CONSTELLATION BRANDS, INC.
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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
August 31, 2011
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 | (I.R.S. Employer | |
| incorporation or organization) | 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)
(Former name, former address and former fiscal year, if changed since last report)
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
ý
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
ý
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 ý | 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
ý
The number of shares outstanding with respect to each of the classes of common stock of
Constellation Brands, Inc., as of September 30, 2011, is set forth below:
| Class | Number of Shares Outstanding | ||
|
Class A Common Stock, par value $.01 per share
|
178,838,531 | ||
|
Class B Common Stock, par value $.01 per share
|
23,589,202 | ||
|
Class 1 Common Stock, par value $.01 per share
|
11,633 | ||
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)
| August 31, | February 28, | |||||||
| 2011 | 2011 | |||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash and cash investments
|
$ | 10.0 | $ | 9.2 | ||||
|
Accounts receivable, net
|
501.7 | 417.4 | ||||||
|
Inventories
|
1,259.2 | 1,369.3 | ||||||
|
Prepaid expenses and other
|
148.7 | 287.1 | ||||||
|
|
||||||||
|
Total current assets
|
1,919.6 | 2,083.0 | ||||||
|
PROPERTY, PLANT AND EQUIPMENT, net
|
1,241.0 | 1,219.6 | ||||||
|
GOODWILL
|
2,632.7 | 2,619.8 | ||||||
|
INTANGIBLE ASSETS, net
|
895.4 | 886.3 | ||||||
|
OTHER ASSETS, net
|
346.0 | 358.9 | ||||||
|
|
||||||||
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Total assets
|
$ | 7,034.7 | $ | 7,167.6 | ||||
|
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||||||||
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||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
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CURRENT LIABILITIES:
|
||||||||
|
Notes payable to banks
|
$ | 198.0 | $ | 83.7 | ||||
|
Current maturities of long-term debt
|
13.7 | 15.9 | ||||||
|
Accounts payable
|
138.7 | 129.2 | ||||||
|
Accrued excise taxes
|
26.4 | 14.2 | ||||||
|
Other accrued expenses and liabilities
|
410.0 | 419.9 | ||||||
|
|
||||||||
|
Total current liabilities
|
786.8 | 662.9 | ||||||
|
|
||||||||
|
LONG-TERM DEBT, less current maturities
|
2,734.7 | 3,136.7 | ||||||
|
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||||||||
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DEFERRED INCOME TAXES
|
596.9 | 583.1 | ||||||
|
|
||||||||
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OTHER LIABILITIES
|
217.2 | 233.0 | ||||||
|
|
||||||||
|
COMMITMENTS AND CONTINGENCIES (NOTE 12)
|
||||||||
|
STOCKHOLDERS’ EQUITY:
|
||||||||
|
Class A Common Stock, $.01 par value-Authorized, 322,000,000 shares;
Issued, 232,894,647 shares at August 31, 2011,
and 230,290,798 shares at February 28, 2011
|
2.3 | 2.3 | ||||||
|
Class B Convertible Common Stock, $.01 par value-Authorized, 30,000,000 shares;
Issued, 28,597,102 shares at August 31, 2011,
and 28,617,758 shares at February 28, 2011
|
0.3 | 0.3 | ||||||
|
Additional paid-in capital
|
1,655.0 | 1,602.4 | ||||||
|
Retained earnings
|
1,899.5 | 1,662.3 | ||||||
|
Accumulated other comprehensive income
|
216.8 | 188.8 | ||||||
|
|
||||||||
|
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3,773.9 | 3,456.1 | ||||||
|
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||||||||
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||||||||
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Less: Treasury stock -
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||||||||
|
Class A Common Stock, 51,625,074 shares at
August 31, 2011, and 42,739,831 shares at
February 28, 2011, at cost
|
(1,072.6 | ) | (902.0 | ) | ||||
|
Class B Convertible Common Stock, 5,005,800 shares
at August 31, 2011, and February 28, 2011, at cost
|
(2.2 | ) | (2.2 | ) | ||||
|
|
||||||||
|
|
(1,074.8 | ) | (904.2 | ) | ||||
|
|
||||||||
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Total stockholders’ equity
|
2,699.1 | 2,551.9 | ||||||
|
|
||||||||
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Total liabilities and stockholders’ equity
|
$ | 7,034.7 | $ | 7,167.6 | ||||
|
|
||||||||
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 Six Months Ended August 31, | For the Three Months Ended August 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
SALES
|
$ | 1,481.1 | $ | 2,033.1 | $ | 770.4 | $ | 1,056.9 | ||||||||
|
Less - excise taxes
|
(155.6 | ) | (382.8 | ) | (80.2 | ) | (194.1 | ) | ||||||||
|
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||||||||||||||||
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Net sales
|
1,325.5 | 1,650.3 | 690.2 | 862.8 | ||||||||||||
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COST OF PRODUCT SOLD
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(791.5 | ) | (1,066.1 | ) | (407.2 | ) | (548.6 | ) | ||||||||
|
|
||||||||||||||||
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Gross profit
|
534.0 | 584.2 | 283.0 | 314.2 | ||||||||||||
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
|
(276.4 | ) | (336.1 | ) | (138.2 | ) | (167.3 | ) | ||||||||
|
RESTRUCTURING CHARGES
|
(10.8 | ) | (18.6 | ) | 0.3 | (13.7 | ) | |||||||||
|
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||||||||||||||||
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Operating income
|
246.8 | 229.5 | 145.1 | 133.2 | ||||||||||||
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EQUITY IN EARNINGS OF EQUITY METHOD
INVESTEES
|
126.2 | 120.9 | 64.0 | 66.4 | ||||||||||||
|
INTEREST EXPENSE, net
|
(86.8 | ) | (98.8 | ) | (42.5 | ) | (50.3 | ) | ||||||||
|
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||||||||||||||||
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Income before income taxes
|
286.2 | 251.6 | 166.6 | 149.3 | ||||||||||||
|
PROVISION FOR INCOME TAXES
|
(49.0 | ) | (111.2 | ) | (3.9 | ) | (58.0 | ) | ||||||||
|
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NET INCOME
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$ | 237.2 | $ | 140.4 | $ | 162.7 | $ | 91.3 | ||||||||
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SHARE DATA:
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Earnings per common share:
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||||||||||||||||
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Basic - Class A Common Stock
|
$ | 1.14 | $ | 0.67 | $ | 0.78 | $ | 0.44 | ||||||||
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Basic - Class B Convertible Common Stock
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$ | 1.04 | $ | 0.61 | $ | 0.71 | $ | 0.40 | ||||||||
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Diluted - Class A Common Stock
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$ | 1.11 | $ | 0.65 | $ | 0.76 | $ | 0.43 | ||||||||
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Diluted - Class B Convertible Common Stock
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$ | 1.02 | $ | 0.60 | $ | 0.70 | $ | 0.40 | ||||||||
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Weighted average common shares outstanding:
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||||||||||||||||
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Basic - Class A Common Stock
|
186.837 | 189.084 | 186.629 | 185.455 | ||||||||||||
|
Basic - Class B Convertible Common Stock
|
23.599 | 23.719 | 23.593 | 23.712 | ||||||||||||
|
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||||||||||||||||
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Diluted - Class A Common Stock
|
214.406 | 215.136 | 213.645 | 211.149 | ||||||||||||
|
Diluted - Class B Convertible Common Stock
|
23.599 | 23.719 | 23.593 | 23.712 | ||||||||||||
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 Six Months Ended August 31, | ||||||||
| 2011 | 2010 | |||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
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||||||||
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Net income
|
$ | 237.2 | $ | 140.4 | ||||
|
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Adjustments to reconcile net income to net cash provided by operating activities:
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||||||||
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Depreciation of property, plant and equipment
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46.0 | 61.0 | ||||||
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Deferred tax provision
|
24.7 | 50.6 | ||||||
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Stock-based compensation expense
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24.2 | 25.7 | ||||||
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Equity in earnings of equity method investees, net of distributed earnings
|
10.0 | 36.5 | ||||||
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Amortization of intangible and other assets
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6.3 | 7.3 | ||||||
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Loss on disposal or impairment of long-lived assets, net
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0.1 | 4.8 | ||||||
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Gain on business sold, net
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(0.8 | ) | - | |||||
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Change in operating assets and liabilities:
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||||||||
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Accounts receivable, net
|
(84.5 | ) | (204.5 | ) | ||||
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Inventories
|
118.7 | 157.2 | ||||||
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Prepaid expenses and other current assets
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7.7 | 5.3 | ||||||
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Accounts payable
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12.8 | (10.7 | ) | |||||
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Accrued excise taxes
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12.1 | 13.2 | ||||||
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Other accrued expenses and liabilities
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83.0 | 40.1 | ||||||
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Other, net
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19.9 | (20.8 | ) | |||||
|
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||||||||
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Total adjustments
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280.2 | 165.7 | ||||||
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Net cash provided by operating activities
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517.4 | 306.1 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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||||||||
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Purchases of property, plant and equipment
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(39.2 | ) | (43.2 | ) | ||||
|
Payments related to sale of business
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(28.8 | ) | (1.6 | ) | ||||
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Investments in equity method investees
|
(0.1 | ) | (29.7 | ) | ||||
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Proceeds from note receivable
|
1.0 | 60.0 | ||||||
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Proceeds from sales of assets
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0.3 | 3.1 | ||||||
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Other investing activities
|
(6.4 | ) | 0.5 | |||||
|
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Net cash used in investing activities
|
(73.2 | ) | (10.9 | ) | ||||
|
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CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
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Principal payments of long-term debt
|
(419.9 | ) | (24.5 | ) | ||||
|
Purchases of treasury stock
|
(187.5 | ) | (300.0 | ) | ||||
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Payment of minimum tax withholdings on stock-based payment awards
|
(2.2 | ) | (0.4 | ) | ||||
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Net proceeds from (repayment of) notes payable
|
113.3 | (24.1 | ) | |||||
|
Proceeds from exercises of employee stock options
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39.0 | 18.0 | ||||||
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Proceeds from excess tax benefits from stock-based payment awards
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10.6 | 4.7 | ||||||
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Proceeds from employee stock purchases
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2.4 | 2.1 | ||||||
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Payment of financing costs of long-term debt
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- | (0.2 | ) | |||||
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Net cash used in financing activities
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(444.3 | ) | (324.4 | ) | ||||
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Effect of exchange rate changes on cash and cash investments
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0.9 | (0.4 | ) | |||||
|
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NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS
|
0.8 | (29.6 | ) | |||||
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CASH AND CASH INVESTMENTS, beginning of period
|
9.2 | 43.5 | ||||||
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CASH AND CASH INVESTMENTS, end of period
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$ | 10.0 | $ | 13.9 | ||||
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SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
|
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Property, plant and equipment acquired under financing arrangements
|
$ | 15.0 | $ | 4.8 | ||||
|
|
||||||||
The accompanying notes are an integral part of these statements.
4
Table of Contents
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2011
(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, 2011. Results
of operations for interim periods are not necessarily indicative of annual results.
2. RECENTLY ADOPTED ACCOUNTING GUIDANCE:
Fair value measurements and disclosures –
In January 2010, the Financial Accounting Standards Board (“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). Effective March 1, 2011, the Company
adopted the additional disclosure requirement to 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). The adoption of the remaining provision of this
guidance on March 1, 2011, did not have a material impact on the Company’s consolidated financial
statements.
Intangibles – goodwill and other –
Effective March 1, 2011, the Company adopted 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 adoption of this amended
guidance on March 1, 2011, did not have a material impact on the Company’s consolidated financial
statements.
5
Table of Contents
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:
| August 31, | February 28, | |||||||
| 2011 | 2011 | |||||||
| (in millions ) | ||||||||
|
Raw materials and supplies
|
$ | 46.6 | $ | 38.2 | ||||
|
In-process inventories
|
902.2 | 1,012.1 | ||||||
|
Finished case goods
|
310.4 | 319.0 | ||||||
|
|
||||||||
|
|
$ | 1,259.2 | $ | 1,369.3 | ||||
|
|
||||||||
4. PREPAID EXPENSES AND OTHER:
The major components of prepaid expenses and other are as follows:
| August 31, | February 28, | |||||||
| 2011 | 2011 | |||||||
| (in millions ) | ||||||||
|
Income taxes receivable
|
$ | 56.9 | $ | 193.8 | ||||
|
Deferred tax assets
|
40.8 | 42.1 | ||||||
|
Other
|
51.0 | 51.2 | ||||||
|
|
||||||||
|
|
$ | 148.7 | $ | 287.1 | ||||
|
|
||||||||
5. 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 (see Note 6). 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.
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.
6
Table of Contents
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 August 31, 2011, and February 28, 2011, the Company
had undesignated foreign currency contracts outstanding with a notional value of $331.8 million and
$160.0 million, respectively. The Company had no undesignated interest rate swap agreements
outstanding as of August 31, 2011, and February 28, 2011.
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 in selling, general and administrative expenses.
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 15)). 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.
7
Table of Contents
As of August 31, 2011, and February 28, 2011, the Company had cash flow designated foreign
currency contracts outstanding with a notional value of $357.3 million and $166.4 million,
respectively. In addition, as of August 31, 2011, and February 28, 2011, the Company had cash flow
designated interest rate swap agreements outstanding with a notional value of $500.0 million (see
Note 10). The Company expects $4.3 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 six months and three months ended
August 31, 2011, and August 31, 2010.
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 six months and three months ended August 31, 2011, and August 31, 2010.
