CONSTELLATION BRANDS, INC.
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
November 30, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ____________________
Commission File Number 001-08495
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 16-0716709 | |
|
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
| 207 High Point Drive, Building 100, Victor, New York | 14564 | ||
| (Address of principal executive offices) | (Zip Code) | ||
(585) 678-7100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large accelerated filer
x
|
Accelerated filer o | |
|
Non-accelerated filer
o
|
Smaller reporting company o | |
|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
o
No
x
The number of shares outstanding with respect to each of the classes of common stock of
Constellation Brands, Inc., as of December 31, 2010, is set forth below:
| Class | Number of Shares Outstanding | |
|
Class A Common Stock, par value $.01 per share
|
185,832,829 | |
|
Class B Common Stock, par value $.01 per share
|
23,625,158 | |
|
Class 1 Common Stock, par value $.01 per share
|
None |
TABLE OF CONTENTS
Table of Contents
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are subject to a number of risks and uncertainties, many of which
are beyond the Company’s control, that could cause actual results to differ materially from those
set forth in, or implied by, such forward-looking statements. For further information regarding
such forward-looking statements, risks and uncertainties, please see “Information Regarding
Forward-Looking Statements” under Part I - Item 2 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
| November 30, | February 28, | |||||||
| 2010 | 2010 | |||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash investments
|
$ | 16.0 | $ | 43.5 | ||||
|
Accounts receivable, net
|
868.9 | 514.7 | ||||||
|
Inventories
|
1,866.6 | 1,879.9 | ||||||
|
Prepaid expenses and other
|
93.3 | 151.0 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current assets
|
2,844.8 | 2,589.1 | ||||||
|
PROPERTY, PLANT AND EQUIPMENT, net
|
1,556.1 | 1,567.2 | ||||||
|
GOODWILL
|
2,590.2 | 2,570.6 | ||||||
|
INTANGIBLE ASSETS, net
|
922.0 | 925.0 | ||||||
|
OTHER ASSETS, net
|
344.7 | 442.4 | ||||||
|
|
||||||||
|
|
||||||||
|
Total assets
|
$ | 8,257.8 | $ | 8,094.3 | ||||
|
|
||||||||
|
|
||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Notes payable to banks
|
$ | 355.8 | $ | 371.2 | ||||
|
Current maturities of long-term debt
|
237.8 | 187.2 | ||||||
|
Accounts payable
|
334.8 | 268.8 | ||||||
|
Accrued excise taxes
|
65.4 | 43.8 | ||||||
|
Other accrued expenses and liabilities
|
521.5 | 501.6 | ||||||
|
|
||||||||
|
Total current liabilities
|
1,515.3 | 1,372.6 | ||||||
|
|
||||||||
|
LONG-TERM DEBT, less current maturities
|
3,133.0 | 3,277.1 | ||||||
|
|
||||||||
|
DEFERRED INCOME TAXES
|
565.4 | 536.2 | ||||||
|
|
||||||||
|
OTHER LIABILITIES
|
325.1 | 332.1 | ||||||
|
|
||||||||
|
STOCKHOLDERS’ EQUITY:
|
||||||||
|
Class A Common Stock, $.01 par value-
Authorized, 322,000,000 shares; Issued, 228,333,977 shares at November 30, 2010, and 225,062,547 shares at February 28, 2010 |
2.3 | 2.3 | ||||||
|
Class B Convertible Common Stock, $.01 par value-
Authorized, 30,000,000 shares; Issued, 28,656,658 shares at November 30, 2010, and 28,734,637 shares at February 28, 2010 |
0.3 | 0.3 | ||||||
|
Additional paid-in capital
|
1,572.9 | 1,493.2 | ||||||
|
Retained earnings
|
1,382.5 | 1,102.8 | ||||||
|
Accumulated other comprehensive income
|
665.9 | 587.2 | ||||||
|
|
||||||||
|
|
3,623.9 | 3,185.8 | ||||||
|
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||||||||
|
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||||||||
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Less: Treasury stock -
|
||||||||
|
Class A Common Stock, 42,878,951 shares at
November 30, 2010, and 26,549,546 shares at
February 28, 2010, at cost
|
(902.7 | ) | (607.3 | ) | ||||
|
Class B Convertible Common Stock, 5,005,800 shares
at November 30, 2010, and February 28, 2010, at cost
|
(2.2 | ) | (2.2 | ) | ||||
|
|
||||||||
|
|
(904.9 | ) | (609.5 | ) | ||||
|
|
||||||||
|
Total stockholders’ equity
|
2,719.0 | 2,576.3 | ||||||
|
|
||||||||
|
Total liabilities and stockholders’ equity
|
$ | 8,257.8 | $ | 8,094.3 | ||||
|
|
||||||||
The accompanying notes are an integral part of these statements.
2
Table of Contents
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
| For the Nine Months Ended November 30 , | For the Three Months Ended November 30 , | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
|
||||||||||||||||
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SALES
|
$ | 3,224.5 | $ | 3,320.0 | $ | 1,191.4 | $ | 1,225.5 | ||||||||
|
Less - excise taxes
|
(607.8 | ) | (663.9 | ) | (225.0 | ) | (237.8 | ) | ||||||||
|
|
||||||||||||||||
|
Net sales
|
2,616.7 | 2,656.1 | 966.4 | 987.7 | ||||||||||||
|
COST OF PRODUCT SOLD
|
(1,680.6 | ) | (1,733.7 | ) | (614.5 | ) | (643.6 | ) | ||||||||
|
|
||||||||||||||||
|
Gross profit
|
936.1 | 922.4 | 351.9 | 344.1 | ||||||||||||
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
|
(512.2 | ) | (534.3 | ) | (176.1 | ) | (202.9 | ) | ||||||||
|
IMPAIRMENT OF INTANGIBLE ASSETS
|
(6.9 | ) | - | (6.9 | ) | - | ||||||||||
|
RESTRUCTURING CHARGES
|
(17.4 | ) | (27.2 | ) | 1.2 | (5.1 | ) | |||||||||
|
|
||||||||||||||||
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Operating income
|
399.6 | 360.9 | 170.1 | 136.1 | ||||||||||||
|
EQUITY IN EARNINGS OF EQUITY METHOD
INVESTEES
|
192.3 | 170.6 | 71.4 | 34.6 | ||||||||||||
|
INTEREST EXPENSE, net
|
(147.9 | ) | (202.0 | ) | (49.1 | ) | (65.5 | ) | ||||||||
|
|
||||||||||||||||
|
Income before income taxes
|
444.0 | 329.5 | 192.4 | 105.2 | ||||||||||||
|
PROVISION FOR INCOME TAXES
|
(164.3 | ) | (179.2 | ) | (53.1 | ) | (61.1 | ) | ||||||||
|
|
||||||||||||||||
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NET INCOME
|
$ | 279.7 | $ | 150.3 | $ | 139.3 | $ | 44.1 | ||||||||
|
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SHARE DATA:
|
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Earnings per common share:
|
||||||||||||||||
|
Basic - Class A Common Stock
|
$ | 1.33 | $ | 0.69 | $ | 0.67 | $ | 0.20 | ||||||||
|
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Basic - Class B Convertible Common Stock
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$ | 1.21 | $ | 0.63 | $ | 0.61 | $ | 0.18 | ||||||||
|
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Diluted - Class A Common Stock
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$ | 1.30 | $ | 0.68 | $ | 0.65 | $ | 0.20 | ||||||||
|
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Diluted - Class B Convertible Common Stock
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$ | 1.20 | $ | 0.62 | $ | 0.60 | $ | 0.18 | ||||||||
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Weighted average common shares outstanding:
|
||||||||||||||||
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Basic - Class A Common Stock
|
188.154 | 195.880 | 186.272 | 196.505 | ||||||||||||
|
Basic - Class B Convertible Common Stock
|
23.706 | 23.738 | 23.680 | 23.734 | ||||||||||||
|
|
||||||||||||||||
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Diluted - Class A Common Stock
|
214.515 | 220.849 | 213.110 | 222.205 | ||||||||||||
|
Diluted - Class B Convertible Common Stock
|
23.706 | 23.738 | 23.680 | 23.734 | ||||||||||||
The accompanying notes are an integral part of these statements.
3
Table of Contents
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| For the Nine Months Ended November 30, | ||||||||
| 2010 | 2009 | |||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net income
|
$ | 279.7 | $ | 150.3 | ||||
|
|
||||||||
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
||||||||
|
Depreciation of property, plant and equipment
|
91.9 | 111.5 | ||||||
|
Deferred tax provision (benefit)
|
72.2 | (22.8 | ) | |||||
|
Stock-based compensation expense
|
39.8 | 39.2 | ||||||
|
Amortization of intangible and other assets
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11.0 | 8.9 | ||||||
|
Impairment of intangible assets
|
6.9 | - | ||||||
|
Loss on disposal or impairment of long-lived assets, net
|
1.2 | 0.7 | ||||||
|
Equity in earnings of equity method investees, net of distributed earnings
|
(0.4 | ) | 27.0 | |||||
|
Loss on contractual obligation from put option of Ruffino shareholder
|
- | 34.3 | ||||||
|
Loss on business sold
|
- | 0.8 | ||||||
|
Change in operating assets and liabilities, net of effects
from purchases and sales of businesses:
|
||||||||
|
Accounts receivable, net
|
(344.3 | ) | (307.3 | ) | ||||
|
Inventories
|
52.5 | (32.3 | ) | |||||
|
Prepaid expenses and other current assets
|
7.9 | 7.3 | ||||||
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Accounts payable
|
72.6 | 63.2 | ||||||
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Accrued excise taxes
|
20.5 | 11.5 | ||||||
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Other accrued expenses and liabilities
|
76.0 | 57.1 | ||||||
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Other, net
|
(18.5 | ) | 39.3 | |||||
|
|
||||||||
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Total adjustments
|
89.3 | 38.4 | ||||||
|
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||||||||
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Net cash provided by operating activities
|
369.0 | 188.7 | ||||||
|
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CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchases of property, plant and equipment
|
(70.1 | ) | (89.2 | ) | ||||
|
Investments in equity method investees
|
(29.7 | ) | (0.6 | ) | ||||
|
(Repayments related to) proceeds from sale of business
|
(1.6 | ) | 276.4 | |||||
|
Proceeds from note receivable
|
60.0 | - | ||||||
|
Proceeds from sales of assets
|
15.5 | 16.5 | ||||||
|
Capital distribution from equity method investee
|
0.3 | 0.2 | ||||||
|
Other investing activities
|
0.5 | 0.6 | ||||||
|
|
||||||||
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Net cash (used in) provided by investing activities
|
(25.1 | ) | 203.9 | |||||
|
|
||||||||
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Purchases of treasury stock
|
(300.0 | ) | - | |||||
|
Principal payments of long-term debt
|
(101.1 | ) | (529.8 | ) | ||||
|
Net (repayment of) proceeds from notes payable
|
(16.7 | ) | 124.2 | |||||
|
Payment of financing costs of long-term debt
|
(0.2 | ) | - | |||||
|
Exercise of employee stock options
|
35.8 | 10.7 | ||||||
|
Excess tax benefits from stock-based payment awards
|
7.1 | 2.5 | ||||||
|
Proceeds from employee stock purchases
|
2.1 | 2.3 | ||||||
|
Proceeds from maturity of derivative instrument
|
- | 33.2 | ||||||
|
|
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Net cash used in financing activities
|
(373.0 | ) | (356.9 | ) | ||||
|
|
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|
|
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Effect of exchange rate changes on cash and cash investments
|
1.6 | 1.5 | ||||||
|
|
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|
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NET (DECREASE) INCREASE IN CASH AND CASH INVESTMENTS
|
(27.5 | ) | 37.2 | |||||
|
CASH AND CASH INVESTMENTS, beginning of period
|
43.5 | 13.1 | ||||||
|
|
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CASH AND CASH INVESTMENTS, end of period
|
$ | 16.0 | $ | 50.3 | ||||
|
|
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SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
|
Property, plant and equipment acquired under financing arrangements
|
$ | 18.3 | $ | - | ||||
|
|
||||||||
|
|
||||||||
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Note receivable from sale of value spirits business
|
$ | - | $ | 60.0 | ||||
|
|
||||||||
The accompanying notes are an integral part of these statements.
4
Table of Contents
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2010
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2010
(unaudited)
1. BASIS OF PRESENTATION:
The consolidated financial statements included herein have been prepared by Constellation
Brands, Inc. and its subsidiaries (the “Company”), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form
10-Q and reflect, in the opinion of the Company, all adjustments necessary to present fairly the
financial information for the Company. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been condensed or omitted as
permitted by such rules and regulations. These consolidated financial statements and related notes
should be read in conjunction with the consolidated financial statements and related notes included
in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2010. Results
of operations for interim periods are not necessarily indicative of annual results.
In connection with the Company’s changes during the first quarter of fiscal 2011 within its
internal management structure for its United Kingdom (“U.K.”) and Australia businesses, and the
Company’s revised business strategy within these markets, the Company changed its reportable
operating segments on May 1, 2010, to consist of: Constellation Wines North America (“CWNA”),
Constellation Wines Australia and Europe (“CWAE”), Corporate Operations and Other, and Crown
Imports (see Note 17 and Note 19).
2. RECENTLY ADOPTED ACCOUNTING GUIDANCE:
Consolidation of variable interest entities –
Effective March 1, 2010, the Company adopted the Financial Accounting Standards Board (“FASB”)
June 2009 amended guidance for consolidation. This guidance, among other things, (i) requires an
entity to perform an analysis to determine whether an entity’s variable interest or interests give
it a controlling financial interest in a variable interest entity; (ii) requires ongoing
reassessments of whether an entity is the primary beneficiary of a variable interest entity and
eliminates the quantitative approach previously required for determining the primary beneficiary of
a variable interest entity; (iii) amends previously issued guidance for determining whether an
entity is a variable interest entity; and (iv) requires enhanced disclosure that will provide
users of financial statements with more transparent information about an entity’s involvement in a
variable interest entity. In addition, effective March 1, 2010, the Company adopted the FASB
additional December 2009 guidance on assessing whether a variable interest entity should be
consolidated. This guidance identifies the determination of whether a reporting entity should
consolidate another entity is based upon, among other things, (i) the other entity’s purpose and
design, and (ii) the reporting entity’s ability to direct the activities of the other entity that
most significantly impact the other entity’s economic performance. This guidance also requires
additional disclosures about an entity’s involvement with a variable interest entity, including
significant changes in risk exposure due to an entity’s involvement with a variable interest entity
and how the involvement with the variable interest entity affects the financial statements of the
reporting entity. The adoption of the combined guidance did not have a material impact on the
Company’s consolidated financial statements.
5
Table of Contents
Fair value measurements and disclosures –
In January 2010, the FASB issued amended guidance for fair value measurements and disclosures.
This guidance requires an entity to (i) disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers, and
(ii) present separately information about purchases, sales, issuances and settlements on a gross
basis in the reconciliation for fair value measurements using significant unobservable inputs
(Level 3). This guidance also clarifies existing disclosures requiring an entity to provide fair
value measurement disclosures for each class of assets and liabilities and, for Level 2 or Level 3
fair value measurements, disclosures about the valuation techniques and inputs used to measure fair
value for both recurring and nonrecurring fair value measurements. Effective March 1, 2010, the
Company adopted the additional disclosure requirements and clarifications of existing disclosures
of this guidance, except for the disclosures about purchases, sales, issuances and settlements in
the reconciliation for fair value measurements using significant unobservable inputs (Level 3).
The Company is required to adopt those disclosures for its annual and interim periods beginning
March 1, 2011. The adoption of the applicable provisions of this guidance on March 1, 2010, did
not have a material impact on the Company’s consolidated financial statements. The Company does
not expect the adoption of the remaining provision of this guidance to have a material impact on
the Company’s consolidated financial statements.
3. INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with the first-in,
first-out method) or market. Elements of cost include materials, labor and overhead and consist of
the following:
| November 30, | February 28, | |||||||
| 2010 | 2010 | |||||||
|
(in millions
)
|
||||||||
|
Raw materials and supplies
|
$ | 47.0 | $ | 44.3 | ||||
|
In-process inventories
|
1,335.9 | 1,327.9 | ||||||
|
Finished case goods
|
483.7 | 507.7 | ||||||
|
|
||||||||
|
|
$ | 1,866.6 | $ | 1,879.9 | ||||
|
|
||||||||
4. DERIVATIVE INSTRUMENTS:
As a multinational company, the Company is exposed to market risk from changes in foreign
currency exchange rates and interest rates that could affect the Company’s results of operations
and financial condition. The amount of volatility realized will vary based upon the effectiveness
and level of derivative instruments outstanding during a particular period of time, as well as the
currency and interest rate market movements during that same period.
The Company enters into derivative instruments, primarily interest rate swaps and foreign
currency forward and option contracts, to manage interest rate and foreign currency risks. In
accordance with the FASB guidance for derivatives and hedging, the Company recognizes all
derivatives as either assets or liabilities on the balance sheet and measures those instruments at
fair value. The fair values of the Company’s derivative instruments change with fluctuations in
interest rates and/or currency rates and are expected to offset changes in the values of the
underlying exposures. The Company’s derivative instruments are held solely to hedge economic
exposures. The Company follows strict policies to manage interest rate and foreign currency risks,
including prohibitions on derivative market-making or other speculative activities.
6
Table of Contents
To qualify for hedge accounting treatment under the FASB guidance for derivatives and hedging,
the details of the hedging relationship must be formally documented at inception of the
arrangement, including the risk management objective, hedging strategy, hedged item, specific risk
that is being hedged, the derivative instrument, how effectiveness is being assessed and how
ineffectiveness will be measured. The derivative must be highly effective in offsetting either
changes in the fair value or cash flows, as appropriate, of the risk being hedged. Effectiveness
is evaluated on a retrospective and prospective basis based on quantitative measures.
Certain of the Company’s derivative instruments do not qualify for hedge accounting treatment
under the FASB guidance for derivatives and hedging; for others, the Company chooses not to
maintain the required documentation to apply hedge accounting treatment. These undesignated
instruments are used to economically hedge the Company’s exposure to fluctuations in the value of
foreign currency denominated receivables and payables; foreign currency investments, primarily
consisting of loans to subsidiaries; and cash flows related primarily to repatriation of those
loans or investments. Foreign currency contracts, generally less than 12 months in duration, are
used to hedge some of these risks. The Company’s derivative policy permits the use of undesignated
derivatives when the derivative instrument is settled within the fiscal quarter or offsets a
recognized balance sheet exposure. In these circumstances, the mark to fair value is reported
currently through earnings in selling, general and administrative expenses on the Company’s
Consolidated Statements of Operations. As of November 30, 2010, and February 28, 2010, the Company
had undesignated foreign currency contracts outstanding with a notional value of $608.2 million and
$554.9 million, respectively. In addition, the Company had offsetting undesignated interest rate
swap agreements with an absolute notional amount of $2,400.0 million outstanding at February 28,
2010 (see Note 9). The Company had no undesignated interest rate swap agreements outstanding as of
November 30, 2010.
Furthermore, when the Company determines that a derivative instrument which qualified for
hedge accounting treatment has ceased to be highly effective as a hedge, the Company discontinues
hedge accounting prospectively. The Company also discontinues hedge accounting prospectively when
(i) a derivative expires or is sold, terminated, or exercised; (ii) it is no longer probable that
the forecasted transaction will occur; or (iii) management determines that designating the
derivative as a hedging instrument is no longer appropriate.
Cash flow hedges:
The Company is exposed to foreign denominated cash flow fluctuations in connection with third
party and intercompany sales and purchases and, historically, third party financing arrangements.
The Company primarily uses foreign currency forward and option contracts to hedge certain of these
risks. In addition, the Company utilizes interest rate swaps to manage its exposure to changes in
interest rates. Derivatives managing the Company’s cash flow exposures generally mature within
three years or less, with a maximum maturity of five years. Throughout the term of the designated
cash flow hedge relationship, but at least quarterly, a retrospective evaluation and prospective
assessment of hedge effectiveness is performed. All components of the Company’s derivative
instruments’ gains or losses are included in the assessment of hedge effectiveness. In the event
the relationship is no longer effective, the Company recognizes the change in the fair value of the
hedging derivative instrument from the date the hedging derivative instrument became no longer
effective immediately in the Company’s Consolidated Statements of Operations. In conjunction with
its effectiveness testing, the Company also evaluates ineffectiveness associated with the hedge
relationship. Resulting ineffectiveness, if any, is recognized immediately in the Company’s
Consolidated Statements of Operations.
7
Table of Contents
The Company records the fair value of its foreign currency and interest rate swap contracts
qualifying for cash flow hedge accounting treatment in its consolidated balance sheet with the
effective portion of the related gain or loss on those contracts deferred in stockholders’ equity
(as a component of AOCI (as defined in Note 14)). These deferred gains or losses are recognized in
the Company’s Consolidated Statements of Operations in the same period in which the underlying
hedged items are recognized and on the same line item as the underlying hedged items. However, to
the extent that any derivative instrument is not considered to be highly effective in offsetting
the change in the value of the hedged item, the hedging relationship is terminated and the amount
related to the ineffective portion of this derivative instrument is immediately recognized in the
Company’s Consolidated Statements of Operations in selling, general and administrative expenses.
As of November 30, 2010, and February 28, 2010, the Company had cash flow designated foreign
currency contracts outstanding with a notional value of $395.9 million and $465.2 million,
respectively. In addition, as of November 30, 2010, and February 28, 2010, the Company had cash
flow designated interest rate swap agreements outstanding with a notional value of $500.0 million
and $1,200.0 million, respectively (see Note 9). The Company expects $20.2 million of net gains,
net of income tax effect, to be reclassified from AOCI to earnings within the next 12 months.
Fair value hedges:
Fair value hedges are hedges that offset the risk of changes in the fair values of
recorded assets and liabilities, and firm commitments. The Company records changes in fair value
of derivative instruments which are designated and deemed effective as fair value hedges, in
earnings offset by the corresponding changes in the fair value of the hedged items. The Company
did not designate any derivative instruments as fair value hedges for the nine months and three
months ended November 30, 2010, and November 30, 2009.
Net investment hedges:
Net investment hedges are hedges that use derivative instruments or non-derivative
instruments to hedge the foreign currency exposure of a net investment in a foreign operation.
Historically, the Company has managed currency exposures resulting from certain of its net
investments in foreign subsidiaries principally with debt denominated in the related foreign
currency. Accordingly, gains and losses on these instruments were recorded as foreign currency
translation adjustments in AOCI. The Company did not designate any derivative or non-derivative
instruments as net investment hedges for the nine months and three months ended November 30, 2010,
and November 30, 2009.
