01—Abstract
Summary
Summary of the 10-K filed May 29, 1997. Cited figures are marked; the original filing is the authoritative source.
Canandaigua Wine Company, Inc. (now Constellation Brands, Inc.) reported net sales of $1,135.0 milliona for the fiscal year ended February 28, 1997, up from $987.1 million for Pro Forma Fiscal 1996, an increase of $147.9 million, or approximately 15.0%.
Net income rose to $27.7 millionb from $24.0 million, while gross profit margin fell to 25.6% from 26.8%. Management attributed the margin decline mainly to higher grape costs, which increased 17.5% in the 1996 harvest, and to production inefficiencies at the Mission Bell Winery. Growth was driven by imported beer, where net sales rose 24.7% on 23.3% higher unit volume, largely from Mexican brands such as Corona, along with price increases on varietal table wines.
The company's wine division faced the most pressure. Management described an ongoing reengineering effort, new accounting and information systems, and new senior management hires, including a new CFO, Thomas S. Summer, who joined in April 1997.
Management stated that selling price increases had not fully offset the higher grape costs from the 1995 and 1996 harvests, and that there can be no assurance the steps being taken will resolve the inefficiencies. On the balance sheet, total assets were $1.02 billionc and stockholders' equity was $364.7 million at February 28, 1997. Long-term debt, less current maturities, was $338.9 million, and notes payable were $57.0 million.
Operating cash flow was $107.8 milliond, and the company repurchased $20.8 million of Class A stock during the year, completing a $30.0 million program in May 1997. The company has not paid cash dividends since its 1973 initial public offering, and its credit agreement and note indentures restrict dividend payments.
02—Key points
Key Highlights
- Net sales of $1,135.0 million in fiscal 1997, up $147.9 million, or approximately 15.0%, from Pro Forma Fiscal 1996 net sales of $987.1 million.
- Net income of $27.7 million for fiscal 1997, an increase of $3.7 million compared with Pro Forma Fiscal 1996.
- Gross profit margin declined to 25.6% from 26.8%, mainly due to higher grape costs and production inefficiencies at the Mission Bell Winery.
- Beer net sales rose 24.7% to $298.9 million on 23.3% higher unit volume, driven largely by Mexican beer brands including Corona.
- Operating cash flow was $107.8 million, and capital expenditures were $31.6 million, including about $8.7 million for vineyards.
- Long-term debt was $338.9 million at February 28, 1997, and the company issued $65.0 million of 8 3/4% Series B Senior Subordinated Notes in October 1996.
- The company completed a $30.0 million stock repurchase program in May 1997 and has paid no cash dividends since its 1973 IPO.
03—Questions
Frequently Asked Questions
How did the company's sales and profits perform in fiscal 1997?
Net sales rose to $1,135.0 million from $987.1 million for Pro Forma Fiscal 1996, an increase of approximately 15.0%. Net income increased $3.7 million to $27.7 million. Gross profit increased to $290.8 million, but the gross margin fell to 25.6% from 26.8%.
What caused the decline in gross margin?
The filing attributes the decline mainly to higher grape costs, particularly in the fall 1996 harvest, and to additional costs from production inefficiencies at the Mission Bell Winery in California. Grape costs rose 17.5% in the 1996 harvest on a constant-tonnage basis, and selling price increases did not fully offset them.
Which product categories drove growth?
Imported beer was the main driver, with net sales up 24.7% and unit volume up 23.3%, largely from Mexican brands. Varietal table wine net sales rose 13.6% on 2.9% higher volume, while non-varietal table wine, dessert wine, and sparkling wine net sales declined.
What is the company's debt and capital structure position?
At February 28, 1997, long-term debt less current maturities was $338.9 million and notes payable were $57.0 million. Stockholders' equity was $364.7 million. The company had $119.4 million available under its revolving loan facility and carried $195.0 million of 8 3/4% Senior Subordinated Notes due 2003.
What steps is management taking to address wine division problems?
Management completed a reengineering effort in the wine division, creating Accountable Business Units and Customer Business Centers, and is implementing a new accounting and management information system. It also formed task forces to address West Coast operating inefficiencies and added new senior managers, including a new CFO. The filing states there can be no assurance these steps will resolve the inefficiencies.
04—Continue