Fair values of derivative instruments:
The fair value and location of the Company’s derivative instruments on its Consolidated
Balance Sheets are as follows:
| August 31, | February 28, | |||||||
| Balance Sheet Location | 2011 | 2011 | ||||||
| (in millions) | ||||||||
|
Derivative instruments designated as hedging instruments
|
||||||||
|
Foreign currency contracts
|
||||||||
|
Prepaid expenses and other
|
$ | 16.3 | $ | 11.0 | ||||
|
Other accrued expenses and liabilities
|
$ | 1.5 | $ | 3.4 | ||||
|
Other assets, net
|
$ | 6.5 | $ | 2.8 | ||||
|
Other liabilities
|
$ | 1.3 | $ | 0.9 | ||||
|
|
||||||||
|
Interest rate swap contracts
|
||||||||
|
Other accrued expenses and liabilities
|
$ | 12.6 | $ | 6.1 | ||||
|
Other assets, net
|
$ | - | $ | 1.7 | ||||
|
Other liabilities
|
$ | 28.9 | $ | - | ||||
|
|
||||||||
|
Derivative instruments not designated as hedging
instruments
|
||||||||
|
Foreign currency contracts
|
||||||||
|
Prepaid expenses and other
|
$ | 4.9 | $ | 3.2 | ||||
|
Other accrued expenses and liabilities
|
$ | 1.2 | $ | 1.0 | ||||
|
Other assets, net
|
$ | 0.1 | $ | - | ||||
|
Other liabilities
|
$ | 0.1 | $ | - | ||||
8
Table of Contents
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 Six Months Ended August 31, 2011
|
||||||||||||
|
Foreign currency contracts
|
$ | 7.0 | Sales | $ | 2.7 | |||||||
|
Foreign currency contracts
|
6.2 | Cost of product sold | 0.6 | |||||||||
|
Interest rate swap contracts
|
(22.6 | ) | Interest expense, net | - | ||||||||
|
|
||||||||||||
|
Total
|
$ | (9.4 | ) | Total | $ | 3.3 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the Six Months Ended August 31, 2010
|
||||||||||||
|
Foreign currency contracts
|
$ | 0.1 | Sales | $ | 7.9 | |||||||
|
Foreign currency contracts
|
(2.1 | ) | Cost of product sold | 1.3 | ||||||||
|
Interest rate swap contracts
|
(12.0 | ) | Interest expense, net | - | ||||||||
|
|
||||||||||||
|
Total
|
$ | (14.0 | ) | Total | $ | 9.2 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the Three Months Ended August 31, 2011
|
||||||||||||
|
Foreign currency contracts
|
$ | 3.3 | Sales | $ | 1.7 | |||||||
|
Foreign currency contracts
|
2.3 | Cost of product sold | 0.6 | |||||||||
|
Interest rate swap contracts
|
(13.0 | ) | Interest expense, net | - | ||||||||
|
|
||||||||||||
|
Total
|
$ | (7.4 | ) | Total | $ | 2.3 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the Three Months Ended August 31, 2010
|
||||||||||||
|
Foreign currency contracts
|
$ | 1.2 | Sales | $ | 4.3 | |||||||
|
Foreign currency contracts
|
1.2 | Cost of product sold | (0.9 | ) | ||||||||
|
Interest rate swap contracts
|
(12.0 | ) | Interest expense, net | - | ||||||||
|
|
||||||||||||
|
Total
|
$ | (9.6 | ) | Total | $ | 3.4 | ||||||
|
|
||||||||||||
|
|
||||||||||||
| 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 Six Months Ended August 31, 2011
|
||||||
|
|
Selling, general and | |||||
|
Foreign currency contracts
|
administrative expenses | $ | 0.8 | |||
|
|
||||||
|
For the Six Months Ended August 31, 2010
|
||||||
|
|
Selling, general and
|
|||||
|
Foreign currency contracts
|
administrative expenses | $ | 0.7 | |||
|
|
||||||
|
|
||||||
|
For the Three Months Ended August 31, 2011
|
||||||
|
|
Selling, general and
|
|||||
|
Foreign currency contracts
|
administrative expenses | $ | 0.2 | |||
|
|
||||||
|
|
||||||
|
For the Three Months Ended August 31, 2010
|
||||||
|
|
Selling, general and
|
|||||
|
Foreign currency contracts
|
administrative expenses | $ | 0.4 | |||
|
|
||||||
9
Table of Contents
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 Six Months Ended August 31, 2011
|
||||||||
|
Foreign currency contracts
|
Selling, general and administrative expenses
|
$ | 4.8 | |||||
|
|
||||||||
|
|
||||||||
|
For the Six Months Ended August 31, 2010
|
||||||||
|
Foreign currency contracts
|
Selling, general and administrative expenses
|
$ | (1.0 | ) | ||||
|
|
||||||||
|
|
||||||||
|
For the Three Months Ended August 31, 2011
|
||||||||
|
Foreign currency contracts
|
Selling, general and administrative expenses
|
$ | 1.7 | |||||
|
|
||||||||
|
|
||||||||
|
For the Three Months Ended August 31, 2010
|
||||||||
|
Foreign currency contracts
|
Selling, general and administrative expenses
|
$ | 3.3 | |||||
|
|
||||||||
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 August 31, 2011, the fair value of derivative instruments in a net liability position due to
counterparties was $41.9 million. If the Company were required to settle the net liability
position under these derivative instruments on August 31, 2011, 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 August 31, 2011, 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 August 31, 2011, the fair value of derivative instruments
in a net receivable position due from counterparties was $24.1 million.
6. 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.
10
Table of Contents
The carrying amount and estimated fair value of the Company’s financial instruments are
summarized as follows:
| August 31, 2011 | February 28, 2011 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
| (in millions) | ||||||||||||||||
|
Assets
:
|
||||||||||||||||
|
Cash and cash investments
|
$ | 10.0 | $ | 10.0 | $ | 9.2 | $ | 9.2 | ||||||||
|
Accounts receivable
|
$ | 501.7 | $ | 501.7 | $ | 417.4 | $ | 417.4 | ||||||||
|
Available-for-sale debt
securities
|
$ | 43.7 | $ | 43.7 | $ | 40.8 | $ | 40.8 | ||||||||
|
Foreign currency contracts
|
$ | 27.8 | $ | 27.8 | $ | 17.0 | $ | 17.0 | ||||||||
|
Interest rate swap contracts
|
$ | - | $ | - | $ | 1.7 | $ | 1.7 | ||||||||
|
Notes receivable
|
$ | 3.4 | $ | 3.4 | $ | 4.8 | $ | 4.8 | ||||||||
|
|
||||||||||||||||
|
Liabilities
:
|
||||||||||||||||
|
Notes payable to banks
|
$ | 198.0 | $ | 195.1 | $ | 83.7 | $ | 83.8 | ||||||||
|
Accounts payable
|
$ | 138.7 | $ | 138.7 | $ | 129.2 | $ | 129.2 | ||||||||
|
Long-term debt, including
current portion
|
$ | 2,748.4 | $ | 2,882.9 | $ | 3,152.6 | $ | 3,298.2 | ||||||||
|
Foreign currency contracts
|
$ | 4.1 | $ | 4.1 | $ | 5.3 | $ | 5.3 | ||||||||
|
Interest rate swap contracts
|
$ | 41.5 | $ | 41.5 | $ | 6.1 | $ | 6.1 | ||||||||
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.
Available-for-sale (“AFS”) debt securities
: The fair value is estimated by discounting cash
flows using market-based inputs (see “Fair value measurements” below).
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 10) 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 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 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.
11
Table of Contents
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 requires
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. 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.
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) | ||||||||||||||||
|
August 31, 2011
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
AFS debt securities
|
$ | - | $ | - | $ | 43.7 | $ | 43.7 | ||||||||
|
Foreign currency contracts
|
$ | - | $ | 27.8 | $ | - | $ | 27.8 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Foreign currency contracts
|
$ | - | $ | 4.1 | $ | - | $ | 4.1 | ||||||||
|
Interest rate swap contracts
|
$ | - | $ | 41.5 | $ | - | $ | 41.5 | ||||||||
|
|
||||||||||||||||
|
February 28, 2011
|
||||||||||||||||
|
Assets:
|
||||||||||||||||
|
AFS debt securities
|
$ | - | $ | - | $ | 40.8 | $ | 40.8 | ||||||||
|
Foreign currency contracts
|
$ | - | $ | 17.0 | $ | - | $ | 17.0 | ||||||||
|
Interest rate swap contracts
|
$ | - | $ | 1.7 | $ | - | $ | 1.7 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Foreign currency contracts
|
$ | - | $ | 5.3 | $ | - | $ | 5.3 | ||||||||
|
Interest rate swap contracts
|
$ | - | $ | 6.1 | $ | - | $ | 6.1 | ||||||||
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. AFS debt securities are valued using
market-based inputs into discounted cash flow models.
12
Table of Contents
The following table represents a reconciliation of the changes in fair value of financial
instruments measured at fair value on a recurring basis using significant unobservable inputs
(Level 3).
| AFS | ||||
| Debt | ||||
| Securities | ||||
| (in millions) | ||||
|
Balance at February 28, 2011
|
$ | 40.8 | ||
|
Total gains (losses):
|
||||
|
Included in earnings (interest expense, net)
|
3.1 | |||
|
Included in other comprehensive income (net
unrealized losses on AFS debt securities) |
(0.2 | ) | ||
|
|
||||
|
Total net gains
|
2.9 | |||
|
Transfers in and/or out of Level 3
|
- | |||
|
|
||||
|
Balance at August 31, 2011
|
$ | 43.7 | ||
|
|
||||
7. GOODWILL:
The changes in the carrying amount of goodwill are as follows:
| Constellation | Constellation | |||||||||||||||||||
| Wines | Wines | |||||||||||||||||||
| North | Australia and | Crown | Consolidations | |||||||||||||||||
| America | Europe | Imports | and | |||||||||||||||||
| (“CWNA”) | (“CWAE”) | LLC | Eliminations | Consolidated | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
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
|
49.2 | - | - | - | 49.2 | |||||||||||||||
|
Divestiture of business
|
||||||||||||||||||||
|
Goodwill
|
- | (852.6 | ) | - | - | (852.6 | ) | |||||||||||||
|
Accumulated impairment losses
|
- | 852.6 | - | - | 852.6 | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, February 28, 2011
|
||||||||||||||||||||
|
Goodwill
|
2,619.8 | - | 13.0 | (13.0 | ) | 2,619.8 | ||||||||||||||
|
Accumulated impairment losses
|
- | - | - | - | - | |||||||||||||||
|
|
||||||||||||||||||||
|
|
2,619.8 | - | 13.0 | (13.0 | ) | 2,619.8 | ||||||||||||||
|
Foreign currency translation
adjustments
|
12.9 | - | - | - | 12.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Balance, August 31, 2011
|
||||||||||||||||||||
|
Goodwill
|
2,632.7 | - | 13.0 | (13.0 | ) | 2,632.7 | ||||||||||||||
|
Accumulated impairment losses
|
- | - | - | - | - | |||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 2,632.7 | $ | - | $ | 13.0 | $ | (13.0 | ) | $ | 2,632.7 | |||||||||
|
|
||||||||||||||||||||
13
Table of Contents
Divestiture of the Australian and U.K. Business –
In January 2011, the Company sold 80.1% of its Australian and U.K. business (the “CWAE
Divestiture”) at a transaction value of $266.2 million. As of August 31, 2011, the Company has
received cash proceeds of $192.5 million, net of cash divested of $15.8 million, direct costs paid
of $11.2 million and post-closing adjustments paid of $19.9 million. The Company has retained a
less than 20% interest in its previously owned Australian and U.K. business, Accolade Wines
(“Accolade”) (see Note 9). The following table summarizes the net gain recognized and the net cash
proceeds received in connection with this divestiture.
| (in millions) | ||||
|
Net assets sold
|
$ | (734.1 | ) | |
|
Cash received from buyer, net of cash divested and
post-closing adjustments paid
|
203.7 | |||
|
Retained interest in Accolade
|
48.2 | |||
|
Foreign currency reclassification
|
678.8 | |||
|
Indemnification liabilities (see Note 12)
|
(25.4 | ) | ||
|
Direct costs to sell, paid and accrued
|
(13.2 | ) | ||
|
Other
|
7.9 | |||
|
|
||||
|
Net gain on sale
|
165.9 | |||
|
Loss on settlement of pension
|
(109.9 | ) | ||
|
|
||||
|
Net gain
|
$ | 56.0 | ||
|
|
||||
Of the $56.0 million net gain, $55.2 million was recognized for the fourth quarter of
fiscal 2011. The Company recognized an $0.8 million net gain and a $0.6 million net loss for the
six months and three months ended August 31, 2011, respectively. In addition, the Company’s CWAE
segment recorded an additional net gain of $28.5 million for the fourth quarter of fiscal 2011,
primarily associated with a net gain on derivative instruments of $20.8 million, related to this
divestiture. For the six months and three months ended August 31, 2011, the Company recorded an
additional net loss of $0.7 million and $0.1 million, respectively, related to this divestiture.
Total net gains associated with this divestiture of $83.8 million are included in selling, general
and administrative expenses on the Company’s Consolidated Statements of Operations. Of this
amount, $83.7 million of net gains was recognized for the year ended February 28, 2011, $0.1
million of net gains was recognized for the six months ended August 31, 2011, and $0.7 million of
net losses was recognized for the three months ended August 31, 2011.