Fair values of derivative instruments:
The fair value and location of the Company’s derivative instruments on its
Consolidated Balance Sheets are as follows (see Note 5):
| November 30, | February 28, | |||||||
| Balance Sheet Location | 2010 | 2010 | ||||||
| (in millions) | ||||||||
|
Derivative instruments designated as hedging instruments
|
||||||||
|
Foreign currency contracts
|
||||||||
|
Prepaid expenses and other
|
$ | 22.4 | $ | 17.1 | ||||
|
Other accrued expenses and liabilities
|
$ | 7.9 | $ | 15.1 | ||||
|
Other assets, net
|
$ | 5.6 | $ | 13.5 | ||||
|
Other liabilities
|
$ | 0.6 | $ | 5.5 | ||||
|
|
||||||||
|
Interest rate swap contracts
|
||||||||
|
Other accrued expenses and liabilities
|
$ | - | $ | 11.8 | ||||
|
Other liabilities
|
$ | 17.1 | $ | - | ||||
8
Table of Contents
| November 30, | February 28, | |||||||
| Balance Sheet Location | 2010 | 2010 | ||||||
| (in millions) | ||||||||
|
Derivative instruments not designated as hedging
instruments
|
||||||||
|
Foreign currency contracts
|
||||||||
|
Prepaid expenses and other
|
$ | 8.2 | $ | 12.0 | ||||
|
Other accrued expenses and liabilities
|
$ | 7.8 | $ | 7.8 | ||||
|
Other assets, net
|
$ | - | $ | 1.6 | ||||
|
Other liabilities
|
$ | - | $ | 1.2 | ||||
|
|
||||||||
|
Interest rate swap contracts
|
||||||||
|
Prepaid expenses and other
|
$ | - | $ | 2.7 | ||||
|
Other accrued expenses and liabilities
|
$ | - | $ | 2.9 | ||||
The effect of the Company’s derivative instruments designated in cash flow hedging
relationships on its Consolidated Statements of Operations, as well as its Other Comprehensive
Income (“OCI”), net of income tax effect, is as follows:
| Net | ||||||||||
| Net | Gain (Loss) | |||||||||
| Gain (Loss) | Reclassified | |||||||||
| Recognized | from AOCI to | |||||||||
| Derivative Instruments in | in OCI | Location of Net Gain (Loss) | Income | |||||||
| Designated Cash Flow | (Effective | Reclassified from AOCI to | (Effective | |||||||
| Hedging Relationships | portion) | Income (Effective portion) | portion) | |||||||
|
(in millions)
|
||||||||||
| For the Nine Months Ended November 30, 2010 | ||||||||||
|
Foreign currency contracts
|
$ | 6.1 | Sales | $ | 10.6 | |||||
|
Foreign currency contracts
|
1.0 | Cost of product sold | 2.7 | |||||||
|
Interest rate swap contracts
|
(10.5 | ) | Interest expense, net | - | ||||||
|
|
||||||||||
|
Total
|
$ | (3.4 | ) |
Total
|
$ | 13.3 | ||||
|
|
||||||||||
|
|
||||||||||
| For the Nine Months Ended November 30, 2009 | ||||||||||
|
Foreign currency contracts
|
$ | 36.8 | Sales | $ | 13.0 | |||||
|
Foreign currency contracts
|
17.7 | Cost of product sold | (5.3 | ) | ||||||
|
Foreign currency contracts
|
12.4 |
Selling, general and
administrative expenses |
23.3 | |||||||
|
Interest rate swap contracts
|
(4.5 | ) | Interest expense, net | (20.0 | ) | |||||
|
|
||||||||||
|
Total
|
$ | 62.4 |
Total
|
$ | 11.0 | |||||
|
|
||||||||||
|
|
||||||||||
| For the Three Months Ended November 30, 2010 | ||||||||||
|
Foreign currency contracts
|
$ | 6.0 | Sales | $ | 2.7 | |||||
|
Foreign currency contracts
|
3.1 | Cost of product sold | 1.4 | |||||||
|
Interest rate swap contracts
|
1.5 | Interest expense, net | - | |||||||
|
|
||||||||||
|
Total
|
$ | 10.6 |
Total
|
$ | 4.1 | |||||
|
|
||||||||||
|
|
||||||||||
| For the Three Months Ended November 30, 2009 | ||||||||||
|
Foreign currency contracts
|
$ | 4.8 | Sales | $ | 5.9 | |||||
|
Foreign currency contracts
|
3.9 | Cost of product sold | 0.3 | |||||||
|
Foreign currency contracts
|
4.2 |
Selling, general and
administrative expenses |
4.8 | |||||||
|
Interest rate swap contracts
|
- | Interest expense, net | (7.1 | ) | ||||||
|
|
||||||||||
|
Total
|
$ | 12.9 |
Total
|
$ | 3.9 | |||||
|
|
||||||||||
9
Table of Contents
| Net Gain | ||||||
| Recognized | ||||||
| Derivative Instruments in | Location of Net Gain | in Income | ||||
| Designated Cash Flow | Recognized in Income | (Ineffective | ||||
| Hedging Relationships | (Ineffective portion) | portion) | ||||
| (in millions) | ||||||
| For the Nine Months Ended November 30, 2010 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 1.6 | |||
|
|
||||||
|
|
||||||
| For the Nine Months Ended November 30, 2009 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 2.4 | |||
|
|
||||||
|
|
||||||
| For the Three Months Ended November 30, 2010 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 0.9 | |||
|
|
||||||
|
|
||||||
| For the Three Months Ended November 30, 2009 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 2.3 | |||
|
|
||||||
The effect of the Company’s undesignated derivative instruments on its Consolidated
Statements of Operations is as follows:
| Net | ||||||
| Gain (Loss) | ||||||
| Derivative Instruments not | Location of Net Gain (Loss) | Recognized | ||||
| Designated as Hedging Instruments | Recognized in Income | in Income | ||||
| (in millions) | ||||||
| For the Nine Months Ended November 30, 2010 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 7.0 | |||
|
|
||||||
|
Total
|
|
$ | 7.0 | |||
|
|
||||||
|
|
||||||
| For the Nine Months Ended November 30, 2009 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 8.3 | |||
| Interest rate swap contracts |
Interest expense, net
|
(0.4 | ) | |||
|
|
||||||
|
Total
|
|
$ | 7.9 | |||
|
|
||||||
|
|
||||||
| For the Three Months Ended November 30, 2010 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 8.0 | |||
|
|
||||||
|
Total
|
|
$ | 8.0 | |||
|
|
||||||
|
|
||||||
| For the Three Months Ended November 30, 2009 |
|
|||||
| Foreign currency contracts |
Selling, general and administrative expenses
|
$ | 0.3 | |||
| Interest rate swap contracts |
Interest expense, net
|
- | ||||
|
|
||||||
|
Total
|
|
$ | 0.3 | |||
|
|
||||||
10
Table of Contents
Credit risk:
The Company enters into master agreements with its bank derivative trading counterparties that
allow netting of certain derivative positions in order to manage credit risk. The Company’s
derivative instruments are not subject to credit rating contingencies or collateral requirements.
As of November 30, 2010, the fair value of derivative instruments in a net liability position due
to counterparties was $22.3 million. If the Company were required to settle the net liability
position under these derivative instruments on November 30, 2010, the Company would have had
sufficient availability under its revolving credit facility to satisfy this obligation.
Counterparty credit risk:
Counterparty credit risk relates to losses the Company could incur if a counterparty defaults
on a derivative contract. The Company manages exposure to counterparty credit risk by requiring
specified minimum credit standards and diversification of counterparties. The Company enters into
master agreements with its bank derivative trading counterparties that allow netting of certain
derivative positions in order to manage counterparty credit risk. As of November 30, 2010, all of
the Company’s counterparty exposures are with financial institutions which have investment grade
ratings. The Company has procedures to monitor counterparty credit risk for both current and
future potential credit exposures. As of November 30, 2010, the fair value of derivative
instruments in a net receivable position due from counterparties was $25.1 million.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company calculates the fair value of financial instruments using quoted market prices
whenever available. When quoted market prices are not available, the Company uses standard pricing
models for various types of financial instruments (such as forwards, options, swaps, etc.) which
take into account the present value of estimated future cash flows.
The carrying amount and estimated fair value of the Company’s financial instruments are
summarized as follows:
| November 30, 2010 | February 28, 2010 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
| (in millions) | ||||||||||||||||
|
Assets
|
||||||||||||||||
|
Cash and cash investments
|
$ | 16.0 | $ | 16.0 | $ | 43.5 | $ | 43.5 | ||||||||
|
Accounts receivable
|
$ | 868.9 | $ | 868.9 | $ | 514.7 | $ | 514.7 | ||||||||
|
Foreign currency contracts
|
$ | 36.2 | $ | 36.2 | $ | 44.2 | $ | 44.2 | ||||||||
|
Interest rate swap
contracts
|
$ | - | $ | - | $ | 2.7 | $ | 2.7 | ||||||||
|
Notes receivable
|
$ | 4.9 | $ | 4.9 | $ | 65.7 | $ | 65.7 | ||||||||
|
|
||||||||||||||||
|
Liabilities
|
||||||||||||||||
|
Notes payable to banks
|
$ | 355.8 | $ | 349.5 | $ | 371.2 | $ | 370.1 | ||||||||
|
Accounts payable
|
$ | 334.8 | $ | 334.8 | $ | 268.8 | $ | 268.8 | ||||||||
|
Long-term debt, including
current portion
|
$ | 3,370.8 | $ | 3,480.0 | $ | 3,464.3 | $ | 3,483.4 | ||||||||
|
Foreign currency contracts
|
$ | 16.3 | $ | 16.3 | $ | 29.6 | $ | 29.6 | ||||||||
|
Interest rate swap
contracts
|
$ | 17.1 | $ | 17.1 | $ | 14.7 | $ | 14.7 | ||||||||
11
Table of Contents
The following methods and assumptions are used to estimate the fair value of each class
of financial instruments:
Cash and cash investments, accounts receivable and accounts payable:
The carrying amounts
approximate fair value due to the short maturity of these instruments.
Foreign currency contracts:
The fair value is estimated using market-based inputs, obtained
from independent pricing services, into valuation models (see “Fair value measurements” below).
Interest rate swap contracts:
The fair value is estimated based on quoted market prices from
respective counterparties (see “Fair value measurements” below).
Notes receivable:
These instruments are fixed interest rate bearing notes. The fair value is
estimated by discounting cash flows using market-based inputs, including counterparty credit risk.
Notes payable to banks:
The revolving credit facility under the 2006 Credit Agreement (as
defined in Note 9) is a variable interest rate bearing note which includes a fixed margin which is
adjustable based upon the Company’s debt ratio (as defined in the 2006 Credit Agreement). The fair
value of the revolving credit facility is estimated by discounting cash flows using LIBOR plus a
margin reflecting current market conditions obtained from participating member financial
institutions. The remaining instruments are variable interest rate bearing notes for which the
carrying value approximates the fair value.
Long-term debt:
The tranche A term loan facility under the 2006 Credit Agreement is a
variable interest rate bearing note which includes a fixed margin which is adjustable based upon
the Company’s debt ratio. The tranche B term loan facility under the 2006 Credit Agreement is a
variable interest rate bearing note which includes a fixed margin. The fair value of the tranche A
term loan facility and the tranche B term loan facility is estimated by discounting cash flows
using LIBOR plus a margin reflecting current market conditions obtained from participating member
financial institutions. The fair value of the remaining long-term debt, which is all fixed rate,
is estimated by discounting cash flows using interest rates currently available for debt with
similar terms and maturities.
Fair value measurements –
The FASB guidance on fair value measurements and disclosures defines fair value, establishes a
framework for measuring fair value under generally accepted accounting principles, and expands
disclosures about fair value measurements. This guidance emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and states that a fair value
measurement should be determined based on assumptions that market participants would use in pricing
an asset or liability. In addition, the fair value measurement guidance establishes a hierarchy
for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes
the use of unobservable inputs by requiring that the most observable inputs be used when available.
The hierarchy is broken down into three levels: Level 1 inputs are quoted prices in active
markets for identical assets or liabilities; Level 2 inputs include data points that are observable
such as quoted prices for similar assets or liabilities in active markets, quoted prices for
identical assets or similar assets or liabilities in markets that are not active, and inputs (other
than quoted prices) such as interest rates and yield curves that are observable for the asset and
liability, either directly or indirectly; Level 3 inputs are unobservable data points for the asset
or liability, and include situations where there is little, if any, market activity for the asset
or liability.
12
Table of Contents
The following table presents the Company’s financial assets and liabilities measured at fair
value on a recurring basis:
| Quoted | Significant | ||||||||||||||
| Prices in | Other | Significant | |||||||||||||
| Active | Observable | Unobservable | |||||||||||||
| Markets | Inputs | Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
| (in millions) | |||||||||||||||
|
November 30, 2010
|
|||||||||||||||
|
Assets:
|
|||||||||||||||
|
Foreign currency contracts
|
$ | - | $ | 36.2 | $ | - | $ | 36.2 | |||||||
|
Liabilities:
|
|||||||||||||||
|
Foreign currency contracts
|
$ | - | $ | 16.3 | $ | - | $ | 16.3 | |||||||
|
Interest rate swap contracts
|
$ | - | $ | 17.1 | $ | - | $ | 17.1 | |||||||
|
|
|||||||||||||||
|
February 28, 2010
|
|||||||||||||||
|
Assets:
|
|||||||||||||||
|
Foreign currency contracts
|
$ | - | $ | 44.2 | $ | - | $ | 44.2 | |||||||
|
Interest rate swap contracts
|
$ | - | $ | 2.7 | $ | - | $ | 2.7 | |||||||
|
Liabilities:
|
|||||||||||||||
|
Foreign currency contracts
|
$ | - | $ | 29.6 | $ | - | $ | 29.6 | |||||||
|
Interest rate swap contracts
|
$ | - | $ | 14.7 | $ | - | $ | 14.7 | |||||||
The Company’s foreign currency contracts consist of foreign currency forward and option
contracts which are valued using market-based inputs, obtained from independent pricing services,
into valuation models. These valuation models require various inputs, including contractual terms,
market foreign exchange prices, interest-rate yield curves and currency volatilities. Interest
rate swap fair values are based on quotes from respective counterparties. Quotes are corroborated
by the Company using discounted cash flow calculations based upon forward interest-rate yield
curves, which are obtained from independent pricing services.
The following table presents the Company’s assets and liabilities measured at fair
value on a nonrecurring basis for which an impairment assessment was performed for the periods
presented.
| Fair Value Measurements Using | |||||||||||||||
| Quoted | Significant | ||||||||||||||
| Prices in | Other | Significant | |||||||||||||
| Active | Observable | Unobservable | |||||||||||||
| Markets | Inputs | Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total Losses | ||||||||||||
| (in millions) | |||||||||||||||
|
For the Nine Months Ended November 30, 2010
|
|||||||||||||||
|
Long-lived assets held for sale
|
$ | - | $ | - | $ | 4.1 | $ | 5.8 | |||||||
|
Trademarks
|
- | - | - | 6.9 | |||||||||||
|
|
|||||||||||||||
|
Total
|
$ | - | $ | - | $ | 4.1 | $ | 12.7 | |||||||
|
|
|||||||||||||||
|
For the Nine Months Ended November 30, 2009
|
|||||||||||||||
|
Investment in equity method investee
|
$ | - | $ | - | $ | 4.2 | $ | 25.4 | |||||||
|
|
|||||||||||||||
|
Total
|
$ | - | $ | - | $ | 4.2 | $ | 25.4 | |||||||
|
|
|||||||||||||||
13
Table of Contents
| Fair Value Measurements Using | |||||||||||||||
| Quoted | Significant | ||||||||||||||
| Prices in | Other | Significant | |||||||||||||
| Active | Observable | Unobservable | |||||||||||||
| Markets | Inputs | Inputs | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total Losses | ||||||||||||
| (in millions) | |||||||||||||||
|
For the Three Months Ended November 30, 2010
|
|||||||||||||||
|
Trademarks
|
$ | - | $ | - | $ | - | $ | 6.9 | |||||||
|
|
|||||||||||||||
|
Total
|
$ | - | $ | - | $ | - | $ | 6.9 | |||||||
|
|
|||||||||||||||
|
For the Three Months Ended November 30, 2009
|
|||||||||||||||
|
Investment in equity method investee
|
$ | - | $ | - | $ | 4.2 | $ | 25.4 | |||||||
|
|
|||||||||||||||
|
Total
|
$ | - | $ | - | $ | 4.2 | $ | 25.4 | |||||||
|
|
|||||||||||||||
Long-lived assets held for sale:
For the nine months ended November 30, 2010, in connection with the Company’s
Australian Initiative (as defined in Note 15), long-lived assets held for sale with a carrying
value of $10.1 million were written down to their estimated fair value of $4.1 million, less cost
to sell (which was estimated to be minimal), resulting in a loss of $5.8 million, which is included
in restructuring charges on the Company’s Consolidated Statements of Operations. These assets
consisted primarily of certain winery and vineyard assets which had satisfied the conditions
necessary to be classified as held for sale. As such, these assets were written down to a value
based on the Company’s estimate of fair value less cost to sell. The fair value was determined
based on a market value approach adjusted for the different characteristics between assets measured
and the assets upon which the observable inputs were based.
Trademarks:
In connection with the Company’s third quarter of fiscal 2011 decision to discontinue certain
wine brands within its CWNA segment’s wine portfolio, certain indefinite-lived trademarks, with a
carrying value of $6.9 million, were written down to their estimated fair value resulting in an
impairment of $6.9 million for the nine months and three months ended November 30, 2010. This
impairment is included in impairment of intangible assets on the Company’s Consolidated Statements
of Operations. The Company measured the amount of impairment by calculating the amount by which
the carrying value of these assets exceeded their estimated fair values. The fair value was
determined based on an income approach using the relief from royalty method, which assumes that, in
lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related
benefits of trademark assets. The cash flow models the Company uses to estimate the fair values of
its trademarks involve several assumptions, including (i) projected revenue growth rates; (ii)
estimated royalty rates; (iii) calculated after-tax royalty savings expected from ownership of the
subject trademarks; and (iv) discount rates used to derive the present value factors used in
determining the fair value of the trademarks.
Investment in equity method investee:
In connection with the Company’s review of its equity method investments for
other-than-temporary impairment in the third quarter of fiscal 2010, the Company’s CWNA segment’s
international equity method investment, Ruffino S.r.l. (“Ruffino”), with a carrying value of $29.8
million was written down to its fair value of $4.2 million, resulting in a loss of $25.4 million
for the nine months and three months ended November 30, 2009. This loss is included in equity in
earnings of equity method investees on the Company’s Consolidated Statements of Operations. The
Company measured the amount of impairment by calculating the amount by which the carrying value of
its investment exceeded its estimated fair value, which was based on projected discounted cash
flows of this equity method investee.
14
Table of Contents
6. GOODWILL:
The changes in the carrying amount of goodwill are as follows:
| Consolidations | ||||||||||||||||||||
| Crown | and | |||||||||||||||||||
| CWNA | CWAE | Imports | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Balance, February 28, 2009
|
||||||||||||||||||||
|
Goodwill
|
$ | 2,615.0 | $ | 852.6 | $ | 13.0 | $ | (13.0 | ) | $ | 3,467.6 | |||||||||
|
Accumulated impairment losses
|
- | (852.6 | ) | - | - | (852.6 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
2,615.0 | - | 13.0 | (13.0 | ) | 2,615.0 | ||||||||||||||
|
Foreign currency translation
adjustments
|
114.1 | - | - | - | 114.1 | |||||||||||||||
|
Divestiture of business
|
(158.5 | ) | - | - | - | (158.5 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Balance, February 28, 2010
|
||||||||||||||||||||
|
Goodwill
|
2,570.6 | 852.6 | 13.0 | (13.0 | ) | 3,423.2 | ||||||||||||||
|
Accumulated impairment losses
|
- | (852.6 | ) | - | - | (852.6 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
2,570.6 | - | 13.0 | (13.0 | ) | 2,570.6 | ||||||||||||||
|
Foreign currency translation
adjustments
|
19.6 | - | - | - | 19.6 | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, November 30, 2010
|
||||||||||||||||||||
|
Goodwill
|
2,590.2 | 852.6 | 13.0 | (13.0 | ) | 3,442.8 | ||||||||||||||
|
Accumulated impairment losses
|
- | (852.6 | ) | - | - | (852.6 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 2,590.2 | $ | - | $ | 13.0 | $ | (13.0 | ) | $ | 2,590.2 | |||||||||
|
|
||||||||||||||||||||
For the year ended February 28, 2010, the Company’s CWNA segment’s divestiture of
business consists of the reduction of goodwill in connection with the divestiture of its value
spirits business in March 2009. The Company sold its value spirits business for $336.4 million,
net of direct costs to sell. The Company received $276.4 million, net of direct costs to sell, in
cash proceeds and a note receivable for $60.0 million in connection with this divestiture. In
March 2010, the Company received full payment of the note receivable. In connection with the
classification of the value spirits business as an asset group held for sale as of February 28,
2009, the Company recorded a loss of $15.6 million in the fourth quarter of fiscal 2009, primarily
related to asset impairments. For the first quarter of fiscal 2010, the Company recognized a net
gain of $0.2 million, which included a gain on settlement of a postretirement obligation of $1.0
million, partially offset by an additional loss of $0.8 million. This net gain is included in
selling, general and administrative expenses on the Company’s Consolidated Statements of Operations
for the nine months ended November 30, 2009.
7. INTANGIBLE ASSETS:
The major components of intangible assets are as follows:
| November 30, 2010 | February 28, 2010 | ||||||||||||||
| Gross | Net | Gross | Net | ||||||||||||
| Carrying | Carrying | Carrying | Carrying | ||||||||||||
| Amount | Amount | Amount | Amount | ||||||||||||
| (in millions) | |||||||||||||||
|
Amortizable intangible assets:
|
|||||||||||||||
|
Customer relationships
|
$ | 85.8 | $ | 65.6 | $ | 85.0 | $ | 69.0 | |||||||
|
Other
|
2.6 | 0.1 | 2.6 | 0.3 | |||||||||||
|
|
|||||||||||||||
|
Total
|
$ | 88.4 | 65.7 | $ | 87.6 | 69.3 | |||||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
Nonamortizable intangible assets:
|
|||||||||||||||
|
Trademarks
|
846.3 | 846.0 | |||||||||||||
|
Other
|
10.0 | 9.7 | |||||||||||||
|
|
|||||||||||||||
|
Total
|
856.3 | 855.7 | |||||||||||||
|
|
|||||||||||||||
|
Total intangible assets, net
|
$ | 922.0 | $ | 925.0 | |||||||||||
|
|
|||||||||||||||
15
Table of Contents
The Company did not incur costs to renew or extend the term of acquired intangible
assets during the nine months and three months ended November 30, 2010, and November 30, 2009. The
difference between the gross carrying amount and net carrying amount for each item presented is
attributable to accumulated amortization. Amortization expense for intangible assets was $4.2
million and $4.3 million for the nine months ended November 30, 2010, and November 30, 2009,
respectively, and $1.4 million and $1.5 million for the three months ended November 30, 2010, and
November 30, 2009, respectively. Estimated amortization expense for the remaining three months of
fiscal 2011 and for each of the five succeeding fiscal years and thereafter is as follows:
| (in millions ) | |||
|
2011
|
$ | 1.4 | |
|
2012
|
$ | 5.0 | |
|
2013
|
$ | 4.8 | |
|
2014
|
$ | 4.8 | |
|
2015
|
$ | 4.8 | |
|
2016
|
$ | 4.8 | |
|
Thereafter
|
$ | 40.1 |
8. INVESTMENTS IN EQUITY METHOD INVESTEES:
Crown Imports:
Constellation Beers Ltd. (“Constellation Beers”) (previously known as Barton Beers, Ltd.), an
indirect wholly-owned subsidiary of the Company, and Diblo, S.A. de C.V. (“Diblo”), an entity owned
76.75% by Grupo Modelo, S.A.B. de C.V. (“Modelo”) and 23.25% by Anheuser-Busch Companies, Inc.,
each have, directly or indirectly, equal interests in a joint venture, Crown Imports LLC (“Crown
Imports”). Crown Imports has the exclusive right to import, market and sell Modelo’s Mexican beer
portfolio (the “Modelo Brands”) in the U.S. and Guam. In addition, Crown Imports also has the
exclusive rights to import, market and sell the Tsingtao and St. Pauli Girl brands in the U.S.
The Company accounts for its investment in Crown Imports under the equity method.
Accordingly, the results of operations of Crown Imports are included in equity in earnings of
equity method investees on the Company’s Consolidated Statements of Operations. As of November 30,
2010, and February 28, 2010, the Company’s investment in Crown Imports was $158.7 million and
$167.2 million, respectively. The carrying amount of the investment is greater than the Company’s
equity in the underlying assets of Crown Imports by $13.6 million due to the difference in the
carrying amounts of the indefinite lived intangible assets contributed to Crown Imports by each
party. The Company received $186.0 million and $191.7 million of cash distributions from Crown
Imports for the nine months ended November 30, 2010, and November 30, 2009, respectively, all of
which represent distributions of earnings.
Constellation Beers provides certain administrative services to Crown Imports. Amounts
related to the performance of these services for the nine months and three months ended November
30, 2010, and November 30, 2009, were not material. In addition, as of November 30, 2010, and
February 28, 2010, amounts receivable from Crown Imports were not material.
16
Table of Contents
The following table presents summarized financial information for the Company’s Crown Imports
equity method investment. The amounts shown represent 100% of this equity method investments’
results of operations.
| Crown | |||
| Imports | |||
| (in millions) | |||
|
For the Nine Months Ended November 30, 2010
|
|||
|
Net sales
|
$ | 1,912.5 | |
|
Gross profit
|
$ | 546.5 | |
|
Income from continuing operations
|
$ | 355.0 | |
|
Net income
|
$ | 355.0 | |
|
|
|||
|
For the Nine Months Ended November 30, 2009
|
|||
|
Net sales
|
$ | 1,837.7 | |
|
Gross profit
|
$ | 540.3 | |
|
Income from continuing operations
|
$ | 361.4 | |
|
Net income
|
$ | 361.4 | |
|
|
|||
|
For the Three Months Ended November 30, 2010
|
|||
|
Net sales
|
$ | 611.6 | |
|
Gross profit
|
$ | 178.5 | |
|
Income from continuing operations
|
$ | 115.8 | |
|
Net income
|
$ | 115.8 | |
|
|
|||
|
For the Three Months Ended November 30, 2009
|
|||
|
Net sales
|
$ | 502.2 | |
|
Gross profit
|
$ | 145.2 | |
|
Income from continuing operations
|
$ | 91.2 | |
|
Net income
|
$ | 91.2 | |
Other:
In connection with the Company’s December 2004 investment in Ruffino, the Company granted
separate irrevocable and unconditional options to the two other shareholders of Ruffino to put to
the Company all of the ownership interests held by these shareholders for a price as calculated in
the joint venture agreement. Each option may be exercised during the period starting from January
1, 2010, and ending on December 31, 2010. For the year ended February 28, 2010, in connection with
the notification by the 9.9% shareholder of Ruffino to exercise its option to put its entire equity
interest in Ruffino to the Company for the specified minimum value of €23.5 million, the Company
recognized a loss of $34.3 million for the third quarter of fiscal 2010 on the contractual
obligation created by this notification. In May 2010, the Company settled this put option through
a cash payment of €23.5 million ($29.6 million) to the 9.9% shareholder of Ruffino, thereby
increasing the Company’s equity interest in Ruffino to 49.9%. In December 2010, the Company
received notification from the 50.1% shareholder of Ruffino that it was exercising its option to
put its entire equity interest in Ruffino to the Company. Prior to this notification, the Company
had initiated arbitration proceedings against the 50.1% shareholder alleging various matters which
should affect the validity of the put option. The price of the option representing the remaining
50.1% interest in Ruffino is based upon a formula contained in the joint venture agreement. The
formula is subject to a number of variables, including certain results of Ruffino through the date
of the closing of the put option. The Company currently estimates that the cash settlement for
this put option could be as much as €55 million ($71 million). However, based upon the arbitration
proceedings commenced by the Company against the 50.1% shareholder, the Company concluded as of
November 30, 2010, that it is not probable that there is a likelihood of loss under this contingent
obligation. Therefore, no liability has been recorded by the Company related to this contingent
obligation and an estimate of any loss is currently not estimable. As of November 30, 2010, and
February 28, 2010, the Company’s investment in Ruffino was $5.3 million and $4.1 million,
respectively.
