STZ Constellation Brands CDR

VICTOR, N.Y., Oct. 1 /PRNewswire-FirstCall/ -- -- Achieves comparable basis diluted EPS of $0.54 and reported basis diluted EPS of $0.45 -- Quarter benefits from U.S. distributor transition and tax timing -- Reaffirms full-year diluted EPS and free cash flow guidance -- Realigns and consolidates U.S. sales force and distributor network -- Continues to benefit from cost reduction efforts -- Decreases debt by more than $155 million during the quarter and by $270 million year-to-date Second Quarter 2010 Financial Highlights* (in millions, except per share data) Comparable Change Reported Change ---------- ------ -------- ------ Consolidated net sales $877 -8% $877 -8% Organic constant currency net sales $877 4% - - Operating income $168 15% $139 NM Operating margin 19.1% 380 bps 15.8% NM Equity in earnings of equity method investees** $73 -1% $73 4% Earnings before interest and taxes (EBIT) $241 9% - - Net income $120 21% $100 NM Diluted earnings per share $0.54 20% $0.45 NM Constellation Brands, Inc. (NYSE:STZNYSE:ASX:NYSE:CBR), the world's leading wine company, reported today its fiscal 2010 second quarter results. "Our performance in the second quarter demonstrates that we are on track to achieve our full-year goals," said Rob Sands, president and chief executive officer of Constellation Brands. "We are focused on driving organic growth, building must-have brands that return the greatest profits and creating efficiencies for long-term sustainable growth. Our initiative to consolidate distribution in the U.S. is nearly complete and we anticipate that this effort will be a major catalyst for future organic brand growth." (Logo: http://www.newscom.com/cgi-bin/prnh/20040119/STZLOGO ) Chief Financial Officer Bob Ryder added, "We are pleased with the progress made in our global cost reduction efforts and the continuing drive to increase sustainable free cash flow and pay down debt. Our deleveraging efforts are progressing well as debt decreased by more than $155 million during the second quarter and more than $1 billion since the beginning of fiscal 2009." Second Quarter 2010 Net Sales Highlights* (in millions) Reported Organic -------------------------- ----------------------- Constant Constant Net Currency Net Currency Sales Change Change Sales Change Change ----- ------ ------ ----- ------ ------ Consolidated $877 -8% -3% $877 -2% 4% Branded Wine $752 -4% 2% $752 -4% 2% Spirits $65 -41% -41% $65 49% 49% Other $60 -9% 5% $60 -9% 5% ----- --- -- - --- -- - *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." NM=Not meaningful Net Sales Commentary Reported consolidated net sales decreased eight percent due primarily to the impact of the value spirits divestiture and year-over-year currency exchange rate fluctuations. Organic net sales increased four percent on a constant currency basis. Branded wine organic net sales on a constant currency basis increased two percent overall, three percent in North America, five percent in Australia/New Zealand and decreased five percent in Europe. "During the second quarter, we worked closely with our U.S. distributors to minimize operational disruption during the transition period. As planned, we shipped additional inventories to newly appointed distributors to ensure adequate service levels with retailers. As a result, we experienced a second quarter sales benefit which we anticipate will reverse in the balance of the year," said Sands. "As the transition activities are proceeding well, we believe we are now in a good position to execute for the key holiday season." Total spirits organic net sales increased 49 percent for the quarter, primarily led by SVEDKA Vodka. "We are extremely pleased at the continued success of the SVEDKA brand which is performing well at national chains, control states and on-premise," Sands said. Operating Income, Net Income, Diluted EPS Commentary Wines segment operating income increased $16 million versus the prior year second quarter. This increase is primarily due to U.S. shipment growth, savings from cost reduction efforts and the overlap of foreign currency losses from the prior year second quarter. These benefits were partially offset by the divestiture of the value spirits business and a decrease in operating income from the international business. Constellation's equity earnings from its 50 percent interest in the Crown Imports joint venture totaled $72 million, a decrease of three percent from the prior year second quarter. For