167.0)
Effect of exchange rate changes on
cash and cash investments 0.4 (1.5)
Net increase in cash and cash
equivalents 26.6 1.6
Cash and cash investments,
beginning of period 10.9 17.6
Cash and cash investments,
end of period $37.5 $19.2
Constellation Brands, Inc. and Subsidiaries
SEGMENT AND GEOGRAPHIC INFORMATION
(in millions)
Three Months Ended
May 31, May 31, Percent
2006 2005 Change
Segment Net Sales and Operating Income
Constellation Wines
Branded wine net sales $517.2 $495.4 4%
Wholesale & other net sales 247.3 255.2 (3%)
Segment net sales $764.5 $750.6 2%
Operating income $96.2 $96.0 -
% Net sales 12.6% 12.8%
Constellation Beers & Spirits
Imported beers net sales $308.1 $260.4 18%
Spirits net sales 83.3 85.5 (3%)
Segment net sales $391.4 $345.9 13%
Operating income $82.8 $76.0 9%
% Net sales 21.2% 22.0%
Corporate Operations & Other
Consolidated net sales $1,155.9 $1,096.5 5%
Operating income $(14.2) $(14.3) (1%)
% Net Sales (1.2%) (1.3%)
Constant
Three Months Ended Currency
May 31, May 31, Percent Currency Percent
2006 2005 Change Impact Change(3)
Geographic Net Sales(1)(2)
North America $745.2 $659.5 13% - 13%
Branded wine $347.7 $307.1 13% - 13%
Imported beers $308.1 $260.4 18% - 18%
Spirits $83.3 $85.5 (3%) - (3%)
Wholesale & other $6.1 $6.5 (6%) - (6%)
Europe $329.4 $351.2 (6%) (4%) (2%)
Branded wine $96.3 $108.2 (11%) (4%) (7%)
Wholesale & other $233.1 $243.0 (4%) (5%) -
Australia/New Zealand $81.3 $85.8 (5%) (5%) -
Branded wine $73.2 $80.1 (9%) (5%) (3%)
Wholesale & other $8.1 $5.7 42% (5%) 47%
(1) Refer to discussion under "Reconciliation of Reported and Constant
Currency Net Sales" on following page for definition of 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.
Constellation Brands, Inc. and Subsidiaries
RECONCILIATION OF REPORTED AND CONSTANT CURRENCY NET SALES
(in millions)
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.
Constant
Three Months Ended Currency
May 31, May 31, Percent Currency Percent
2006 2005 Change Impact Change(1)
Consolidated Net Sales
Branded wine $517.2 $495.4 4% (2%) 6%
Wholesale and other 247.3 255.2 (3%) (5%) 1%
Imported beers 308.1 260.4 18% - 18%
Spirits 83.3 85.5 (3%) - (3%)
Consolidated net
sales $1,155.9 $1,096.5 5% (2%) 7%
Branded Business Net
Sales(2)
Branded wine $517.2 $495.4 4% (2%) 6%
Imported beers 308.1 260.4 18% - 18%
Spirits 83.3 85.5 (3%) - (3%)
Branded business
net sales $908.6 $841.3 8% (1%) 9%
(1) May not sum due to rounding as each item is computed independently.
(2) Branded business net sales includes the branded wine, imported beers
and spirits product categories and excludes the wholesale and other
product category.
Constellation Brands, Inc. and Subsidiaries
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions, except per share data)
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 reconciliations below, 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 table below for supplemental
financial data and corresponding reconciliations of these non-GAAP financial
measures to GAAP financial measures for the three months ended May 31, 2006,
and May 31, 2005. 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.