8. INTANGIBLE ASSETS:
The major components of intangible assets are as follows:
| August 31, 2011 | February 28, 2011 | |||||||||||||||
| Gross | Net | Gross | Net | |||||||||||||
| Carrying | Carrying | Carrying | Carrying | |||||||||||||
| Amount | Amount | Amount | Amount | |||||||||||||
| (in millions) | ||||||||||||||||
|
Amortizable intangible assets:
|
||||||||||||||||
|
Customer relationships
|
$ | 83.1 | $ | 61.6 | $ | 83.2 | $ | 64.1 | ||||||||
|
Other
|
3.9 | 1.3 | 2.6 | - | ||||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 87.0 | 62.9 | $ | 85.8 | 64.1 | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Nonamortizable intangible assets:
|
||||||||||||||||
|
Trademarks
|
826.8 | 816.5 | ||||||||||||||
|
Other
|
5.7 | 5.7 | ||||||||||||||
|
|
||||||||||||||||
|
Total
|
832.5 | 822.2 | ||||||||||||||
|
|
||||||||||||||||
|
Total intangible assets, net
|
$ | 895.4 | $ | 886.3 | ||||||||||||
|
|
||||||||||||||||
14
Table of Contents
The Company did not incur costs to renew or extend the term of acquired intangible assets
during the six months and three months ended August 31, 2011, and August 31, 2010. 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 $2.5 million and $2.8
million for the six months ended August 31, 2011, and August 31, 2010, respectively, and $1.3
million and $1.4 million for the three months ended August 31, 2011, and August 31, 2010,
respectively. Estimated amortization expense for the remaining six months of fiscal 2012 and for
each of the five succeeding fiscal years and thereafter is as follows:
| (in millions ) | ||||
|
2012
|
$ | 2.5 | ||
|
2013
|
$ | 4.9 | ||
|
2014
|
$ | 4.9 | ||
|
2015
|
$ | 4.9 | ||
|
2016
|
$ | 5.0 | ||
|
2017
|
$ | 4.7 | ||
|
Thereafter
|
$ | 36.0 |
9. INVESTMENTS:
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 August 31,
2011, and February 28, 2011, the Company’s investment in Crown Imports was $171.3 million and
$183.3 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 $134.5 million and $156.0 million of cash distributions from Crown
Imports for the six months ended August 31, 2011, and August 31, 2010, 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 six months and three months ended August 31,
2011, and August 31, 2010, were not material. In addition, as of August 31, 2011, and February 28,
2011, amounts receivable from Crown Imports were not material.
15
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 investment’s
results of operations.
| Crown | ||||
| Imports | ||||
| (in millions) | ||||
|
For the Six Months Ended August 31, 2011
|
||||
|
Net sales
|
$ | 1,404.5 | ||
|
Gross profit
|
$ | 409.9 | ||
|
Income from continuing operations
|
$ | 245.0 | ||
|
Net income
|
$ | 245.0 | ||
|
|
||||
|
For the Six Months Ended August 31, 2010
|
||||
|
Net sales
|
$ | 1,300.9 | ||
|
Gross profit
|
$ | 368.0 | ||
|
Income from continuing operations
|
$ | 239.2 | ||
|
Net income
|
$ | 239.2 | ||
|
|
||||
|
For the Three Months Ended August 31, 2011
|
||||
|
Net sales
|
$ | 727.0 | ||
|
Gross profit
|
$ | 210.3 | ||
|
Income from continuing operations
|
$ | 125.4 | ||
|
Net income
|
$ | 125.4 | ||
|
|
||||
|
For the Three Months Ended August 31, 2010
|
||||
|
Net sales
|
$ | 679.4 | ||
|
Gross profit
|
$ | 191.8 | ||
|
Income from continuing operations
|
$ | 130.7 | ||
|
Net income
|
$ | 130.7 | ||
16
Table of Contents
Ruffino:
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 was exercisable 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 from 40.0% 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 for €55.9
million. 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.
However, subsequent to the initiation of the arbitration proceedings, the Company began discussions
with the 50.1% shareholder on a framework for settlement of all legal actions. The framework of
the settlement would include the Company’s purchase of the 50.1% shareholder’s entire equity
interest in Ruffino on revised terms to be agreed upon by both parties. As a result, the Company
recognized a loss for the fourth quarter of fiscal 2011 of €43.4 million ($60.0 million) on the
contingent obligation. During the six months and three months ended August 31, 2011, the Company
recognized a net foreign currency (loss) gain of ($2.1) million and $0.1 million, respectively, on
the contractual obligation recorded in the fourth quarter of fiscal 2011 in connection with the
potential settlement created by the notification by the 50.1% shareholder of Ruffino to exercise
the option to put its entire equity interest in Ruffino to the
Company. This net (loss) gain is
included in selling, general and administrative expenses on the Company’s Consolidated Statements
of Operations. As of August 31, 2011, and February 28, 2011, the Company’s investment in Ruffino
was $10.3 million and $7.4 million, respectively.
On
October 5, 2011, the Company acquired the 50.1% shareholder’s entire equity interest in Ruffino for €50.3 million
($68.6 million). In conjunction with this acquisition, all of
the aforementioned legal actions were settled. As a result of this
acquisition, the Company assumed indebtedness of Ruffino, net of
cash acquired, of €54.7 million ($73.0 million). The purchase price was financed with revolver
borrowings under the 2006 Credit Agreement. In accordance with the acquisition method of
accounting, the identifiable assets acquired and the liabilities assumed will be measured at their
acquisition-date fair values. The results of operations of the Ruffino business will be reported
in the Company’s CWNA segment and will be included in the consolidated results of operations of the
Company from the date of acquisition.
17
Table of Contents
Investment in Accolade –
In connection with the Company’s CWAE Divestiture, the Company retained a less than 20%
interest in Accolade, its previously owned Australian and U.K. business, which consists of equity
securities and AFS debt securities. The investment in the equity securities is accounted for under
the cost method. Accordingly, the Company recognizes earnings only upon the receipt of a dividend
from Accolade. Dividends received in excess of net accumulated earnings since the date of
investment are considered a return of investment and are recorded as a reduction of the cost of the
investment. No dividends were received for the six months and three months ended August 31, 2011.
The AFS debt securities are measured at fair value on a recurring basis with unrealized holding
gains and losses, including foreign currency gains and losses, reported in AOCI until realized.
Interest income is recognized based on the interest rate implicit in the AFS debt securities’ fair
value and is reported in interest expense, net, on the Company’s Consolidated Statements of
Operations. Interest income recognized in connection with the AFS debt securities was not material
for the six months and three months ended August 31, 2011. The AFS debt securities have a
contractual maturity of twelve years from the date of issuance and can be settled, at the option of
the issuer, in cash, equity shares of the issuer, or a combination thereof.
10. BORROWINGS:
Borrowings consist of the following:
| February 28, | ||||||||||||||||
| August 31, 2011 | 2011 | |||||||||||||||
| Current | Long-term | Total | Total | |||||||||||||
| (in millions) | ||||||||||||||||
|
Notes Payable to Banks
|
||||||||||||||||
|
Senior
Credit Facility –
|
||||||||||||||||
|
Revolving Credit Loans
|
$ | 189.8 | $ | - | $ | 189.8 | $ | 74.9 | ||||||||
|
Other
|
8.2 | - | 8.2 | 8.8 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 198.0 | $ | - | $ | 198.0 | $ | 83.7 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Long-term Debt
|
||||||||||||||||
|
Senior
Credit Facility –
Term Loans
|
$ | 0.9 | $ | 825.7 | $ | 826.6 | $ | 1,228.0 | ||||||||
|
Senior Notes
|
- | 1,894.2 | 1,894.2 | 1,893.6 | ||||||||||||
|
Other Long-term Debt
|
12.8 | 14.8 | 27.6 | 31.0 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 13.7 | $ | 2,734.7 | $ | 2,748.4 | $ | 3,152.6 | ||||||||
|
|
||||||||||||||||
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 an original final maturity in June 2011, fully repaid as of
February 28, 2011, (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 $200.0 million), of which
$192.0 million terminated in June 2011 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.
18
Table of Contents
As of August 31, 2011, following the prepayment of $400.0 million of the tranche B term
loan facility during the first quarter of fiscal 2012, under the 2006 Credit Agreement, the Company
had outstanding 2013 Tranche B Term Loans of $624.7 million bearing an interest rate of 1.8%, 2015
Tranche B Term Loans of $201.9 million bearing an interest rate of 3.0%, 2013 Revolving Facility of
$189.8 million bearing an interest rate of 2.7%, outstanding letters of credit of $12.8 million,
and $447.4 million in revolving loans available to be drawn.
As of August 31, 2011, the required principal repayments of the tranche B term loan facility
for the remaining six months of fiscal 2012 and for each of the four succeeding fiscal years are as
follows:
| Tranche B | ||||
| Term Loan | ||||
| Facility | ||||
| (in millions) | ||||
|
2012
|
$ | - | ||
|
2013
|
314.1 | |||
|
2014
|
314.1 | |||
|
2015
|
99.7 | |||
|
2016
|
98.7 | |||
|
|
||||
|
|
$ | 826.6 | ||
|
|
||||
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. The Company did not reclassify any
amount from AOCI to interest expense, net on its Consolidated Statements of Operations for the six
months and three months ended August 31, 2011, and August 31, 2010.
11. INCOME TAXES:
The Company’s effective tax rate for the six months ended August 31, 2011, and August 31,
2010, was 17.1% and 44.2%, respectively. The Company’s effective tax rate for the six months ended
August 31, 2011, was substantially impacted by a decrease in uncertain tax positions in connection with the completion
of various income tax examinations during the six months ended August 31, 2011. The Company’s
effective tax rate for the six months ended August 31, 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 six months ended August 31, 2010.
The Company’s effective tax rate for the three months ended August 31, 2011, and August 31,
2010, was 2.3% and 38.8%, respectively. The Company’s effective tax rate for the three months
ended August 31, 2011, was substantially impacted by a decrease in uncertain tax positions in connection with the
completion of various income tax examinations during the three months ended August 31, 2011.
19
Table of Contents
12. COMMITMENTS AND CONTINGENCIES:
Indemnification liabilities –
In connection with the CWAE Divestiture, the Company indemnified respective parties against
certain liabilities that may arise related to certain contracts with certain investees of Accolade,
a certain facility in the U.K. and a certain income tax matter. As a result, the Company recorded
liabilities with a fair value of $26.1 million at January 31, 2011. During the first quarter of
fiscal 2012, the Company was released from one of its guarantees related to a contract with a
certain investee of Accolade. In connection with this release, the Company recognized a gain of
$0.7 million, which is included in selling, general and administrative expenses on the Company’s
Consolidated Statements of Operations for the six months ended August 31, 2011. As of August 31,
2011, and February 28, 2011, the carrying amount of these indemnification liabilities was $25.4
million and $26.1 million, respectively. If the indemnified party were to incur a liability,
pursuant to the terms of the indemnification, the Company would be required to reimburse the
indemnified party. As of August 31, 2011, the Company estimates that these indemnifications could
require the Company to make potential future payments of up to $330.9 million under these
indemnifications with $282.1 million of this amount subject to recovery by the Company from third
parties under recourse provisions. The Company does not expect to be required to make material
payments under the indemnifications and the Company believes that the likelihood is remote that the
indemnifications could have a significant adverse effect on the Company’s financial position,
results of operations, cash flows or liquidity.
13. STOCKHOLDERS’ EQUITY:
In April 2011, the Company’s Board of Directors authorized the repurchase of up to $500.0
million of the Company’s Class A Common Stock and Class B Convertible Common Stock. The Board of
Directors did not specify a date upon which this authorization would expire. Share repurchases
under this authorization are expected to be accomplished from time to time based on market
conditions, the Company’s cash and debt position, and other factors as determined by management.
Shares may be repurchased through open market or privately negotiated transactions, and management
currently expects that the repurchases under this authorization will be implemented over a
multi-year period. The Company may fund share repurchases with cash generated from operations or
proceeds of borrowings under its senior credit facility. Any repurchased shares will become
treasury shares.
During the six months ended August 31, 2011, the Company repurchased 9,766,888 shares of Class
A Common Stock pursuant to this authorization at an aggregate cost of $187.5 million, or an average
cost of $19.20 per share, through open market transactions. Subsequent to August 31, 2011, and
through October 11, 2011, the Company repurchased an additional
4,751,600 shares of Class A Common Stock
pursuant to this authorization at an aggregate cost of $85.7 million, or an average cost of $18.02 per
share, through open market transactions. In total, the Company has
repurchased 14,518,488 shares of Class A
Common Stock pursuant to this authorization at an aggregate cost of
$273.2 million, or an average cost
of $18.82 per share. The Company used revolver borrowings under the 2006 Credit Agreement and cash
flows from operating activities to pay the purchase price for the repurchased shares. The
repurchased shares have become treasury shares.
20
Table of Contents
14. 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 six months and three months ended August 31, 2011, and August 31, 2010,
earnings per common share – diluted for Class A Common Stock has been calculated using the
if-converted method. For the six months and three months ended August 31, 2011, and August 31,
2010, 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.
The computation of basic and diluted earnings per common share is as follows:
| For the Six Months | For the Three Months | |||||||||||||||
| Ended August 31, | Ended August 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (in millions, except per share data) | ||||||||||||||||
|
Income available to common stockholders
|
$ | 237.2 | $ | 140.4 | $ | 162.7 | $ | 91.3 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding – basic:
|
||||||||||||||||
|
Class A Common Stock
|
186.837 | 189.084 | 186.629 | 185.455 | ||||||||||||
|
|
||||||||||||||||
|
Class B Convertible Common Stock
|
23.599 | 23.719 | 23.593 | 23.712 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding –
diluted:
|
||||||||||||||||
|
Class A Common Stock
|
186.837 | 189.084 | 186.629 | 185.455 | ||||||||||||
|
Class B Convertible Common Stock
|
23.599 | 23.719 | 23.593 | 23.712 | ||||||||||||
|
Stock-based awards, primarily stock options
|
3.970 | 2.333 | 3.423 | 1.982 | ||||||||||||
|
|
||||||||||||||||
|
Weighted average common shares outstanding –
diluted
|
214.406 | 215.136 | 213.645 | 211.149 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Earnings per common share – basic:
|
||||||||||||||||
|
Class A Common Stock
|
$ | 1.14 | $ | 0.67 | $ | 0.78 | $ | 0.44 | ||||||||
|
|
||||||||||||||||
|
Class B Convertible Common Stock
|
$ | 1.04 | $ | 0.61 | $ | 0.71 | $ | 0.40 | ||||||||
|
|
||||||||||||||||
|
Earnings per common share – diluted:
|
||||||||||||||||
|
Class A Common Stock
|
$ | 1.11 | $ | 0.65 | $ | 0.76 | $ | 0.43 | ||||||||
|
|
||||||||||||||||
|
Class B Convertible Common Stock
|
$ | 1.02 | $ | 0.60 | $ | 0.70 | $ | 0.40 | ||||||||
|
|
||||||||||||||||
For the six months ended August 31, 2011, and August 31, 2010, stock-based awards,
primarily stock options, which could result in the issuance of 9.0 million and 23.5 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 August 31, 2011, and August 31,
2010, stock-based awards, primarily stock options, which could result in the issuance of 9.1
million and 25.3 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.