second quarter 2010, Crown Imports generated net sales of $693 million, a decrease of five percent, and operating income of $145 million, a decrease of three percent. "While sales remain challenging in the on-premise and convenience store channels, we continue to focus on optimizing promotional activity through targeted marketing and programming. In addition, we are introducing new packaging options and increasing media exposure," said Sands. "This month, Crown will launch 24 oz. cans of Corona Extra and Corona Light into the convenience channel. The company has also increased its national media buys for Corona Extra and Corona Light during National Football League games and Major League baseball playoffs." For second quarter 2010, pre-tax restructuring charges, acquisition-related integration costs and unusual items totaled $29 million compared to $129 million for the prior year second quarter. Interest expense totaled $67 million, a decrease of 17 percent. The decrease was primarily due to lower average borrowings during the quarter. The effective tax rate in the second quarter was 31 percent which reflects the completion of various income tax examinations during second quarter 2010. The company continues to anticipate a full-year comparable tax rate of 38 percent. Summary "The macroeconomic environment remains challenging but we are beginning to see some signs of stabilization," said Sands. "Powered by a strong portfolio of brands which includes Robert Mondavi, Ravenswood, Blackstone, Kim Crawford and SVEDKA, we believe we have the right strategies in place to organically grow the business. We intend to continue to reduce borrowings, improve free cash flow and optimize return on invested capital. Our expectations for the full year remain unchanged." Outlook The table below sets forth management's current diluted EPS expectations for fiscal 2010 compared to fiscal 2009 actual results, both on a reported basis and a comparable basis. Constellation Brands Fiscal 2010 Diluted Earnings Per Share Outlook Reported Basis Comparable Basis -------------- ---------------- FY10 FY09 FY10 FY09 Estimate Actual Estimate Actual -------- ------ -------- ------ Fiscal Year Ending Feb. 28 $0.97 - $1.07 ($1.40) $1.60 - $1.70 $1.60 ---------------- ------------- ------ ------------- ----- Full-year fiscal 2010 guidance includes the following current assumptions: -- Interest expense: approximately $260 - $270 million -- Tax rate: approximately 53 percent on a reported basis, as compared to 38 percent on a comparable basis, primarily due to a provision of 9 percentage points associated with the March 2009 sale of the value spirits business and 5 percentage points related to international restructuring activities which have minimal tax benefits -- Weighted average diluted shares outstanding: approximately 222 million -- Free cash flow: $230 - $270 million Conference Call A conference call to discuss second quarter 2010 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 Thursday, Oct. 1, 2009 at 10:30 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, net income and diluted EPS are as reported under generally accepted accounting principles. Operating income, 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 is the world's leading wine company that achieves success through an unmatched knowledge of wine consumers paired with storied brands that suit varied lives and tastes. With a broad portfolio of widely admired premium products across the wine, beer and spirits categories, Constellation's brand portfolio includes Robert Mondavi, Hardys, Clos du Bois, Blackstone, Arbor Mist, Estancia, Ravenswood, Jackson-Triggs, Kim Crawford, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka. Constellation Brands (NYSE:STZNYSE:andNYSE:STZ.B)(ASX:CBR) is an S&P 500 Index and Fortune 1000® company with more than 100 total brands in our portfolio, sales in about 150 countries and operations in approximately 50 facilities. The company believes that industry leadership involves a commitment to our brands, to the trade, to the land, to investors and to different people around the world who turn to our products when celebrating big moments or enjoying quiet ones. We express this commitment through our vision: to elevate life with every glass raised. 