Three Months Ended May 31, 2006
Items Affecting Comparability
Mondavi
Reported Adverse Strategic Comparable
Basis Grape Inventory Business Basis
(GAAP) Cost Step-up Realignment(1) Other(2) (Non-GAAP)
Net
Sales $1,155.9 $1,155.9
Cost
of
product
sold (837.3) 1.5 0.6 1.1 (834.1)
Gross
Profit 318.6 1.5 0.6 1.1 - 321.8
Selling,
general
and
admini-
strative
expenses (172.6) 15.6 (157.0)
Acquisition-
related
integration
costs (0.7) 0.7 -
Restructuring
and
related
charges (2.3) 2.3 -
Operating
Income 143.0 1.5 0.6 19.7 - 164.8
Equity
in
earnings
(loss) of
equity
method
investees 0.1 0.5 0.6
Adjusted
EBIT 165.4
Gain on
change
in fair
value of
derivative
instrument 52.5 (52.5) -
Interest
expense,
net (48.7) (48.7)
Income
Before
Income
Taxes 146.9 1.5 1.1 19.7 (52.5) 116.7
Provision
for
income
taxes (61.4) (0.5) (0.3) 1.2 19.0 (42.0)
Net Income $85.5 $1.0 $0.8 $20.9 $(33.5) $74.7
Diluted
Earnings Per
Common
Share $0.36 $- $- $0.09 $(0.14) $0.31
Weighted
Average
Common
Shares
Outstanding
- Diluted 240.069 240.069 240.069 240.069 240.069 240.069
Gross
Margin 27.6% 27.8%
Operating
Margin 12.4% 14.3%
Adjusted
EBIT Margin 14.3%
Effective
Tax Rate 41.8% 36.0%
Three Months Ended May 31, 2005
Items Affecting Comparability
Mondavi Comparable
Reported Adverse Strategic Income Basis
Basis Grape Inventory Business Tax (Non-
(GAAP) Cost Step-up Realignment(1) Adjustments(3) GAAP)
Net
Sales $1,096.5 $1,096.5
Cost of
product
sold (790.5) 7.6 2.0 (780.9)
Gross
Profit 306.0 7.6 2.0 - - 315.6
Selling,
general
and
admini-
strative
expenses (157.9) (157.9)
Acquisition-
related
integration
costs (6.4) 6.4 -
Restructuring
and related
charges (1.9) 1.9 -
Operating
Income 139.8 7.6 2.0 8.3 - 157.7
Equity in
earnings
(loss) of
equity
method
investees (0.5) 0.8 0.3
Adjusted
EBIT - 158.0
Gain on
change in
fair value
of derivative
instrument - -
Interest
expense,
net (47.3) (47.3)
Income
Before
Income
Taxes 92.0 7.6 2.8 8.3 - 110.7
Provision
for income
taxes (16.3) (3.0) (0.8) (3.2) (16.2) (39.5)
Net
Income $75.7 $4.6 $2.0 $5.1 $(16.2) $71.2
Diluted
Earnings
Per Common
Share $0.32 $0.02 $0.01 $0.02 $(0.07) $0.30
Weighted
Average
Common
Shares
Outstanding
- Diluted 238.154 238.154 238.154 238.154 238.154 238.154
Gross
Margin 27.9% 28.8%
Operating
Margin 12.7% 14.4%
Adjusted
EBIT Margin 14.4%
Effective
Tax Rate 17.7% 35.7%
Percent Percent
Change - Change -
Reported Comparable
Basis(GAAP) Basis (Non-GAAP)
Net Sales 5% 5%
Cost of product sold 6% 7%
Gross Profit 4% 2%
Selling, general and administrative
expenses 9% (1%)
Acquisition-related integration costs (89%) N/A
Restructuring and related charges 21% N/A
Operating Income 2% 5%
Equity in earnings (loss) of equity
method investees (120%) 100%
Adjusted EBIT N/A 5%
Gain on change in fair value of
derivative instrument N/A N/A
Interest expense, net 3% 3%
Income Before Income Taxes 60% 5%
Provision for income taxes 277% 6%
Net Income 13% 5%
Diluted Earnings Per Common Share 13% 3%
Weighted Average Common Shares
(1) For the three months ended May 31, 2006, strategic business
realignment items include costs recognized by the company in
connection with (i) its worldwide wine reorganization, including its
program to consolidate certain west coast production processes in the
U.S. (collectively, the "Fiscal 2006 Plan") of $3.2 million, net of a
tax benefit of $1.7 million, (ii) the restructuring and integration of
the operations of The Robert Mondavi Corporation (the "Robert Mondavi
Plan") of $0.4 million, net of a tax benefit of $0.3 million, and
(iii) the loss on the sale of the company's branded bottled water
business of $17.3 million, including $3.2 million additional tax
expense. For the three months ended May 31, 2005, strategic business
realignment items include costs recognized by the company primarily in
connection with the Robert Mondavi Plan.