17
Table of Contents
| 9. | BORROWINGS: |
| Borrowings consist of the following: |
| February 28, | ||||||||||||||||
| November 30, 2010 | 2010 | |||||||||||||||
| Current | Long-term | Total | Total | |||||||||||||
| (in millions) | ||||||||||||||||
|
Notes Payable to Banks
|
||||||||||||||||
|
Senior Credit Facility –
|
||||||||||||||||
|
Revolving Credit Loans
|
$ | 285.7 | $ | - | $ | 285.7 | $ | 289.3 | ||||||||
|
Other
|
70.1 | - | 70.1 | 81.9 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 355.8 | $ | - | $ | 355.8 | $ | 371.2 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Long-term Debt
|
||||||||||||||||
|
Senior Credit Facility – Term Loans
|
$ | 229.2 | $ | 1,223.8 | $ | 1,453.0 | $ | 1,549.1 | ||||||||
|
Senior Notes
|
- | 1,893.4 | 1,893.4 | 1,892.6 | ||||||||||||
|
Other Long-term Debt
|
8.6 | 15.8 | 24.4 | 22.6 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 237.8 | $ | 3,133.0 | $ | 3,370.8 | $ | 3,464.3 | ||||||||
|
|
||||||||||||||||
Senior credit facility –
The Company and certain of its U.S. subsidiaries, JPMorgan Chase Bank, N.A. as a lender and
administrative agent, and certain other agents, lenders, and financial institutions are parties to
a credit agreement, as amended (the “2006 Credit Agreement”). The 2006 Credit Agreement provides
for aggregate credit facilities of $3,842.0 million, consisting of (i) a $1,200.0 million tranche
A term loan facility with a final maturity in June 2011 (the “Tranche A Term Loans”), (ii) a
$1,800.0 million tranche B term loan facility, of which $1,500.0 million has a final maturity in
June 2013 (the “2013 Tranche B Term Loans”) and $300.0 million has a final maturity in June 2015
(the “2015 Tranche B Term Loans”), and (iii) an $842.0 million revolving credit facility
(including a sub-facility for letters of credit of up to $200 million), of which $192.0 million
terminates in June 2011 (the “2011 Revolving Facility”) and $650.0 million terminates in June 2013
(the “2013 Revolving Facility”). The Company uses its revolving credit facility under the 2006
Credit Agreement for general corporate purposes.
As of November 30, 2010, under the 2006 Credit Agreement, the Company had outstanding Tranche
A Term Loans of $225.0 million bearing an interest rate of 1.6%, 2013 Tranche B Term Loans of
$928.0 million bearing an interest rate of 1.8%, 2015 Tranche B Term Loans of $300.0 million
bearing an interest rate of 3.1%, 2011 Revolving Facility of $53.7 million bearing an interest rate
of 1.6%, 2013 Revolving Facility of $232.0 million bearing an interest rate of 2.7%, outstanding
letters of credit of $13.9 million, and $542.4 million in revolving loans available to be drawn.
18
Table of Contents
Through February 28, 2010, the Company had outstanding interest rate swap agreements which
were designated as cash flow hedges of $1,200.0 million of the Company’s floating LIBOR rate debt.
The designated cash flow hedges fixed the Company’s interest rates on $1,200.0 million of the
Company’s floating LIBOR rate debt through February 28, 2010. In addition, the Company had
offsetting undesignated interest rate swap agreements with an absolute notional amount of $2,400.0
million outstanding as of February 28, 2010. On March 1, 2010, the Company paid $11.9 million in
connection with the maturity of these outstanding interest rate swap agreements, which is reported
in other, net in cash flows from operating activities in the Company’s Consolidated Statements of
Cash Flows. In June 2010, the Company entered into a new five year delayed start interest rate
swap agreement effective September 1, 2011, which was designated as a cash flow hedge for $500.0
million of the Company’s floating LIBOR rate debt. Accordingly, the Company fixed its interest
rates on $500.0 million of the Company’s floating LIBOR rate debt at an average rate of 2.9%
(exclusive of borrowing margins) through September 1, 2016. For the nine months and three months
ended November 30, 2009, the Company reclassified net losses of $20.0 million and $7.1 million, net
of income tax effect, respectively, from AOCI to interest expense, net on the Company’s
Consolidated Statements of Operations. The Company did not reclassify any amount from AOCI to
interest expense, net on its Consolidated Statements of Operations for the nine months and three
months ended November 30, 2010.
| 10. | INCOME TAXES: |
The Company’s effective tax rate for the nine months ended November 30, 2010, and
November 30, 2009, was 37.0% and 54.4%, respectively. The Company’s effective tax rate for the
nine months ended November 30, 2010, includes the recognition of a valuation allowance against
deferred tax assets in the U.K. of $30.1 million, partially offset by a decrease in uncertain tax
positions in connection with the completion of various income tax examinations during the nine
months ended November 30, 2010. During the first quarter of fiscal 2011, lower estimates of future
U.K. operating results and cash flows, combined with cumulative losses in recent years in the U.K.,
impacted the Company’s assessment regarding the realizability of certain deferred tax assets in the
U.K. As a result of this assessment, the Company determined that additional valuation allowances
were required in the first quarter of fiscal 2011. The Company’s effective tax rate for the nine
months ended November 30, 2009, includes the recognition of (i) $37.5 million of taxes associated
with the sale of the value spirits business, primarily related to the write-off of nondeductible
goodwill, and (ii) nondeductible charges of $59.7 million related to the Company’s Ruffino
investment; partially offset by a decrease in uncertain tax positions in connection with the
completion of various income tax examinations during the nine months ended November 30, 2009.
The Company’s effective tax rate for the three months ended November 30, 2010, and November
30, 2009, was 27.6% and 58.1%, respectively. The Company’s effective tax rate for the three months
ended November 30, 2010, includes a decrease in uncertain tax positions in connection with the
completion of various income tax examinations during the three months ended November 30, 2010. The
Company’s effective tax rate for the three months ended November 30, 2009, includes the recognition
of nondeductible charges of $59.7 million related to the Company’s Ruffino investment.
19
Table of Contents
| 11. | DEFINED BENEFIT PENSION PLANS: |
Net periodic benefit cost reported in the Consolidated Statements of Operations for
the Company’s defined benefit pension plans includes the following components:
| For the Nine Months | For the Three Months | |||||||||||||||
| Ended November 30, | Ended November 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (in millions) | ||||||||||||||||
|
Service cost
|
$ | 3.4 | $ | 1.7 | $ | 1.2 | $ | 0.6 | ||||||||
|
Interest cost
|
17.8 | 16.3 | 6.1 | 5.6 | ||||||||||||
|
Expected return on plan assets
|
(19.2 | ) | (19.1 | ) | (6.6 | ) | (6.6 | ) | ||||||||
|
Amortization of prior service cost
|
0.1 | 0.1 | - | 0.1 | ||||||||||||
|
Recognized net actuarial loss
|
7.3 | 3.3 | 2.5 | 1.1 | ||||||||||||
|
Recognized net loss due to settlement
|
- | 1.1 | - | - | ||||||||||||
|
|
||||||||||||||||
|
Net periodic benefit cost
|
$ | 9.4 | $ | 3.4 | $ | 3.2 | $ | 0.8 | ||||||||
|
|
||||||||||||||||
Contributions of $8.1 million have been made by the Company to fund its defined
benefit pension plans for the nine months ended November 30, 2010. The Company presently
anticipates contributing an additional $2.1 million to fund its defined benefit pension plans
during the year ending February 28, 2011, resulting in total employer contributions of $10.2
million for the year ending February 28, 2011.
| 12. | STOCKHOLDERS’ EQUITY: |
In April 2010, the Company’s Board of Directors authorized the repurchase of up to
$300.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock. During
the nine months ended November 30, 2010, the Company repurchased 17,223,404 shares of Class A
Common Stock pursuant to this authorization at an aggregate cost of $300.0 million, or an average
cost of $17.42 per share, through a collared accelerated stock buyback (“ASB”) transaction that was
announced in April 2010. The Company paid the purchase price under the ASB transaction in April
2010, at which time it received an initial installment of 11,016,451 shares of Class A Common
Stock. In May 2010, the Company received an additional installment of 2,785,029 shares of Class A
Common Stock in connection with the early termination of the hedge period on May 10, 2010. In
November 2010, the Company received the final installment of 3,421,924 shares of Class A Common
Stock following the end of the calculation period on November 24, 2010. The Company used revolver
borrowings under the 2006 Credit Agreement to pay the purchase price for the repurchased shares.
The repurchased shares have become treasury shares.
| 13. | EARNINGS PER COMMON SHARE: |
The Company has two classes of outstanding common stock: Class A Common Stock and
Class B Convertible Common Stock. Earnings per common share – basic excludes the effect of common
stock equivalents and is computed using the two-class computation method. Earnings per common
share – diluted for Class A Common Stock reflects the potential dilution that could result if
securities or other contracts to issue common stock were exercised or converted into common stock.
Earnings per common share – diluted for Class A Common Stock has been computed using the more
dilutive of the if-converted or two-class computation method. Using the if-converted method,
earnings per common share – diluted for Class A Common Stock assumes the exercise of stock options
using the treasury stock method and the conversion of Class B Convertible Common Stock. Using the
two-class computation method, earnings per common share – diluted for Class A Common Stock assumes
the exercise of stock options using the treasury stock method and no conversion of Class B
Convertible Common Stock. For the nine months and three months ended November 30, 2010, and
November 30, 2009, earnings per common share – diluted for Class A Common Stock has been
calculated using the if-converted method. For the nine months and three months ended November 30,
2010, and November 30, 2009, earnings per common share – diluted for Class B Convertible Common
Stock is presented without assuming conversion into Class A Common Stock and is computed using the
two-class computation method.
20
Table of Contents
The computation of basic and diluted earnings per common share is as follows:
| For the Nine Months | For the Three Months | |||||||||||||||
| Ended November 30, | Ended November 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (in millions, except per share data) | ||||||||||||||||
|
Income available to common stockholders
|
$ | 279.7 | $ | 150.3 | $ | 139.3 | $ | 44.1 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding –
basic:
|
||||||||||||||||
|
Class A Common Stock
|
188.154 | 195.880 | 186.272 | 196.505 | ||||||||||||
|
|
||||||||||||||||
|
Class B Convertible Common Stock
|
23.706 | 23.738 | 23.680 | 23.734 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding –
diluted:
|
||||||||||||||||
|
Class A Common Stock
|
188.154 | 195.880 | 186.272 | 196.505 | ||||||||||||
|
Class B Convertible Common Stock
|
23.706 | 23.738 | 23.680 | 23.734 | ||||||||||||
|
Stock-based awards, primarily stock options
|
2.655 | 1.231 | 3.158 | 1.966 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding –
diluted
|
214.515 | 220.849 | 213.110 | 222.205 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Earnings per common share – basic:
|
||||||||||||||||
|
Class A Common Stock
|
$ | 1.33 | $ | 0.69 | $ | 0.67 | $ | 0.20 | ||||||||
|
|
||||||||||||||||
|
Class B Convertible Common Stock
|
$ | 1.21 | $ | 0.63 | $ | 0.61 | $ | 0.18 | ||||||||
|
|
||||||||||||||||
|
Earnings per common share – diluted:
|
||||||||||||||||
|
Class A Common Stock
|
$ | 1.30 | $ | 0.68 | $ | 0.65 | $ | 0.20 | ||||||||
|
|
||||||||||||||||
|
Class B Convertible Common Stock
|
$ | 1.20 | $ | 0.62 | $ | 0.60 | $ | 0.18 | ||||||||
|
|
||||||||||||||||
For the nine months ended November 30, 2010, and November 30, 2009, stock-based
awards, primarily stock options, which could result in the issuance of 22.7 million and 31.5
million shares, respectively, of Class A Common Stock were outstanding, but were not included in
the computation of earnings per common share – diluted for Class A Common Stock because the effect
of including such awards would have been antidilutive. For the three months ended November 30,
2010, and November 30, 2009, stock-based awards, primarily stock options, which could result in the
issuance of 16.3 million and 23.6 million shares, respectively, of Class A Common Stock were
outstanding, but were not included in the computation of earnings per common share – diluted for
Class A Common Stock because the effect of including such awards would have been antidilutive.
| 14. | COMPREHENSIVE INCOME: |
Comprehensive income consists of net income, foreign currency translation
adjustments, net unrealized (losses) gains on derivative instruments and pension/postretirement
adjustments. The reconciliation of net income to comprehensive income is as follows:
| Before Tax | Tax (Expense) | Net of Tax | ||||||||||
| Amount | Benefit | Amount | ||||||||||
| (in millions) | ||||||||||||
|
For the Nine Months Ended November 30, 2010
|
||||||||||||
|
Net income
|
$ | 279.7 | ||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | 100.2 | $ | (7.3 | ) | 92.9 | ||||||
|
Unrealized loss on cash flow hedges:
|
||||||||||||
|
Net derivative losses
|
(3.7 | ) | 0.3 | (3.4 | ) | |||||||
|
Reclassification adjustments
|
(19.9 | ) | 5.0 | (14.9 | ) | |||||||
|
|
||||||||||||
|
Net loss recognized in other comprehensive income
|
(23.6 | ) | 5.3 | (18.3 | ) | |||||||
|
Pension/postretirement:
|
||||||||||||
|
Net losses arising during the period
|
(3.1 | ) | 1.9 | (1.2 | ) | |||||||
|
Reclassification adjustments
|
7.4 | (2.1 | ) | 5.3 | ||||||||
|
|
||||||||||||
|
Net gain recognized in other comprehensive income
|
4.3 | (0.2 | ) | 4.1 | ||||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 80.9 | $ | (2.2 | ) | 78.7 | ||||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 358.4 | ||||||||||
|
|
||||||||||||
21
Table of Contents
| Before Tax | Tax (Expense) | Net of Tax | ||||||||||
| Amount | Benefit | Amount | ||||||||||
|
For the Nine Months Ended November 30, 2009
|
||||||||||||
|
Net income
|
$ | 150.3 | ||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | 545.7 | $ | (4.9 | ) | 540.8 | ||||||
|
Unrealized gain on cash flow hedges:
|
||||||||||||
|
Net derivative gains
|
95.6 | (33.2 | ) | 62.4 | ||||||||
|
Reclassification adjustments
|
(22.9 | ) | 9.5 | (13.4 | ) | |||||||
|
|
||||||||||||
|
Net gain recognized in other comprehensive income
|
72.7 | (23.7 | ) | 49.0 | ||||||||
|
Pension/postretirement:
|
||||||||||||
|
Net losses arising during the period
|
(11.9 | ) | 3.2 | (8.7 | ) | |||||||
|
Reclassification adjustments
|
3.5 | (0.9 | ) | 2.6 | ||||||||
|
|
||||||||||||
|
Net loss recognized in other comprehensive income
|
(8.4 | ) | 2.3 | (6.1 | ) | |||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 610.0 | $ | (26.3 | ) | 583.7 | ||||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 734.0 | ||||||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the Three Months Ended November 30, 2010
|
||||||||||||
|
Net income
|
$ | 139.3 | ||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | 114.5 | $ | (5.7 | ) | 108.8 | ||||||
|
Unrealized gain on cash flow hedges:
|
||||||||||||
|
Net derivative gains
|
15.4 | (4.8 | ) | 10.6 | ||||||||
|
Reclassification adjustments
|
(6.6 | ) | 1.6 | (5.0 | ) | |||||||
|
|
||||||||||||
|
Net gain recognized in other comprehensive income
|
8.8 | (3.2 | ) | 5.6 | ||||||||
|
Pension/postretirement:
|
||||||||||||
|
Net losses arising during the period
|
(2.4 | ) | 1.5 | (0.9 | ) | |||||||
|
Reclassification adjustments
|
2.5 | (0.7 | ) | 1.8 | ||||||||
|
|
||||||||||||
|
Net gain recognized in other comprehensive income
|
0.1 | 0.8 | 0.9 | |||||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 123.4 | $ | (8.1 | ) | 115.3 | ||||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 254.6 | ||||||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the Three Months Ended November 30, 2009
|
||||||||||||
|
Net income
|
$ | 44.1 | ||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | 116.3 | $ | (1.1 | ) | 115.2 | ||||||
|
Unrealized gain on cash flow hedges:
|
||||||||||||
|
Net derivative gains
|
21.2 | (8.3 | ) | 12.9 | ||||||||
|
Reclassification adjustments
|
(9.0 | ) | 2.8 | (6.2 | ) | |||||||
|
|
||||||||||||
|
Net gain recognized in other comprehensive income
|
12.2 | (5.5 | ) | 6.7 | ||||||||
|
Pension/postretirement:
|
||||||||||||
|
Net losses arising during the period
|
(1.2 | ) | 0.3 | (0.9 | ) | |||||||
|
Reclassification adjustments
|
1.3 | (0.4 | ) | 0.9 | ||||||||
|
|
||||||||||||
|
Net gain recognized in other comprehensive income
|
0.1 | (0.1 | ) | - | ||||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 128.6 | $ | (6.7 | ) | 121.9 | ||||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 166.0 | ||||||||||
|
|
||||||||||||
Accumulated other comprehensive income (“AOCI”), net of income tax effect, includes the
following components:
| Net | ||||||||||||||||
| Foreign | Unrealized | Accumulated | ||||||||||||||
| Currency | Gains | Other | ||||||||||||||
| Translation | (Losses) on | Pension/ | Comprehensive | |||||||||||||
| Adjustments | Derivatives | Postretirement | Income | |||||||||||||
| (in millions) | ||||||||||||||||
|
Balance, February 28, 2010
|
$ | 672.9 | $ | 19.6 | $ | (105.3 | ) | $ | 587.2 | |||||||
|
Current period change
|
92.9 | (18.3 | ) | 4.1 | 78.7 | |||||||||||
|
|
||||||||||||||||
|
Balance, November 30, 2010
|
$ | 765.8 | $ | 1.3 | $ | (101.2 | ) | $ | 665.9 | |||||||
|
|
||||||||||||||||
22
Table of Contents
| 15. | RESTRUCTURING CHARGES: |
The Company has several restructuring plans primarily within its CWNA segment and CWAE
segment, as follows:
Robert Mondavi Plan –
In January 2005, the Company announced a plan to restructure and integrate the operations of
The Robert Mondavi Corporation (“Robert Mondavi”) (the “Robert Mondavi Plan”). The objective of
the Robert Mondavi Plan is to achieve operational efficiencies and eliminate redundant costs
resulting from the December 22, 2004, acquisition of Robert Mondavi. The Robert Mondavi Plan
includes the elimination of certain employees, the consolidation of certain field sales and
administrative offices, and the termination of various contracts. The Company does not expect any
additional costs associated with the Robert Mondavi Plan to be recognized in its Consolidated
Statements of Operations. The Company expects the related cash expenditures to be completed by
February 29, 2012.
Fiscal 2006 Plan –
In fiscal 2006, the Company announced a plan to reorganize certain worldwide wine operations
and a plan to consolidate certain west coast production processes in the U.S. (collectively, the
“Fiscal 2006 Plan”). The Fiscal 2006 Plan’s principal features are to reorganize and simplify the
infrastructure and reporting structure of the Company’s global wine business and to consolidate
certain west coast production processes. This Fiscal 2006 Plan is part of the Company’s ongoing
effort to enhance its administrative, operational and production efficiencies in light of its
ongoing growth. The objective of the Fiscal 2006 Plan is to achieve greater efficiency in sales,
administrative and operational activities and to eliminate redundant costs. The Fiscal 2006 Plan
includes the termination of employment of certain employees in various locations worldwide, the
consolidation of certain worldwide wine selling and administrative functions, the consolidation of
certain warehouse and production functions, the termination of various contracts, investment in new
assets and the reconfiguration of certain existing assets. All costs and related cash expenditures
associated with the Fiscal 2006 Plan were complete as of February 28, 2009.
Vincor Plan –
In July 2006, the Company announced a plan to restructure and integrate the operations of
Vincor International Inc. (“Vincor”) (the “Vincor Plan”). The objective of the Vincor Plan is to
achieve operational efficiencies and eliminate redundant costs resulting from the June 2006 Vincor
acquisition, as well as to achieve greater efficiency in sales, marketing, administrative and
operational activities. The Vincor Plan includes the elimination of certain employment
redundancies, primarily in the U.S., U.K. and Australia, and the termination of various contracts.
The Company does not expect any additional costs associated with the Vincor Plan to be recognized
in its Consolidated Statements of Operations. The Company expects the related cash expenditures to
be completed by February 29, 2012.
23
Table of Contents
Fiscal 2007 Wine Plan –
In August 2006, the Company announced a plan 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”). The U.K. portion of the plan includes new investments in property, plant
and equipment and certain disposals of property, plant and equipment and is expected to increase
wine bottling capacity and efficiency and reduce costs of transport, production and distribution.
The U.K. portion of the plan also includes costs for employee terminations. The Australian portion
of the plan includes the buy-out of certain grape supply and processing contracts and the sale of
certain property, plant and equipment. The initiatives are part of the Company’s ongoing efforts
to maximize asset utilization, further reduce costs and improve long-term return on invested
capital throughout its international operations. The Company does not expect any additional costs
associated with the Fiscal 2007 Wine Plan to be recognized in its Consolidated Statements of
Operations. The related cash expenditures associated with the Fiscal 2007 Wine Plan were
substantially complete by February 28, 2010.
Fiscal 2008 Plan –
In November 2007, the Company initiated its plans to streamline certain of its international
operations, including the consolidation of certain winemaking and packaging operations in
Australia, the buy-out of certain grape processing and wine storage contracts in Australia,
equipment relocation costs in Australia, and certain employee termination costs. In addition, the
Company incurred certain other restructuring charges during the third quarter of fiscal 2008 in
connection with the consolidation of certain spirits production processes in the U.S. In January
2008, the Company announced its plans to streamline certain of its operations in the U.S.,
primarily in connection with the restructuring and integration of the operations acquired in the
Beam Wine Estates, Inc. (“BWE”) acquisition. These initiatives are collectively referred to as the
Fiscal 2008 Plan. The Fiscal 2008 Plan is part of the Company’s ongoing efforts to maximize asset
utilization, further reduce costs and improve long-term return on invested capital throughout its
domestic and international operations. The Company expects all costs associated with the Fiscal
2008 Plan to be recognized in its Consolidated Statements of Operations by February 28, 2011, with
the related cash expenditures to be substantially completed by February 29, 2012.
Australian Initiative –
In August 2008, the Company announced a plan to sell certain assets and implement operational
changes designed to improve the efficiencies and returns associated with the Australian business,
primarily by consolidating certain winemaking and packaging operations and reducing the Company’s
overall grape supply due to reduced capacity needs resulting from a streamlining of the Company’s
product portfolio (the “Australian Initiative”).
24
Table of Contents
The Australian Initiative includes the planned sale of three wineries and more than 20
vineyard properties, a streamlining of the Company’s wine product portfolio and production
footprint, the buy-out and/or renegotiation of certain grape supply and other contracts, equipment
relocations and costs for employee terminations. In connection with the Australian Initiative, the
Company recorded restructuring charges on its Consolidated Statements of Operations for the years
ended February 28, 2010, and February 28, 2009, of $13.4 million and $46.5 million, respectively,
which represented noncash charges related to the write-down of property, plant and equipment, net,
held for sale. Included in the Company’s restructuring charges on its Consolidated Statements of
Operations for the nine months ended November 30, 2010, is $5.0 million of net noncash charges
related primarily to the write-down of property, plant and equipment, net, held for sale, (which is
excluded from the restructuring liability rollforward table below). Included in the Company’s
restructuring charges on its Consolidated Statements of Operations for the three months ended
November 30, 2010, is a credit of $0.8 million of net gains recognized on the sale of assets (which
is excluded from the restructuring liability rollforward table below). As of November 30, 2010,
the Company’s CWAE segment had $19.9 million of Australian assets held for sale which are included
in property, plant and equipment, net on the Company’s Consolidated Balance Sheets. The Company
expects all costs associated with the Australian Initiative to be recognized in its Consolidated
Statements of Operations by February 28, 2011, with the related cash expenditures to be
substantially completed by February 28, 2011, as well.
Fiscal 2010 Global Initiative –
In April 2009, the Company announced its plan to simplify its business, increase efficiencies
and reduce its cost structure on a global basis (the “Global Initiative”). The Global Initiative
includes an approximately five percent reduction in the Company’s global workforce and the closing
of certain office, production and warehouse facilities. In addition, the Global Initiative
includes the termination of certain contracts, and a streamlining of the Company’s production
footprint and sales and administrative organizations. Lastly, the Global Initiative includes other
non-material restructuring activities primarily in connection with the consolidation of the
Company’s remaining spirits business into its North American wine business following the March 2009
divestiture of its value spirits business. This initiative is part of the Company’s ongoing
efforts to maximize asset utilization, reduce costs and improve long-term return on invested
capital throughout the Company’s operations. The Company expects substantially all costs
associated with the Global Initiative to be recognized in its Consolidated Statements of Operations
by February 29, 2012, with the related cash expenditures to be substantially completed by February
28, 2013.