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, and all statements other than statements of historical facts set forth in this news release regarding Constellation's business strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management, as well as 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 Nov. 23, 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: -- realization of expected synergies from acquired businesses; -- completion of various portfolio actions; implementation of consolidation activities and actual U.S. distributor transition experience; -- achievement of all expected cost savings from the company's various restructuring plans, realization of expected asset sale proceeds from the sale of inventory and other assets, and receipt of all consideration from the divestiture of the value spirits business; -- accuracy of the bases for forecasts relating to joint ventures and associated costs and capital investment requirements; -- restructuring charges, acquisition-related integration costs and other one-time costs 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 of 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. 28, 2009, which could cause actual future performance to differ from current expectations. Constellation Brands, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS August 31, February 28, 2009 2009 ----------- ------------ Assets Current Assets: Cash and cash investments $19.7 $13.1 Accounts receivable, net 787.3 524.6 Inventories 1,824.0 1,828.7 Prepaid expenses and other 187.6 168.1 ----- ----- Total current assets 2,818.6 2,534.5 Property, plant and equipment, net 1,622.5 1,547.5 Goodwill 2,551.3 2,615.0 Intangible assets, net 1,025.3 1,000.6 Other assets, net 416.2 338.9 ----- ----- Total assets $8,433.9 $8,036.5 ======== ======== Liabilities and Stockholders' Equity Current Liabilities: Notes payable to banks $195.9 $227.3 Current maturities of long-term debt 277.4 235.2 Accounts payable 298.5 288.7 Accrued excise taxes 81.6 57.6 Other accrued expenses and liabilities 575.4 517.6 ----- ----- Total current liabilities 1,428.8 1,326.4 Long-term debt, less current maturities 3,690.8 3,971.1 Deferred income taxes 527.7 543.6 Other liabilities 271.3 287.1 ----- ----- Total liabilities 5,918.6 6,128.2 Total stockholders' equity 2,515.3 1,908.3 ------- ------- Total liabilities and stockholders' equity $8,433.9 $8,036.5 ======== ======== Constellation Brands, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) Three Months Ended Six Months Ended -------------------- ------------------ August 31, August 31, August 31, August 31, 2009 2008 2009 2008 ----------- ----------- ----------- ----------- Sales $1,090.7 $1,239.2 $2,094.5 $2,451.2 Excise taxes (213.9) (282.7) (426.1) (562.9) ------ ------ ------ ------ Net sales 876.8 956.5 1,668.4 1,888.3 Cost of product sold (567.2) (650.7) (1,090.1) (1,253.5) ------ ------ -------- -------- Gross profit 309.6 305.8 578.3 634.8 Selling, general and administrative expenses (167.8) (225.2) (334.4) (458.7) Impairment of intangible assets - (21.8) - (21.8) Restructuring charges (3.2) (35.5) (22.1) (36.0) Acquisition-related integration costs - (1.8) (0.1) (6.1) - ---- ---- ---- Operating income 138.6 21.5 221.7 112.2 Equity in earnings of equity method investees 73.2 70.1 136.0 142.2 Interest expense, net (66.6) (80.7) (133.4) (167.3) ----- ----- ------ ------ Income before income taxes 145.2 10.9 224.3 87.1 Provision for income taxes (45.5) (33.6) (118.1) (65.2) ----- ----- ------ ----- Net income $99.7 $(22.7) $106.2 $21.9 ===== ====== ====== ===== Earnings Per Common Share: Basic - Class A Common Stock $0.46 $(0.11) $0.49 $0.10 Basic - Class B Common Stock $0.42 $(0.10) $0.44 $0.09 Diluted - Class A Common Stock $0.45 $(0.11) $0.48 $0.10 Diluted - Class B Common Stock $0.41 $(0.10) $0.44 $0.09 Weighted Average Common Shares Outstanding: Basic - Class A Common Stock 195.910 193.733 195.571 193.262 Basic - Class B Common Stock 23.736 23.754 23.740 23.762 Diluted - Class A Common Stock 220.714 193.733 220.274 219.828 Diluted - Class B Common Stock 23.736 23.754 23.740 23.762 Constellation Brands, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Six Months Ended ------------------ August 31, August 31, 2009 2008 ----------- ----------- Cash Flows From Operating Activities Net income $106.2 $21.9 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 77.1 79.3 Stock-based compensation expense 25.4 22.3 Amortization of intangible and other assets 6.0 5.9 Loss on business sold 0.8 15.8 Deferred tax provision (28.7) 11.8 Equity in earnings of equity method investees, net of distributed earnings (12.3) 3.1 (Gain) loss on disposal or impairment