(2) In connection with the acquisition of Vincor International Inc., the
company entered into a foreign currency forward contract to fix the
U.S. dollar cost of the acquisition and payment of certain outstanding
indebtedness. Amount represents the May 31, 2006, mark-to-market
adjustment of this forward contract.
(3) Amount represents a non-cash reduction in the company's provision for
income taxes as a result of adjustments to income tax accruals in
connection with the completion of various income tax examinations
during the three months ended May 31, 2005.
Constellation Brands, Inc. and Subsidiaries
GUIDANCE - DILUTED EARNINGS PER SHARE AND FREE CASH FLOW
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (continued)
(in millions, except per share data)
The guidance below excludes the impact of the Vincor acquisition.
Range for the Three Range for the Year
Months Ending Ending
Diluted Earnings Per
Share Guidance August 31, 2006 February 28, 2007
Forecasted diluted
earnings per share
- reported basis
(GAAP)(1) $0.39 $0.41 $1.65 $1.73
Mondavi Adverse Grape
Cost - - 0.01 0.01
Inventory step-up - - 0.01 0.01
Strategic business
realignment (2) 0.04 0.04 0.18 0.18
Other (0.01) (0.01) (0.15) (0.15)
Forecasted diluted
earnings per share
- comparable basis
(Non-GAAP)(3) $0.42 $0.44 $1.70 $1.78
Actual
for the Actual
Three Months for the
Ended Year Ended
August 31, February 28,
2005 2006
Diluted earnings per share
- reported basis (GAAP)(1) $0.34 $1.36
Mondavi Adverse Grape Cost 0.02 0.06
Inventory step-up 0.01 0.06
Strategic business realignment 0.03 0.17
Other 0.01 0.01
Income tax adjustments - (0.07)
Diluted earnings per share -
comparable basis (Non-GAAP)(3) 0.41 1.59
Pro forma stock-based compensation
expense, net of related tax
effects(4) - (0.15)
Diluted earnings per share -
comparable basis, including pro
forma stock-based compensation
expense (Non-GAAP)(3) $0.41 $1.44
(1) Includes $0.01 and $0.03 diluted earnings per share impact of
expensing stock-based compensation for the three months ending August
31, 2006, and the year ending February 28, 2007, respectively, in
accordance with the adoption of SFAS 123(R) beginning March 1, 2006.
Includes $0.02 diluted earnings per share impact of expensing stock-
based compensation for the year ended February 28, 2006, in accordance
with APB No. 25 and its related interpretations, which was recorded
within Restructuring and Related Charges in the company's Consolidated
Statements of Income. There was no diluted earnings per share impact
of expensing stock-based compensation for the three months ended
August 31, 2005.
(2) Includes $0.04 and $0.11 diluted earnings per share associated with
the company's Fiscal 2006 Plan for the three months ending August 31,
2006, and the year ending February 28, 2007, respectively, and $0.07
diluted earnings per share associated with the loss on the sale of the
company's branded bottled water business for the year ending February
28, 2007.
(3) May not sum due to rounding as each item is computed independently.
(4) Amount included herein is net of the impact of actual stock-based
compensation expense recorded in the company's consolidated statement
of income in accordance with APB No. 25 and its related
interpretations (see (1) above).
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 after capital expenditures and
excess tax benefits, 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.
Actual for Actual for the Range for
the Three Year Ended the Year Ending
Months Ended February 28, February 28,
May 31, 2006 2006 2007
Net cash provided by
operating activities
(GAAP) $6.7 $436.0 $410.0 $430.0
Purchases of property,
plant and equipment (45.1) (132.5) (155.0) (155.0)
Excess tax benefits
from share-based
payment awards 1.7 - 15.0 15.0
Free cash flow
(Non-GAAP) $(36.7) $303.5 $270.0 $290.0
SOURCE Constellation Brands, Inc.
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