Restructuring charges consist of employee termination benefit costs, contract termination
costs and other associated costs. Employee termination benefit costs are accounted for under the
FASB guidance for compensation – nonretirement postemployment benefits, as the Company has had
several restructuring programs which have provided employee termination benefits in the past. The
Company includes employee severance, related payroll benefit costs (such as costs to provide
continuing health insurance) and outplacement services as employee termination benefit costs.
Contract termination costs, and other associated costs including, but not limited to, facility
consolidation and relocation costs, are accounted for under the FASB guidance for exit or disposal
cost obligations. Contract termination costs are costs to terminate a contract that is not a
capital lease, including costs to terminate the contract before the end of its term or costs that
will continue to be incurred under the contract for its remaining term without economic benefit to
the entity. The Company includes costs to terminate certain operating leases for buildings,
computer and IT equipment, and costs to terminate contracts, including distributor contracts and
contracts for long-term purchase commitments, as contract termination costs. Other associated
costs include, but are not limited to, costs to consolidate or close facilities and relocate
employees. The Company includes employee relocation costs and equipment relocation costs as other
associated costs.
25
Table of Contents
Details of each plan for which the Company expects to incur additional costs are presented
separately in the following table. Plans for which exit activities were completed prior to March
1, 2010, are reported below under “Other Plans.” These plans include the Fiscal 2007 Wine Plan,
the Vincor Plan, the Fiscal 2006 Plan, the Robert Mondavi Plan and certain other immaterial
restructuring activities.
| Fiscal | ||||||||||||||||||||
| Global | Australian | 2008 | Other | |||||||||||||||||
| Initiative | Initiative | Plan | Plans | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Restructuring liability, February 28, 2010
|
$ | 8.9 | $ | - | $ | 4.0 | $ | 1.8 | $ | 14.7 | ||||||||||
|
|
||||||||||||||||||||
|
Restructuring charges:
|
||||||||||||||||||||
|
Employee termination benefit costs
|
4.2 | - | - | - | 4.2 | |||||||||||||||
|
Contract termination costs
|
- | - | - | 0.1 | 0.1 | |||||||||||||||
|
Facility consolidation/relocation costs
|
0.6 | - | - | - | 0.6 | |||||||||||||||
|
|
||||||||||||||||||||
|
Restructuring charges, May 31, 2010
|
4.8 | - | - | 0.1 | 4.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Employee termination benefit costs
|
6.4 | 0.5 | - | - | 6.9 | |||||||||||||||
|
Contract termination costs
|
0.5 | - | - | - | 0.5 | |||||||||||||||
|
Facility consolidation/relocation costs
|
0.5 | - | - | - | 0.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
Restructuring charges, August 31, 2010
|
7.4 | 0.5 | - | - | 7.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Employee termination benefit costs
|
(1.4 | ) | 0.2 | - | - | (1.2 | ) | |||||||||||||
|
Contract termination costs
|
- | - | - | - | - | |||||||||||||||
|
Facility consolidation/relocation costs
|
0.2 | 0.1 | - | - | 0.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Restructuring charges, November 30, 2010
|
(1.2 | ) | 0.3 | - | - | (0.9 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total restructuring charges
|
11.0 | 0.8 | - | 0.1 | 11.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash expenditures
|
(11.2 | ) | (0.7 | ) | (2.0 | ) | (1.1 | ) | (15.0 | ) | ||||||||||
|
|
||||||||||||||||||||
|
Foreign currency translation adjustments
|
0.6 | 0.1 | 0.1 | 0.1 | 0.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Restructuring liability, November 30, 2010
|
$ | 9.3 | $ | 0.2 | $ | 2.1 | $ | 0.9 | $ | 12.5 | ||||||||||
|
|
||||||||||||||||||||
In connection with the Company’s BWE acquisition, Vincor acquisition and Robert Mondavi
acquisition, the Company accrued $24.7 million, $37.7 million and $50.5 million of liabilities for
exit costs, respectively, as of the respective acquisition date. As of November 30, 2010, the
balances of the BWE, Vincor and Robert Mondavi purchase accounting accruals were $2.1 million, $0.3
million and $0.5 million, respectively. As of February 28, 2010, the balances of the BWE, Vincor
and Robert Mondavi purchase accounting accruals were $3.9 million, $0.3 million and $1.2 million,
respectively.
For the nine months ended November 30, 2010, employee termination benefit costs include a
reversal of prior accruals of $0.4 million associated with the Global Initiative.
26
Table of Contents
The following table presents a summary of restructuring charges and other costs incurred
in connection with the Company’s restructuring activities, including a summary of amounts incurred
by each of the Company’s reportable segments:
| Fiscal | ||||||||||||||||||||
| Global | Australian | 2008 | Other | |||||||||||||||||
| Initiative | Initiative | Plan | Plans | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
For the Nine Months Ended November 30, 2010
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 11.5 | $ | 5.8 | $ | - | $ | 0.1 | $ | 17.4 | ||||||||||
|
Other costs:
|
||||||||||||||||||||
|
Accelerated depreciation/inventory write-down/other costs (cost of product sold)
|
1.4 | - | 0.2 | - | 1.6 | |||||||||||||||
|
Asset write-down/other costs/acquisition-related integration costs (selling, general and administrative expenses)
|
4.6 | 0.1 | 0.2 | (0.3 | ) | 4.6 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total other costs
|
6.0 | 0.1 | 0.4 | (0.3 | ) | 6.2 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total costs
|
$ | 17.5 | $ | 5.9 | $ | 0.4 | $ | (0.2 | ) | $ | 23.6 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||||||
|
CWNA
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 2.1 | $ | - | $ | - | $ | 0.1 | $ | 2.2 | ||||||||||
|
Other costs
|
5.5 | - | 0.4 | - | 5.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total CWNA
|
$ | 7.6 | $ | - | $ | 0.4 | $ | 0.1 | $ | 8.1 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CWAE
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 8.9 | $ | 5.8 | $ | - | $ | - | $ | 14.7 | ||||||||||
|
Other costs
|
0.4 | 0.1 | - | (0.3 | ) | 0.2 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total CWAE
|
$ | 9.3 | $ | 5.9 | $ | - | $ | (0.3 | ) | $ | 14.9 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 0.5 | $ | - | $ | - | $ | - | $ | 0.5 | ||||||||||
|
Other costs
|
0.1 | - | - | - | 0.1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total Corporate Operations and Other
|
$ | 0.6 | $ | - | $ | - | $ | - | $ | 0.6 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
For the Nine Months Ended November 30, 2009
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 22.4 | $ | 4.6 | $ | (0.2 | ) | $ | 0.4 | $ | 27.2 | |||||||||
|
Other costs:
|
||||||||||||||||||||
|
Accelerated depreciation/inventory write-down/other costs (cost of product sold)
|
9.3 | 1.7 | - | 10.0 | 21.0 | |||||||||||||||
|
Asset write-down/other costs/acquisition-related integration costs (selling, general and administrative expenses)
|
31.5 | 1.8 | 0.9 | 1.1 | 35.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other costs
|
40.8 | 3.5 | 0.9 | 11.1 | 56.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total costs
|
$ | 63.2 | $ | 8.1 | $ | 0.7 | $ | 11.5 | $ | 83.5 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||||||
|
CWNA
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 10.7 | $ | - | $ | (0.3 | ) | $ | 0.4 | $ | 10.8 | |||||||||
|
Other costs
|
31.4 | - | 0.1 | 0.6 | 32.1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total CWNA
|
$ | 42.1 | $ | - | $ | (0.2 | ) | $ | 1.0 | $ | 42.9 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CWAE
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 9.6 | $ | 4.6 | $ | 0.1 | $ | - | $ | 14.3 | ||||||||||
|
Other costs
|
4.8 | 3.5 | 0.8 | 10.5 | 19.6 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total CWAE
|
$ | 14.4 | $ | 8.1 | $ | 0.9 | $ | 10.5 | $ | 33.9 | ||||||||||
|
|
||||||||||||||||||||
27
Table of Contents
| Fiscal | ||||||||||||||||||||
| Global | Australian | 2008 | Other | |||||||||||||||||
| Initiative | Initiative | Plan | Plans | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 2.1 | $ | - | $ | - | $ | - | $ | 2.1 | ||||||||||
|
Other costs
|
4.6 | - | - | - | 4.6 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total Corporate Operations and Other
|
$ | 6.7 | $ | - | $ | - | $ | - | $ | 6.7 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
For the Three Months Ended November 30, 2010
|
||||||||||||||||||||
|
Restructuring charges
|
$ | (0.7 | ) | $ | (0.5 | ) | $ | - | $ | - | $ | (1.2 | ) | |||||||
|
Other costs:
|
||||||||||||||||||||
|
Accelerated depreciation/inventory write-down/other costs (cost of product sold)
|
0.3 | - | 0.2 | - | 0.5 | |||||||||||||||
|
Asset write-down/other costs/acquisition-related integration costs (selling, general and administrative expenses)
|
1.9 | 0.1 | - | (0.3 | ) | 1.7 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total other costs
|
2.2 | 0.1 | 0.2 | (0.3 | ) | 2.2 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total costs
|
$ | 1.5 | $ | (0.4 | ) | $ | 0.2 | $ | (0.3 | ) | $ | 1.0 | ||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||||||
|
CWNA
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 0.4 | $ | - | $ | - | $ | - | $ | 0.4 | ||||||||||
|
Other costs
|
2.1 | - | 0.2 | - | 2.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total CWNA
|
$ | 2.5 | $ | - | $ | 0.2 | $ | - | $ | 2.7 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CWAE
|
||||||||||||||||||||
|
Restructuring charges
|
$ | (1.6 | ) | $ | (0.5 | ) | $ | - | $ | - | $ | (2.1 | ) | |||||||
|
Other costs
|
0.1 | 0.1 | - | (0.3 | ) | (0.1 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total CWAE
|
$ | (1.5 | ) | $ | (0.4 | ) | $ | - | $ | (0.3 | ) | $ | (2.2 | ) | ||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 0.5 | $ | - | $ | - | $ | - | $ | 0.5 | ||||||||||
|
Other costs
|
- | - | - | - | - | |||||||||||||||
|
|
||||||||||||||||||||
|
Total Corporate Operations and Other
|
$ | 0.5 | $ | - | $ | - | $ | - | $ | 0.5 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
For the Three Months Ended November 30, 2009
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 1.4 | $ | 3.2 | $ | (0.1 | ) | $ | 0.6 | $ | 5.1 | |||||||||
|
Other costs:
|
||||||||||||||||||||
|
Accelerated depreciation/inventory write-down/other costs (cost of product sold)
|
2.0 | - | - | 1.2 | 3.2 | |||||||||||||||
|
Asset write-down/other costs/acquisition-related integration costs (selling, general and administrative expenses)
|
9.8 | 0.1 | 0.7 | 0.5 | 11.1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other costs
|
11.8 | 0.1 | 0.7 | 1.7 | 14.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total costs
|
$ | 13.2 | $ | 3.3 | $ | 0.6 | $ | 2.3 | $ | 19.4 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||||||
|
CWNA
|
||||||||||||||||||||
|
Restructuring charges
|
$ | (0.2 | ) | $ | - | $ | - | $ | 0.6 | $ | 0.4 | |||||||||
|
Other costs
|
7.3 | - | (0.1 | ) | 0.2 | 7.4 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total CWNA
|
$ | 7.1 | $ | - | $ | (0.1 | ) | $ | 0.8 | $ | 7.8 | |||||||||
|
|
||||||||||||||||||||
28
Table of Contents
| Fiscal | ||||||||||||||||||||
| Global | Australian | 2008 | Other | |||||||||||||||||
| Initiative | Initiative | Plan | Plans | Total | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
CWAE
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 1.4 | $ | 3.2 | $ | (0.1 | ) | $ | - | $ | 4.5 | |||||||||
|
Other costs
|
3.1 | 0.1 | 0.8 | 1.5 | 5.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total CWAE
|
$ | 4.5 | $ | 3.3 | $ | 0.7 | $ | 1.5 | $ | 10.0 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||||||
|
Restructuring charges
|
$ | 0.2 | $ | - | $ | - | $ | - | $ | 0.2 | ||||||||||
|
Other costs
|
1.4 | - | - | - | 1.4 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total Corporate Operations and Other
|
$ | 1.6 | $ | - | $ | - | $ | - | $ | 1.6 | ||||||||||
|
|
||||||||||||||||||||
A summary of restructuring charges and other costs incurred since inception for each plan, as
well as total expected costs for each plan, are presented in the following table:
| Fiscal | |||||||||||||||
| Global | Australian | 2008 | Other | ||||||||||||
| Initiative | Initiative | Plan | Plans | ||||||||||||
| (in millions) | |||||||||||||||
|
Costs incurred to date
|
|||||||||||||||
|
Restructuring charges:
|
|||||||||||||||
|
Employee termination benefit costs
|
$ | 34.1 | $ | 10.2 | $ | 8.7 | $ | 42.0 | |||||||
|
Contract termination costs
|
4.2 | 3.5 | 1.5 | 25.2 | |||||||||||
|
Facility consolidation/relocation costs
|
2.4 | 1.2 | 1.0 | 1.7 | |||||||||||
|
Impairment charges on assets held for sale, net of gains on assets sold
|
- | 64.9 | - | - | |||||||||||
|
|
|||||||||||||||
|
Total restructuring charges
|
40.7 | 79.8 | 11.2 | 68.9 | |||||||||||
|
|
|||||||||||||||
|
Other costs:
|
|||||||||||||||
|
Accelerated depreciation/inventory write-down/other costs (cost of product sold)
|
12.9 | 59.2 | 18.1 | 46.1 | |||||||||||
|
Asset write-down/other costs/acquisition-related integration costs (selling, general and administrative expenses)
|
39.5 | 7.0 | 16.1 | 97.3 | |||||||||||
|
Asset impairment (impairment of goodwill and intangible assets)
|
- | 21.8 | 7.4 | 0.4 | |||||||||||
|
|
|||||||||||||||
|
Total other costs
|
52.4 | 88.0 | 41.6 | 143.8 | |||||||||||
|
|
|||||||||||||||
|
Total costs incurred to date
|
$ | 93.1 | $ | 167.8 | $ | 52.8 | $ | 212.7 | |||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
Total Costs Incurred to Date by Reportable Segment:
|
|||||||||||||||
|
CWNA
|
|||||||||||||||
|
Restructuring charges
|
$ | 18.2 | $ | - | $ | 7.1 | $ | 24.2 | |||||||
|
Other costs
|
41.2 | - | 34.4 | 68.2 | |||||||||||
|
|
|||||||||||||||
|
Total CWNA
|
$ | 59.4 | $ | - | $ | 41.5 | $ | 92.4 | |||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
CWAE
|
|||||||||||||||
|
Restructuring charges
|
$ | 19.0 | $ | 79.8 | $ | 4.1 | $ | 42.8 | |||||||
|
Other costs
|
6.2 | 88.0 | 7.0 | 72.7 | |||||||||||
|
|
|||||||||||||||
|
Total CWAE
|
$ | 25.2 | $ | 167.8 | $ | 11.1 | $ | 115.5 | |||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
Corporate Operations and Other
|
|||||||||||||||
|
Restructuring charges
|
$ | 3.5 | $ | - | $ | - | $ | 1.9 | |||||||
|
Other costs
|
5.0 | - | 0.2 | 2.9 | |||||||||||
|
|
|||||||||||||||
|
Total Corporate Operations and Other
|
$ | 8.5 | $ | - | $ | 0.2 | $ | 4.8 | |||||||
|
|
|||||||||||||||
29
Table of Contents
| Fiscal | |||||||||||||||
| Global | Australian | 2008 | Other | ||||||||||||
| Initiative | Initiative | Plan | Plans | ||||||||||||
| (in millions) | |||||||||||||||
|
Total expected costs
|
|||||||||||||||
|
Restructuring charges:
|
|||||||||||||||
|
Employee termination benefit costs
|
$ | 34.8 | $ | 10.2 | $ | 8.7 | $ | 42.0 | |||||||
|
Contract termination costs
|
9.0 | 3.5 | 1.5 | 25.2 | |||||||||||
|
Facility consolidation/relocation costs
|
2.9 | 1.2 | 1.0 | 1.7 | |||||||||||
|
Impairment charges on assets held for sale, net of gains
on assets sold |
- | 64.9 | - | - | |||||||||||
|
|
|||||||||||||||
|
Total restructuring charges
|
46.7 | 79.8 | 11.2 | 68.9 | |||||||||||
|
|
|||||||||||||||
|
Other costs:
|
|||||||||||||||
|
Accelerated depreciation/inventory write-down/other costs (cost of product sold)
|
13.6 | 59.2 | 18.1 | 46.1 | |||||||||||
|
Asset write-down/other costs/acquisition-related integration costs (selling, general and administrative expenses)
|
41.3 | 7.0 | 16.4 | 97.3 | |||||||||||
|
Asset impairment (impairment of goodwill and intangible assets)
|
- | 21.8 | 7.4 | 0.4 | |||||||||||
|
|
|||||||||||||||
|
Total other costs
|
54.9 | 88.0 | 41.9 | 143.8 | |||||||||||
|
|
|||||||||||||||
|
Total expected costs
|
$ | 101.6 | $ | 167.8 | $ | 53.1 | $ | 212.7 | |||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
Total Expected Costs by Reportable Segment:
|
|||||||||||||||
|
CWNA
|
|||||||||||||||
|
Restructuring charges
|
$ | 23.5 | $ | - | $ | 7.1 | $ | 24.2 | |||||||
|
Other costs
|
43.7 | - | 34.7 | 68.2 | |||||||||||
|
|
|||||||||||||||
|
Total CWNA
|
$ | 67.2 | $ | - | $ | 41.8 | $ | 92.4 | |||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
CWAE
|
|||||||||||||||
|
Restructuring charges
|
$ | 19.0 | $ | 79.8 | $ | 4.1 | $ | 42.8 | |||||||
|
Other costs
|
6.2 | 88.0 | 7.0 | 72.7 | |||||||||||
|
|
|||||||||||||||
|
Total CWAE
|
$ | 25.2 | $ | 167.8 | $ | 11.1 | $ | 115.5 | |||||||
|
|
|||||||||||||||
|
|
|||||||||||||||
|
Corporate Operations and Other
|
|||||||||||||||
|
Restructuring charges
|
$ | 4.2 | $ | - | $ | - | $ | 1.9 | |||||||
|
Other costs
|
5.0 | - | 0.2 | 2.9 | |||||||||||
|
|
|||||||||||||||
|
Total Corporate Operations and Other
|
$ | 9.2 | $ | - | $ | 0.2 | $ | 4.8 | |||||||
|
|
|||||||||||||||
30
Table of Contents
| 16. | CONDENSED CONSOLIDATING FINANCIAL INFORMATION: |
The following information sets forth the
condensed consolidating balance sheets as of November 30, 2010, and February 28, 2010, the
condensed consolidating statements of operations for the nine months and three months ended
November 30, 2010, and November 30, 2009, and the condensed consolidating statements of cash flows
for the nine months ended November 30, 2010, and November 30, 2009, for the Company, the parent
company, the combined subsidiaries of the Company which guarantee the Company’s senior notes
(“Subsidiary Guarantors”) and the combined subsidiaries of the Company which are not Subsidiary
Guarantors (primarily foreign subsidiaries) (“Subsidiary Nonguarantors”). The Subsidiary
Guarantors are wholly-owned and the guarantees are full, unconditional, joint and several
obligations of each of the Subsidiary Guarantors. Separate financial statements for the Subsidiary
Guarantors of the Company are not presented because the Company has determined that such financial
statements would not be material to investors. The accounting policies of the parent company, the
Subsidiary Guarantors and the Subsidiary Nonguarantors are the same as those described for the
Company in the Summary of Significant Accounting Policies in Note 1 to the Company’s consolidated
financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended
February 28, 2010, and include the recently adopted accounting guidance described in Note 2 herein.
There are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to the
Company in the form of cash dividends, loans or advances.