of long-lived assets, net (1.4) 28.6 Write-down of inventory associated with the Australian Initiative - 47.6 Impairment of intangible assets - 21.8 Change in operating assets and liabilities, net of effects from purchases and sales of businesses: Accounts receivable, net (204.5) (76.0) Inventories 91.3 (28.3) Prepaid expenses and other current assets 1.0 9.7 Accounts payable (11.5) 10.2 Accrued excise taxes 17.6 9.5 Other accrued expenses and liabilities 8.8 (65.5) Other, net 21.6 59.1 ---- ---- Total adjustments (8.8) 154.9 ---- ----- Net cash provided by operating activities 97.4 176.8 ---- ----- Cash Flows From Investing Activities Proceeds from sale of business 276.4 204.2 Proceeds from sales of assets 14.5 16.0 Purchases of property, plant and equipment (65.1) (52.0) Investment in equity method investee (0.5) (0.6) Purchase of business, net of cash acquired - 0.6 Other investing activities 1.2 11.3 --- ---- Net cash provided by investing activities 226.5 179.5 ----- ----- Cash Flows From Financing Activities Principal payments of long-term debt (271.4) (99.5) Net repayment of notes payable (60.2) (281.0) Exercise of employee stock options 9.0 19.2 Proceeds from employee stock purchases 2.3 2.9 Excess tax benefits from stock-based payment awards 2.2 6.4 --- --- Net cash used in financing activities (318.1) (352.0) ------ ------ Effect of exchange rate changes on cash and cash investments 0.8 0.1 --- --- Net increase in cash and cash equivalents 6.6 4.4 Cash and cash investments, beginning of period 13.1 20.5 ---- ---- Cash and cash investments, end of period $19.7 $24.9 ===== ===== Constellation Brands, Inc. and Subsidiaries SEGMENT INFORMATION (in millions) Three Months Ended ---------------------- August 31, August 31, Percent 2009 2008 Change ------------ ------------ Segment Net Sales and Operating Income Constellation Wines (1) Branded wine net sales $752.4 $782.1 (4%) Spirits net sales 64.9 109.1 (41%) Other net sales 59.5 65.3 (9%) ---- ---- Segment net sales $876.8 $956.5 (8%) Operating income $187.9 $172.3 9% % Net sales 21.4% 18.0% Equity in earnings of equity method investees $1.0 $(0.2) NM Crown Imports Segment net sales $693.0 $732.1 (5%) Operating income $144.7 $148.8 (3%) % Net sales 20.9% 20.3% Consolidation and Eliminations Segment net sales $(693.0) $(732.1) (5%) Operating income $(144.7) $(148.8) (3%) Equity in earnings of Crown Imports $72.2 $74.4 (3%) Corporate Operations and Other Consolidated net sales $876.8 $956.5 (8%) Operating income $(20.4) $(26.2) (22%) % Net sales 2.3% 2.7% Six Months Ended -------------------- August 31, August 31, Percent 2009 2008 Change ------------ ------------ Segment Net Sales and Operating Income Constellation Wines (1) Branded wine net sales $1,440.3 $1,547.8 (7%) Spirits net sales 125.0 214.7 (42%) Other net sales 103.1 125.8 (18%) ----- ----- Segment net sales $1,668.4 $1,888.3 (12%) Operating income $335.5 $327.6 2% % Net sales 20.1% 17.3% Equity in earnings of equity method investees $0.9 $2.2 (59%) Crown Imports Segment net sales $1,328.8 $1,404.6 (5%) Operating income $270.7 $287.4 (6%) % Net sales 20.4% 20.5% Consolidation and Eliminations Segment net sales $(1,328.8) $(1,404.6) (5%) Operating income $(270.7) $(287.4) (6%) Equity in earnings of Crown Imports $135.1 $144.1 (6%) Corporate Operations and Other Consolidated net sales $1,668.4 $1,888.3 (12%) Operating income $(44.7) $(50.2) (11%) % Net sales 2.7% 2.7% NM = Not Meaningful (1) In connection with the Company's divestiture of its value spirits business and the integration of the retained spirits brands into the Constellation Wines business, the Company changed its internal management financial reporting on May 1, 2009. The Company now reports its operating results in three segments: Constellation Wines, Crown Imports and Corporate Operations and Other. Prior results have been restated to conform with the new segment presentation. Constellation Brands, Inc. and Subsidiaries GEOGRAPHIC INFORMATION (in millions) Three Months Ended Constant -------------------- Currency August 31, August 31, Percent Currency Percent 2009 2008 Change Impact Change(3) ---- ---- Geographic Net Sales (1)(2) North America $622.7 $666.1 (7%) (1%) (5%) Branded wine $543.2 $534.7 2% (1%) 3% Spirits $64.9 $109.1 (41%) - (41%) Other $14.6 $22.3 (35%) (3%) (32%) Europe $164.0 $191.1 (14%) (16%) 2% Branded wine $122.5 $153.1 (20%) (15%) (5%) Other $41.5 $38.0 9% (20%) 29% Australia/New Zealand $90.1 $99.3 (9%) (13%) 4% Branded