21
Table of Contents
15. COMPREHENSIVE INCOME (LOSS):
Comprehensive income (loss) consists of net income, foreign currency translation adjustments,
net unrealized losses on derivative instruments, net unrealized losses on AFS debt securities and
pension/postretirement adjustments. The reconciliation of net income to comprehensive income is as
follows:
| Before Tax | Tax (Expense) | Net of Tax | ||||||||||
| (in millions) | Amount | Benefit | Amount | |||||||||
|
For the Six Months Ended August 31, 2011
|
||||||||||||
|
Net income
|
$ | 237.2 | ||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | 42.0 | $ | (0.5 | ) | 41.5 | ||||||
|
Unrealized loss on cash flow hedges:
|
||||||||||||
|
Net derivative losses
|
(19.6 | ) | 10.2 | (9.4 | ) | |||||||
|
Reclassification adjustments
|
(5.1 | ) | 1.0 | (4.1 | ) | |||||||
|
|
||||||||||||
|
Net loss recognized in other comprehensive income
|
(24.7 | ) | 11.2 | (13.5 | ) | |||||||
|
Net unrealized loss on AFS debt securities
|
(0.2 | ) | - | (0.2 | ) | |||||||
|
Pension/postretirement adjustments:
|
||||||||||||
|
Net gains
arising during the period
|
- | - | - | |||||||||
|
Reclassification
adjustments
|
0.2 | - | 0.2 | |||||||||
|
|
||||||||||||
|
Net gain
recognized in other comprehensive income
|
0.2 | - | 0.2 | |||||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 17.3 | $ | 10.7 | 28.0 | |||||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 265.2 | ||||||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the Six Months Ended August 31, 2010
|
||||||||||||
|
Net income
|
$ | 140.4 | ||||||||||
|
Other comprehensive (loss) income:
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | (14.3 | ) | $ | (1.6 | ) | (15.9 | ) | ||||
|
Unrealized loss on cash flow hedges:
|
||||||||||||
|
Net derivative losses
|
(19.1 | ) | 5.1 | (14.0 | ) | |||||||
|
Reclassification adjustments
|
(13.3 | ) | 3.4 | (9.9 | ) | |||||||
|
|
||||||||||||
|
Net loss recognized in other comprehensive income
|
(32.4 | ) | 8.5 | (23.9 | ) | |||||||
|
Pension/postretirement adjustments:
|
||||||||||||
|
Net losses arising during the period
|
(0.7 | ) | 0.4 | (0.3 | ) | |||||||
|
Reclassification adjustments
|
4.9 | (1.4 | ) | 3.5 | ||||||||
|
|
||||||||||||
|
Net gain recognized in other comprehensive income
|
4.2 | (1.0 | ) | 3.2 | ||||||||
|
|
||||||||||||
|
Other comprehensive loss
|
$ | (42.5 | ) | $ | 5.9 | (36.6 | ) | |||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 103.8 | ||||||||||
|
|
||||||||||||
|
|
||||||||||||
|
For the Three Months Ended August 31, 2011
|
||||||||||||
|
Net income
|
$ | 162.7 | ||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | 2.7 | $ | 0.3 | 3.0 | |||||||
|
Unrealized loss on cash flow hedges:
|
||||||||||||
|
Net derivative losses
|
(14.2 | ) | 6.8 | (7.4 | ) | |||||||
|
Reclassification adjustments
|
(3.1 | ) | 0.6 | (2.5 | ) | |||||||
|
|
||||||||||||
|
Net loss recognized in other comprehensive income
|
(17.3 | ) | 7.4 | (9.9 | ) | |||||||
|
Net unrealized loss on AFS debt securities
|
(0.2 | ) | - | (0.2 | ) | |||||||
|
Pension/postretirement adjustments:
|
||||||||||||
|
Net gains
arising during the period
|
- | - | - | |||||||||
|
Reclassification
adjustments
|
0.2 | - | 0.2 | |||||||||
|
|
||||||||||||
|
Net gain
recognized in other comprehensive income
|
0.2 | - | 0.2 | |||||||||
|
|
||||||||||||
|
Other comprehensive loss
|
$ | (14.6 | ) | $ | 7.7 | (6.9 | ) | |||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 155.8 | ||||||||||
|
|
||||||||||||
22
Table of Contents
| Before Tax | Tax (Expense) | Net of Tax | ||||||||||
| Amount | Benefit | Amount | ||||||||||
| (in millions) | ||||||||||||
|
For the Three Months Ended August 31, 2010
|
||||||||||||
|
Net income
|
$ | 91.3 | ||||||||||
|
Other comprehensive income (loss):
|
||||||||||||
|
Foreign currency translation adjustments
|
$ | 36.8 | $ | 2.5 | 39.3 | |||||||
|
Unrealized loss on cash flow hedges:
|
||||||||||||
|
Net derivative losses
|
(14.1 | ) | 4.5 | (9.6 | ) | |||||||
|
Reclassification adjustments
|
(5.3 | ) | 1.5 | (3.8 | ) | |||||||
|
|
||||||||||||
|
Net loss recognized in other comprehensive income
|
(19.4 | ) | 6.0 | (13.4 | ) | |||||||
|
Pension/postretirement adjustments:
|
||||||||||||
|
Net losses arising during the period
|
(6.7 | ) | 2.1 | (4.6 | ) | |||||||
|
Reclassification adjustments
|
2.5 | (0.7 | ) | 1.8 | ||||||||
|
|
||||||||||||
|
Net loss recognized in other comprehensive income
|
(4.2 | ) | 1.4 | (2.8 | ) | |||||||
|
|
||||||||||||
|
Other comprehensive income
|
$ | 13.2 | $ | 9.9 | 23.1 | |||||||
|
|
||||||||||||
|
Total comprehensive income
|
$ | 114.4 | ||||||||||
|
|
||||||||||||
Accumulated other comprehensive income (“AOCI”), net of income tax effect, includes the
following components:
| Net | Net | |||||||||||||||||||
| Foreign | Unrealized | Unrealized | Accumulated | |||||||||||||||||
| Currency | Gains | Gains (Losses) on | Pension/ | Other | ||||||||||||||||
| Translation | (Losses) on | AFS Debt | Postretirement | Comprehensive | ||||||||||||||||
| Adjustments | Derivatives | Securities | Adjustments | Income | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
|
Balance, February 28, 2011
|
$ | 193.2 | $ | 4.2 | $ | 0.8 | $ | (9.4 | ) | $ | 188.8 | |||||||||
|
Current period change
|
41.5 | (13.5 | ) | (0.2 | ) | 0.2 | 28.0 | |||||||||||||
|
|
||||||||||||||||||||
|
Balance, August 31, 2011
|
$ | 234.7 | $ | (9.3 | ) | $ | 0.6 | $ | (9.2 | ) | $ | 216.8 | ||||||||
|
|
||||||||||||||||||||
16. RESTRUCTURING CHARGES:
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 Company. 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.
23
Table of Contents
The Company’s significant restructuring plans with current activity are as follows:
Fiscal 2012 Initiative –
In May 2011, the Company committed to a plan (announced in June 2011) to streamline
operations, gain efficiencies and reduce its cost structure following the CWAE Divestiture (the
“Fiscal 2012 Initiative”). The Fiscal 2012 Initiative includes an approximate two to three percent
reduction in the Company’s global workforce. 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 all costs and related cash
expenditures associated with the Fiscal 2012 Initiative to be completed by February 28, 2013.
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 approximate 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 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.
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, 2011, are reported below under “Other Plans.”
| Fiscal | ||||||||||||||||
| 2012 | Global | Other | ||||||||||||||
| Initiative | Initiative | Plans | Total | |||||||||||||
| (in millions) | ||||||||||||||||
|
Restructuring liability, February 28, 2011
|
$ | - | $ | 7.6 | $ | 2.1 | $ | 9.7 | ||||||||
|
|
||||||||||||||||
|
Restructuring charges:
|
||||||||||||||||
|
Employee termination benefit costs
|
11.0 | 0.1 | - | 11.1 | ||||||||||||
|
Contract termination costs
|
- | - | - | - | ||||||||||||
|
Facility consolidation/relocation costs
|
- | - | - | - | ||||||||||||
|
|
||||||||||||||||
|
Restructuring charges, May 31, 2011
|
11.0 | 0.1 | - | 11.1 | ||||||||||||
|
|
||||||||||||||||
|
Employee termination benefit costs
|
(0.2 | ) | (0.2 | ) | - | (0.4 | ) | |||||||||
|
Contract termination costs
|
- | - | - | - | ||||||||||||
|
Facility consolidation/relocation costs
|
- | 0.1 | - | 0.1 | ||||||||||||
|
|
||||||||||||||||
|
Restructuring charges, August 31, 2011
|
(0.2 | ) | (0.1 | ) | - | (0.3 | ) | |||||||||
|
|
||||||||||||||||
|
Total restructuring charges
|
10.8 | - | - | 10.8 | ||||||||||||
|
|
||||||||||||||||
|
Cash expenditures
|
(2.0 | ) | (3.3 | ) | (0.9 | ) | (6.2 | ) | ||||||||
|
|
||||||||||||||||
|
Foreign currency translation adjustments
|
- | 0.7 | - | 0.7 | ||||||||||||
|
|
||||||||||||||||
|
Restructuring liability, August 31, 2011
|
$ | 8.8 | $ | 5.0 | $ | 1.2 | $ | 15.0 | ||||||||
|
|
||||||||||||||||
24
Table of Contents
The following table presents a summary of restructuring charges and other costs incurred,
including a summary of amounts incurred by each of the Company’s reportable segments, in connection
with the Company’s restructuring plans noted above.