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Condensed Consolidating Balance Sheet at November 30, 2010 | ||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash investments
|
$ | 0.1 | $ | 1.0 | $ | 14.9 | $ | - | $ | 16.0 | ||||||||||
|
Accounts receivable, net
|
472.5 | 29.8 | 366.6 | - | 868.9 | |||||||||||||||
|
Inventories
|
126.5 | 1,047.7 | 703.4 | (11.0 | ) | 1,866.6 | ||||||||||||||
|
Prepaid expenses and other
|
19.1 | 81.2 | 31.6 | (38.6 | ) | 93.3 | ||||||||||||||
|
Intercompany (payable) receivable
|
(684.3 | ) | 415.6 | 268.7 | - | - | ||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
(66.1 | ) | 1,575.3 | 1,385.2 | (49.6 | ) | 2,844.8 | |||||||||||||
|
Property, plant and equipment, net
|
99.5 | 767.5 | 689.1 | - | 1,556.1 | |||||||||||||||
|
Investments in subsidiaries
|
6,694.6 | 134.9 | - | (6,829.5 | ) | - | ||||||||||||||
|
Goodwill
|
- | 1,985.9 | 604.3 | - | 2,590.2 | |||||||||||||||
|
Intangible assets, net
|
- | 673.0 | 249.0 | - | 922.0 | |||||||||||||||
|
Other assets, net
|
33.7 | 242.5 | 76.9 | (8.4 | ) | 344.7 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 6,761.7 | $ | 5,379.1 | $ | 3,004.5 | $ | (6,887.5 | ) | $ | 8,257.8 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Notes payable to banks
|
$ | 285.7 | $ | - | $ | 70.1 | $ | - | $ | 355.8 | ||||||||||
|
Current maturities of long-term debt
|
234.5 | 2.6 | 0.7 | - | 237.8 | |||||||||||||||
|
Accounts payable
|
10.2 | 231.6 | 93.0 | - | 334.8 | |||||||||||||||
|
Accrued excise taxes
|
14.8 | 1.6 | 49.0 | - | 65.4 | |||||||||||||||
|
Other accrued expenses and liabilities
|
264.4 | 112.0 | 186.5 | (41.4 | ) | 521.5 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
809.6 | 347.8 | 399.3 | (41.4 | ) | 1,515.3 | ||||||||||||||
|
Long-term debt, less current maturities
|
3,118.2 | 14.1 | 0.7 | - | 3,133.0 | |||||||||||||||
|
Deferred income taxes
|
- | 494.6 | 79.2 | (8.4 | ) | 565.4 | ||||||||||||||
|
Other liabilities
|
114.9 | 69.5 | 140.7 | - | 325.1 | |||||||||||||||
31
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||||||
|
Preferred stock
|
- | 9.0 | 1,460.5 | (1,469.5 | ) | - | ||||||||||||||
|
Class A and Class B Convertible
Common Stock |
2.6 | 100.7 | 184.0 | (284.7 | ) | 2.6 | ||||||||||||||
|
Additional paid-in capital
|
1,572.9 | 1,394.6 | 1,269.0 | (2,663.6 | ) | 1,572.9 | ||||||||||||||
|
Retained earnings (deficit)
|
1,382.5 | 2,924.5 | (1,249.8 | ) | (1,674.7 | ) | 1,382.5 | |||||||||||||
|
Accumulated other comprehensive income
|
665.9 | 24.3 | 720.9 | (745.2 | ) | 665.9 | ||||||||||||||
|
Treasury stock
|
(904.9 | ) | - | - | - | (904.9 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total stockholders’ equity
|
2,719.0 | 4,453.1 | 2,384.6 | (6,837.7 | ) | 2,719.0 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 6,761.7 | $ | 5,379.1 | $ | 3,004.5 | $ | (6,887.5 | ) | $ | 8,257.8 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Balance Sheet at February 28, 2010 | ||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash investments
|
$ | 0.3 | $ | 3.3 | $ | 39.9 | $ | - | $ | 43.5 | ||||||||||
|
Accounts receivable, net
|
219.5 | 22.6 | 272.6 | - | 514.7 | |||||||||||||||
|
Inventories
|
119.8 | 1,017.5 | 754.0 | (11.4 | ) | 1,879.9 | ||||||||||||||
|
Prepaid expenses and other
|
18.5 | 65.2 | 38.0 | 29.3 | 151.0 | |||||||||||||||
|
Intercompany (payable) receivable
|
(68.6 | ) | (132.1 | ) | 200.7 | - | - | |||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
289.5 | 976.5 | 1,305.2 | 17.9 | 2,589.1 | |||||||||||||||
|
Property, plant and equipment, net
|
71.8 | 784.4 | 711.0 | - | 1,567.2 | |||||||||||||||
|
Investments in subsidiaries
|
6,191.0 | 130.8 | - | (6,321.8 | ) | - | ||||||||||||||
|
Goodwill
|
- | 1,985.9 | 584.7 | - | 2,570.6 | |||||||||||||||
|
Intangible assets, net
|
- | 682.8 | 242.2 | - | 925.0 | |||||||||||||||
|
Other assets, net
|
104.7 | 236.3 | 108.2 | (6.8 | ) | 442.4 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 6,657.0 | $ | 4,796.7 | $ | 2,951.3 | $ | (6,310.7 | ) | $ | 8,094.3 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Notes payable to banks
|
$ | 289.3 | $ | - | $ | 81.9 | $ | - | $ | 371.2 | ||||||||||
|
Current maturities of long-term debt
|
172.7 | 1.3 | 13.2 | - | 187.2 | |||||||||||||||
|
Accounts payable
|
14.5 | 104.6 | 149.7 | - | 268.8 | |||||||||||||||
|
Accrued excise taxes
|
8.3 | - | 35.5 | - | 43.8 | |||||||||||||||
|
Other accrued expenses and liabilities
|
190.2 | 85.3 | 201.0 | 25.1 | 501.6 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
675.0 | 191.2 | 481.3 | 25.1 | 1,372.6 | |||||||||||||||
|
Long-term debt, less current maturities
|
3,270.9 | 5.6 | 0.6 | - | 3,277.1 | |||||||||||||||
|
Deferred income taxes
|
- | 475.5 | 67.5 | (6.8 | ) | 536.2 | ||||||||||||||
|
Other liabilities
|
134.8 | 47.7 | 149.6 | - | 332.1 | |||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||||||
|
Preferred stock
|
- | 9.0 | 1,430.9 | (1,439.9 | ) | - | ||||||||||||||
|
Class A and Class B Convertible
Common Stock |
2.6 | 100.7 | 184.0 | (284.7 | ) | 2.6 | ||||||||||||||
|
Additional paid-in capital
|
1,493.2 | 1,323.6 | 1,269.0 | (2,592.6 | ) | 1,493.2 | ||||||||||||||
|
Retained earnings (deficit)
|
1,102.8 | 2,611.0 | (1,260.8 | ) | (1,350.2 | ) | 1,102.8 | |||||||||||||
|
Accumulated other comprehensive income
|
587.2 | 32.4 | 629.2 | (661.6 | ) | 587.2 | ||||||||||||||
|
Treasury stock
|
(609.5 | ) | - | - | - | (609.5 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total stockholders’ equity
|
2,576.3 | 4,076.7 | 2,252.3 | (6,329.0 | ) | 2,576.3 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and stockholders’ equity
|
$ | 6,657.0 | $ | 4,796.7 | $ | 2,951.3 | $ | (6,310.7 | ) | $ | 8,094.3 | |||||||||
|
|
||||||||||||||||||||
32
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Condensed Consolidating Statement of Operations for the Nine Months Ended November 30, 2010 | ||||||||||||||||||||
|
Sales
|
$ | 511.9 | $ | 1,503.1 | $ | 1,525.5 | $ | (316.0 | ) | $ | 3,224.5 | |||||||||
|
Less – excise taxes
|
(92.8 | ) | (81.8 | ) | (433.2 | ) | - | (607.8 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
419.1 | 1,421.3 | 1,092.3 | (316.0 | ) | 2,616.7 | ||||||||||||||
|
Cost of product sold
|
(207.4 | ) | (896.9 | ) | (818.1 | ) | 241.8 | (1,680.6 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
211.7 | 524.4 | 274.2 | (74.2 | ) | 936.1 | ||||||||||||||
|
Selling, general and administrative expenses
|
(219.9 | ) | (190.2 | ) | (177.3 | ) | 75.2 | (512.2 | ) | |||||||||||
|
Impairment of intangible assets
|
- | (6.9 | ) | - | - | (6.9 | ) | |||||||||||||
|
Restructuring charges
|
(0.5 | ) | (2.1 | ) | (14.8 | ) | - | (17.4 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Operating (loss) income
|
(8.7 | ) | 325.2 | 82.1 | 1.0 | 399.6 | ||||||||||||||
|
Equity in earnings of equity method investees and subsidiaries
|
374.5 | 186.9 | 4.8 | (373.9 | ) | 192.3 | ||||||||||||||
|
Interest (expense) income, net
|
(156.3 | ) | 5.8 | 2.6 | - | (147.9 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes
|
209.5 | 517.9 | 89.5 | (372.9 | ) | 444.0 | ||||||||||||||
|
Benefit from (provision for) income taxes
|
70.2 | (204.8 | ) | (27.9 | ) | (1.8 | ) | (164.3 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 279.7 | $ | 313.1 | $ | 61.6 | $ | (374.7 | ) | $ | 279.7 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Statement of Operations for the Nine Months Ended November 30, 2009 | ||||||||||||||||||||
|
Sales
|
$ | 546.6 | $ | 1,451.0 | $ | 1,608.6 | $ | (286.2 | ) | $ | 3,320.0 | |||||||||
|
Less – excise taxes
|
(119.9 | ) | (76.8 | ) | (467.2 | ) | - | (663.9 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
426.7 | 1,374.2 | 1,141.4 | (286.2 | ) | 2,656.1 | ||||||||||||||
|
Cost of product sold
|
(215.9 | ) | (843.9 | ) | (881.7 | ) | 207.8 | (1,733.7 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
210.8 | 530.3 | 259.7 | (78.4 | ) | 922.4 | ||||||||||||||
|
Selling, general and administrative expenses
|
(210.8 | ) | (176.5 | ) | (225.4 | ) | 78.4 | (534.3 | ) | |||||||||||
|
Impairment of intangible assets
|
- | - | - | - | - | |||||||||||||||
|
Restructuring charges
|
0.2 | (11.0 | ) | (16.4 | ) | - | (27.2 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
0.2 | 342.8 | 17.9 | - | 360.9 | |||||||||||||||
|
Equity in earnings of equity method investees and subsidiaries
|
298.5 | 208.7 | (21.0 | ) | (315.6 | ) | 170.6 | |||||||||||||
|
Interest expense, net
|
(192.1 | ) | (5.8 | ) | (4.1 | ) | - | (202.0 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Income (loss) before income taxes
|
106.6 | 545.7 | (7.2 | ) | (315.6 | ) | 329.5 | |||||||||||||
|
Benefit from (provision for) income taxes
|
43.7 | (243.6 | ) | 18.3 | 2.4 | (179.2 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 150.3 | $ | 302.1 | $ | 11.1 | $ | (313.2 | ) | $ | 150.3 | |||||||||
|
|
||||||||||||||||||||
33
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Condensed Consolidating Statement of Operations for the Three Months Ended November 30, 2010 | ||||||||||||||||||||
|
Sales
|
$ | 176.5 | $ | 574.0 | $ | 552.1 | $ | (111.2 | ) | $ | 1,191.4 | |||||||||
|
Less – excise taxes
|
(36.2 | ) | (28.0 | ) | (160.8 | ) | - | (225.0 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
140.3 | 546.0 | 391.3 | (111.2 | ) | 966.4 | ||||||||||||||
|
Cost of product sold
|
(71.6 | ) | (342.0 | ) | (285.3 | ) | 84.4 | (614.5 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
68.7 | 204.0 | 106.0 | (26.8 | ) | 351.9 | ||||||||||||||
|
Selling, general and administrative
expenses
|
(73.3 | ) | (70.0 | ) | (58.7 | ) | 25.9 | (176.1 | ) | |||||||||||
|
Impairment of intangible assets
|
- | (6.9 | ) | - | - | (6.9 | ) | |||||||||||||
|
Restructuring charges
|
(0.5 | ) | (0.3 | ) | 2.0 | - | 1.2 | |||||||||||||
|
|
||||||||||||||||||||
|
Operating (loss) income
|
(5.1 | ) | 126.8 | 49.3 | (0.9 | ) | 170.1 | |||||||||||||
|
Equity in earnings of equity method
investees and subsidiaries
|
171.5 | 70.1 | 3.2 | (173.4 | ) | 71.4 | ||||||||||||||
|
Interest (expense) income, net
|
(49.3 | ) | (1.0 | ) | 1.2 | - | (49.1 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes
|
117.1 | 195.9 | 53.7 | (174.3 | ) | 192.4 | ||||||||||||||
|
Benefit from (provision for) income
taxes
|
22.2 | (76.4 | ) | 1.5 | (0.4 | ) | (53.1 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 139.3 | $ | 119.5 | $ | 55.2 | $ | (174.7 | ) | $ | 139.3 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Statement of Operations for the Three Months Ended November 30, 2009 | ||||||||||||||||||||
|
Sales
|
$ | 260.8 | $ | 510.6 | $ | 588.0 | $ | (133.9 | ) | $ | 1,225.5 | |||||||||
|
Less – excise taxes
|
(45.7 | ) | (19.7 | ) | (172.4 | ) | - | (237.8 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
215.1 | 490.9 | 415.6 | (133.9 | ) | 987.7 | ||||||||||||||
|
Cost of product sold
|
(114.1 | ) | (319.5 | ) | (318.1 | ) | 108.1 | (643.6 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
101.0 | 171.4 | 97.5 | (25.8 | ) | 344.1 | ||||||||||||||
|
Selling, general and administrative
expenses
|
(92.4 | ) | (37.1 | ) | (100.3 | ) | 26.9 | (202.9 | ) | |||||||||||
|
Impairment of intangible assets
|
- | - | - | - | - | |||||||||||||||
|
Restructuring charges
|
(0.2 | ) | 0.3 | (5.2 | ) | - | (5.1 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Operating income (loss)
|
8.4 | 134.6 | (8.0 | ) | 1.1 | 136.1 | ||||||||||||||
|
Equity in earnings (losses) of
equity method investees and
subsidiaries
|
94.7 | 70.3 | (22.9 | ) | (107.5 | ) | 34.6 | |||||||||||||
|
Interest (expense) income, net
|
(80.3 | ) | 15.8 | (1.0 | ) | - | (65.5 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Income (loss) before income
taxes
|
22.8 | 220.7 | (31.9 | ) | (106.4 | ) | 105.2 | |||||||||||||
|
Benefit from (provision for) income
taxes
|
21.3 | (82.1 | ) | (1.8 | ) | 1.5 | (61.1 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net income (loss)
|
$ | 44.1 | $ | 138.6 | $ | (33.7 | ) | $ | (104.9 | ) | $ | 44.1 | ||||||||
|
|
||||||||||||||||||||
34
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Condensed Consolidating Statement of Cash Flows for the Nine Months Ended November 30, 2010 | ||||||||||||||||||||
|
Net cash (used in) provided by
operating activities
|
$ | (313.3 | ) | $ | 558.1 | $ | 124.2 | $ | - | $ | 369.0 | |||||||||
|
|
||||||||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Purchases of property, plant and
equipment
|
(30.3 | ) | (28.0 | ) | (11.8 | ) | - | (70.1 | ) | |||||||||||
|
Investments in equity method
investees
|
- | (0.1 | ) | (29.6 | ) | - | (29.7 | ) | ||||||||||||
|
Repayments related to sale of
business
|
- | - | (1.6 | ) | - | (1.6 | ) | |||||||||||||
|
Proceeds from note receivable
|
60.0 | - | - | - | 60.0 | |||||||||||||||
|
Proceeds from sales of assets
|
- | 3.3 | 12.2 | - | 15.5 | |||||||||||||||
|
Capital distribution from equity
method investee
|
- | - | 0.3 | - | 0.3 | |||||||||||||||
|
Other investing activities
|
- | 0.3 | 0.2 | - | 0.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided by (used in)
investing activities
|
29.7 | (24.5 | ) | (30.3 | ) | - | (25.1 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Intercompany financings, net
|
641.3 | (534.9 | ) | (106.4 | ) | - | - | |||||||||||||
|
Purchases of treasury stock
|
(300.0 | ) | - | - | - | (300.0 | ) | |||||||||||||
|
Principal payments of long-term debt
|
(99.1 | ) | (1.0 | ) | (1.0 | ) | - | (101.1 | ) | |||||||||||
|
Net (repayment of) proceeds from
notes payable
|
(3.6 | ) | - | (13.1 | ) | - | (16.7 | ) | ||||||||||||
|
Payment of financing costs of
long-term debt
|
(0.2 | ) | - | - | - | (0.2 | ) | |||||||||||||
|
Exercise of employee stock options
|
35.8 | - | - | - | 35.8 | |||||||||||||||
|
Excess tax benefits from stock-based
payment awards
|
7.1 | - | - | - | 7.1 | |||||||||||||||
|
Proceeds from employee stock
purchases
|
2.1 | - | - | - | 2.1 | |||||||||||||||
|
Proceeds from maturity of derivative
instrument
|
- | - | - | - | - | |||||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided by (used in)
financing activities
|
283.4 | (535.9 | ) | (120.5 | ) | - | (373.0 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on
cash and cash investments
|
- | - | 1.6 | - | 1.6 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net (decrease) increase in cash and
cash investments
|
(0.2 | ) | (2.3 | ) | (25.0 | ) | - | (27.5 | ) | |||||||||||
|
Cash and cash investments, beginning
of period
|
0.3 | 3.3 | 39.9 | - | 43.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash investments, end of
period
|
$ | 0.1 | $ | 1.0 | $ | 14.9 | $ | - | $ | 16.0 | ||||||||||
|
|
||||||||||||||||||||
35
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Condensed Consolidating Statement of Cash Flows for the Nine Months Ended November 30, 2009 | ||||||||||||||||||||
|
Net cash (used in) provided by
operating activities
|
$ | (289.7 | ) | $ | 403.0 | $ | 75.4 | $ | - | $ | 188.7 | |||||||||
|
|
||||||||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Purchases of property, plant and
equipment
|
(13.4 | ) | (49.2 | ) | (26.6 | ) | - | (89.2 | ) | |||||||||||
|
Investments in equity method
investees
|
- | (0.6 | ) | - | - | (0.6 | ) | |||||||||||||
|
Proceeds from sale of business
|
- | 262.1 | 14.3 | - | 276.4 | |||||||||||||||
|
Proceeds from note receivable
|
- | - | - | - | - | |||||||||||||||
|
Proceeds from sales of assets
|
- | 0.2 | 16.3 | - | 16.5 | |||||||||||||||
|
Capital distribution from equity
method investee
|
- | - | 0.2 | - | 0.2 | |||||||||||||||
|
Other investing activities
|
0.9 | - | (0.3 | ) | - | 0.6 | ||||||||||||||
|
|
||||||||||||||||||||
|
Net cash (used in) provided by
investing activities
|
(12.5 | ) | 212.5 | 3.9 | - | 203.9 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Intercompany financings, net
|
573.6 | (611.5 | ) | 37.9 | - | - | ||||||||||||||
|
Purchases of treasury stock
|
- | - | - | - | - | |||||||||||||||
|
Principal payments of long-term debt
|
(519.1 | ) | (2.6 | ) | (8.1 | ) | - | (529.8 | ) | |||||||||||
|
Net proceeds from (repayment of)
notes payable
|
197.5 | - | (73.3 | ) | - | 124.2 | ||||||||||||||
|
Payment of financing costs of
long-term debt
|
- | - | - | - | - | |||||||||||||||
|
Exercise of employee stock options
|
10.7 | - | - | - | 10.7 | |||||||||||||||
|
Excess tax benefits from share-based
payment awards
|
2.5 | - | - | - | 2.5 | |||||||||||||||
|
Proceeds from employee stock
purchases
|
2.3 | - | - | - | 2.3 | |||||||||||||||
|
Proceeds from maturity of derivative
instrument
|
33.2 | - | - | - | 33.2 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided by (used in)
financing activities
|
300.7 | (614.1 | ) | (43.5 | ) | - | (356.9 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on
cash and cash investments
|
- | - | 1.5 | - | 1.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net (decrease) increase in cash and
cash investments
|
(1.5 | ) | 1.4 | 37.3 | - | 37.2 | ||||||||||||||
|
Cash and cash investments, beginning
of period
|
2.3 | 3.7 | 7.1 | - | 13.1 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash investments, end of
period
|
$ | 0.8 | $ | 5.1 | $ | 44.4 | $ | - | $ | 50.3 | ||||||||||
|
|
||||||||||||||||||||
36
Table of Contents
17. BUSINESS SEGMENT INFORMATION:
Prior to May 1, 2010, the Company’s internal management financial reporting
consisted of two business divisions, Constellation Wines and Crown Imports. In connection with the
Company’s changes during the first quarter of fiscal 2011 within its internal management structure
for its Australian and U.K. business, and the Company’s revised business strategy within these
markets, the Company changed its internal management financial reporting on May 1, 2010, to consist
of four business divisions: Constellation Wines North America, Constellation Wines Australia and
Europe, Constellation Wines New Zealand and Crown Imports. However, due to a number of factors,
including the size of the Constellation Wines New Zealand segment’s operations, the similarity of
its economic characteristics and long-term financial performance with that of the Constellation
Wines North America business, and the fact that the vast majority of the wine produced by the
Constellation Wines New Zealand operating segment is sold in the U.S. and Canada, the Company has
aggregated the results of this operating segment with its Constellation Wines North America
operating segment to form one reportable segment. Accordingly, beginning May 1, 2010, the Company
began reporting its operating results in four segments: Constellation Wines North America (wine
and spirits) (“CWNA”), Constellation Wines Australia and Europe (wine) (“CWAE”), Corporate
Operations and Other, and Crown Imports (imported beer). Amounts included in the Corporate
Operations and Other segment consist of costs of executive management, corporate development,
corporate finance, human resources, internal audit, investor relations, legal, public relations,
global information technology and global supply chain. Any costs incurred at the corporate office
that are applicable to the segments are allocated to the appropriate segment. The amounts included
in the Corporate Operations and Other segment are general costs that are applicable to the
consolidated group and are therefore not allocated to the other reportable segments. All costs
reported within the Corporate Operations and Other segment are not included in the chief operating
decision maker’s evaluation of the operating income performance of the other reportable segments.
The new business segments reflect how the Company’s operations are managed, how operating
performance within the Company is evaluated by senior management and the structure of its internal
financial reporting. The financial information for the nine months and three months ended November
30, 2009, has been restated to conform to the new segment presentation.
In addition, the Company excludes restructuring charges and unusual items that affect
comparability from its definition of operating income for segment purposes as these items are not
reflective of normal continuing operations of the segments. The Company excludes these items as
segment operating performance and segment management compensation is evaluated based upon a
normalized segment operating income. As such, the performance measures for incentive compensation
purposes for segment management do not include the impact of these items.
37
Table of Contents
For the nine months and three months ended November 30, 2010, and November 30, 2009,
restructuring charges and unusual items included in operating income consist of:
| For the Nine Months | For the Three Months | |||||||||||||||
| Ended November 30, | Ended November 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (in millions) | ||||||||||||||||
|
Cost of Product Sold
|
||||||||||||||||
|
Flow through of inventory step-up
|
$ | 2.1 | $ | 7.2 | $ | 0.5 | $ | 2.0 | ||||||||
|
Accelerated depreciation
|
1.6 | 15.7 | 0.5 | 1.7 | ||||||||||||
|
Inventory write-downs
|
- | 1.5 | - | 0.5 | ||||||||||||
|
Other
|
0.1 | 3.8 | 0.1 | 1.0 | ||||||||||||
|
|
||||||||||||||||
|
Cost of Product Sold
|
3.8 | 28.2 | 1.1 | 5.2 | ||||||||||||
|
|
||||||||||||||||
|
Selling, General and Administrative Expenses
|
||||||||||||||||
|
Net gain on sale of nonstrategic assets
|
(3.3 | ) | - | (2.3 | ) | - | ||||||||||
|
Acquisition-related integration costs
|
0.2 | 0.2 | - | 0.1 | ||||||||||||
|
Loss on contractual obligation from put
option of Ruffino shareholder
|
- | 34.3 | - | 34.3 | ||||||||||||
|
Net gain on March 2009 sale of value
spirits business
|
- | (0.2 | ) | - | - | |||||||||||
|
Other costs
|
5.4 | 35.1 | 1.7 | 11.0 | ||||||||||||
|
|
||||||||||||||||
|
Selling, General and Administrative Expenses
|
2.3 | 69.4 | (0.6 | ) | 45.4 | |||||||||||
|
|
||||||||||||||||
|
Impairment of Intangible Assets
|
6.9 | - | 6.9 | - | ||||||||||||
|
|
||||||||||||||||
|
Restructuring Charges
|
17.4 | 27.2 | (1.2 | ) | 5.1 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Restructuring Charges and Unusual Items
|
$ | 30.4 | $ | 124.8 | $ | 6.2 | $ | 55.7 | ||||||||
|
|
||||||||||||||||
For the nine months and three months ended November 30, 2009, restructuring charges and
unusual costs included in equity in losses of equity method investees of $25.4 million consist of
an impairment loss on the Company’s investment in Ruffino.
The Company evaluates performance based on operating income of the respective business units.
The accounting policies of the segments are the same as those described for the Company in the
Summary of Significant Accounting Policies in Note 1 to the Company’s consolidated financial
statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended February
28, 2010, and include the recently adopted accounting guidance described in Note 2 herein.
Segment information is as follows:
| For the Nine Months | For the Three Months | |||||||||||||||
| Ended November 30, | Ended November 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (in millions) | ||||||||||||||||
|
CWNA:
|
||||||||||||||||
|
Net sales:
|
||||||||||||||||
|
Wine
|
$ | 1,808.6 | $ | 1,764.8 | $ | 676.3 | $ | 670.4 | ||||||||
|
Spirits
|
168.6 | 176.0 | 55.4 | 51.2 | ||||||||||||
|
|
||||||||||||||||
|
Net sales
|
$ | 1,977.2 | $ | 1,940.8 | $ | 731.7 | $ | 721.6 | ||||||||
|
Segment operating income
|
$ | 507.0 | $ | 542.6 | $ | 193.3 | $ | 211.3 | ||||||||
|
Equity in earnings of equity method investees
|
$ | 11.3 | $ | 11.8 | $ | 11.5 | $ | 13.1 | ||||||||
|
Long-lived tangible assets
|
$ | 1,089.1 | $ | 1,116.6 | $ | 1,089.1 | $ | 1,116.6 | ||||||||
|
Investment in equity method investees
|
$ | 81.5 | $ | 78.9 | $ | 81.5 | $ | 78.9 | ||||||||
|
Total assets
|
$ | 6,767.3 | $ | 6,818.7 | $ | 6,767.3 | $ | 6,818.7 | ||||||||
|
Capital expenditures
|
$ | 40.6 | $ | 45.2 | $ | 18.0 | $ | 12.5 | ||||||||
|
Depreciation and amortization
|
$ | 66.0 | $ | 77.8 | $ | 21.6 | $ | 24.6 | ||||||||
38
Table of Contents
| For the Nine Months | For the Three Months | |||||||||||||||
| Ended November 30, | Ended November 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (in millions) | ||||||||||||||||
|
CWAE:
|
||||||||||||||||
|
Net sales:
|
||||||||||||||||
|
Wine
|
$ | 639.5 | $ | 715.3 | $ | 234.7 | $ | 266.1 | ||||||||
|
|
||||||||||||||||
|
Net sales
|
$ | 639.5 | $ | 715.3 | $ | 234.7 | $ | 266.1 | ||||||||
|
Segment operating income
|
$ | 2.5 | $ | 11.2 | $ | 8.5 | $ | 7.0 | ||||||||
|
Equity in earnings of equity method investees
|
$ | 4.1 | $ | 3.5 | $ | 2.0 | $ | 1.3 | ||||||||
|
Long-lived tangible assets
|
$ | 357.6 | $ | 463.2 | $ | 357.6 | $ | 463.2 | ||||||||
|
Investment in equity method investees
|
$ | 40.1 | $ | 36.6 | $ | 40.1 | $ | 36.6 | ||||||||
|
Total assets
|
$ | 1,185.7 | $ | 1,609.2 | $ | 1,185.7 | $ | 1,609.2 | ||||||||
|
Capital expenditures
|
$ | 3.8 | $ | 13.6 | $ | 1.7 | $ | 2.0 | ||||||||
|
Depreciation and amortization
|
$ | 23.3 | $ | 33.0 | $ | 8.0 | $ | 9.6 | ||||||||
|
|
||||||||||||||||
|
Corporate Operations and Other:
|
||||||||||||||||
|
Net sales
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Segment operating loss
|
$ | (79.5 | ) | $ | (68.1 | ) | $ | (25.5 | ) | $ | (26.5 | ) | ||||
|
Long-lived tangible assets
|
$ | 109.4 | $ | 69.7 | $ | 109.4 | $ | 69.7 | ||||||||
|
Total assets
|
$ | 146.1 | $ | 174.8 | $ | 146.1 | $ | 174.8 | ||||||||
|
Capital expenditures
|
$ | 25.7 | $ | 30.4 | $ | 7.2 | $ | 9.6 | ||||||||
|
Depreciation and amortization
|
$ | 13.6 | $ | 9.6 | $ | 5.0 | $ | 3.1 | ||||||||
|
|
||||||||||||||||
|
Crown Imports:
|
||||||||||||||||
|
Net sales
|
$ | 1,912.5 | $ | 1,837.7 | $ | 611.6 | $ | 502.2 | ||||||||
|
Segment operating income
|
$ | 356.2 | $ | 362.1 | $ | 116.1 | $ | 91.4 | ||||||||
|
Long-lived tangible assets
|
$ | 4.3 | $ | 5.5 | $ | 4.3 | $ | 5.5 | ||||||||
|
Total assets
|
$ | 355.6 | $ | 348.4 | $ | 355.6 | $ | 348.4 | ||||||||
|
Capital expenditures
|
$ | 0.7 | $ | 0.9 | $ | 0.3 | $ | 0.1 | ||||||||
|
Depreciation and amortization
|
$ | 1.3 | $ | 0.9 | $ | 0.4 | $ | 0.4 | ||||||||
|
|
||||||||||||||||
|
Restructuring Charges and Unusual Items:
|
||||||||||||||||
|
Operating loss
|
$ | (30.4 | ) | $ | (124.8 | ) | $ | (6.2 | ) | $ | (55.7 | ) | ||||
|
Equity in losses of equity method investees
|
$ | (0.6 | ) | $ | (25.4 | ) | $ | - | $ | (25.4 | ) | |||||
|
|
||||||||||||||||
|
Consolidation and Eliminations:
|
||||||||||||||||
|
Net sales
|
$ | (1,912.5 | ) | $ | (1,837.7 | ) | $ | (611.6 | ) | $ | (502.2 | ) | ||||
|
Operating income
|
$ | (356.2 | ) | $ | (362.1 | ) | $ | (116.1 | ) | $ | (91.4 | ) | ||||
|
Equity in earnings of Crown Imports
|
$ | 177.5 | $ | 180.7 | $ | 57.9 | $ | 45.6 | ||||||||
|
Long-lived tangible assets
|
$ | (4.3 | ) | $ | (5.5 | ) | $ | (4.3 | ) | $ | (5.5 | ) | ||||
|
Investment in equity method investees
|
$ | 158.7 | $ | 125.9 | $ | 158.7 | $ | 125.9 | ||||||||
|
Total assets
|
$ | (196.9 | ) | $ | (222.5 | ) | $ | (196.9 | ) | $ | (222.5 | ) | ||||
|
Capital expenditures
|
$ | (0.7 | ) | $ | (0.9 | ) | $ | (0.3 | ) | $ | (0.1 | ) | ||||
|
Depreciation and amortization
|
$ | (1.3 | ) | $ | (0.9 | ) | $ | (0.4 | ) | $ | (0.4 | ) | ||||
|
|
||||||||||||||||
|
Consolidated:
|
||||||||||||||||
|
Net sales
|
$ | 2,616.7 | $ | 2,656.1 | $ | 966.4 | $ | 987.7 | ||||||||
|
Operating income
|
$ | 399.6 | $ | 360.9 | $ | 170.1 | $ | 136.1 | ||||||||
|
Equity in earnings of equity method investees
|
$ | 192.3 | $ | 170.6 | $ | 71.4 | $ | 34.6 | ||||||||
|
Long-lived tangible assets
|
$ | 1,556.1 | $ | 1,649.5 | $ | 1,556.1 | $ | 1,649.5 | ||||||||
|
Investment in equity method investees
|
$ | 280.3 | $ | 241.4 | $ | 280.3 | $ | 241.4 | ||||||||
|
Total assets
|
$ | 8,257.8 | $ | 8,728.6 | $ | 8,257.8 | $ | 8,728.6 | ||||||||
|
Capital expenditures
|
$ | 70.1 | $ | 89.2 | $ | 26.9 | $ | 24.1 | ||||||||
|
Depreciation and amortization
|
$ | 102.9 | $ | 120.4 | $ | 34.6 | $ | 37.3 | ||||||||
39
Table of Contents
18. ACCOUNTING GUIDANCE NOT YET ADOPTED:
Intangibles – goodwill and other –
In December 2010, the FASB issued amended guidance for when to perform Step 2 of
the goodwill impairment test for reporting units with zero or negative carrying amounts. The
amended guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or
negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of
the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity should
consider whether there are any adverse qualitative factors indicating that an impairment may exist.