wine $86.7 $94.3 (8%) (13%) 5% Other $3.4 $5.0 (32%) (10%) (22%) Organic Three Months Ended Constant -------------------- Currency August 31, August 31, Percent Currency Percent 2009 2008 Change Impact Change(3) ---- ---- Branded Wine Geographic Net Sales (1)(2) North America $543.2 $534.7 2% (1%) 3% Europe 122.5 153.1 (20%) (15%) (5%) Australia/New Zealand 86.7 94.3 (8%) (13%) 5% ---- ---- Consolidated branded wine net sales $752.4 $782.1 (4%) (5%) 2% ====== ====== Six Months Ended Constant ------------------ Currency August 31, August 31, Percent Currency Percent 2009 2008 Change Impact Change(3) ---- ---- Geographic Net Sales (1)(2) North America $1,194.9 $1,318.6 (9%) (2%) (7%) Branded wine $1,043.6 $1,065.4 (2%) (2%) - Spirits $125.0 $214.7 (42%) - (42%) Wholesale and other $26.3 $38.5 (32%) (5%) (26%) Europe $308.5 $373.2 (17%) (21%) 4% Branded wine $235.6 $296.1 (20%) (21%) - Wholesale and other $72.9 $77.1 (5%) (24%) 18% Australia/New Zealand $165.0 $196.5 (16%) (19%) 3% Branded wine $161.1 $186.3 (14%) (19%) 6% Wholesale and other $3.9 $10.2 (62%) (6%) (56%) Organic Six Months Ended Constant ------------------ Divest- Currency August 31, August 31, Percent iture Currency Percent 2009 2008 Change Impact(4) Impact Change(3) ---- ---- Branded Wine Geographic Net Sales (1)(2) North America $1,043.6 $1,065.4 (2%) (1%) (2%) 1% Europe 235.6 296.1 (20%) - (21%) - Australia/New Zealand 161.1 186.3 (14%) - (19%) 6% ----- ----- Consolidated branded wine net sales $1,440.3 $1,547.8 (7%) (1%) (8%) 1% ======== ======== (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) Divestiture impact includes the removal of branded wine net sales associated with the Pacific Northwest brands for the period March 1, 2008, through May 31, 2008, included in the six months ended August 31, 2008. Constellation Brands, Inc. and Subsidiaries RECONCILIATION OF REPORTED, ORGANIC AND CONSTANT CURRENCY NET SALES (in millions) As the company sold certain Pacific Northwest wine brands on June 5, 2008; exited certain spirits production contracts in connection with the sale of a Canadian distilling facility on August 31, 2008; and sold certain value spirits brands on March 24, 2009, organic net sales for the respective periods are defined by the company as reported net sales less net sales of Pacific Northwest wine brands and/or net sales of certain spirits contract production services and/or value brands, as appropriate. 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 August 31, August 31, Percent Currency Percent 2009 2008 Change Impact Change(1) ---- ---- Consolidated Net Sales Branded wine $752.4 $782.1 (4%) (5%) 2% Spirits 64.9 109.1 (41%) - (41%) Other 59.5 65.3 (9%) (13%) 5% ---- ---- Consolidated reported net sales 876.8 956.5 (8%) (5%) (3%) Less: Pacific Northwest branded wine net sales (2) - - Less: Spirits net sales (3) - (65.4) - ----- Consolidated organic net sales $876.8 $891.1 (2%) (6%) 4% ====== ====== Branded Wine Net Sales Branded wine reported net sales $752.4 $782.1 (4%) (5%) 2% Less: Pacific Northwest branded wine net sales (2) - - - - Branded wine organic net sales $752.4 $782.1 (4%) (5%) 2% ====== ====== Spirits Net Sales Spirits reported net sales $64.9 $109.1 (41%) - (41%) Less: Spirits net sales (3) - (65.4) - ----- Spirits organic net sales $64.9 $43.7 49% - 49% ===== ===== Six Months Ended Constant -------------------- Currency August 31, August 31, Percent Currency Percent 2009 2008 Change Impact Change(1) ---- ---- Consolidated Net Sales Branded wine $1,440.3 $1,547.8 (7%) (8%) 1% Spirits 125.0 214.7 (42%) - (42%) Other 103.1 125.8 (18%) (17%) (1%) ----- ----- Consolidated reported net sales 1,668.4 1,888.3 (12%) (7%) (4%) Less: Pacific Northwest branded wine net sales (2) - (7.9) Less: Spirits net sales (3) - (118.0) - ------ Consolidated organic net sales $1,668.4 $1,762.4 (5%) (8%) 3% ======== ======== Branded Wine Net Sales Branded wine reported net sales $1,440.3 $1,547.8 (7%) (8%) 1% Less: Pacific Northwest branded wine net sales (2) - (7.9) - ---- Branded wine organic net sales $1,440.3 $1,539.9 (6%) (8%) 1% ======== ======== Spirits Net Sales Spirits reported net sales $125.0 $214.7 (42%) - (42%) Less: Spirits net sales (3) - (118.0) - ------ Spirits organic net sales $125.0 $96.7 29% - 29% ====== ===== (1) May not sum due to rounding as each item is computed independently. (2) For the period March 1, 2008, through May 31, 2008, included in the six months ended August 31, 2008. (3) Includes certain spirits contract