01—Abstract
Summary
Summary of the 10-K filed April 29, 2011. Cited figures are marked; the original filing is the authoritative source.
Constellation Brands, Inc. reported net sales of $3,332.0 milliona for the fiscal year ended February 28, 2011 (Fiscal 2011), down from $3,364.8 million in Fiscal 2010, driven mainly by the divestitures of the U.K. cider business and the 80.1% sale of its Australian and U.K. business (CWAE Divestiture) completed January 31, 2011.
Excluding these, U.S. base branded wine net sales rose $85.9 millionb and Constellation Wines North America (CWNA) net sales increased to $2,557.3 million from $2,434.7 million. Operating income increased to $502.5 million from $311.5 million, largely because restructuring charges and unusual items fell to $31.2 million from $248.7 million. Net income rose to $559.5 million, or $2.62 per diluted Class A share, from $99.3 million, helped by a $207.0 million tax benefit tied to the CWAE Divestiture and lower interest expense of $195.3 million.
The balance sheet strengthened over the year. Total debt fell to $3,236.3 millionc at February 28, 2011, a decrease of $599.2 million, and the company repurchased 17,223,404 Class A shares for $300.0 million under an accelerated stock buyback. Operating cash flow was $619.3 million and capital expenditures were $89.1 million.
In April 2011 the Board authorized up to $500.0 milliond in additional share repurchases, with none executed as of April 28, 2011. The company retained a 19.9% interest in the divested business, now Accolade Wines. Risks noted in the filing include a Ruffino put-option loss of $60.0 million recognized in Q4, goodwill and trademark impairments of $23.6 million, dependence on a few distributors (the largest customer, Southern Wine and Spirits, was 19.5% of sales), a potential Woodbridge Winery EPA penalty of $226,000, and a contingent loss of up to $55 million related to an early-terminated agreement with an equity method investee.
02—Key points
Key Highlights
- Net sales were $3,332.0 million, down from $3,364.8 million, reflecting the CWAE Divestiture and U.K. cider sale, partly offset by U.S. base branded wine growth of $85.9 million.
- Operating income rose to $502.5 million from $311.5 million, as restructuring charges and unusual items declined to $31.2 million from $248.7 million.
- Net income increased to $559.5 million ($2.62 diluted Class A EPS) from $99.3 million, aided by a $207.0 million tax benefit tied to the CWAE Divestiture.
- Total debt decreased by $599.2 million to $3,236.3 million at February 28, 2011, and interest expense, net fell to $195.3 million from $265.1 million.
- The company repurchased 17,223,404 Class A shares for $300.0 million during Fiscal 2011 and authorized up to $500.0 million in new repurchases in April 2011.
- Operating cash flow was $619.3 million and capital expenditures were $89.1 million; Fiscal 2012 capital spending is planned at $85 million to $95 million.
- Crown Imports, the Modelo joint venture, reported net sales of $2,392.9 million, up from $2,256.2 million, and the company received $210.0 million in cash distributions from it.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Constellation Brands kept $0.14.
- Revenue$4.10B100.0%
- Cost of revenue−$2.91B70.9%
- Gross profit$1.19B29.1%
- Operating costs−$687.6M16.8%
- Operating income$502.5M12.3%
- Interest, other & tax$57.0M1.4%
- Net income$559.5M13.7%
Where FY2011 revenue went
$4.10B- Cost of revenue: $2.14B, 52% of revenue
- Other operating costs: $811.4M, 20% of revenue
- SG&A: $640.9M, 16% of revenue
- Operating income: $502.5M, 12% of revenue
Kept 12% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed April 29, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $4.10B$4.21B | −2.8% |
| Cost of Revenue | $2.14B$2.22B | −3.5% |
| Gross Profit | $1.19B$1.14B | +4.0% |
| SG&A Expenses | $640.90M$682.50M | −6.1% |
| Operating Income | $502.50M$311.50M | +61.3% |
| Interest Expense | $198.80M$265.10M | −25.0% |
| Net Income | $559.50M$99.30M | +463.4% |
05—Questions
Frequently Asked Questions
Why did net income increase so significantly in Fiscal 2011?
Net income rose to $559.5 million from $99.3 million mainly because operating income increased to $502.5 million, restructuring charges and unusual items fell to $31.2 million from $248.7 million, and the company recorded a $207.0 million benefit tied to the deduction for investments and loans related to the CWAE Divestiture. The effective tax rate was (1.5%) for Fiscal 2011, compared with 61.7% for Fiscal 2010.
What was the CWAE Divestiture and what did the company receive?
In January 2011 the company sold 80.1% of its Australian and U.K. business at a transaction value of $266.9 million, subject to post-closing adjustments. It received cash proceeds of $221.3 million, net of cash divested and direct costs, and retained a 19.9% interest. The filing reports a total net gain of $83.7 million associated with the divestiture, recorded in selling, general and administrative expenses.
How much debt does Constellation Brands have and how is it being reduced?
Total debt was $3,236.3 million at February 28, 2011, a decrease of $599.2 million from the prior year. Principal payments of long-term debt were $328.5 million and net repayment of notes payable was $289.7 million in Fiscal 2011. In March 2011 the company prepaid $300.0 million of its tranche B term loan facility.
What share repurchase activity has the company undertaken?
During Fiscal 2011 the company repurchased 17,223,404 Class A shares for $300.0 million, an average cost of $17.42 per share, through a collared accelerated stock buyback. In April 2011 the Board authorized up to $500.0 million in additional repurchases over a multi-year period, and as of April 28, 2011 no shares had been repurchased under that authorization.
What are the main risks flagged in the filing?
The filing highlights reliance on wholesale distributors, with the largest customer, Southern Wine and Spirits, accounting for 19.5% of sales. It also notes a $60.0 million loss on the Ruffino put option, a contingent loss of up to $55 million tied to an early-terminated agreement with an equity method investee, impairments of $23.6 million on goodwill and intangible assets, dependence on a limited number of glass bottle suppliers, and the risks of Project Fusion, a multi-year systems upgrade.
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