Any resulting goodwill impairment upon adoption should be recorded as a cumulative-effect
adjustment to beginning retained earnings in the period of adoption. The Company is required to
adopt the guidance for its annual and interim periods beginning March 1, 2011. The Company does
not expect the adoption of this amended guidance to have a material impact on the Company’s
consolidated financial statements.
19. SUBSEQUENT EVENT:
On December 23, 2010, the Company signed an agreement to sell its Australian and U.K.
business. The transaction is valued at approximately AUD$290 million (U.S.$290 million as of
December 23, 2010), subject to closing adjustments. The Company will receive cash proceeds in an
amount equivalent to approximately AUD$230 million (U.S.$230 million as of December 23, 2010),
subject to closing adjustments, and will retain an approximate 20 percent interest in the business.
This transaction is consistent with the Company’s strategic focus on premiumizing the Company’s
portfolio, generating strong free cash flow and improving return on invested capital in order to
drive profitable, organic growth. The Company expects to use the net cash proceeds from this
transaction to reduce net borrowings under the 2006 Credit Agreement. The Company expects the
transaction to close by the end of January 2011.
40
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company is currently the world’s leading wine company with a broad portfolio of
consumer-preferred premium wine brands complemented by spirits, imported beer and other select
beverage alcohol products. The Company continues to supply imported beer in the United States
(“U.S.”) through its investment in a joint venture with Grupo Modelo, S.A.B. de C.V. This imported
beers joint venture operates as Crown Imports LLC and is referred to hereinafter as “Crown
Imports.” The Company is the leading premium wine company in the U.S.; currently a leading
producer and exporter of wine from Australia and New Zealand; the leading producer and marketer of
wine in Canada; and currently a major supplier of beverage alcohol in the United Kingdom (“U.K.”).
Through its current investment in a joint venture with Punch Taverns plc, the Company has an
interest in a U.K. wholesale business (“Matthew Clark”), which is the U.K.’s leading independent
premier drinks wholesaler serving the on-trade drinks industry. Subsequent to November 30, 2010,
the Company announced it has signed an agreement to sell its Australian and U.K. business to an
Australian private equity firm (see “Recent Developments” below). The remaining discussion within
this “Overview” section will reflect the Company’s business as it is through the date of this
Quarterly Report.
In connection with the Company’s changes during the first quarter of fiscal 2011
within its internal management structure for its Australian and U.K. business, and the Company’s
revised business strategy within these markets, the Company changed its internal management
financial reporting on May 1, 2010, to consist of four business divisions: Constellation Wines
North America, Constellation Wines Australia and Europe, Constellation Wines New Zealand and Crown
Imports. However, due to a number of factors, including the size of the Constellation Wines New
Zealand segment’s operations, the similarity of its economic characteristics and long-term
financial performance with that of the Constellation Wines North America business, and the fact
that the vast majority of the wine produced by the Constellation Wines New Zealand operating
segment is sold in the U.S. and Canada, the Company has aggregated the results of this operating
segment with its Constellation Wines North America operating segment to form one reportable
segment. Accordingly, beginning May 1, 2010, the Company began reporting its operating results in
four segments: Constellation Wines North America (wine and spirits) (“CWNA”), Constellation Wines
Australia and Europe (wine) (“CWAE”), Corporate Operations and Other, and Crown Imports (imported
beer). Prior to the changes noted above, the Company’s internal management financial reporting
consisted of two business divisions, Constellation Wines and Crown Imports. Amounts included in
the Corporate Operations and Other segment consist of costs of executive management, corporate
development, corporate finance, human resources, internal audit, investor relations, legal, public
relations, global information technology and global supply chain. Any costs incurred at the
corporate office that are applicable to the segments are allocated to the appropriate segment. The
amounts included in the Corporate Operations and Other segment are general costs that are
applicable to the consolidated group and are therefore not allocated to the other reportable
segments. All costs reported within the Corporate Operations and Other segment are not included in
the chief operating decision maker’s evaluation of the operating income performance of the other
reportable segments.
The new business segments reflect how the Company’s operations are managed, how
operating performance within the Company is evaluated by senior management and the structure of its
internal financial reporting. The financial information for Third Quarter 2010 and Nine Months
2010 (each as defined below) has been restated to conform to the new segment presentation.
In addition, the Company excludes restructuring charges and unusual items that
affect comparability from its definition of operating income for segment purposes as these items
are not reflective of normal continuing operations of the segments. The Company excludes these
items as segment operating performance and segment management compensation is evaluated based upon
a normalized segment operating income. As such, the performance measures for incentive
compensation purposes for segment management do not include the impact of these items.
41
Table of Contents
The Company’s business strategy in the CWNA segment is to remain focused on consumer-preferred
premium wine brands, complemented by premium spirits and imported beers. In this segment, the
Company intends to continue to focus on growing premium product categories and expects to
capitalize on its size and scale in the marketplace to profitably grow the business. During Fiscal
2010 (as defined below), the Company began implementation of a strategic project to consolidate its
U.S. distributor network in key markets and create a new go-to-market strategy designed to focus
the full power of its U.S. wine and spirits portfolio in order to improve alignment of dedicated,
selling resources which is expected to drive organic growth. In connection with this strategy, the
Company negotiated long-term contracts with five U.S. distributors who currently represent about
60% of the Company’s branded wine and spirits volume in the U.S. These distributor contracts
include commitments that required and will require distributors to purchase specified levels of the
Company’s branded wine and spirits products during the second half of fiscal 2010 and during Fiscal
2011 (as defined below). This has benefited the Company’s net sales and operating income for its
U.S. branded wine and spirits business. Following the end of Fiscal 2011, the distributor
inventory levels related to the Company’s branded wine and spirits products should remain
stable as shipments on an annual basis to these distributors will essentially equal the
distributors’ shipments to retailers for the remainder of the terms of these contracts, which
extend through the end of fiscal 2015. The Company believes that this is the right strategy to
take in order to position the Company for future growth in a consolidating market. In addition,
recent U.S. market trends and sales from distributors to retailers of the Company’s branded wine
and spirits products indicate that the Company has benefited from this new go-to-market strategy in
Nine Months 2011 (as defined below).
In addition, in the U.S., the calendar 2010 grape harvest came in lower than the calendar 2009
grape harvest. The Company continues to expect the overall supply of wine to remain generally in
balance with demand within the U.S.
In response to the continuing competitive conditions in the U.K. and Australia, the Company’s
business strategy in the CWAE segment previously included tightening of its portfolio focus,
increasing efficiencies, reducing costs and improving cash generation. This strategy was adopted
to assist the Company in its efforts to effectively deal with some of the long-term challenges the
Company was currently facing in the U.K. and Australia markets, as further described below.
The Company remains committed to its long-term financial model of growing sales, expanding
margins, increasing cash flow and reducing borrowings to achieve earnings per share growth and
improve return on invested capital.
Marketing, sales and distribution of the Company’s products are managed on a
geographic basis in order to fully leverage leading market positions within each core market.
Market dynamics and consumer trends vary significantly across the Company’s current five core
markets (U.S., Canada, New Zealand, U.K. and Australia) within the Company’s current four
geographic regions (North America, New Zealand, Europe and Australia). Within North America, the
Company offers a range of beverage alcohol products across the branded wine and spirits and,
through Crown Imports, imported beer categories in the U.S. Within the Company’s remaining
geographies, the Company primarily offers branded wine.
The environment for the Company’s products is competitive in each of the Company’s current
core markets. In particular, the U.K. and Australian markets are highly competitive, as further
described below. The U.K. wine market is primarily an import market with Australian wines
comprising approximately one-fifth of all wine sales in the U.K. off-premise business. The
Australian wine market is primarily a domestic market. The Company has leading share positions in
the Australian wine category in both the U.K. and Australian markets.
42
Table of Contents
Due to competitive conditions in the U.K. and Australia, it has been difficult for the Company
in recent fiscal periods to recover certain cost increases, in particular, the duty increases in
the U.K. which have been imposed at least annually for the past several years. In the U.K.,
significant consolidation at the retail level has resulted in a limited number of large retailers
controlling a significant portion of the off-premise wine business. The continuing surplus of
Australian wine has made and continues to make low cost bulk wine available to these U.K. retailers
which has allowed certain of these large retailers to create and build private label brands in the
Australian wine category. Periodically, the Company has implemented price increases in the U.K.
and Australia in an effort to cover certain cost increases, including the U.K. duty increases, and
to improve profitability; however, the concentrated retail environment, competition from private
label causing deterioration of retail pricing, foreign exchange volatility and a challenging
economic environment have all contributed to declining gross margins for the Company’s Australian
and U.K. business in recent periods. As discussed previously, the Company’s strategy in the CWAE
segment had been revised to address some of these long-term challenges, including tightening of the
portfolio focus, increasing efficiencies, reducing costs and improving cash generation.
For the three months ended November 30, 2010 (“Third Quarter 2011”), the Company’s
net sales decreased 2% over the three months ended November 30, 2009 (“Third Quarter 2010”),
primarily due to the divestiture of the U.K. cider business (see “Divestitures in Fiscal 2010”
below). Operating income increased 25% over the comparable prior year period primarily due to a
decrease in restructuring charges and unusual items for Third Quarter 2011 compared to Third
Quarter 2010. Net income increased significantly over the comparable prior year period primarily
due to the items discussed above combined with lower interest expense and a reduction in the
Company’s provision for income taxes.
For the nine months ended November 30, 2010 (“Nine Months 2011”), the Company’s net
sales decreased 1% over the nine months ended November 30, 2009 (“Nine Months 2010”), primarily due
to the divestiture of the U.K. cider business, partially offset by a favorable product mix shift in
the U.S. branded wine portfolio. Operating income increased 11% over the comparable prior year
period primarily due to a decrease in restructuring charges and unusual items for Nine Months 2011
compared to Nine Months 2010. Net income increased 86% over the comparable prior year period
primarily due to the items discussed above combined with lower interest expense and a reduction in
the Company’s provision for income taxes.
The following discussion and analysis summarizes the significant factors affecting
(i) consolidated results of operations of the Company for Third Quarter 2011 compared to Third
Quarter 2010 and Nine Months 2011 compared to Nine Months 2010, and (ii) financial liquidity and
capital resources for Nine Months 2011. This discussion and analysis also identifies certain
restructuring charges and unusual items expected to affect consolidated results of operations of
the Company for the year ending February 28, 2011 (“Fiscal 2011”). This discussion and analysis
should be read in conjunction with the Company’s consolidated financial statements and notes
thereto included herein and in the Company’s Annual Report on Form 10-K for the fiscal year ended
February 28, 2010 (“Fiscal 2010”).
Recent Developments
On December 23, 2010, the Company signed an agreement to sell its Australian and
U.K. business. The transaction is valued at approximately AUD$290 million (U.S.$290 million as of
December 23, 2010), subject to closing adjustments. The Company will receive cash proceeds in an
amount equivalent to approximately AUD$230 million (U.S.$230 million as of December 23, 2010),
subject to closing adjustments, and will retain an approximate 20 percent interest in the business.
This transaction is consistent with the Company’s strategic focus on premiumizing the Company’s
portfolio, generating strong free cash flow and improving return on invested capital in order to
drive profitable, organic growth. The Company expects to use the net cash proceeds from this
transaction to reduce net borrowings under the 2006 Credit Agreement (as defined below under
“Financial Liquidity and Capital Resources – Senior Credit Facility”). The Company expects the
transaction to close by the end of January 2011.
43
Table of Contents
Equity Method Investment in Fiscal 2011
In connection with the Company’s December 2004 investment in Ruffino S.r.l.
(“Ruffino”), the Company granted separate irrevocable and unconditional options to the two other
shareholders of Ruffino to put to the Company all of the ownership interests held by these
shareholders for a price as calculated in the joint venture agreement. Each option may be
exercised during the period starting from January 1, 2010, and ending on December 31, 2010. In the
year ended February 28, 2010, the 9.9% shareholder of Ruffino notified the Company that it was
exercising its option to put its entire equity interest in Ruffino to the Company for the specified
minimum value of €23.5 million. In May 2010, the Company settled this put option through a cash
payment of €23.5 million ($29.6 million) to the 9.9% shareholder of Ruffino, thereby increasing the
Company’s equity interest in Ruffino to 49.9%. In December 2010, the Company received notification
from the 50.1% shareholder of Ruffino that it was exercising its option to put its entire equity
interest in Ruffino to the Company. Prior to this notification, the Company had initiated
arbitration proceedings against the 50.1% shareholder alleging various matters which should affect
the validity of the put option. The price of the option representing the remaining 50.1% interest
in Ruffino is based upon a formula contained in the joint venture agreement. The formula is
subject to a number of variables, including certain results of Ruffino through the date of the
closing of the put option. The Company currently estimates that the cash settlement for this put
option could be as much as €55 million ($71 million). However, based upon the arbitration
proceedings commenced by the Company against the 50.1% shareholder, the Company concluded as of
November 30, 2010, that it is not probable that there is a likelihood of loss under this contingent
obligation. Therefore, no liability has been recorded by the Company related to this contingent
obligation and an estimate of any loss is currently not estimable. As of November 30, 2010, the
Company’s investment in Ruffino was $5.3 million.
Divestitures in Fiscal 2010
U.K. Cider Business
In January 2010, the Company sold its U.K. cider business for cash proceeds of £43.9
million ($71.6 million), net of direct costs to sell. This transaction is consistent with the
Company’s strategic focus on premium higher-growth, higher-margin wine, beer and spirits brands.
In connection with this divestiture, the Company’s CWAE segment recorded a gain of $11.2 million in
the fourth quarter of fiscal 2010.
Value Spirits Business
In March 2009, the Company sold its value spirits business for $336.4 million, net of direct
costs to sell. The Company received $276.4 million, net of direct costs to sell, in cash proceeds
and a note receivable for $60.0 million in connection with this divestiture. In the first quarter
of fiscal 2011, the Company received full payment of the note receivable. The Company retained
certain premium spirits brands, including SVEDKA Vodka, Black Velvet Canadian Whisky and Paul
Masson Grande Amber Brandy. This transaction is consistent with the Company’s strategic focus on
premium, higher-growth and higher-margin brands in its portfolio. In connection with the
classification of this business as an asset group held for sale as of February 28, 2009, the
Company’s CWNA segment recorded a loss of $15.6 million in the fourth quarter of fiscal 2009,
primarily related to asset impairments. In the first quarter of fiscal 2010, the Company’s CWNA
segment recognized a net gain of $0.2 million, which included a gain on settlement of a
postretirement obligation of $1.0 million, partially offset by an additional loss of $0.8 million.
This net gain is included in selling, general and administrative expenses on the Company’s
Consolidated Statements of Operations.
44
Table of Contents
Results of Operations
Third Quarter 2011 Compared to Third Quarter 2010
Net Sales
The following table sets forth the net sales (in millions of dollars) by reportable segment of
the Company for Third Quarter 2011 and Third Quarter 2010.
| Third | Third | |||||||||||
| Quarter | Quarter | % Increase | ||||||||||
| 2011 | 2010 | (Decrease) | ||||||||||
|
CWNA
|
||||||||||||
|
Wine
|
$ | 676.3 | $ | 670.4 | 1 | % | ||||||
|
Spirits
|
55.4 | 51.2 | 8 | % | ||||||||
|
|
||||||||||||
|
CWNA net sales
|
731.7 | 721.6 | 1 | % | ||||||||
|
CWAE
|
||||||||||||
|
Wine
|
234.7 | 266.1 | (12 | )% | ||||||||
|
|
||||||||||||
|
CWAE net sales
|
234.7 | 266.1 | (12 | )% | ||||||||
|
Crown Imports net sales
|
611.6 | 502.2 | 22 | % | ||||||||
|
Consolidations and eliminations
|
(611.6 | ) | (502.2 | ) | (22 | )% | ||||||
|
|
||||||||||||
|
Consolidated Net Sales
|
$ | 966.4 | $ | 987.7 | (2 | )% | ||||||
|
|
||||||||||||
Net sales for Third Quarter 2011 decreased to $966.4 million from $987.7 million for
Third Quarter 2010, a decrease of $21.3 million, or (2%). This decrease resulted primarily from
the divestiture of the U.K. cider business of $31.0 million, partially offset by an increase in
U.S. branded wine net sales.
Constellation Wines North America
Net sales for CWNA increased to $731.7 million for Third Quarter 2011 from $721.6 million for
Third Quarter 2010, an increase of $10.1 million, or 1%. Wine net sales increased $5.9 million
primarily due to favorable product mix shift in the U.S. branded wine portfolio due largely to
certain U.S. distributor contractual commitments, partially offset by lower U.S. branded wine
volume. Spirits net sales increased $4.2 million primarily due to volume growth of SVEDKA Vodka
which was driven, in part, by the prior year’s lower volumes in Third Quarter 2010 in connection
with the U.S. distributor consolidation transition.
Constellation Wines Australia and Europe
Net sales for CWAE decreased to $234.7 million for Third Quarter 2011 from $266.1 million for
Third Quarter 2010, a decrease of $31.4 million, or (12%). Wine net sales decreased $31.4 million
primarily due to a decrease in net sales of $31.0 million in connection with the divestiture of the
U.K. cider business.
Crown Imports
As this segment is eliminated in consolidation, see “Equity in Earnings of Equity Method
Investees” below for a discussion of Crown Imports’ net sales, gross profit, selling, general and
administrative expenses, and operating income.
45
Table of Contents
Gross Profit
The Company’s gross profit increased to $351.9 million for Third Quarter 2011 from $344.1
million for Third Quarter 2010, an increase of $7.8 million, or 2%. This increase is due to an
increase in CWNA’s gross profit of $7.6 million and a reduction in unusual items, which consist of
certain amounts that are excluded by management in their evaluation of the results of each
operating segment, of $4.1 million, partially offset by a decrease in CWAE’s gross profit of $3.9
million. The increase in CWNA’s gross profit is primarily due to the favorable product mix shift
across all of CWNA’s core markets, partially offset by the flow through of higher calendar 2008
U.S. grape costs. The decrease in unusual items is primarily due to a decrease in the flow through
of inventory step-up of $1.5 million associated primarily with the December 2007 acquisition of
Beam Wine Estates, Inc. (“BWE”) and a decrease in accelerated depreciation of $1.2 million
associated with certain restructuring programs. CWAE’s gross profit decrease is primarily due to
the divestiture of the U.K. cider business. Gross profit as a percent of net sales increased to
36.4% for Third Quarter 2011 from 34.8% for Third Quarter 2010 primarily due to (i) growth of
higher-margin CWNA branded wine and spirits net sales (driven primarily by favorable U.S. branded
wine product mix shift and divestiture of the lower-margin U.K. cider business) and (ii) the
decrease in unusual items; partially offset by the flow through of the higher calendar 2008 U.S.
grape costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $176.1 million for Third Quarter
2011 from $202.9 million for Third Quarter 2010, a decrease of $26.8 million, or (13%). This
decrease is due to decreases of (i) $46.0 million of unusual items, which consist of certain
amounts that are excluded by management in their evaluation of the results of each operating
segment, (ii) $5.4 million in the CWAE segment and (iii) $1.0 million in the Corporate Operations
and Other segment, partially offset by an increase of $25.6 million in the CWNA segment. The
decrease in unusual items is due primarily to the recognition in Third Quarter 2010 of a loss of
$34.3 million on the contractual obligation created by the notification by the 9.9% shareholder of
Ruffino to exercise the option to put its entire equity interest in Ruffino to the Company for a
specified minimum value of €23.5 million. The decrease in CWAE’s selling, general and
administrative expense is primarily due to the divestiture of the U.K. cider business. The
decrease in Corporate Operations and Other’s selling, general and administrative expenses is due
primarily to a decrease in general and administrative expenses resulting largely from foreign
currency transactional gains. The increase in CWNA’s selling, general and administrative expenses
is primarily due to increases in general and administrative expenses of $16.9 million and
advertising expenses of $5.8 million. The increase in general and administrative expenses is
primarily due to the Company’s initiative to implement a comprehensive, multi-year program to
strengthen and enhance the Company’s global business capabilities and processes through the
creation of an integrated technology platform to improve the accessibility of information and
visibility of global data (“Project Fusion”), higher annual management incentive compensation
expense and lower gains on foreign currency transactions. The increase in advertising expenses is
primarily due to a planned increase in marketing and advertising spend behind the segment’s branded
wine and spirits portfolio.
Selling, general and administrative expenses as a percent of net sales decreased to 18.2% for
Third Quarter 2011 as compared to 20.5% for Third Quarter 2010 primarily due to the factors
discussed above, partially offset by the lower U.S. branded wine volume.
Impairment of Intangible Assets
The Company recorded an impairment loss of $6.9 million for Third Quarter 2011 on certain U.S.
trademarks in connection with the Company’s decision to discontinue certain wine brands within its
CWNA segment’s wine portfolio. No such impairments were recorded for Third Quarter 2010.
46
Table of Contents
Restructuring Charges
The Company recorded a credit of $1.2 million for restructuring charges for Third Quarter 2011
associated with 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”) and 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 the Australian business, primarily
by consolidating certain winemaking and packaging operations and reducing the Company’s overall
grape supply due to reduced capacity needs resulting from a streamlining of the Company’s product
portfolio (the “Australian Initiative”). Restructuring charges included credits of $0.8 million of
net gains recognized on the sale of assets in Australia and $0.7 million of employee termination
benefit costs, partially offset by $0.3 million of facility consolidation/relocation costs. The
Company recorded $5.1 million of restructuring charges for Third Quarter 2010 associated primarily
with the Company’s Global Initiative.
In addition, the Company incurred additional costs for Third Quarter 2011 and Third Quarter
2010 in connection with the Company’s restructuring and acquisition-related integration plans.