production services net sales and certain spirits value brands net sales for the period June 1, 2008, through August 31, 2008, included in the three months ended August 31, 2008. Includes certain spirits contract production services net sales for the period March 1, 2008, through August 31, 2008, and certain spirits value brands net sales for the period March 25, 2008, through August 31, 2008, included in the six months ended August 31, 2008. Constellation Brands, Inc. and Subsidiaries RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (1) (in millions, except per share data) Three Months Ended August 31, 2009 Strategic Reported Business Comparable Basis Inventory Realignment Basis (GAAP) Step-up (2) Other (Non-GAAP) --------- --------- ------------ ----- ---------- Net Sales $876.8 $876.8 Cost of product sold (567.2) 2.5 13.0 (551.7) ------ --- ---- - ------ Gross Profit 309.6 2.5 13.0 - 325.1 Selling, general and administrative expenses ("SG&A") (167.8) 10.2 (157.6) Impairment of intangible assets - - - Restructuring charges (3.2) 3.2 - Acquisition- related integration costs - - - - --- - - - Operating Income 138.6 2.5 26.4 - 167.5 Equity in earnings of equity method investees 73.2 73.2 ---- EBIT 240.7 Interest expense, net (66.6) (66.6) ----- --- ---- - ----- Income Before Income Taxes 145.2 2.5 26.4 - 174.1 (Provision for) benefit from income taxes (45.5) (0.9) (7.7) - (54.1) ----- ---- ---- - ----- Net Income $99.7 $1.6 $18.7 $- $120.0 ===== ==== ===== == ====== Diluted Earnings Per Common Share $0.45 $0.54 ===== ===== Weighted Average Common Shares Outstanding - Diluted(4) 220.714 220.714 ======= ======= Gross Margin 35.3% 37.1% SG&A as a percent of net sales 19.1% 18.0% Operating Margin 15.8% 19.1% Effective Tax Rate 31.3% 31.1% ---- ---- Three Months Ended August 31, 2008 Strategic Reported Business Comparable Basis Inventory Realignment Basis (GAAP) Step-up (2) Other(3) (Non-GAAP) -------- --------- ----------- -------- ---------- Net Sales $956.5 $956.5 Cost of product sold (650.7) 4.3 49.9 - (596.5) ------ --- ---- - ------ Gross Profit 305.8 4.3 49.9 - 360.0 Selling, general and administrative expenses ("SG&A") (225.2) 11.3 (213.9) Impairment of intangible assets (21.8) 21.8 - Restructuring charges (35.5) 35.5 - Acquisition- related integration costs (1.8) 1.8 - ---- --- --- - - Operating Income 21.5 4.3 120.3 - 146.1 Equity in earnings of equity method investees 70.1 4.1 74.2 ---- EBIT 220.3 Interest expense, net (80.7) (80.7) ----- --- ----- --- ----- Income Before Income Taxes 10.9 4.3 120.3 4.1 139.6 (Provision for) benefit from income taxes (33.6) (1.6) (5.4) - (40.6) ----- ---- ---- - ----- Net Income $(22.7) $2.7 $114.9 $4.1 $99.0 ====== ==== ====== ==== ===== Diluted Earnings Per Common Share $(0.11) $0.45 ====== ===== Weighted Average Common Shares Outstanding - Diluted(4) 193.733 220.353 ======= ======= Gross Margin 32.0% 37.6% SG&A as a percent of net sales 23.5% 22.4% Operating Margin 2.2% 15.3% Effective Tax Rate 308.3% 29.1% ----- ---- Percent Percent Change - Change - Reported Comparable Basis Basis (GAAP) (Non-GAAP) ------ ---------- Net Sales (8%) (8%) Cost of product sold (13%) (8%) Gross Profit 1% (10%) Selling, general and administrative expenses ("SG&A") (25%) (26%) Impairment of intangible assets NM N/A Restructuring charges NM N/A Acquisition- related integration costs NM N/A Operating Income NM 15% Equity in earnings of equity method investees 4% (1%) EBIT N/A 9% Interest expense, net (17%) (17%) Income Before Income Taxes NM 25% (Provision for) benefit from income taxes 35% 33% Net Income NM 21% Diluted Earnings Per Common Share NM 20% Weighted Average Common Shares Outstanding - Diluted(4) 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 (1) (in millions, except per share data) Six Months Ended August 31, 2009 Strategic Reported Business Comparable Basis Inventory Realignment Basis (GAAP) Step-up (5) Other (Non-GAAP) -------- --------- ----------- ----- ---------- Net Sales $1,668.4 $1,668.4 Cost of product sold (1,090.1) 5.2 17.8 (1,067.1) -------- --- ---- - -------- Gross Profit 578.3 5.2 17.8 - 601.3 Selling, general and administrative expenses ("SG&A") (334.4) 23.9 (310.5) Impairment of intangible assets - - Restructuring charges (22.1) 22.1 - Acquisition- related integration costs (0.1) 0.1 - ---- --- --- - - Operating Income 221.7 5.2 63.9 - 290.8 Equity in earnings of equity method investees 136.0 136.0 ----- EBIT 426.8 Interest expense, net (133.4) (133.4) ------ --- ---- - ------ Income Before Income Taxes 224.3 5.2 63.9 - 293.4 (Provision for) benefit from income taxes (118.1) (2.0) 19.4 - (100.7) ------ ---- ---- - ------ Net Income $106.2 $3.2 $83.3 $- $192.7 ====== ==== ===== == ====== Diluted Earnings Per Common Share $0.48 $0.01 $0.38 $- $0.87 ===== ===== ===== == ===== Weighted Average Common Shares Outstanding - Diluted 220.274 220.274 220.274 220.274 220.274 ======= ======= ======= ======= ======= Gross Margin 34.7% 36.0% SG&A as a percent of net sales 20.0% 18.6% Operating Margin 13.3% 17.4% Effective Tax Rate 52.7% 34.3% ---- ---- Six Months Ended August 31, 2008 Strategic Reported Business Comparable Basis Inventory Realignment Basis (GAAP) Step-up (5) Other(6) (Non-GAAP) -------- --------- ----------- -------- ---------- Net Sales $1,888.3 $1,888.3 Cost of product sold (1,253.5) 10.6 53.9 0.1 (1,188.9) -------- ---- ---- --- -------- Gross Profit 634.8 10.6 53.9 0.1 699.4 Selling, general and administrative expenses ("SG&A") (458.7) 36.7 (422.0) Impairment of intangible assets (21.8) 21.8 - Restructuring charges (36.0) 36.0 - Acquisition- related integration costs (6.1) 6.1 - ---- ---- --- --- - Operating Income 112.2 10.6 154.5 0.1 277.4 Equity in earnings of equity method investees 142.2 4.1 146.3 ----- EBIT 423.7 Interest expense, net (167.3) (167.3) ------ ---- ----- --- ------ Income Before Income Taxes 87.1 10.6 154.5 4.2 256.4 (Provision for) benefit from income taxes (65.2) (4.0) (14.6) - (83.8) ----- ---- ----- - ----- Net Income $21.9 $6.6 $139.9 $4.2 $172.6 ===== ==== ====== ==== ====== Diluted Earnings Per Common Share $0.10 $0.03 $0.64 $0.02 $0.79 ===== ===== ===== ===== ===== Weighted Average Common Shares Outstanding - Diluted 219.828 219.828 219.828 219.828 219.828 ======= ======= ======= ======= ======= Gross Margin 33.6% 37.0% SG&A as a percent of net sales 24.3% 22.3% Operating Margin 5.9% 14.7% Effective Tax Rate 74.9% 32.7% ---- ---- Percent Percent Change - Change - Reported Comparable Basis Basis (GAAP) (Non-GAAP) ------ ---------- Net Sales (12%) (12%) Cost of product sold (13%) (10%) Gross Profit (9%) (14%) Selling, general and administrative expenses ("SG&A") (27%) (26%) Impairment of intangible assets NM N/A Restructuring charges (39%) N/A Acquisition- related integration costs NM N/A Operating Income NM 5% Equity in earnings of equity method investees (4%) (7%) EBIT N/A 1% Interest expense, net (20%) (20%) Income Before Income Taxes NM 14% (Provision for) benefit from income taxes NM 20% Net Income NM 12% Diluted Earnings Per Common Share NM 10% 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 six months ended August 31, 2009, and August 31, 2008. 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 August 31, 2009, strategic business realignment items primarily include costs recognized by the company in connection with the Global Initiative of $12.5 million, net of a tax benefit of $6.3 million, and the Fiscal 2007 Wine Plan of $4.7 million, net of a tax benefit of $1.1 million. For the three months ended August 31, 2008, strategic business realignment items consist primarily of costs recognized by the company in connection with its Australian Initiative of $104.0 million, net of a tax benefit of $0.6 million, and the loss in connection with the sale of a nonstrategic Canadian distilling facility of $5.1 million, net of a tax benefit of $2.7 million. (3) For the three months ended August 31, 2008, other consists of $4.1 million, net of a tax benefit of $0 million, associated with the impairment of an Australian equity method investment. (4) In accordance with the antidilution provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"), the dilutive impact of potential common shares is excluded from the company's reported diluted weighted average common shares outstanding for the three months ended August 31, 2008. As a result of the company having net income on a comparable basis, the dilutive impact of potential common shares is included in the company's comparable diluted weighted average common shares outstanding. (5) For the six months ended August 31, 2009, strategic business realignment items primarily include tax expense associated with the March 2009 divestiture of the value spirits business of $37.5 million and costs recognized by the company in connection with the Global Initiative of $33.6 million, net of a tax benefit of $16.4 million. For the six months ended August 31, 2008, strategic business realignment items consist primarily of costs recognized by the company in connection with the Australian Initiative, of $104.0 million, net of a tax benefit of $0.6 million, and 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. (6) For the six months ended August 31, 2008, other consists primarily of $4.1 million, net of a tax benefit of $0 million, associated with the impairment of an Australian equity method investment. DEFINITIONS Global Initiative The company's plan announced in April 2009 to simplify its business, increase efficiencies and reduce its cost structure on a global basis (the "Global Initiative"). 