| Fiscal | ||||||||||||||||
| 2012 | Global | Other | ||||||||||||||
| Initiative | Initiative | Plans | Total | |||||||||||||
| (in millions) | ||||||||||||||||
|
For the Six Months Ended August 31, 2011
|
||||||||||||||||
|
Restructuring charges
|
$ | 10.8 | $ | - | $ | - | $ | 10.8 | ||||||||
|
Other costs:
|
||||||||||||||||
|
Accelerated depreciation (cost of
product sold)
|
- | 0.3 | - | 0.3 | ||||||||||||
|
Asset write-down/other
costs/acquisition-related integration
costs (selling, general and
administrative expenses)
|
3.5 | 0.7 | - | 4.2 | ||||||||||||
|
|
||||||||||||||||
|
Total other costs
|
3.5 | 1.0 | - | 4.5 | ||||||||||||
|
|
||||||||||||||||
|
Total costs
|
$ | 14.3 | $ | 1.0 | $ | - | $ | 15.3 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||
|
CWNA
|
||||||||||||||||
|
Restructuring charges
|
$ | 5.3 | $ | - | $ | - | $ | 5.3 | ||||||||
|
Other costs
|
2.5 | 1.0 | - | 3.5 | ||||||||||||
|
|
||||||||||||||||
|
Total CWNA
|
$ | 7.8 | $ | 1.0 | $ | - | $ | 8.8 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||
|
Restructuring charges
|
$ | 5.5 | $ | - | $ | - | $ | 5.5 | ||||||||
|
Other costs
|
1.0 | - | - | 1.0 | ||||||||||||
|
|
||||||||||||||||
|
Total Corporate Operations and Other
|
$ | 6.5 | $ | - | $ | - | $ | 6.5 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
For the Six Months Ended August 31, 2010
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | 12.2 | $ | 6.4 | $ | 18.6 | ||||||||
|
Other costs:
|
||||||||||||||||
|
Accelerated depreciation (cost of
product sold)
|
- | 1.1 | - | 1.1 | ||||||||||||
|
Asset write-down/other
costs/acquisition-related integration
costs (selling, general and
administrative expenses)
|
- | 2.7 | 0.2 | 2.9 | ||||||||||||
|
|
||||||||||||||||
|
Total other costs
|
- | 3.8 | 0.2 | 4.0 | ||||||||||||
|
|
||||||||||||||||
|
Total costs
|
$ | - | $ | 16.0 | $ | 6.6 | $ | 22.6 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||
|
CWNA
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | 1.7 | $ | 0.1 | $ | 1.8 | ||||||||
|
Other costs
|
- | 3.4 | 0.2 | 3.6 | ||||||||||||
|
|
||||||||||||||||
|
Total CWNA
|
$ | - | $ | 5.1 | $ | 0.3 | $ | 5.4 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
CWAE
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | 10.5 | $ | 6.3 | $ | 16.8 | ||||||||
|
Other costs
|
- | 0.3 | - | 0.3 | ||||||||||||
|
|
||||||||||||||||
|
Total CWAE
|
$ | - | $ | 10.8 | $ | 6.3 | $ | 17.1 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Other costs
|
- | 0.1 | - | 0.1 | ||||||||||||
|
|
||||||||||||||||
|
Total Corporate Operations and Other
|
$ | - | $ | 0.1 | $ | - | $ | 0.1 | ||||||||
|
|
||||||||||||||||
25
Table of Contents
| Fiscal | ||||||||||||||||
| 2012 | Global | Other | ||||||||||||||
| Initiative | Initiative | Plans | Total | |||||||||||||
| (in millions) | ||||||||||||||||
|
For the Three Months Ended August 31, 2011
|
||||||||||||||||
|
Restructuring charges
|
$ | (0.2 | ) | $ | (0.1 | ) | $ | - | $ | (0.3 | ) | |||||
|
Other costs:
|
||||||||||||||||
|
Accelerated depreciation (cost of
product sold)
|
- | 0.1 | - | 0.1 | ||||||||||||
|
Asset write-down/other
costs/acquisition-related integration
costs (selling, general and
administrative expenses)
|
2.5 | 0.6 | - | 3.1 | ||||||||||||
|
|
||||||||||||||||
|
Total other costs
|
2.5 | 0.7 | - | 3.2 | ||||||||||||
|
|
||||||||||||||||
|
Total costs
|
$ | 2.3 | $ | 0.6 | $ | - | $ | 2.9 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||
|
CWNA
|
||||||||||||||||
|
Restructuring charges
|
$ | (0.2 | ) | $ | (0.1 | ) | $ | - | $ | (0.3 | ) | |||||
|
Other costs
|
2.4 | 0.7 | - | 3.1 | ||||||||||||
|
|
||||||||||||||||
|
Total CWNA
|
$ | 2.2 | $ | 0.6 | $ | - | $ | 2.8 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Other costs
|
0.1 | - | - | 0.1 | ||||||||||||
|
|
||||||||||||||||
|
Total Corporate Operations and Other
|
$ | 0.1 | $ | - | $ | - | $ | 0.1 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
For the Three Months Ended August 31, 2010
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | 7.4 | $ | 6.3 | $ | 13.7 | ||||||||
|
Other costs:
|
||||||||||||||||
|
Accelerated depreciation (cost of
product sold)
|
- | 0.1 | - | 0.1 | ||||||||||||
|
Asset write-down/other
costs/acquisition-related integration
costs (selling, general and
administrative expenses)
|
- | 1.8 | 1.1 | 2.9 | ||||||||||||
|
|
||||||||||||||||
|
Total other costs
|
- | 1.9 | 1.1 | 3.0 | ||||||||||||
|
|
||||||||||||||||
|
Total costs
|
$ | - | $ | 9.3 | $ | 7.4 | $ | 16.7 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total Costs by Reportable Segment:
|
||||||||||||||||
|
CWNA
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | 1.0 | $ | - | $ | 1.0 | ||||||||
|
Other costs
|
- | 1.7 | 0.1 | 1.8 | ||||||||||||
|
|
||||||||||||||||
|
Total CWNA
|
$ | - | $ | 2.7 | $ | 0.1 | $ | 2.8 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
CWAE
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | 6.4 | $ | 6.3 | $ | 12.7 | ||||||||
|
Other costs
|
- | 0.1 | 1.0 | 1.1 | ||||||||||||
|
|
||||||||||||||||
|
Total CWAE
|
$ | - | $ | 6.5 | $ | 7.3 | $ | 13.8 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Corporate Operations and Other
|
||||||||||||||||
|
Restructuring charges
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Other costs
|
- | 0.1 | - | 0.1 | ||||||||||||
|
|
||||||||||||||||
|
Total Corporate Operations and Other
|
$ | - | $ | 0.1 | $ | - | $ | 0.1 | ||||||||
|
|
||||||||||||||||
26
Table of Contents
A summary of restructuring charges and other costs incurred since inception for each of
the Company’s restructuring plans with current activity, as well as total expected costs for such
plans, are presented in the following table.
| Fiscal | ||||||||
| 2012 | Global | |||||||
| Initiative | Initiative | |||||||
| (in millions) | ||||||||
|
Costs incurred to date
|
||||||||
|
Restructuring charges:
|
||||||||
|
Employee termination benefit costs
|
$ | 10.8 | $ | 35.4 | ||||
|
Contract termination costs
|
- | 8.7 | ||||||
|
Facility consolidation/relocation costs
|
- | 2.7 | ||||||
|
|
||||||||
|
Total restructuring charges
|
10.8 | 46.8 | ||||||
|
Other costs:
|
||||||||
|
Accelerated depreciation/inventory
write-down/other costs (cost of product sold)
|
- | 13.8 | ||||||
|
Asset write-down/other costs (selling, general
and administrative expenses)
|
3.5 | 41.0 | ||||||
|
|
||||||||
|
Total other costs
|
3.5 | 54.8 | ||||||
|
|
||||||||
|
Total costs incurred to date
|
$ | 14.3 | $ | 101.6 | ||||
|
|
||||||||
|
|
||||||||
|
Total Costs Incurred to Date by Reportable Segment:
|
||||||||
|
CWNA
|
||||||||
|
Restructuring charges
|
$ | 5.3 | $ | 23.0 | ||||
|
Other costs
|
2.5 | 43.6 | ||||||
|
|
||||||||
|
Total CWNA
|
$ | 7.8 | $ | 66.6 | ||||
|
|
||||||||
|
|
||||||||
|
CWAE
|
||||||||
|
Restructuring charges
|
$ | - | $ | 19.5 | ||||
|
Other costs
|
- | 6.2 | ||||||
|
|
||||||||
|
Total CWAE
|
$ | - | $ | 25.7 | ||||
|
|
||||||||
|
|
||||||||
|
Corporate Operations and Other
|
||||||||
|
Restructuring charges
|
$ | 5.5 | $ | 4.3 | ||||
|
Other costs
|
1.0 | 5.0 | ||||||
|
|
||||||||
|
Total Corporate Operations and Other
|
$ | 6.5 | $ | 9.3 | ||||
|
|
||||||||
|
|
||||||||
|
Total expected costs
|
||||||||
|
Restructuring charges:
|
||||||||
|
Employee termination benefit costs
|
$ | 12.4 | $ | 35.4 | ||||
|
Contract termination costs
|
- | 8.7 | ||||||
|
Facility consolidation/relocation costs
|
0.1 | 2.7 | ||||||
|
|
||||||||
|
Total restructuring charges
|
12.5 | 46.8 | ||||||
|
Other costs:
|
||||||||
|
Accelerated depreciation/inventory
write-down/other costs (cost of product sold)
|
- | 13.8 | ||||||
|
Asset write-down/other costs (selling, general
and administrative expenses)
|
14.1 | 41.5 | ||||||
|
|
||||||||
|
Total other costs
|
14.1 | 55.3 | ||||||
|
|
||||||||
|
Total expected costs
|
$ | 26.6 | $ | 102.1 | ||||
|
|
||||||||
|
|
||||||||
|
Total Expected Costs by Reportable Segment:
|
||||||||
|
CWNA
|
||||||||
|
Restructuring charges
|
$ | 5.7 | $ | 23.0 | ||||
|
Other costs
|
7.2 | 44.1 | ||||||
|
|
||||||||
|
Total CWNA
|
$ | 12.9 | $ | 67.1 | ||||
|
|
||||||||
|
|
||||||||
27
Table of Contents
| Fiscal | ||||||||
| 2012 | Global | |||||||
| Initiative | Initiative | |||||||
| (in millions) | ||||||||
|
CWAE
|
||||||||
|
Restructuring charges
|
$ | - | $ | 19.5 | ||||
|
Other costs
|
- | 6.2 | ||||||
|
|
||||||||
|
Total CWAE
|
$ | - | $ | 25.7 | ||||
|
|
||||||||
|
|
||||||||
|
Corporate Operations and Other
|
||||||||
|
Restructuring charges
|
$ | 6.8 | $ | 4.3 | ||||
|
Other costs
|
6.9 | 5.0 | ||||||
|
|
||||||||
|
Total Corporate Operations and Other
|
$ | 13.7 | $ | 9.3 | ||||
|
|
||||||||
17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
The following information sets forth the condensed consolidating balance sheets as of August
31, 2011, and February 28, 2011, the condensed consolidating statements of operations for the six
months and three months ended August 31, 2011, and August 31, 2010, and the condensed consolidating
statements of cash flows for the six months ended August 31, 2011, and August 31, 2010, 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, 2011, 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 August 31, 2011
|
||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash investments
|
$ | 0.3 | $ | 1.0 | $ | 8.7 | $ | - | $ | 10.0 | ||||||||||
|
Accounts receivable, net
|
396.4 | 37.1 | 68.2 | - | 501.7 | |||||||||||||||
|
Inventories
|
129.1 | 843.8 | 292.3 | (6.0 | ) | 1,259.2 | ||||||||||||||
|
Prepaid expenses and other
|
18.6 | 78.6 | 395.8 | (344.3 | ) | 148.7 | ||||||||||||||
|
Intercompany (payable) receivable
|
(931.7 | ) | 796.9 | 134.8 | - | - | ||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
(387.3 | ) | 1,757.4 | 899.8 | (350.3 | ) | 1,919.6 | |||||||||||||
|
Property, plant and equipment, net
|
113.0 | 771.8 | 356.2 | - | 1,241.0 | |||||||||||||||
|
Investments in subsidiaries
|
6,415.5 | 155.3 | - | (6,570.8 | ) | - | ||||||||||||||
|
Goodwill
|
- | 1,987.4 | 645.3 | - | 2,632.7 | |||||||||||||||
|
Intangible assets, net
|
- | 675.3 | 220.1 | - | 895.4 | |||||||||||||||
|
Other assets, net
|
28.3 | 239.2 | 82.7 | (4.2 | ) | 346.0 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 6,169.5 | $ | 5,586.4 | $ | 2,204.1 | $ | (6,925.3 | ) | $ | 7,034.7 | |||||||||
|
|
||||||||||||||||||||
28
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
|
(in millions)
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Notes payable to banks
|
$ | 189.8 | $ | - | $ | 8.2 | $ | - | $ | 198.0 | ||||||||||
|
Current maturities of long-term debt
|
11.5 | 2.2 | - | - | 13.7 | |||||||||||||||
|
Accounts payable
|
7.2 | 108.8 | 22.7 | - | 138.7 | |||||||||||||||
|
Accrued excise taxes
|
12.8 | 9.0 | 4.6 | - | 26.4 | |||||||||||||||
|
Other accrued expenses and
liabilities
|
472.4 | 128.3 | 155.2 | (345.9 | ) | 410.0 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
693.7 | 248.3 | 190.7 | (345.9 | ) | 786.8 | ||||||||||||||
|
Long-term debt, less current maturities
|
2,721.3 | 13.4 | - | - | 2,734.7 | |||||||||||||||
|
Deferred income taxes
|
- | 508.1 | 93.0 | (4.2 | ) | 596.9 | ||||||||||||||
|
Other liabilities
|
55.4 | 70.3 | 91.5 | - | 217.2 | |||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||||||
|
Preferred stock
|
- | 9.0 | 1,130.7 | (1,139.7 | ) | - | ||||||||||||||
|
Class A and Class B Convertible
Common Stock
|
2.6 | 100.7 | 24.0 | (124.7 | ) | 2.6 | ||||||||||||||
|
Additional paid-in capital
|
1,655.0 | 1,394.6 | 1,620.5 | (3,015.1 | ) | 1,655.0 | ||||||||||||||
|
Retained earnings (deficit)
|
1,899.5 | 3,224.9 | (1,207.8 | ) | (2,017.1 | ) | 1,899.5 | |||||||||||||
|
Accumulated other comprehensive
income
|
216.8 | 17.1 | 261.5 | (278.6 | ) | 216.8 | ||||||||||||||
|
Treasury stock
|
(1,074.8 | ) | - | - | - | (1,074.8 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total stockholders’ equity
|
2,699.1 | 4,746.3 | 1,828.9 | (6,575.2 | ) | 2,699.1 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and stockholders’
equity
|
$ | 6,169.5 | $ | 5,586.4 | $ | 2,204.1 | $ | (6,925.3 | ) | $ | 7,034.7 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Balance Sheet at February 28, 2011 | ||||||||||||||||||||
|
Current assets:
|
||||||||||||||||||||
|
Cash and cash investments
|
$ | 0.7 | $ | 0.9 | $ | 7.6 | $ | - | $ | 9.2 | ||||||||||
|
Accounts receivable, net
|
322.8 | 32.3 | 62.3 | - | 417.4 | |||||||||||||||
|
Inventories
|
127.5 | 965.3 | 284.3 | (7.8 | ) | 1,369.3 | ||||||||||||||
|
Prepaid expenses and other
|
23.1 | 118.2 | 370.9 | (225.1 | ) | 287.1 | ||||||||||||||
|
Intercompany (payable) receivable
|
(522.3 | ) | 389.7 | 132.6 | - | - | ||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
(48.2 | ) | 1,506.4 | 857.7 | (232.9 | ) | 2,083.0 | |||||||||||||
|
Property, plant and equipment, net
|
110.3 | 764.8 | 344.5 | - | 1,219.6 | |||||||||||||||
|
Investments in subsidiaries
|
6,142.6 | 153.4 | - | (6,296.0 | ) | - | ||||||||||||||
|
Goodwill
|
- | 1,987.4 | 632.4 | - | 2,619.8 | |||||||||||||||
|
Intangible assets, net
|
- | 672.1 | 214.2 | - | 886.3 | |||||||||||||||
|
Other assets, net
|
36.3 | 256.9 | 72.9 | (7.2 | ) | 358.9 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total assets
|
$ | 6,241.0 | $ | 5,341.0 | $ | 2,121.7 | $ | (6,536.1 | ) | $ | 7,167.6 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Current liabilities:
|
||||||||||||||||||||
|
Notes payable to banks
|
$ | 74.9 | $ | - | $ | 8.8 | $ | - | $ | 83.7 | ||||||||||
|
Current maturities of long-term debt
|
12.5 | 3.4 | - | - | 15.9 | |||||||||||||||
|
Accounts payable
|
9.7 | 97.1 | 22.4 | - | 129.2 | |||||||||||||||
|
Accrued excise taxes
|
10.2 | 1.8 | 2.2 | - | 14.2 | |||||||||||||||
|
Other accrued expenses and
liabilities
|
354.6 | 137.2 | 155.0 | (226.9 | ) | 419.9 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
461.9 | 239.5 | 188.4 | (226.9 | ) | 662.9 | ||||||||||||||
|
Long-term debt, less current maturities
|