Total costs incurred in connection with these plans for Third Quarter 2011 and Third Quarter 2010
are as follows:
| Third | Third | ||||||
| Quarter | Quarter | ||||||
| 2011 | 2010 | ||||||
| (in millions) | |||||||
|
Cost of Product Sold
|
|||||||
|
Accelerated depreciation
|
$ | 0.5 | $ | 1.7 | |||
|
Inventory write-downs
|
$ | - | $ | 0.5 | |||
|
Other
|
$ | - | $ | 1.0 | |||
|
|
|||||||
|
Selling, General and Administrative Expenses
|
|||||||
|
Acquisition-related integration costs
|
$ | - | $ | 0.1 | |||
|
Other costs
|
$ | 1.7 | $ | 11.0 | |||
|
Restructuring Charges
|
$ | (1.2 | ) | $ | 5.1 | ||
For a discussion of costs expected to be incurred for Fiscal 2011 in connection with the
Company’s restructuring and acquisition-related integration plans, see “Nine Months 2011 Compared
to Nine Months 2010 – Restructuring Charges” below.
Operating Income
The following table sets forth the operating income (loss) (in millions of dollars) by
reportable segment of the Company for Third Quarter 2011 and Third Quarter 2010.
| Third | Third | |||||||||||
| Quarter | Quarter | % (Decrease) | ||||||||||
| 2011 | 2010 | Increase | ||||||||||
|
CWNA
|
$ | 193.3 | $ | 211.3 | (9 | )% | ||||||
|
CWAE
|
8.5 | 7.0 | 21 | % | ||||||||
|
Corporate Operations and Other
|
(25.5 | ) | (26.5 | ) | 4 | % | ||||||
|
Crown Imports
|
116.1 | 91.4 | 27 | % | ||||||||
|
Consolidations and eliminations
|
(116.1 | ) | (91.4 | ) | (27 | )% | ||||||
|
|
||||||||||||
|
Total Reportable Segments
|
176.3 | 191.8 | (8 | )% | ||||||||
|
Restructuring Charges and Unusual Items
|
(6.2 | ) | (55.7 | ) | NM | |||||||
|
|
||||||||||||
|
Consolidated Operating Income
|
$ | 170.1 | $ | 136.1 | 25 | % | ||||||
|
|
||||||||||||
NM = Not Meaningful
47
Table of Contents
As a result of the factors discussed above, consolidated operating income increased to
$170.1 million for Third Quarter 2011 from $136.1 million for Third Quarter 2010, an increase of
$34.0 million, or 25%. Restructuring charges and unusual items of $6.2 million and $55.7 million
for Third Quarter 2011 and Third Quarter 2010, respectively, consist of certain amounts that are
excluded by management in their evaluation of the results of each operating segment. These amounts
include:
| Third | Third | ||||||
| Quarter | Quarter | ||||||
| 2011 | 2010 | ||||||
| (in millions) | |||||||
|
Cost of Product Sold
|
|||||||
|
Flow through of inventory step-up
|
$ | 0.5 | $ | 2.0 | |||
|
Accelerated depreciation
|
0.5 | 1.7 | |||||
|
Inventory write-downs
|
- | 0.5 | |||||
|
Other
|
0.1 | 1.0 | |||||
|
|
|||||||
|
Cost of Product Sold
|
1.1 | 5.2 | |||||
|
|
|||||||
|
Selling, General and Administrative
Expenses
|
|||||||
|
Net gain on sale of nonstrategic asset
|
(2.3 | ) | - | ||||
|
Loss on contractual obligation from put
option of Ruffino shareholder
|
- | 34.3 | |||||
|
Acquisition-related integration costs
|
- | 0.1 | |||||
|
Other costs
|
1.7 | 11.0 | |||||
|
|
|||||||
|
Selling, General and Administrative Expenses
|
(0.6 | ) | 45.4 | ||||
|
|
|||||||
|
Impairment of Intangible Assets
|
6.9 | - | |||||
|
|
|||||||
|
Restructuring Charges
|
(1.2 | ) | 5.1 | ||||
|
|
|||||||
|
|
|||||||
|
Restructuring Charges and Unusual Items
|
$ | 6.2 | $ | 55.7 | |||
|
|
|||||||
Equity in Earnings of Equity Method Investees
The Company’s equity in earnings of equity method investees increased to $71.4 million in
Third Quarter 2011 from $34.6 million in Third Quarter 2010, an increase of $36.8 million. This
increase is primarily due to the Company’s recognition for Third Quarter 2010 of an impairment of
$25.4 million related to its CWNA segment’s investment in Ruffino and higher equity in earnings of
$12.3 million from the Company’s Crown Imports joint venture.
Net sales for Crown Imports increased to $611.6 million for Third Quarter 2011 from $502.2
million for Third Quarter 2010, an increase of $109.4 million, or 22%. This increase resulted
primarily from volume growth within the Crown Imports Mexican beer portfolio. Volume was
positively impacted in Third Quarter 2011 as wholesaler inventories in the U.S. were returned to
more normal levels after the disruption of product distribution into the U.S. during the second
quarter of fiscal 2011 from a brewery strike in Mexico and the June 2010 Hurricane Alex. Crown
Imports gross profit increased $33.3 million, or 23%, primarily due to these factors, partially
offset by a contractual price increase in Mexican beer costs. Selling, general and administrative
expenses increased $8.6 million, or 16%, primarily due to an increase in general and administrative
expenses driven largely by an unfavorable arbitration panel decision in Third Quarter 2011 related
to a matter with one of Crown Imports’ former distributors. The combination of these factors were
the main contributors to the increase in operating income of $24.7 million, or 27%.
48
Table of Contents
Interest Expense, Net
Interest expense, net of interest income of $0.9 million and $3.1 million, for Third Quarter
2011 and Third Quarter 2010, respectively, decreased to $49.1 million for Third Quarter 2011 from
$65.5 million for Third Quarter 2010, a decrease of $16.4 million, or (25%). The decrease resulted
primarily from lower average interest rates for the Company combined with reduced average
borrowings for Third Quarter 2011.
Provision for Income Taxes
The Company’s effective tax rate for Third Quarter 2011 and Third Quarter 2010 was
27.6% and 58.1%, respectively. The Company’s effective tax rate for Third Quarter 2011 includes a
decrease in uncertain tax positions in connection with the completion of various income tax
examinations during Third Quarter 2011. The Company’s effective tax rate for Third Quarter 2010
includes the recognition of nondeductible charges of $59.7 million related to the Company’s Ruffino
investment.
Net Income
As a result of the above factors, net income increased to $139.3 million for Third Quarter
2011 from $44.1 million for Third Quarter 2010, an increase of $95.2 million.
Nine Months 2011 Compared to Nine Months 2010
Net Sales
The following table sets forth the net sales (in millions of dollars) by reportable segment of
the Company for Nine Months 2011 and Nine Months 2010.
| Nine | Nine | |||||||||||
| Months | Months | % Increase | ||||||||||
| 2011 | 2010 | (Decrease) | ||||||||||
|
CWNA
|
||||||||||||
|
Wine
|
$ | 1,808.6 | $ | 1,764.8 | 2 | % | ||||||
|
Spirits
|
168.6 | 176.0 | (4 | )% | ||||||||
|
|
||||||||||||
|
CWNA net sales
|
1,977.2 | 1,940.8 | 2 | % | ||||||||
|
CWAE
|
||||||||||||
|
Wine
|
639.5 | 715.3 | (11 | )% | ||||||||
|
|
||||||||||||
|
CWAE net sales
|
639.5 | 715.3 | (11 | )% | ||||||||
|
Crown Imports net sales
|
1,912.5 | 1,837.7 | 4 | % | ||||||||
|
Consolidations and eliminations
|
(1,912.5 | ) | (1,837.7 | ) | (4 | )% | ||||||
|
|
||||||||||||
|
Consolidated Net Sales
|
$ | 2,616.7 | $ | 2,656.1 | (1 | )% | ||||||
|
|
||||||||||||
Net sales for Nine Months 2011 decreased to $2,616.7 million from $2,656.1 million for
Nine Months 2010, a decrease of $39.4 million, or (1%). This decrease resulted primarily from the
divestitures of the U.K. cider and value spirits businesses of $110.6 million, partially offset by
a favorable year-over-year foreign currency translation impact of $43.7 million and increases in
U.S. branded wine net sales and U.K. branded wine net sales (on a constant currency basis).
49
Table of Contents
Constellation Wines North America
Net sales for CWNA increased to $1,977.2 million for Nine Months 2011 from $1,940.8 million
for Nine Months 2010, an increase of $36.4 million, or 2%. Wine net sales increased $43.8 million
primarily due to favorable product mix shift in the U.S. branded wine portfolio due largely to
certain U.S. distributor contractual commitments and a favorable year-over-year foreign currency
translation impact of $30.7 million, partially offset by increased U.S. promotional spend and lower
U.S. branded wine volume. Spirits net sales decreased $7.4 million primarily due to a decrease in
net sales of $14.8 million in connection with the divestiture of the value spirits business,
partially offset by volume growth and favorable product mix shift primarily due to growth in SVEDKA
Vodka net sales.
Constellation Wines Australia and Europe
Net sales for CWAE decreased to $639.5 million for Nine Months 2011 from $715.3 million for
Nine Months 2010, a decrease of $75.8 million, or (11%). Wine net sales decreased $75.8 million
primarily due to a decrease in net sales of $95.8 million in connection with the divestiture of the
U.K. cider business, partially offset by volume growth of lower-margin wine in the U.K.
Crown Imports
As this segment is eliminated in consolidation, see “Equity in Earnings of Equity Method
Investees” below for a discussion of Crown Imports’ net sales, gross profit, selling, general and
administrative expenses, and operating income.
Gross Profit
The Company’s gross profit increased to $936.1 million for Nine Months 2011 from $922.4
million for Nine Months 2010, an increase of $13.7 million, or 1%. This increase is due to a
decrease in unusual items, which consist of certain amounts that are excluded by management in
their evaluation of the results of each operating segment, of $24.4 million and an increase in
CWNA’s gross profit of $10.7 million, partially offset by a decrease in CWAE’s gross profit of
$21.4 million. The decrease in unusual items is primarily due to decreases in accelerated
depreciation of $14.1 million associated with certain restructuring programs and the flow through
of inventory step-up of $5.1 million associated primarily with the BWE acquisition. The increase
in CWNA’s gross profit is primarily due to favorable product mix shift (primarily in the U.S.
branded wine portfolio) and a favorable foreign currency translation impact of $13.2 million,
partially offset by increased U.S. promotional spend, the flow through of higher calendar 2008 U.S.
grape costs and lower U.S. branded wine volume. The decrease in CWAE’s gross profit is primarily
due to the divestiture of the U.K. cider business. Gross profit as a percent of net sales
increased to 35.8% for Nine Months 2011 from 34.7% for Nine Months 2010 primarily due to the
decrease in unusual items and growth of higher-margin CWNA branded wine and spirits net sales
(driven primarily by favorable U.S. branded wine product mix shift and divestiture of the
lower-margin U.K. cider business), partially offset by the negative impact of the increased U.S.
promotional spend and the flow through of the higher calendar 2008 U.S. grape costs.
50
Table of Contents
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $512.2 million for Nine Months 2011
from $534.3 million for Nine Months 2010, a decrease of $22.1 million, or (4%). This decrease is
due to decreases of $67.1 million in unusual items, which consist of certain amounts that are
excluded by management in their evaluation of the results of each operating segment, and $12.7
million in the CWAE segment, partially offset by increases of $46.3 million in the CWNA segment and
$11.4 million in the Corporate Operations and Other segment. The decrease in unusual items is
primarily due to the recognition in Nine Months 2010 of a loss of $34.3 million on the contractual
obligation created by the notification by the 9.9% shareholder of Ruffino to exercise the option to
put its entire equity interest in Ruffino to the Company for a specified minimum value of €23.5
million and a decrease of $29.8 million of other costs in connection with the Company’s
restructuring activities driven primarily by the Global Initiative. The decrease in CWAE’s
selling, general and administrative expense is primarily due to the divestiture of the U.K. cider
business. The increase in CWNA’s selling, general and administrative expenses is due to increases
(on a constant currency basis) in general and administrative expenses of $21.4 million, selling
expenses of $9.2 million and advertising expenses of $8.1 million, combined with an unfavorable
year-over-year foreign currency translation impact of $7.6 million. The increases in general and
administrative expenses and selling expenses are primarily due to costs associated with Project
Fusion, higher compensation and benefits driven largely by higher annual management incentive
compensation expense, and higher consulting service fees associated with the segment’s review of
certain business and process improvement opportunities. The increase in advertising expenses is
primarily due to a planned increase in marketing and advertising spend behind the segment’s branded
wine and spirits portfolio. The increase in Corporate Operations and Other’s selling, general and
administrative expenses is due to an increase in general and administrative expenses resulting
largely from higher annual management incentive compensation expense and higher stock-based
compensation expense.
Selling, general and administrative expenses as a percent of net sales decreased to 19.6% for
Nine Months 2011 as compared to 20.1% for Nine Months 2010 primarily due to the factors discussed
above, partially offset by the increased U.S. promotional spend.
Impairment of Intangible Assets
The Company recorded an impairment loss of $6.9 million for Nine Months 2011 on certain U.S.
trademarks in connection with the Company’s decision to discontinue certain wine brands within its
CWNA segment’s wine portfolio. No such impairments were recorded for Nine Months 2010.
Restructuring Charges
The Company recorded $17.4 million of restructuring charges for Nine Months 2011 associated
primarily with the Company’s Global Initiative and Australian Initiative. Restructuring charges
included $10.4 million of employee termination benefit costs, $5.0 million of net noncash charges
related primarily to the write-down of property, plant and equipment, net, held for sale in
Australia, $1.4 million of facility consolidation/relocation costs and $0.6 million of contract
termination costs. The Company recorded $27.2 million of restructuring charges for Nine Months
2010 associated primarily with the Company’s Global Initiative and Australian Initiative.
51
Table of Contents
In addition, the Company incurred additional costs for Nine Months 2011 and Nine Months 2010
in connection with the Company’s restructuring and acquisition-related integration plans. Total
costs incurred in connection with these plans for Nine Months 2011 and Nine Months 2010 are as
follows:
| Nine | Nine | ||||||
| Months | Months | ||||||
| 2011 | 2010 | ||||||
| (in millions) | |||||||
|
Cost of Product Sold
|
|||||||
|
Accelerated depreciation
|
$ | 1.6 | $ | 15.7 | |||
|
Inventory write-downs
|
$ | - | $ | 1.5 | |||
|
Other
|
$ | - | $ | 3.8 | |||
|
|
|||||||
|
Selling, General and Administrative Expenses
|
|||||||
|
Gain on sale of nonstrategic assets
|
$ | (1.0 | ) | $ | - | ||
|
Acquisition-related integration costs
|
$ | 0.2 | $ | 0.2 | |||
|
Other costs
|
$ | 5.4 | $ | 35.1 | |||
|
|
|||||||
|
Restructuring Charges
|
$ | 17.4 | $ | 27.2 | |||
The Company expects to incur the following costs in connection with its restructuring
and acquisition-related integration plans for Fiscal 2011:
| Expected | ||||
| Fiscal | ||||
| 2011 | ||||
| (in millions) | ||||
|
Cost of Product Sold
|
||||
|
Accelerated depreciation
|
$ | 1.9 | ||
|
|
||||
|
Selling, General and Administrative Expenses
|
||||
|
Gain on sale of nonstrategic assets
|
$ | (1.0 | ) | |
|
Acquisition-related integration costs
|
$ | 0.5 | ||
|
Other costs
|
$ | 5.7 | ||
|
|
||||
|
Restructuring Charges
|
$ | 23.1 | ||
Operating Income
The following table sets forth the operating income (loss) (in millions of dollars) by
reportable segment of the Company for Nine Months 2011 and Nine Months 2010.
| Nine | Nine | |||||||||||
| Months | Months | % (Decrease) | ||||||||||
| 2011 | 2010 | Increase | ||||||||||
|
CWNA
|
$ | 507.0 | $ | 542.6 | (7 | )% | ||||||
|
CWAE
|
2.5 | 11.2 | (78 | )% | ||||||||
|
Corporate Operations and Other
|
(79.5 | ) | (68.1 | ) | (17 | )% | ||||||
|
Crown Imports
|
356.2 | 362.1 | (2 | )% | ||||||||
|
Consolidations and eliminations
|
(356.2 | ) | (362.1 | ) | 2 | % | ||||||
|
|
||||||||||||
|
Total Reportable Segments
|
430.0 | 485.7 | (11 | )% | ||||||||
|
Restructuring Charges and Unusual Items
|
(30.4 | ) | (124.8 | ) | NM | |||||||
|
|
||||||||||||
|
Consolidated Operating Income
|
$ | 399.6 | $ | 360.9 | 11 | % | ||||||
|
|
||||||||||||
52
Table of Contents
As a result of the factors discussed above, consolidated operating income increased to
$399.6 million for Nine Months 2011 from $360.9 million for Nine Months 2010, an increase of $38.7
million, or 11%. Restructuring charges and unusual items of $30.4 million and $124.8 million for
Nine Months 2011 and Nine Months 2010, respectively, consist of certain amounts that are excluded
by management in their evaluation of the results of each operating segment. These amounts include:
| Nine | Nine | |||||||
| Months | Months | |||||||
| 2011 | 2010 | |||||||
|
(in millions)
|
||||||||
|
Cost of Product Sold
|
||||||||
|
Flow through of inventory step-up
|
$ | 2.1 | $ | 7.2 | ||||
|
Accelerated depreciation
|
1.6 | 15.7 | ||||||
|
Inventory write-downs
|
- | 1.5 | ||||||
|
Other
|
0.1 | 3.8 | ||||||
|
|
||||||||
|
Cost of Product Sold
|
3.8 | 28.2 | ||||||
|
|
||||||||
|
Selling, General and Administrative Expenses
|
||||||||
|
Acquisition-related integration costs
|
0.2 | 0.2 | ||||||
|
Net gain on sale of nonstrategic assets
|
(3.3 | ) | - | |||||
|
Loss on contractual obligation from put option of
Ruffino shareholder
|
- | 34.3 | ||||||
|
Net gain on March 2009 sale of value spirits business
|
- | (0.2 | ) | |||||
|
Other costs
|
5.4 | 35.1 | ||||||
|
|
||||||||
|
Selling, General and Administrative Expenses
|
2.3 | 69.4 | ||||||
|
|
||||||||
|
Impairment of Intangible Assets
|
6.9 | - | ||||||
|
|
||||||||
|
Restructuring Charges
|
17.4 | 27.2 | ||||||
|
|
||||||||
|
|
||||||||
|
Restructuring Charges and Unusual Items
|
$ | 30.4 | $ | 124.8 | ||||
|
|
||||||||
Equity in Earnings of Equity Method Investees
The Company’s equity in earnings of equity method investees increased to $192.3 million in
Nine Months 2011 from $170.6 million in Nine Months 2010, an increase of $21.7 million, or 13%.
This increase is primarily due to the Company’s recognition for Third Quarter 2010 of an impairment
of $25.4 million related to its CWNA segment’s investment in Ruffino, partially offset by lower
equity in earnings of $3.2 million from the Company’s Crown Imports joint venture.
Net sales for Crown Imports increased to $1,912.5 million for Nine Months 2011 from $1,837.7
million for Nine Months 2010, an increase of $74.8 million, or 4%. This increase resulted
primarily from volume growth partially offset by a negative shift in mix within the Crown Imports
Mexican beer portfolio. Crown Imports gross profit increased $6.2 million, or 1%, primarily due to
these factors combined with a contractual price increase in Mexican beer costs. Selling, general
and administrative expenses increased $12.1 million, or 7%, primarily due to an increase in general
and administrative expenses driven largely by an unfavorable arbitration panel decision in Third
Quarter 2011 related to a matter with one of Crown Imports’ former distributors. The combination
of these factors were the main contributors to the decrease in operating income of $5.9 million, or
(2%).
53
Table of Contents
Interest Expense, Net
Interest expense, net of interest income of $2.6 million and $7.7 million, for Nine Months
2011 and Nine Months 2010, respectively, decreased to $147.9 million for Nine Months 2011 from
$202.0 million for Nine Months 2010, a decrease of $54.1 million, or (27%). The decrease resulted
primarily from lower average interest rates for the Company combined with reduced average
borrowings for Nine Months 2011.
Provision for Income Taxes
The Company’s effective tax rate for Nine Months 2011 and Nine Months 2010 was
37.0% and 54.4%, respectively. The Company’s effective tax rate for Nine Months 2011 includes the
recognition of a valuation allowance against deferred tax assets in the U.K. of $30.1 million,
partially offset by a decrease in uncertain tax positions in connection with the completion of
various income tax examinations during Nine Months 2011. The Company’s effective tax rate for Nine
Months 2010 includes the recognition of (i) $37.5 million of taxes associated with the sale of the
value spirits business, primarily related to the write-off of nondeductible goodwill, and (ii)
nondeductible charges of $59.7 million related to the Company’s Ruffino investment; partially
offset by a decrease in uncertain tax positions in connection with the completion of various income
tax examinations during Nine Months 2010.
Net Income
As a result of the above factors, net income increased to $279.7 million for Nine Months 2011
from $150.3 million for Nine Months 2010, an increase of $129.4 million, or 86%.
Financial Liquidity and Capital Resources
General
The Company’s principal use of cash in its operating activities is for purchasing and carrying
inventories and carrying seasonal accounts receivable. The Company’s primary source of liquidity
has historically been cash flow from operations, except during annual grape harvests when the
Company has relied on short-term borrowings. In the U.S. and Canada, the annual grape crush
normally begins in August and runs through October. In Australia and New Zealand, the annual grape
crush normally begins in February and runs through May. The Company generally begins taking
delivery of grapes at the beginning of the crush season with payments for such grapes beginning to
come due one month later. The Company’s short-term borrowings to support such purchases generally
reach their highest levels one to two months after the crush season has ended. Historically, the
Company has used cash flow from operating activities to repay its short-term borrowings and fund
capital expenditures. The Company will continue to use its short-term borrowings to support its
working capital requirements.
The Company has maintained adequate liquidity to meet current working capital requirements,
fund capital expenditures and repay scheduled principal and interest payments on debt. Absent
deterioration of market conditions, the Company believes that cash flows from operating activities
and its financing activities, primarily short-term borrowings, will provide adequate resources to
satisfy its working capital, scheduled principal and interest payments on debt, and anticipated
capital expenditure requirements for both its short-term and long-term capital needs.
54
Table of Contents
As of December 31, 2010, the Company had $700.9 million in revolving loans available to be
drawn under its 2006 Credit Agreement. The member financial institutions participating in the
Company’s 2006 Credit Agreement have complied with prior funding requests and the Company believes
the member financial institutions will comply with ongoing funding requests. However, there can be
no assurances that any particular financial institution will continue to do so in the future.
Nine Months 2011 Cash Flows
Operating Activities
Net cash provided by operating activities for Nine Months 2011 was $369.0 million, which
resulted primarily from net income of $279.7 million; plus $222.6 million of net noncash items
charged to the Consolidated Statements of Operations; partially offset by net cash used in the net
change in the Company’s operating assets and liabilities of $114.8 million.
The net noncash items consisted primarily of depreciation expense, deferred tax provision and
stock-based compensation expense. The net cash used in the net change in the Company’s operating
assets and liabilities was driven primarily by an increase in accounts receivable, net, of $344.3
million, partially offset by increases in other accrued expenses and liabilities of $76.0 million
and accounts payable of $72.6 million and a decrease in inventories of $52.5 million. The increase
in accounts receivable, net, is due largely to the increase in November 2010 net sales in
connection with the seasonality of the holiday season combined with the fact that January and
February are typically the Company’s lowest selling months. In addition, this seasonal change was
even more pronounced due to the lighter than normal sales in the fourth quarter of fiscal 2010
associated with the U.S. distributor consolidation transition. The increase in other accrued
expenses and liabilities is largely due to the timing of income tax payments and an increase in
accrued promotions and advertising driven primarily by the increased U.S. promotional spend. The
increase in accounts payable is due primarily to the seasonality of the calendar 2010 U.S. grape
harvest. The decrease in inventories is due largely to decreases in Australian and New Zealand
inventory levels due primarily to the seasonality of the calendar 2010 Australian and New Zealand
grape harvests, partially offset by an increase in inventory in the U.S. associated with the
seasonality of the calendar 2010 U.S. grape harvest.
Investing Activities
Net cash used in investing activities for Nine Months 2011 was $25.1 million, which resulted
primarily from $70.1 million of capital expenditures and a $29.6 million payment in connection with
the settlement of the irrevocable and unconditional put option of the incremental 9.9% ownership
interest associated with the Company’s equity method investment, Ruffino, partially offset by $60.0
million of proceeds from the note receivable received in connection with the divestiture of the
value spirits business.
Financing Activities
Net cash used in financing activities for Nine Months 2011 was $373.0 million resulting
primarily from $300.0 million of purchases of treasury stock through the ASB transaction (as
defined below) and $101.1 million of principal payments of long-term debt, partially offset by
$35.8 million of proceeds from exercise of employee stock options.
55
Table of Contents
Share Repurchase
In April 2010, the Company’s Board of Directors authorized the repurchase of up to
$300.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock. During
Nine Months 2011, the Company repurchased 17,223,404 shares of Class A Common Stock pursuant to
this authorization at an aggregate cost of $300.0 million, or an average cost of $17.42 per share,
through a collared accelerated stock buyback (“ASB”) transaction that was announced in April 2010.