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 (the "Australian Initiative"). Fiscal 2008 Plan The company's plan announced in November 2007 to streamline certain of its international operations, primarily in Australia; certain other restructuring charges incurred during the third quarter of fiscal 2008 in connection with the consolidation of certain spirits production processes in the U.S.; 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 Beam Wine Estates, Inc. ("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"). 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) Diluted Earnings Per Share Range for the Year Guidance Ending February 28, 2010 ------------------------ Forecasted diluted earnings per share - reported basis (GAAP) $0.97 $1.07 Inventory step-up 0.03 0.03 Strategic business realignment (1) 0.60 0.60 ---- ---- Forecasted diluted earnings per share - comparable basis (Non- GAAP) (2) $1.60 $1.70 ===== ===== Actual for the Year Ended February 28, 2009 --------------- Diluted earnings per share - reported basis (GAAP) $(1.40) Inventory step-up 0.06 Strategic business realignment (1) 0.97 Other (3) 1.94 Impact of anti-dilutive potential common shares (4) 0.03 ---- Diluted earnings per share - comparable basis (Non-GAAP) (2) $1.60 ===== (1) Includes $0.34, $0.17, $0.06 and $0.03 diluted earnings per share for the year ending February 28, 2010, associated with the Global Initiative; tax expense associated with the March 2009 divestiture of the value spirits business; the Australian Initiative; and other previously announced restructuring plans, respectively. Includes $0.63, $0.09, $0.08, $0.08, $0.05, $0.02 and $0.02 diluted earnings per share for the year ended February 28, 2009, associated with the Australian Initiative; a loss, primarily on assets held for sale, in connection with the March 2009 divestiture of the value spirits business; a loss in connection with the June 2008 divestiture of the Pacific Northwest wine brands; the Fiscal 2007 Wine Plan; the Fiscal 2008 Plan; a loss in connection with the sale of a Canadian distilling facility; and other previously announced restructuring plans, respectively.(2) (2) May not sum due to rounding as each item is computed independently. (3) Includes $1.23, $0.38, $0.18 and $0.15 diluted earnings per share for the year ended February 28, 2009, associated with impairments of certain goodwill and intangible assets; impairments of certain equity method investments; the recognition of income tax expense in connection with the gain on settlement of certain foreign currency economic hedges; and a loss on the adjustment of certain inventory, primarily Australian, related to prior years; respectively. (2) (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 loss per share calculation for the year ended February 28, 2009. As a result of the company having net income on a comparable basis for the year ended February 28, 2009, 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, 2010 ------------------------- Net cash provided by operating activities (GAAP) $380.0 $440.0 Purchases of property, plant and equipment (150.0) (170.0) ------ ------ Free cash flow (Non-GAAP) $230.0 $270.0 ====== ====== Actual for Actual for the Six the Six Months Ended Months Ended August 31, August 31, 2009 2008 -------------- -------------- Net cash provided by operating activities (GAAP) $97.4 $176.8 Purchases of property, plant and equipment (65.1) (52.0) ----- ----- Free cash flow (Non-GAAP) $32.3 $124.8 ===== ====== http://www.newscom.com/cgi-bin/prnh/20040119/STZLOGODATASOURCE: Constellation Brands, Inc. CONTACT: Media, Angie Blackwell, +1-585-678-7141, or Cheryl Gossin, +1-585-678-7191, or Investor Relations, Patty Yahn-Urlaub, +1-585-678-7483, or Bob Czudak, +1-585-678-7170, all of Constellation Brands Web Site: http://www.cbrands.com/

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