3,117.3 | 19.4 | - | - | 3,136.7 | |||||||||||||||
|
Deferred income taxes
|
- | 509.0 | 81.3 | (7.2 | ) | 583.1 | ||||||||||||||
|
Other liabilities
|
109.9 | 37.0 | 86.1 | - | 233.0 | |||||||||||||||
29
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
|
(in millions)
|
||||||||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||||||
|
Preferred stock
|
- | 9.0 | 1,130.7 | (1,139.7 | ) | - | ||||||||||||||
|
Class A and Class B Convertible
Common Stock
|
2.6 | 100.7 | 24.0 | (124.7 | ) | 2.6 | ||||||||||||||
|
Additional paid-in capital
|
1,602.4 | 1,394.6 | 1,620.5 | (3,015.1 | ) | 1,602.4 | ||||||||||||||
|
Retained earnings (deficit)
|
1,662.3 | 2,991.6 | (1,221.1 | ) | (1,770.5 | ) | 1,662.3 | |||||||||||||
|
Accumulated other comprehensive
income
|
188.8 | 40.2 | 211.8 | (252.0 | ) | 188.8 | ||||||||||||||
|
Treasury stock
|
(904.2 | ) | - | - | - | (904.2 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total stockholders’ equity
|
2,551.9 | 4,536.1 | 1,765.9 | (6,302.0 | ) | 2,551.9 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total liabilities and stockholders’
equity
|
$ | 6,241.0 | $ | 5,341.0 | $ | 2,121.7 | $ | (6,536.1 | ) | $ | 7,167.6 | |||||||||
|
|
||||||||||||||||||||
| 0000000000 | 0000000000 | 0000000000 | 0000000000 | 0000000000 | ||||||||||||||||
| Condensed Consolidating Statement of Operations for the Six Months Ended August 31, 2011 | ||||||||||||||||||||
|
Sales
|
$ | 336.7 | $ | 919.3 | $ | 346.0 | $ | (120.9 | ) | $ | 1,481.1 | |||||||||
|
Less – excise taxes
|
(61.4 | ) | (62.6 | ) | (31.6 | ) | - | (155.6 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
275.3 | 856.7 | 314.4 | (120.9 | ) | 1,325.5 | ||||||||||||||
|
Cost of product sold
|
(142.2 | ) | (529.9 | ) | (191.1 | ) | 71.7 | (791.5 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
133.1 | 326.8 | 123.3 | (49.2 | ) | 534.0 | ||||||||||||||
|
Selling, general and administrative
expenses
|
(136.2 | ) | (120.5 | ) | (70.2 | ) | 50.5 | (276.4 | ) | |||||||||||
|
Restructuring charges
|
(5.5 | ) | (3.4 | ) | (1.9 | ) | - | (10.8 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Operating (loss) income
|
(8.6 | ) | 202.9 | 51.2 | 1.3 | 246.8 | ||||||||||||||
|
Equity in earnings of equity method
investees and subsidiaries
|
281.8 | 126.7 | 2.6 | (284.9 | ) | 126.2 | ||||||||||||||
|
Interest (expense) income, net
|
(118.2 | ) | 28.2 | 3.2 | - | (86.8 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes
|
155.0 | 357.8 | 57.0 | (283.6 | ) | 286.2 | ||||||||||||||
|
Benefit from (provision for) income
taxes
|
82.2 | (124.5 | ) | (6.7 | ) | - | (49.0 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 237.2 | $ | 233.3 | $ | 50.3 | $ | (283.6 | ) | $ | 237.2 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Statement of Operations for the Six Months Ended August 31, 2010 | ||||||||||||||||||||
|
Sales
|
$ | 335.4 | $ | 929.1 | $ | 973.4 | $ | (204.8 | ) | $ | 2,033.1 | |||||||||
|
Less – excise taxes
|
(56.6 | ) | (53.8 | ) | (272.4 | ) | - | (382.8 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
278.8 | 875.3 | 701.0 | (204.8 | ) | 1,650.3 | ||||||||||||||
|
Cost of product sold
|
(135.8 | ) | (554.9 | ) | (532.8 | ) | 157.4 | (1,066.1 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
143.0 | 320.4 | 168.2 | (47.4 | ) | 584.2 | ||||||||||||||
|
Selling, general and administrative
expenses
|
(146.6 | ) | (120.2 | ) | (118.6 | ) | 49.3 | (336.1 | ) | |||||||||||
|
Restructuring charges
|
- | (1.8 | ) | (16.8 | ) | - | (18.6 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Operating (loss) income
|
(3.6 | ) | 198.4 | 32.8 | 1.9 | 229.5 | ||||||||||||||
|
Equity in earnings of equity method
investees and subsidiaries
|
203.0 | 116.8 | 1.6 | (200.5 | ) | 120.9 | ||||||||||||||
|
Interest (expense) income, net
|
(107.0 | ) | 6.8 | 1.4 | - | (98.8 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes
|
92.4 | 322.0 | 35.8 | (198.6 | ) | 251.6 | ||||||||||||||
|
Benefit from (provision for) income
taxes
|
48.0 | (128.4 | ) | (29.4 | ) | (1.4 | ) | (111.2 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 140.4 | $ | 193.6 | $ | 6.4 | $ | (200.0 | ) | $ | 140.4 | |||||||||
|
|
||||||||||||||||||||
30
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
|
(in millions)
|
||||||||||||||||||||
| Condensed Consolidating Statement of Operations for the Three Months Ended August 31, 2011 | ||||||||||||||||||||
|
Sales
|
$ | 182.4 | $ | 470.9 | $ | 188.2 | $ | (71.1 | ) | $ | 770.4 | |||||||||
|
Less – excise taxes
|
(31.4 | ) | (32.2 | ) | (16.6 | ) | - | (80.2 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
151.0 | 438.7 | 171.6 | (71.1 | ) | 690.2 | ||||||||||||||
|
Cost of product sold
|
(79.3 | ) | (270.7 | ) | (103.7 | ) | 46.5 | (407.2 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
71.7 | 168.0 | 67.9 | (24.6 | ) | 283.0 | ||||||||||||||
|
Selling, general and administrative
expenses
|
(68.0 | ) | (59.5 | ) | (35.4 | ) | 24.7 | (138.2 | ) | |||||||||||
|
Restructuring charges
|
- | 0.1 | 0.2 | - | 0.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
3.7 | 108.6 | 32.7 | 0.1 | 145.1 | |||||||||||||||
|
Equity in earnings of equity method
investees and subsidiaries
|
149.7 | 65.0 | 1.0 | (151.7 | ) | 64.0 | ||||||||||||||
|
Interest (expense) income, net
|
(61.0 | ) | 16.8 | 1.7 | - | (42.5 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes
|
92.4 | 190.4 | 35.4 | (151.6 | ) | 166.6 | ||||||||||||||
|
Benefit from (provision for) income
taxes
|
70.3 | (69.5 | ) | (4.7 | ) | - | (3.9 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 162.7 | $ | 120.9 | $ | 30.7 | $ | (151.6 | ) | $ | 162.7 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
| Condensed Consolidating Statement of Operations for the Three Months Ended August 31, 2010 | ||||||||||||||||||||
|
Sales
|
$ | 167.1 | $ | 497.2 | $ | 499.5 | $ | (106.9 | ) | $ | 1,056.9 | |||||||||
|
Less – excise taxes
|
(27.8 | ) | (29.6 | ) | (136.7 | ) | - | (194.1 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net sales
|
139.3 | 467.6 | 362.8 | (106.9 | ) | 862.8 | ||||||||||||||
|
Cost of product sold
|
(68.3 | ) | (288.7 | ) | (275.3 | ) | 83.7 | (548.6 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Gross profit
|
71.0 | 178.9 | 87.5 | (23.2 | ) | 314.2 | ||||||||||||||
|
Selling, general and administrative
expenses
|
(73.2 | ) | (62.1 | ) | (56.6 | ) | 24.6 | (167.3 | ) | |||||||||||
|
Restructuring charges
|
- | (1.3 | ) | (12.4 | ) | - | (13.7 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Operating (loss) income
|
(2.2 | ) | 115.5 | 18.5 | 1.4 | 133.2 | ||||||||||||||
|
Equity in earnings of equity method
investees and subsidiaries
|
116.0 | 67.2 | 1.0 | (117.8 | ) | 66.4 | ||||||||||||||
|
Interest (expense) income, net
|
(55.6 | ) | 4.7 | 0.6 | - | (50.3 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income before income taxes
|
58.2 | 187.4 | 20.1 | (116.4 | ) | 149.3 | ||||||||||||||
|
Benefit from (provision for) income
taxes
|
33.1 | (73.5 | ) | (16.3 | ) | (1.3 | ) | (58.0 | ) | |||||||||||
|
|
||||||||||||||||||||
|
Net income
|
$ | 91.3 | $ | 113.9 | $ | 3.8 | $ | (117.7 | ) | $ | 91.3 | |||||||||
|
|
||||||||||||||||||||
31
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
|
(in millions)
|
||||||||||||||||||||
| Condensed Consolidating Statement of Cash Flows for the Six Months Ended August 31, 2011 | ||||||||||||||||||||
|
Net cash (used in) provided by
operating activities
|
$ | (27.8 | ) | $ | 457.4 | $ | 87.8 | $ | - | $ | 517.4 | |||||||||
|
|
||||||||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Purchases of property, plant and
equipment
|
(12.5 | ) | (20.6 | ) | (6.1 | ) | - | (39.2 | ) | |||||||||||
|
Payments related to sale of business
|
(8.9 | ) | - | (19.9 | ) | - | (28.8 | ) | ||||||||||||
|
Investment in equity method
investees
|
- | (0.1 | ) | - | - | (0.1 | ) | |||||||||||||
|
Proceeds from note receivable
|
1.0 | - | - | - | 1.0 | |||||||||||||||
|
Proceeds from sales of assets
|
- | 0.2 | 0.1 | - | 0.3 | |||||||||||||||
|
Other investing activities
|
- | (5.0 | ) | (1.4 | ) | - | (6.4 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Net cash used in investing activities
|
(20.4 | ) | (25.5 | ) | (27.3 | ) | - | (73.2 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Intercompany financings, net
|
472.4 | (415.9 | ) | (56.5 | ) | - | - | |||||||||||||
|
Principal payments of long-term debt
|
(405.7 | ) | (14.2 | ) | - | - | (419.9 | ) | ||||||||||||
|
Purchases of treasury stock
|
(187.5 | ) | - | - | - | (187.5 | ) | |||||||||||||
|
Payment of minimum tax withholdings
on stock-based payment awards
|
- | (1.7 | ) | (0.5 | ) | - | (2.2 | ) | ||||||||||||
|
Net proceeds from (repayment of)
notes payable
|
116.6 | - | (3.3 | ) | - | 113.3 | ||||||||||||||
|
Proceeds from exercises of employee
stock options
|
39.0 | - | - | - | 39.0 | |||||||||||||||
|
Proceeds from excess tax benefits
from stock-based payment awards
|
10.6 | - | - | - | 10.6 | |||||||||||||||
|
Proceeds from employee stock
purchases
|
2.4 | - | - | - | 2.4 | |||||||||||||||
|
Payment of financing costs of
long-term debt
|
- | - | - | - | - | |||||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided by (used in)
financing activities
|
47.8 | (431.8 | ) | (60.3 | ) | - | (444.3 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on
cash and cash investments
|
- | - | 0.9 | - | 0.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net (decrease) increase in cash and
cash investments
|
(0.4 | ) | 0.1 | 1.1 | - | 0.8 | ||||||||||||||
|
Cash and cash investments, beginning
of period
|
0.7 | 0.9 | 7.6 | - | 9.2 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash investments, end of
period
|
$ | 0.3 | $ | 1.0 | $ | 8.7 | $ | - | $ | 10.0 | ||||||||||
|
|
||||||||||||||||||||
32
Table of Contents
| Parent | Subsidiary | Subsidiary | ||||||||||||||||||
| Company | Guarantors | Nonguarantors | Eliminations | Consolidated | ||||||||||||||||
|
(in millions)
|
||||||||||||||||||||
| Condensed Consolidating Statement of Cash Flows for the Six Months Ended August 31, 2010 | ||||||||||||||||||||
|
Net cash (used in) provided by
operating activities
|
$ | (170.9 | ) | $ | 396.7 | $ | 80.3 | $ | - | $ | 306.1 | |||||||||
|
|
||||||||||||||||||||
|
Cash flows from investing activities:
|
||||||||||||||||||||
|
Purchases of property, plant and
equipment
|
(23.2 | ) | (13.4 | ) | (6.6 | ) | - | (43.2 | ) | |||||||||||
|
Payments related to sale of business
|
- | - | (1.6 | ) | - | (1.6 | ) | |||||||||||||
|
Investments in equity method
investees
|
- | (0.1 | ) | (29.6 | ) | - | (29.7 | ) | ||||||||||||
|
Proceeds from note receivable
|
60.0 | - | - | - | 60.0 | |||||||||||||||
|
Proceeds from sales of assets
|
- | 0.5 | 2.6 | - | 3.1 | |||||||||||||||
|
Other investing activities
|
- | - | 0.5 | - | 0.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided by (used in)
investing activities
|
36.8 | (13.0 | ) | (34.7 | ) | - | (10.9 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash flows from financing activities:
|
||||||||||||||||||||
|
Intercompany financings, net
|
444.6 | (385.2 | ) | (59.4 | ) | - | - | |||||||||||||
|
Principal payments of long-term debt
|
(22.9 | ) | (0.6 | ) | (1.0 | ) | - | (24.5 | ) | |||||||||||
|
Purchases of treasury stock
|
(300.0 | ) | - | - | - | (300.0 | ) | |||||||||||||
|
Payment of minimum tax withholdings
on stock-based payment awards
|
- | - | (0.4 | ) | - | (0.4 | ) | |||||||||||||
|
Net repayment of notes payable
|
(12.3 | ) | - | (11.8 | ) | - | (24.1 | ) | ||||||||||||
|
Proceeds from exercises of employee
stock options
|
18.0 | - | - | - | 18.0 | |||||||||||||||
|
Proceeds from excess tax benefits
from stock-based payment awards
|
4.7 | - | - | - | 4.7 | |||||||||||||||
|
Proceeds from employee stock
purchases
|
2.1 | - | - | - | 2.1 | |||||||||||||||
|
Payment of financing costs of
long-term debt
|
(0.2 | ) | - | - | - | (0.2 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Net cash provided by (used in)
financing activities
|
134.0 | (385.8 | ) | (72.6 | ) | - | (324.4 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on
cash and cash investments
|
- | - | (0.4 | ) | - | (0.4 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Net decrease in cash and cash
investments
|
(0.1 | ) | (2.1 | ) | (27.4 | ) | - | (29.6 | ) | |||||||||||
|
Cash and cash investments, beginning
of period
|
0.3 | 3.3 | 39.9 | - | 43.5 | |||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash investments, end of
period
|
$ | 0.2 | $ | 1.2 | $ | 12.5 | $ | - | $ | 13.9 | ||||||||||
|
|
||||||||||||||||||||
33
Table of Contents
18. BUSINESS SEGMENT INFORMATION:
In connection with the Company’s changes on June 1, 2011, within its internal management
structure for its wine and spirits business, the Company changed its internal management financial
reporting to consist of two business divisions: Constellation Wines North America and Crown
Imports. Accordingly, beginning June 1, 2011, the Company began reporting its operating results in
three segments: Constellation Wines North America (wine and spirits) (“CWNA”), Corporate
Operations and Other, and Crown Imports (imported beer). Prior to the change in its internal
management structure, the Company’s internal management financial reporting consisted of three
business divisions: Constellation Wines North America, Constellation Wines New Zealand and Crown
Imports. 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 had aggregated the results of this operating segment with its
Constellation Wines North America operating segment to form one reportable segment. Accordingly,
the June 1, 2011, organizational changes had no impact on the Company’s previously reported
financial information. The 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. 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 and global information
technology. 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.