The Company paid the purchase price under the ASB transaction in April 2010, at which time it
received an initial installment of 11,016,451 shares of Class A Common Stock. In May 2010, the
Company received an additional installment of 2,785,029 shares of Class A Common Stock in
connection with the early termination of the hedge period on May 10, 2010. In November 2010, the
Company received the final installment of 3,421,924 shares of Class A Common Stock following the
end of the calculation period on November 24, 2010. The Company used revolver borrowings under the
2006 Credit Agreement to pay the purchase price for the repurchased shares. During Nine Months
2011, the Company has used cash flows from operating activities to repay the revolver borrowings
under the 2006 Credit Agreement used to pay the purchase price for the repurchased shares. The
repurchased shares have become treasury shares.
Debt
Total debt outstanding as of November 30, 2010, amounted to $3,726.6 million, a decrease of
$108.9 million from February 28, 2010.
Senior Credit Facility
2006 Credit Agreement
The Company and certain of its U.S. subsidiaries, JPMorgan Chase Bank, N.A. as a lender and
administrative agent, and certain other agents, lenders, and financial institutions are parties to
a credit agreement, as amended (the “2006 Credit Agreement”). The 2006 Credit Agreement provides
for aggregate credit facilities of $3,842.0 million, consisting of (i) a $1,200.0 million tranche
A term loan facility with a final maturity in June 2011 (the “Tranche A Term Loans”), (ii) a
$1,800.0 million tranche B term loan facility, of which $1,500.0 million has a final maturity in
June 2013 (the “2013 Tranche B Term Loans”) and $300.0 million has a final maturity in June 2015
(the “2015 Tranche B Term Loans”), and (iii) an $842.0 million revolving credit facility
(including a sub-facility for letters of credit of up to $200 million), of which $192.0 million
terminates in June 2011 (the “2011 Revolving Facility”) and $650.0 million terminates in June 2013
(the “2013 Revolving Facility”). The Company uses its revolving credit facility under the 2006
Credit Agreement for general corporate purposes.
As of November 30, 2010, under the 2006 Credit Agreement, the Company had outstanding Tranche
A Term Loans of $225.0 million bearing an interest rate of 1.6%, 2013 Tranche B Term Loans of
$928.0 million bearing an interest rate of 1.8%, 2015 Tranche B Term Loans of $300.0 million
bearing an interest rate of 3.1%, 2011 Revolving Facility of $53.7 million bearing an interest rate
of 1.6%, 2013 Revolving Facility of $232.0 million bearing an interest rate of 2.7%, outstanding
letters of credit of $13.9 million, and $542.4 million in revolving loans available to be drawn.
As of December 31, 2010, under the 2006 Credit Agreement, the Company had outstanding Tranche
A Term Loans of $150.0 million bearing an interest rate of 1.6%, 2013 Tranche B Term Loans of
$928.0 million bearing an interest rate of 1.8%, 2015 Tranche B Term Loans of $300.0 million
bearing an interest rate of 3.1%, 2011 Revolving Facility of $25.1 million bearing an interest rate
of 1.6%, 2013 Revolving Facility of $102.1 million bearing an interest rate of 2.7%, outstanding
letters of credit of $13.9 million, and $700.9 million in revolving loans available to be drawn.
56
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Through February 28, 2010, the Company had outstanding interest rate swap agreements which
were designated as cash flow hedges of $1,200.0 million of the Company’s floating LIBOR rate debt.
The designated cash flow hedges fixed the Company’s interest rates on $1,200.0 million of the
Company’s floating LIBOR rate debt through February 28, 2010. In addition, the Company had
offsetting undesignated interest rate swap agreements with an absolute notional amount of $2,400.0
million outstanding as of February 28, 2010. On March 1, 2010, the Company paid $11.9 million in
connection with the maturity of these outstanding interest rate swap agreements, which is reported
in other, net in cash flows from operating activities in the Company’s Consolidated Statements of
Cash Flows. In June 2010, the Company entered into a new five year delayed start interest rate
swap agreement effective September 1, 2011, which was designated as a cash flow hedge for $500.0
million of the Company’s floating LIBOR rate debt. Accordingly, the Company fixed its interest
rates on $500.0 million of the Company’s floating LIBOR rate debt at an average rate of 2.9%
(exclusive of borrowing margins) through September 1, 2016. For Nine Months 2010 and Third Quarter
2010, the Company reclassified net losses of $20.0 million and $7.1 million, respectively, net of
income tax effect, from AOCI to interest expense, net on the Company’s Consolidated Statements of
Operations. The Company did not reclassify any amount from AOCI to interest expense, net on its
Consolidated Statements of Operations for Nine Months 2011 and Third Quarter 2011.
Accounting Guidance Not Yet Adopted
Intangibles – goodwill and other –
In December 2010, the FASB issued amended guidance for when to perform Step 2 of
the goodwill impairment test for reporting units with zero or negative carrying amounts. The
amended guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or
negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of
the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity should
consider whether there are any adverse qualitative factors indicating that an impairment may exist.
Any resulting goodwill impairment upon adoption should be recorded as a cumulative-effect
adjustment to beginning retained earnings in the period of adoption. The Company is required to
adopt the guidance for its annual and interim periods beginning March 1, 2011. The Company does
not expect the adoption of this amended guidance to have a material impact on the Company’s
consolidated financial statements.
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Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are subject to a number of risks and uncertainties, many of which
are beyond the Company’s control, which could cause actual results to differ materially from those
set forth in, or implied by, such forward-looking statements. All statements other than statements
of historical fact included in this Quarterly Report on Form 10-Q, including without limitation the
statements under Part I — Item 2 “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” regarding (i) the Company’s business strategy, future financial position,
prospects, plans and objectives of management, (ii) the Company’s expected restructuring charges,
accelerated depreciation, acquisition-related integration costs, other costs, and gain on sale of
nonstrategic assets, (iii) information concerning expected or potential actions of third parties,
(iv) information concerning the future expected balance of supply and demand for wine, (v) the
expected impact upon results of operations resulting from the Company’s decision to consolidate its
U.S. distributor network, and (vi) information concerning the sale of the Company’s Australian and
U.K. business are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the
words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain such identifying
words. All forward-looking statements speak only as of the date of this Quarterly Report on Form
10-Q. The Company undertakes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Although the Company believes
that the expectations reflected in the forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. In addition to the risks and
uncertainties of ordinary business operations and conditions in the general economy and markets in
which the Company competes, the forward-looking statements of the Company contained in this
Quarterly Report on Form 10-Q are also subject to the risk and uncertainty that (i) the impact
upon results of operations resulting from the decision to consolidate the Company’s U.S.
distributor network will vary from current expectations due to implementation of consolidation
activities and actual U.S. distributor transition experience, (ii) the actual balance of supply
and demand for wine products will vary from current expectations due to, among other reasons,
actual consumer demand, (iii) the Company’s restructuring charges, accelerated depreciation,
acquisition-related integration costs, other costs, and gain on sale of nonstrategic assets may
vary materially from current expectations due to, among other reasons, variations in anticipated
headcount reductions, contract terminations or modifications, equipment relocation, proceeds from
the sale of assets identified for sale, product portfolio rationalizations, production footprint,
and/or other costs of implementation, and (iv) the sale of the Company’s Australian and U.K.
business may not close or may not close on the anticipated timetable. For additional information
about risks and uncertainties that could adversely affect the Company’s forward-looking statements,
please refer to Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 2010.
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Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company, as a result of its global operating, acquisition and financing activities, is
exposed to market risk associated with changes in foreign currency exchange rates and interest
rates. To manage the volatility relating to these risks, the Company periodically purchases and/or
sells derivative instruments including foreign currency forward and option contracts and interest
rate swap agreements. The Company uses derivative instruments solely to reduce the financial
impact of these risks and does not use derivative instruments for trading purposes.
Foreign currency derivative instruments are or may be used to hedge existing
foreign currency denominated assets and liabilities, forecasted foreign currency denominated
sales/purchases to/from third parties as well as intercompany sales/purchases, intercompany
principal and interest payments, and in connection with acquisitions or joint venture investments
outside the U.S. As of November 30, 2010, the Company had exposures to foreign currency risk
primarily related to the Australian dollar, euro, New Zealand dollar, British pound sterling,
Canadian dollar and South African rand.
As of November 30, 2010, and November 30, 2009, the Company had outstanding foreign currency
derivative instruments with a notional value of $1,004.1 million and $1,144.3 million
,
respectively. Approximately 79% of the Company’s total exposures were hedged as of November 30,
2010, including most of the Company’s balance sheet exposures and certain of the Company’s
forecasted transactional exposures for the year ending February 28, 2011. The estimated fair value
of the Company’s foreign currency derivative instruments was a net asset of $19.9 million and $23.5
million as of November 30, 2010, and November 30, 2009, respectively. Using a sensitivity analysis
based on estimated fair value of open contracts using forward rates, if the contract base currency
had been 10% weaker as of November 30, 2010, and November 30, 2009, the fair value of open foreign
currency contracts would have been decreased by $11.1 million and $37.8 million, respectively.
Losses or gains from the revaluation or settlement of the related underlying positions would
substantially offset such gains or losses on the derivative instruments.
The fair value of fixed rate debt is subject to interest rate risk, credit risk and foreign
currency risk. The estimated fair value of the Company’s total fixed rate debt, including current
maturities, was $2,085.8 million and $2,219.4 million as of November 30, 2010, and November 30,
2009, respectively. A hypothetical 1% increase from prevailing interest rates as of November 30,
2010, and November 30, 2009, would have resulted in a decrease in fair value of fixed interest rate
long-term debt by $94.0 million and $96.2 million, respectively.
As of November 30, 2010, and November 30, 2009, the Company had outstanding cash
flow designated interest rate swap agreements to minimize interest rate volatility. As of November
30, 2010, the swap agreements fix LIBOR interest rates on $500.0 million of the Company’s floating
LIBOR rate debt at an average rate of 2.9% (exclusive of borrowing margins) through September 1,
2016. As of November 30, 2009, the swap agreements fixed LIBOR interest rates on $1,200.0 million
of the Company’s floating LIBOR rate debt at an average rate of 4.0% through February 28, 2010. In
addition, as of November 30, 2009, the Company had offsetting outstanding undesignated interest
rate swap agreements with an absolute notional value of $2,400.0 million. A hypothetical 1%
increase from prevailing interest rates as of November 30, 2010, would have increased the fair
value of the interest rate swap agreements by $25.7 million. A hypothetical 1% increase from
prevailing interest rates as of November 30, 2009, would not have resulted in a significant change
in the fair value of the interest rate swap agreements.
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In addition to the $2,085.8 million and $2,219.4 million estimated fair value of fixed rate
debt outstanding as of November 30, 2010, and November 30, 2009, respectively, the Company also had
variable rate debt outstanding (primarily LIBOR-based), certain of which includes a fixed margin.
As of November 30, 2010, and November 30, 2009, the estimated fair value of the Company’s total
variable rate debt, including current maturities, was $1,743.7 million and $1,930.8 million,
respectively. Using a sensitivity analysis based on a hypothetical 1% increase in prevailing
interest rates over a 12-month period, the approximate increase in cash required for interest as of
November 30, 2010, and November 30, 2009, is $36.1 million and $19.3 million, respectively.
60
Table of Contents
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s Chief Executive Officer and its Chief Financial Officer have concluded, based on
their evaluation as of the end of the period covered by this report, that the Company’s “disclosure
controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)) are effective to ensure that information required to be disclosed in the reports that
the Company files or submits under the Securities Exchange Act of 1934 (i) is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
In connection with the foregoing evaluation by the Company’s Chief Executive Officer and its
Chief Financial Officer, no changes were identified in the Company’s “internal control over
financial reporting” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and
15d-15(f)) that occurred during the Company’s fiscal quarter ended November 30, 2010 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
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Table of Contents
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
ISSUER PURCHASES OF EQUITY SECURITIES
| Total Number | ||||||||||||||||
| of Shares | Approximate Dollar | |||||||||||||||
| Purchased as Part | Value of Shares | |||||||||||||||
| Total Number | Average Price | of a Publicly | That May Yet Be | |||||||||||||
| of Shares | Paid | Announced | Purchased Under | |||||||||||||
| Period | Purchased | Per Share | Program | the Program (1) | ||||||||||||
|
September 1 – 30, 2010
|
- | $ | - | - | $ | - | ||||||||||
|
October 1 – 31, 2010
|
- | - | - | $ | - | |||||||||||
|
November 1 – 30, 2010
|
3,421,924 | (2) | - | (2) | 3,421,924 | (2) | $ | - | ||||||||
|
|
||||||||||||||||
|
Total
|
3,421,924 | $ | - | 3,421,924 | $ | - | ||||||||||
|
|
||||||||||||||||
| (1) | As announced on April 9, 2010, during April 2010 the Company’s Board of Directors authorized the repurchase from time to time of up to an aggregate amount of $300.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock (the “2011 Authorization”). The Board of Directors did not specify a date upon which this authorization would expire. The collared accelerated stock buyback transaction described in footnote (2) has fully utilized the 2011 Authorization. | ||
| (2) | On November 30, 2010, the Company received 3,421,924 shares of Class A Common Stock pursuant to a Supplemental Confirmation, dated April 16, 2010, between the Company and Goldman, Sachs & Co. (“GS&Co.”) with respect to a collared accelerated stock buyback of the Company’s Class A Common Stock (the “Supplemental Confirmation”). Pursuant to the Supplemental Confirmation, the Company paid GS&Co. a fixed purchase price of $300,000,000 in exchange for an initial installment of 11,016,451 shares of Class A Common Stock on April 21, 2010. Following the early termination of the hedge period on May 10, 2010, the Company received an additional installment of 2,785,029 shares of Class A Common Stock from GS&Co. for no additional consideration based on the application of a formula set forth in the Supplemental Confirmation. Following the end of the calculation period on November 24, 2010, the Company received a final installment of 3,421,924 shares of Class A Common Stock from GS&Co. for no additional consideration based on the application of a formula set forth in the Supplemental Confirmation. The total number of shares of Class A Common Stock received pursuant to the Supplemental Confirmation was 17,223,404 shares, yielding an average purchase price for the shares acquired in the collared accelerated stock buyback of $17.41816 per share. |
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Table of Contents
Item 6. Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-K.
For the exhibits that are filed herewith or incorporated herein by reference, see the Index to
Exhibits located on page 65 of this report. The Index to Exhibits is incorporated herein by
reference.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
CONSTELLATION BRANDS, INC.
|
||||
| Dated: January 10, 2011 | By: | /s/ David M. Thomas | ||
|
David M. Thomas, Senior Vice President,
Finance and Controller |
||||
| Dated: January 10, 2011 | By: | /s/ Robert Ryder | ||
|
Robert Ryder, Executive Vice President and
Chief Financial Officer (principal financial officer and principal accounting officer) |
||||
64
Table of Contents
INDEX TO EXHIBITS
| Exhibit No. | ||
|
|
||
|
2.1
|
Agreement to Establish Joint Venture, dated July 17, 2006, between Barton Beers, Ltd. and Diblo, S.A. de C.V. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated July 17, 2006, filed July 18, 2006 and incorporated herein by reference).+ | |
|
|
||
|
2.2
|
Amendment No. 1, dated as of January 2, 2007 to the Agreement to Establish Joint Venture, dated July 17, 2006, between Barton Beers, Ltd. and Diblo, S.A. de C.V. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated January 2, 2007, filed January 3, 2007 and incorporated herein by reference).+ | |
|
|
||
|
2.3
|
Barton Contribution Agreement, dated July 17, 2006, among Barton Beers, Ltd., Diblo, S.A. de C.V. and Company (a Delaware limited liability company to be formed) (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K dated July 17, 2006, filed July 18, 2006 and incorporated herein by reference).+ | |
|
|
||
|
2.4
|
Share Subscription Agreement dated December 23, 2010 among Constellation Brands, Inc., Vincor U.K. Limited, CBI Australia Holdings Pty Limited, Perpetual Trustee Company Limited as trustee of the CHAMP Buyout III Trust, Perpetual Corporate Trust Limited as trustee of the CHAMP Buyout III (SWF) Trust, CHAMP Buyout III Pte Ltd, and Canopus Holdco Limited (filed as Exhibit 2.1 of the Company’s Current Report on Form 8-K dated December 23, 2010, filed December 28, 2010 and incorporated herein by reference). | |
|
|
||
|
3.1
|
Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein by reference). | |
|
|
||
|
3.2
|
Certificate of Amendment to the Certificate of Incorporation of the Company (filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein by reference). | |
|
|
||
|
3.3
|
Amended and Restated By-Laws of the Company (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K dated December 6, 2007, filed December 12, 2007 and incorporated herein by reference). | |
|
|
||
|
4.1
|
Indenture, with respect to 7.25% Senior Notes due 2016, dated as of August 15, 2006, by and among the Company, as Issuer, certain subsidiaries, as Guarantors and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August 15, 2006, filed August 18, 2006 and incorporated herein by reference). | |
|
|
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Table of Contents
|
4.2
|
Supplemental Indenture No. 1, dated as of August 15, 2006, among the Company, as Issuer, certain subsidiaries, as Guarantors, and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated August 15, 2006, filed August 18, 2006 and incorporated herein by reference). | |
|
|
||
|
4.3
|
Supplemental Indenture No. 2, dated as of November 30, 2006, by and among the Company, Vincor International Partnership, Vincor International II, LLC, Vincor Holdings, Inc., R.H. Phillips, Inc., The Hogue Cellars, Ltd., Vincor Finance, LLC, and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.28 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006 and incorporated herein by reference). | |
|
|
||
|
4.4
|
Supplemental Indenture No. 3, dated as of May 4, 2007, by and among the Company, Barton SMO Holdings LLC, ALCOFI INC., and Spirits Marque One LLC, and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.32 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2007 and incorporated herein by reference). | |
|
|
||
|
4.5
|
Supplemental Indenture No. 4, with respect to 8 3/8% Senior Notes due 2014, dated as of December 5, 2007, by and among the Company, as Issuer, certain subsidiaries, as Guarantors, and The Bank of New York Trust Company, N.A., (as successor to BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 5, 2007, filed December 11, 2007 and incorporated herein by reference). | |
|
|
||
|
4.6
|
Supplemental Indenture No. 5, dated as of January 22, 2008, by and among the Company, BWE, Inc., Atlas Peak Vineyards, Inc., Buena Vista Winery, Inc., Clos du Bois Wines, Inc., Gary Farrell Wines, Inc., Peak Wines International, Inc., and Planet 10 Spirits, LLC, and The Bank of New York Trust Company, N.A. (successor trustee to BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2008 and incorporated herein by reference). | |
|
|
||
|
4.7
|
Supplemental Indenture No. 6, dated as of February 27, 2009, by and among the Company, Constellation Services LLC, and The Bank of New York Mellon Trust Company National Association (successor trustee to BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.31 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009 and incorporated herein by reference). | |
|
|
||
|
4.8
|
Indenture, with respect to 7.25% Senior Notes due May 2017, dated May 14, 2007, by and among the Company, as Issuer, certain subsidiaries, as Guarantors, and The Bank of New York Trust Company, N.A., as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 9, 2007, filed May 14, 2007 and incorporated herein by reference). | |
|
|
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Table of Contents
|
4.9
|
Supplemental Indenture No. 1, dated as of January 22, 2008, by and among the Company, BWE, Inc., Atlas Peak Vineyards, Inc., Buena Vista Winery, Inc., Clos du Bois Wines, Inc., Gary Farrell Wines, Inc., Peak Wines International, Inc., and Planet 10 Spirits, LLC, and The Bank of New York Trust Company, N.A. (successor trustee to BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.39 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2008 and incorporated herein by reference). | |
|
|
||
|
4.10
|
Supplemental Indenture No. 2, dated as of February 27, 2009, by and among the Company, Constellation Services LLC, and The Bank of New York Mellon Trust Company National Association (successor trustee to BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.34 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009 and incorporated herein by reference). | |
|
|
||
|
4.11
|
Credit Agreement, dated as of June 5, 2006, among Constellation, the Subsidiary Guarantors party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Citicorp North America, Inc., as Syndication Agent, J.P. Morgan Securities Inc. and Citigroup Global Markets Inc., as Joint Lead Arrangers and Bookrunners, and The Bank of Nova Scotia and SunTrust Bank, as Co-Documentation Agents (filed as Exhibit 4.11 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2010 and incorporated herein by reference). | |
|
|
||
|
4.12
|
Amendment No. 1, dated as of February 23, 2007, to the Credit Agreement, dated as of June 5, 2006, among Constellation, the subsidiary guarantors referred to on the signature pages to such Amendment No. 1, and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated and filed February 23, 2007, and incorporated herein by reference). | |
|
|
||
|
4.13
|
Amendment No. 2, dated as of November 19, 2007, to the Credit Agreement, dated as of June 5, 2006, among Constellation, the Subsidiary Guarantors referred to on the signature pages to such Amendment No. 2, and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, dated and filed November 20, 2007, and incorporated herein by reference). | |
|
|
||
|
4.14
|
Amendment No. 3, dated as of January 25, 2010, to the Credit Agreement, dated as of June 5, 2006, among Constellation Brands, Inc., the Subsidiary Guarantors referred to on the signature pages to such Amendment No. 3, JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent and Issuing Lender, Bank of America, N.A., in its capacity as Swingline Lender, The Bank of Nova Scotia, in its capacity as Issuing Lender, JPMorgan Securities Inc., in its capacity as joint bookrunner, CoBank, ACB, in its capacity as joint bookrunner, Banc of America Securities LLC, in its capacity as joint bookrunner and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch in its capacity as joint bookrunner (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, dated January 25, 2010, filed January 26, 2010, and incorporated herein by reference). | |
|
|
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Table of Contents
|
4.15
|
Guarantee Assumption Agreement, dated as of August 11, 2006, by Constellation Leasing, LLC, in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to the Credit Agreement dated as of June 5, 2006 (as modified and supplemented and in effect from time to time) (filed as Exhibit 4.29 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2006 and incorporated herein by reference). | |
|
|
||
|
4.16
|
Guarantee Assumption Agreement, dated as of November 30, 2006, by Vincor International Partnership, Vincor International II, LLC, Vincor Holdings, Inc., R.H. Phillips, Inc., The Hogue Cellars, Ltd., and Vincor Finance, LLC in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to the Credit Agreement dated as of June 5, 2006 (as modified and supplemented and in effect from time to time) (filed as Exhibit 4.31 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006 and incorporated herein by reference). | |
|
|
||
|
4.17
|
Guarantee Assumption Agreement, dated as of May 4, 2007, by Barton SMO Holdings LLC, ALCOFI INC., and Spirits Marque One LLC in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to the Credit Agreement dated as of June 5, 2006 (as modified and supplemented and in effect from time to time) (filed as Exhibit 4.39 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2007 and incorporated herein by reference). | |
|
|
||
|
4.18
|
Guarantee Assumption Agreement, dated as of January 22, 2008, by BWE, Inc., Atlas Peak Vineyards, Inc., Buena Vista Winery, Inc., Clos du Bois Wines, Inc., Gary Farrell Wines, Inc., Peak Wines International, Inc., and Planet 10 Spirits, LLC in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to the Credit Agreement dated as of June 5, 2006 (as modified and supplemented and in effect from time to time) (filed as Exhibit 4.46 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2008 and incorporated herein by reference). | |
|
|
||
|
4.19
|
Guarantee Assumption Agreement, dated as of February 27, 2009, by Constellation Services LLC in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, pursuant to the Credit Agreement dated as of June 5, 2006 (as modified and supplemented and in effect from time to time) (filed as Exhibit 4.42 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009 and incorporated herein by reference). | |
|
|
||
|
10.1
|
Agreement Regarding Products dated October 28, 2010, between Extrade II, S.A. de C.V., Crown Imports LLC and Marcas Modelo, S.A. de C.V. (filed herewith) .++ | |
|
|
||
|
31.1
|
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). | |
|
|
||
|
31.2
|
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). |
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32.1
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Certification of Chief Executive Officer pursuant to Section 18 U.S.C. 1350 (filed herewith). | |
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32.2
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Certification of Chief Financial Officer pursuant to Section 18 U.S.C. 1350 (filed herewith). | |
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101
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The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at November 30, 2010 and February 28, 2010, (ii) Consolidated Statements of Operations for the nine months and the three months ended November 30, 2010 and 2009, (iii) Consolidated Statements of Cash Flows for the nine months ended November 30, 2010 and 2009, and (iv) Notes to Consolidated Financial Statements.* |
| * | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 (“Securities Act”), as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934 (“Exchange Act”), as amended, and otherwise not subject to liability under those sections. This exhibit shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates this exhibit by reference. | |
| + | Portions of this exhibit were redacted pursuant to a confidential treatment request filed with and approved by the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. | |
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++ This Exhibit has been filed separately with the Commission pursuant to
an application for confidential treatment. The confidential portions of this
Exhibit have been omitted and are marked by an asterisk.
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The Company agrees, upon request of the Securities and Exchange Commission, to furnish copies
of each instrument that defines the rights of holders of long-term debt of the Company or its
subsidiaries that is not filed herewith pursuant to Item 601(b)(4)(iii)(A) because the total amount
of long-term debt authorized under such instrument does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis.
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Part I - Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II - Other InformationprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 6. Exhibitsprint