01—Abstract
Summary
Summary of the 10-K filed April 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported a net loss of $613.3 milliona for Fiscal 2008 (year ended February 29, 2008), compared with net income of $331.9 million in Fiscal 2007.
Net sales fell 28% to $3,773.0 millionb from $5,216.4 million, primarily because the Crown Imports and Matthew Clark investments are now accounted for under the equity method, partially offset by acquired products from Vincor, Svedka and the Fortune Brands U.S. wine business (BWE Acquisition). The decline in profitability was driven by $812.2 million of impairment losses on goodwill and intangible assets, mainly in the Australian and U.K. businesses of the Constellation Wines segment, along with an operating loss of $356.7 million. Interest expense, net rose to $341.8 million, and the company's total debt reached $5,257.5 million, with a debt-to-total-capitalization ratio of 65.5%, up from 55.1%.
The filing shows the company's Crown Imports joint venture with Modelo remained a significant contributor, with equity in earnings of equity method investees rising to $257.9 millionc from $49.9 million. Branded wine net sales increased to $3,016.9 million, while the company also completed a $500.0 million share repurchase program during the year. Management cited a reduction of distributor wine inventory in the U.S. as a factor that reduced net sales by approximately $110 million and diluted earnings per share by approximately $0.15.
The company expects Fiscal 2009 acquisition-related integration costs of $10.3 milliond and restructuring and related charges of $16.7 million, and plans capital expenditures of $150 million to $170 million. The company has not paid cash dividends since its 1973 initial public offering, and its senior credit facility currently restricts dividend payments.
02—Key points
Key Highlights
- Net loss of $613.3 million for Fiscal 2008 versus net income of $331.9 million in Fiscal 2007, driven largely by $812.2 million of impairment losses on goodwill and intangible assets.
- Net sales declined 28% to $3,773.0 million, reflecting equity-method accounting for the Crown Imports and Matthew Clark joint ventures, partly offset by the Vincor, Svedka and BWE acquisitions.
- Operating loss of $356.7 million versus operating income of $699.0 million in Fiscal 2007; gross profit margin rose to 34.0% from 29.2%.
- Equity in earnings of equity method investees increased to $257.9 million from $49.9 million, primarily from the Crown Imports joint venture.
- Total debt rose to $5,257.5 million, and the debt-to-total-capitalization ratio increased to 65.5% from 55.1%.
- Acquired the Fortune Brands U.S. wine business for $888.6 million in cash in December 2007 and sold the Almaden and Inglenook brands for $133.7 million in February 2008.
- Repurchased 21,332,468 Class A shares for $500.0 million during the year; no cash dividends have been paid since the 1973 IPO.
03—Questions
Frequently Asked Questions
Why did the company report a net loss in Fiscal 2008?
The net loss of $613.3 million was driven primarily by $812.2 million of impairment losses on goodwill and intangible assets, of which $599.9 million related to goodwill and $212.3 million to intangible assets, mainly in the Constellation Wines segment's Australian and U.K. businesses. A valuation allowance of $51.7 million against Australian net operating loss carryforwards also contributed.
Why did net sales decline by 28%?
The decline resulted primarily from accounting for the Crown Imports and Matthew Clark investments under the equity method, which reduced net sales by $1,043.6 million and $759.8 million respectively. This was partially offset by $202.7 million of net sales from the Vincor, Svedka and BWE acquisitions and a favorable foreign currency impact of $133.5 million.
What did the company say about its debt and liquidity?
Total debt outstanding was $5,257.5 million as of February 29, 2008, up $1,072.0 million, with the debt-to-total-capitalization ratio at 65.5%. The company stated that cash from operations and short-term borrowings under its revolving credit facility will provide adequate resources for working capital, scheduled debt payments and capital expenditures. Its 2006 Credit Agreement provides for $3.9 billion of aggregate facilities.
What does the filing say about the outlook for Fiscal 2009?
The company expects Fiscal 2009 acquisition-related integration costs of $10.3 million and restructuring and related charges of $16.7 million, primarily related to the Fiscal 2008 Plan and Fiscal 2006 Plan. It plans capital expenditures of $150 million to $170 million and expects the highly competitive conditions in the U.K. and Australian markets to persist, with Australian grape supply expected to move back into balance with demand.
04—Continue