01—Abstract
Summary
Summary of the 10-K filed May 14, 2004. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported Fiscal 2004 (year ended February 29, 2004) net sales of $3,552.4 milliona, up from $2,731.6 million in Fiscal 2003, an increase of $820.8 million, or 30.0%.
The increase was driven primarily by $571.4 millionb of net sales from products acquired in the Hardy Acquisition, along with higher imported beer sales ($86.6 million) and U.K. wholesale sales ($61.1 million on a local currency basis), and a favorable foreign currency impact of $74.6 million. Consolidated operating income rose to $487.4 million from $405.0 million, and net income increased to $220.4 million, or $2.06 diluted EPS, from $203.3 million. Results were affected by $71.6 million of restructuring and related charges and unusual costs, including a $16.8 million write-down of concentrate inventory tied to exiting the commodity concentrate product line.
The balance sheet expanded substantially as a result of the Hardy Acquisition, which was financed largely with debt and equity. Total assets rose to $5,558.7 millionc from $3,196.3 million, and long-term debt including current maturities reached $2,046.1 million. Total debt-to-total capitalization decreased to 46.3% from 51.9%, following $426.1 million of net proceeds from 2003 equity offerings.
Net cash provided by operating activities was $340.3 milliond, while capital expenditures were $105.1 million. The company stated it expects a negative impact on volume trends in Fiscal 2005 following a January 2004 price increase on imported Mexican beer brands, which shifted some volume into Fiscal 2004. The company also said it expects additional restructuring charges of $11.6 million in Fiscal 2005.
The company has not paid cash dividends on its common stock since its 1973 initial public offering, and its senior credit facility currently restricts such payments. Management stated that its legal proceedings are not expected to have a material adverse effect on financial condition, results of operations or cash flows.
02—Key points
Key Highlights
- Net sales rose 30.0% to $3,552.4 million, including $571.4 million from products acquired in the Hardy Acquisition
- Operating income increased 20.3% to $487.4 million, though results include $71.6 million of restructuring and related charges and unusual costs
- Net income increased to $220.4 million ($2.06 diluted EPS) from $203.3 million in Fiscal 2003
- Hardy Acquisition completed in April 2003 for total consideration of $1,137.4 million in cash and Class A Common Stock, making the company the largest wine company in the world
- Total assets grew to $5,558.7 million; total debt rose to $2,047.9 million, with debt-to-total capitalization declining to 46.3% from 51.9%
- Net cash provided by operating activities was $340.3 million; capital expenditures were $105.1 million
- Management expects negative volume trends for imported Mexican beer in Fiscal 2005 following a January 2004 price increase
03—Questions
Frequently Asked Questions
How did Constellation Brands perform in Fiscal 2004?
Net sales increased 30.0% to $3,552.4 million, operating income rose 20.3% to $487.4 million, and net income increased to $220.4 million from $203.3 million. Growth was driven mainly by the Hardy Acquisition, which contributed $571.4 million of net sales, along with imported beer volume gains and favorable foreign currency effects.
What was the Hardy Acquisition and how was it financed?
The Company acquired BRL Hardy Limited, now Hardy Wine Company Limited, Australia's largest wine producer, along with the remaining 50% of Pacific Wine Partners LLC. Total consideration in cash and Class A Common Stock was $1,137.4 million, with the cash portion financed by $660.2 million of borrowings under the March 2003 Credit Agreement and $400.0 million under a Bridge Agreement, which was later repaid using 2003 equity offerings.
What risks or charges affected Fiscal 2004 results?
Fiscal 2004 included $71.6 million of restructuring and related charges and unusual costs, including $31.2 million of restructuring charges, a $16.8 million write-down of commodity concentrate inventory, and $22.5 million of inventory step-up from the Hardy Acquisition. The Company also noted intense competitive discounting in some markets driven partly by excess grape supplies.
Does Constellation Brands pay dividends?
No. The Company has not paid cash dividends on its common stock since its 1973 initial public offering and intends to retain earnings. Its senior credit facility currently constrains dividend payments, and indentures for its senior and senior subordinated notes may also restrict them. It did pay $3.3 million in dividends on its Series A Preferred Stock during the year.
What outlook did management provide for Fiscal 2005?
Management expects a negative impact on imported Mexican beer volume trends in Fiscal 2005 after a January 2004 price increase led to wholesaler buy-in in Fiscal 2004. The Company also expects additional restructuring and related charges of $11.6 million in Fiscal 2005 and planned capital expenditures of approximately $125.0 million.
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