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.
For the six months and three months ended August 31, 2011, and August 31, 2010, restructuring
charges and unusual items included in operating income consist of:
34
Table of Contents
| For the Six Months | For the Three Months | |||||||||||||||
| Ended August 31, | Ended August 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (in millions) | ||||||||||||||||
|
Cost of Product Sold
|
||||||||||||||||
|
Accelerated depreciation
|
$ | 0.3 | $ | 1.1 | $ | 0.1 | $ | 0.1 | ||||||||
|
Flow through of inventory step-up
|
- | 1.6 | - | 0.6 | ||||||||||||
|
|
||||||||||||||||
|
Cost of Product Sold
|
0.3 | 2.7 | 0.1 | 0.7 | ||||||||||||
|
|
||||||||||||||||
|
Selling, General and Administrative Expenses
|
||||||||||||||||
|
Net foreign currency loss (gain) on
contractual obligation from put option
of Ruffino shareholder
|
2.1 | - | (0.1 | ) | - | |||||||||||
|
Net (gains) losses on CWAE Divestiture
and related activities
|
(0.1 | ) | - | 0.7 | - | |||||||||||
|
Net gains on sale of nonstrategic assets
|
- | (1.0 | ) | - | - | |||||||||||
|
Acquisition-related integration costs
|
- | 0.2 | - | 0.1 | ||||||||||||
|
Other costs
|
4.2 | 3.7 | 3.1 | 2.8 | ||||||||||||
|
|
||||||||||||||||
|
Selling, General and Administrative
Expenses
|
6.2 | 2.9 | 3.7 | 2.9 | ||||||||||||
|
|
||||||||||||||||
|
Restructuring Charges
|
10.8 | 18.6 | (0.3 | ) | 13.7 | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Restructuring Charges and Unusual Items
|
$ | 17.3 | $ | 24.2 | $ | 3.5 | $ | 17.3 | ||||||||
|
|
||||||||||||||||
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, 2011, and include the recently adopted accounting guidance described in Note 2 herein.
Segment information is as follows:
| For the Six Months | For the Three Months | |||||||||||||||
| Ended August 31, | Ended August 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (in millions) | ||||||||||||||||
|
CWNA:
|
||||||||||||||||
|
Net sales
|
$ | 1,325.5 | $ | 1,245.5 | $ | 690.2 | $ | 655.6 | ||||||||
|
Operating income
|
$ | 303.9 | $ | 313.7 | $ | 167.3 | $ | 181.2 | ||||||||
|
Equity in earnings (losses) of equity method
investees
|
$ | 3.7 | $ | (0.2 | ) | $ | 1.3 | $ | (0.3 | ) | ||||||
|
Long-lived tangible assets
|
$ | 1,109.2 | $ | 1,078.0 | $ | 1,109.2 | $ | 1,078.0 | ||||||||
|
Investment in equity method investees
|
$ | 82.1 | $ | 74.2 | $ | 82.1 | $ | 74.2 | ||||||||
|
Total assets
|
$ | 6,601.8 | $ | 6,442.7 | $ | 6,601.8 | $ | 6,442.7 | ||||||||
|
Capital expenditures
|
$ | 25.9 | $ | 22.6 | $ | 12.2 | $ | 8.8 | ||||||||
|
Depreciation and amortization
|
$ | 42.4 | $ | 44.4 | $ | 21.2 | $ | 21.6 | ||||||||
|
|
||||||||||||||||
|
CWAE:
|
||||||||||||||||
|
Net sales
|
$ | - | $ | 404.8 | $ | - | $ | 207.2 | ||||||||
|
Operating loss
|
$ | - | $ | (6.0 | ) | $ | - | $ | (3.2 | ) | ||||||
|
Equity in earnings of equity method investees
|
$ | - | $ | 2.1 | $ | - | $ | 1.5 | ||||||||
|
Long-lived tangible assets
|
$ | - | $ | 347.6 | $ | - | $ | 347.6 | ||||||||
|
Investment in equity method investees
|
$ | - | $ | 37.6 | $ | - | $ | 37.6 | ||||||||
|
Total assets
|
$ | - | $ | 1,151.9 | $ | - | $ | 1,151.9 | ||||||||
|
Capital expenditures
|
$ | - | $ | 2.1 | $ | - | $ | 0.7 | ||||||||
|
Depreciation and amortization
|
$ | - | $ | 15.3 | $ | - | $ | 7.5 | ||||||||
35
Table of Contents
| For the Six Months | For the Three Months | |||||||||||||||
| Ended August 31, | Ended August 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (in millions) | ||||||||||||||||
|
Corporate Operations and Other:
|
||||||||||||||||
|
Net sales
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Operating loss
|
$ | (39.8 | ) | $ | (54.0 | ) | $ | (18.7 | ) | $ | (27.5 | ) | ||||
|
Long-lived tangible assets
|
$ | 131.8 | $ | 103.4 | $ | 131.8 | $ | 103.4 | ||||||||
|
Total assets
|
$ | 261.6 | $ | 151.7 | $ | 261.6 | $ | 151.7 | ||||||||
|
Capital expenditures
|
$ | 13.3 | $ | 18.5 | $ | 6.0 | $ | 8.1 | ||||||||
|
Depreciation and amortization
|
$ | 9.9 | $ | 8.6 | $ | 4.2 | $ | 4.6 | ||||||||
|
|
||||||||||||||||
|
Crown Imports:
|
||||||||||||||||
|
Net sales
|
$ | 1,404.5 | $ | 1,300.9 | $ | 727.0 | $ | 679.4 | ||||||||
|
Operating income
|
$ | 245.4 | $ | 240.1 | $ | 125.6 | $ | 131.2 | ||||||||
|
Long-lived tangible assets
|
$ | 6.2 | $ | 4.5 | $ | 6.2 | $ | 4.5 | ||||||||
|
Total assets
|
$ | 408.3 | $ | 378.7 | $ | 408.3 | $ | 378.7 | ||||||||
|
Capital expenditures
|
$ | 2.4 | $ | 0.4 | $ | 1.5 | $ | 0.2 | ||||||||
|
Depreciation and amortization
|
$ | 1.0 | $ | 0.9 | $ | 0.5 | $ | 0.4 | ||||||||
|
|
||||||||||||||||
|
Restructuring Charges and Unusual Items:
|
||||||||||||||||
|
Operating loss
|
$ | (17.3 | ) | $ | (24.2 | ) | $ | (3.5 | ) | $ | (17.3 | ) | ||||
|
Equity in losses of equity method investees
|
$ | - | $ | (0.6 | ) | $ | - | $ | (0.1 | ) | ||||||
|
|
||||||||||||||||
|
Consolidation and Eliminations:
|
||||||||||||||||
|
Net sales
|
$ | (1,404.5 | ) | $ | (1,300.9 | ) | $ | (727.0 | ) | $ | (679.4 | ) | ||||
|
Operating income
|
$ | (245.4 | ) | $ | (240.1 | ) | $ | (125.6 | ) | $ | (131.2 | ) | ||||
|
Equity in earnings of Crown Imports
|
$ | 122.5 | $ | 119.6 | $ | 62.7 | $ | 65.3 | ||||||||
|
Long-lived tangible assets
|
$ | (6.2 | ) | $ | (4.5 | ) | $ | (6.2 | ) | $ | (4.5 | ) | ||||
|
Investment in equity method investees
|
$ | 171.3 | $ | 130.8 | $ | 171.3 | $ | 130.8 | ||||||||
|
Total assets
|
$ | (237.0 | ) | $ | (247.9 | ) | $ | (237.0 | ) | $ | (247.9 | ) | ||||
|
Capital expenditures
|
$ | (2.4 | ) | $ | (0.4 | ) | $ | (1.5 | ) | $ | (0.2 | ) | ||||
|
Depreciation and amortization
|
$ | (1.0 | ) | $ | (0.9 | ) | $ | (0.5 | ) | $ | (0.4 | ) | ||||
|
|
||||||||||||||||
|
Consolidated:
|
||||||||||||||||
|
Net sales
|
$ | 1,325.5 | $ | 1,650.3 | $ | 690.2 | $ | 862.8 | ||||||||
|
Operating income
|
$ | 246.8 | $ | 229.5 | $ | 145.1 | $ | 133.2 | ||||||||
|
Equity in earnings of equity method investees
|
$ | 126.2 | $ | 120.9 | $ | 64.0 | $ | 66.4 | ||||||||
|
Long-lived tangible assets
|
$ | 1,241.0 | $ | 1,529.0 | $ | 1,241.0 | $ | 1,529.0 | ||||||||
|
Investment in equity method investees
|
$ | 253.4 | $ | 242.6 | $ | 253.4 | $ | 242.6 | ||||||||
|
Total assets
|
$ | 7,034.7 | $ | 7,877.1 | $ | 7,034.7 | $ | 7,877.1 | ||||||||
|
Capital expenditures
|
$ | 39.2 | $ | 43.2 | $ | 18.2 | $ | 17.6 | ||||||||
|
Depreciation and amortization
|
$ | 52.3 | $ | 68.3 | $ | 25.4 | $ | 33.7 | ||||||||
19. ACCOUNTING GUIDANCE NOT YET ADOPTED:
Fair
value measurement –
In May 2011, the FASB issued amended guidance to achieve common fair value measurement
and disclosure requirements under generally accepted accounting principles in the U.S. and
International Financial Reporting Standards. This amended guidance provides clarification about
the application of existing fair value measurement and disclosure requirements, and expands certain
other disclosure requirements. The Company is required to adopt this amended guidance for its
annual and interim periods beginning March 1, 2012. The Company does not expect the adoption of
this amended guidance to have a material impact on the Company’s consolidated financial statements.
36
Table of Contents
Presentation of comprehensive income –
In June 2011, the FASB issued amended guidance requiring an entity to present the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. This amended guidance eliminates the option to present the components of
other comprehensive income as part of the statement of stockholders’ equity. In addition, this
amended guidance requires retrospective application. The Company is required to adopt this amended
guidance for its annual and interim periods beginning March 1, 2012. The Company does not expect
the adoption of this amended guidance to have a material impact on the Company’s consolidated
financial statements.
Intangibles – goodwill and other –
In September 2011, the FASB issued amended guidance for goodwill impairment testing. The
amended guidance allows an entity to assess qualitative factors to determine whether the existence
of events or circumstances leads to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If an entity determines it is not more
likely than not that the fair value of the reporting unit is less than its carrying amount, then
performing the two-step impairment test would be unnecessary. If an entity concludes otherwise,
the entity would be required to complete the two-step impairment test by calculating the fair value
of the reporting unit and then comparing the fair value with the carrying amount of the reporting
unit. The Company is required to adopt this amended guidance for its annual and interim periods
beginning March 1, 2012. The Company does not expect the adoption of this amended guidance to have
a material impact on the Company’s consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company is the world’s leading premium wine company with a broad portfolio of
consumer-preferred premium wine brands complemented by premium 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.; the leading producer and
marketer of wine in Canada; and a leading producer and exporter of wine from New Zealand. Prior to
January 31, 2011, the Company had leading market positions in both Australia and the United Kingdom
(“U.K.”) through its Australian and U.K. business. On January 31, 2011, the Company completed the
sale of 80.1% of its Australian and U.K. business (the “CWAE Divestiture”) as further discussed
below under “Divestiture in Fiscal 2011.”
37
Table of Contents
In connection with the Company’s changes on June 1, 2011, within its internal management
structure for its wine and spirits business, the Company changed its internal management financial
reporting to consist of two business divisions: Constellation Wines North America and Crown
Imports. Accordingly, beginning June 1, 2011, the Company began reporting its operating results in
three segments: Constellation Wines North America (wine and spirits) (“CWNA”), Corporate
Operations and Other, and Crown Imports (imported beer). Prior to the change in its internal
management structure, the Company’s internal management financial reporting consisted of three
business divisions: Constellation Wines North America, Constellation Wines New Zealand and Crown
Imports. 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 had aggregated the results of this operating segment with its
Constellation Wines North America operating segment to form one reportable segment. Accordingly,
the June 1, 2011, organizational changes had no impact on the Company’s previously reported
financial information. The 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. 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 and global information
technology. 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.
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.
The Company’s business strategy in the CWNA segment is to remain focused on consumer-preferred
premium wine brands, complemented by premium spirits. 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 the year ended February 28, 2010
(“Fiscal 2010”), 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 certain of its U.S. distributors who currently
represent about 60% of the Company’s branded wine and spirits volume in the U.S. During the second
half of fiscal 2010 and throughout Fiscal 2011 (as defined below), the Company’s net sales and
operating income for its U.S. branded wine and spirits business benefited from these contracts as
the Company’s shipments to distributors exceeded distributor shipments to retailers. Throughout
Fiscal 2012 (as defined below) and beyond, the Company expects distributor inventory levels related
to the Company’s branded wine and spirits products to remain stable as shipments on an annual basis
to these distributors should essentially equal the distributors’ shipments to retailers for the
remainder of the terms of these contracts, which extend through the end of fiscal 2015.
38
Table of Contents
Historically, the Company’s net sales and operating income in the U.S. for the third quarter
of the Company’s fiscal year reflected shipments of branded wine and spirits products to
distributors in advance of the holiday season. The Company currently anticipates a shift in the
timing of these shipments due to the contracts associated with the consolidation of its U.S.
distributor network, as shipments to distributors should essentially equal the distributors’
shipments to retailers. Accordingly, the Company currently anticipates that U.S. net sales and
operating income will be down for the third quarter of fiscal 2012 as the timing of these
pre-holiday season shipments is expected to shift to the fourth quarter of fiscal 2012 when
distributors are replenishing inventory levels after the holiday season.
With regard to the overall supply of wine in the U.S., although the calendar 2011 grape
harvest is not yet complete, the Company currently expects this harvest to be lower than the
calendar 2010 grape harvest. Although this may result in a tightening of supply within certain
varietals, the Company continues to expect the overall supply of wine to remain generally in
balance with demand within the U.S.
The Company remains committed to its long-term financial model of growing sales, including
international expansion of its CWNA segment’s branded portfolio, expanding margins, increasing cash
flow and reducing borrowings to achieve earnings per share growth and improve return on invested
capital.
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 three core markets (U.S., Canada and New Zealand)
within the Company’s two geographic regions (North America and New Zealand). 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 New Zealand, the Company
primarily offers branded wine. The environment for the Company’s products is competitive in each
of the Company’s core markets.
For the three months ended August 31, 2011 (“Second Quarter 2012”), the Company’s net sales
decreased 20% over the three months ended August 31, 2010 (“Second Quarter 2011”), primarily due to
the CWAE Divestiture. Operating income increased 9% over the comparable prior year period
primarily due to a decrease in restructuring charges and unusual items for Second Quarter 2012
compared to Second Quarter 2011. Net income increased 78% over the comparable prior year period
primarily due to the items discussed above combined with a reduction in the Company’s provision for
income taxes.
For the six months ended August 31, 2011 (“Six Months 2012”), the Company’s net sales
decreased 20% over the six months ended August 31, 2010 (“Six Months 2011”), primarily due to the
CWAE Divestiture. Operating income increased 8% over the comparable prior year period primarily
due to a decrease in Corporate Operations and Other general and administrative expenses for Six
Months 2012 compared to Six Months 2011. Net income increased 69% over the comparable prior year
period primarily due to the items discussed above combined with a reduction in the Company’s
provision for income taxes and lower interest expense.
The following discussion and analysis summarizes the significant factors affecting (i)
consolidated results of operations of the Company for Second Quarter 2012 compared to Second
Quarter 2011 and Six Months 2012 compared to Six Months 2011, and (ii) financial liquidity and
capital resources for Six Months 2012. 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 29, 2012 (“Fiscal 2012”). References to U.S. base branded
wine exclude the impact of branded wine for the CWNA segment previously sold through the Company’s
CWAE segment. 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, 2011 (“Fiscal 2011”).
39
Table of Contents
Recent Development
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 was exercisable during the period
starting from January 1, 2010, and ending on December 31, 2010. For Fiscal 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 from 40.0% 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 for €55.9 million. 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. However, subsequent
to the initiation of the arbitration proceedings, the Company began discussions with the 50.1%
shareholder on a framework for settlement of all legal actions. The framework of the settlement
would include the Company’s purchase of the 50.1% shareholder’s entire equity interest in Ruffino
on revised terms to be agreed upon by both parties. As a result, the Company recognized a loss for
the fourth quarter of fiscal 2011 of €43.4 million ($60.0 million) on the contingent obligation.
During Six Months 2012 and Second Quarter 2012, the Company recognized a net foreign currency
(loss) gain of ($2.1) million and $0.1 million, respectively, on the contractual obligation recorded in
the fourth quarter of fiscal 2011 in connection with the potential settlement created by the
notification by the 50.1% shareholder of Ruffino to exercise the option to put its entire equity
interest in Ruffino to the Company. This net (loss) gain is included in selling, general and
administrative expenses on the Company’s Consolidated Statements of Operations. As of August 31,
2011, the Company’s investment in Ruffino was $10.3 million.
On October 5, 2011, the Company
acquired the 50.1% shareholder’s entire equity interest in Ruffino for €50.3 million
($68.6 million). In conjunction with this acquisition, all of the
aforemented legal actions were settled. As a result of this
acquisition, the Company assumed indebtedness of Ruffino, net of
cash acquired, of €54.7 million ($73.0 million). The purchase price was financed with revolver
borrowings under the 2006 Credit Agreement (as defined below). The results of operations of the
Ruffino business will be reported in the Company’s CWNA segment and will be included in the
consolidated results of operations of the Company from the date of acquisition.
40
Table of Contents
Divestiture in Fiscal 2011
Australian and U.K. Business
In January 2011, the Company sold 80.1% of its Australian and U.K. business (the “CWAE
Divestiture”) at a transaction value of $266.2 million. As of August 31, 2011, the Company has
received cash proceeds of $192.5 million, net of cash divested of $15.8 million, direct costs paid
of $11.2 million and post-closing adjustments paid of $19.9 million. The Company has retained a
less than 20% interest in its previously owned Australian and U.K. business, Accolade Wines
(“Accolade”). This transaction is consistent with the Company’s strategic focus on premiumizing
the Company’s portfolio and improving margins and return on invested capital. The following table
summarizes the net gain recognized and the net cash proceeds received in connection with this
divestiture.
| (in millions) | ||||
|
Net assets sold
|
$ | (734.1 | ) | |
|
Cash received from buyer, net of cash divested and
post-closing adjustments paid
|
203.7 | |||
|
Retained interest in Accolade
|
48.2 | |||
|
Foreign currency reclassification
|
678.8 | |||
|
Indemnification liabilities
|
(25.4 | ) | ||
|
Direct costs to sell, paid and accrued
|
(13.2 | ) | ||
|
Other
|
7.9 | |||
|
|
||||
|
Net gain on sale
|
165.9 | |||
|
Loss on settlement of pension
|
(109.9 | ) | ||
|
|
||||
|
Net gain
|
$ | 56.0 | ||
|
|
||||
Of the $56.0 million net gain, $55.2 million was recognized for the fourth quarter of
fiscal 2011. The Company recognized an $0.8 million net gain and a $0.6 million net loss for Six
Months 2012 and Second Quarter 2012, respectively. In addition, the Company’s CWAE segment
recorded an additional net gain of $28.5 million for the fourth quarter of fiscal 2011, primarily
associated with a net gain on derivative instruments of $20.8 million, related to this divestiture.
For Six Months 2012 and Second Quarter 2012, the Company recorded an additional net loss of $0.7
million and $0.1 million, respectively, related to this divestiture. Total net gains associated
with this divestiture of $83.8 million are included in selling, general and administrative expenses
on the Company’s Consolidated Statements of Operations. Of this amount, $83.7 million of net gains
was recognized for Fiscal 2011, $0.1 million of net gains was recognized for Six Months 2012 and
$0.7 million of net losses was recognized for Second Quarter 2012.
41
Table of Contents
Results of Operations
Second Quarter 2012 Compared to Second Quarter 2011
Net Sales
The following table sets forth the net sales by reportable segment of the Company for Second
Quarter 2012 and Second Quarter 2011.
| Second | Second | |||||||||||
| Quarter | Quarter | % Increase | ||||||||||
| 2012 | 2011 | (Decrease) | ||||||||||
| (in millions) | ||||||||||||
|
CWNA net sales
|
$ | 690.2 | $ | 655.6 | 5 | % | ||||||
|
CWAE net sales
|
- | 207.2 | (100 | )% | ||||||||
|
Crown Imports net sales
|
727.0 | 679.4 | 7 | % | ||||||||
|
Consolidations and eliminations
|
(727.0 | ) | (679.4 | ) | (7 | )% | ||||||
|
|
||||||||||||
|
Consolidated Net Sales
|
$ | 690.2 | $ | 862.8 | (20 | )% | ||||||
|
|
||||||||||||
Net sales for Second Quarter 2012 decreased to $690.2 million from $862.8 million for
Second Quarter 2011, a decrease of $172.6 million, or (20%). This decrease resulted primarily from
the CWAE Divestiture of $180.3 million, partially offset by a favorable year-over-year foreign
currency translation impact of $10.9 million.
Constellation Wines North America
Net sales for CWNA increased to $690.2 million for Second Quarter 2012 from $655.6 million for
Second Quarter 2011, an increase of $34.6 million, or 5%. This increase is primarily due to (i) a
benefit of $26.9 million from wine net sales to Europe, Australia and Japan which were previously
sold through the Company’s CWAE segment, (ii) favorable product mix shift in the U.S. base branded
wine portfolio and (iii) a favorable year-over-year foreign currency translation impact of $10.9
million; partially offset by lower U.S. base branded wine volume.
Constellation Wines Australia and Europe
Net sales for CWAE decreased $207.2 million, or (100%), from Second Quarter 2011 due to the
January 2011 CWAE Divestiture.
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.
42
Table of Contents
Gross Profit
The Company’s gross profit decreased to $283.0 million for Second Quarter 2012 from $314.2
million for Second Quarter 2011, a decrease of $31.2 million, or (10%). This decrease is primarily
due to a decrease in CWAE’s gross profit of $27.3 million combined with a decrease in CWNA’s gross
profit of $4.5 million. The decrease in CWAE’s gross profit is due to the January 2011 CWAE
Divestiture. The decrease in CWNA’s gross profit is primarily due to (i) lower U.S. base branded
wine volume, (ii) higher U.S. promotional spend and (iii) higher cost of product sold in the U.S.
(due largely to higher transportation costs in the Company’s wine and spirits portfolio); partially
offset by favorable product mix shift in the U.S. base branded wine portfolio. In addition,
unusual items, which consist of certain amounts that are excluded by management in their evaluation
of the results of each operating segment, were lower by $0.6 million in Second Quarter 2012 versus
Second Quarter 2011. Gross profit as a percent of net sales increased to 41.0% for Second Quarter
2012 from 36.4% for Second Quarter 2011 primarily due to the factors discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $138.2 million for Second Quarter
2012 from $167.3 million for Second Quarter 2011, a decrease of $29.1 million, or (17%). This
decrease is due to decreases in the CWAE segment of $30.5 million and the Corporate Operations and
Other segment of $8.8 million, partially offset by increases in the CWNA segment of $9.4 million
and unusual items, which consist of certain amounts that are excluded by management in their
evaluation of the results of each operating segment, of $0.8 million. The decrease in CWAE’s
selling, general and administrative expenses is due to the January 2011 CWAE Divestiture. The
decrease in Corporate Operations and Other’s selling, general and administrative expenses is due to
a decrease in general and administrative expenses primarily relating to lower annual management
incentive compensation expense, lower expenses incurred in connection with 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
(“Project Fusion”) and lower stock-based compensation expense. The increase in CWNA’s selling,
general and administrative expenses is primarily due to an increase in advertising expenses (on a
constant currency basis) of $6.7 million due largely to the launch of several new products in the
segment’s U.S. branded wine portfolio. Selling, general and administrative expenses as a percent
of net sales increased to 20.0% for Second Quarter 2012 as compared to 19.4% for Second Quarter
2011 primarily due to the factors discussed above.
Restructuring Charges
The Company recorded a credit of $0.3 million of restructuring charges for Second Quarter 2012
associated primarily with the Company’s plan (committed to in May 2011, announced in June 2011) to
streamline operations, gain efficiencies and reduce its cost structure following the CWAE
Divestiture (the “Fiscal 2012 Initiative”). Restructuring charges consisted of a credit of $0.4
million of employee termination benefit costs, partially offset by $0.1 million of facility
consolidation/relocation costs. The Company recorded $13.7 million of restructuring charges for
Second 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”).
43
Table of Contents
In addition, the Company incurred additional costs for Second Quarter 2012 and Second Quarter
2011 in connection with the Company’s restructuring and acquisition-related integration plans.
Total costs incurred in connection with these plans for Second Quarter 2012 and Second Quarter 2011
are as follows:
| Second | Second | |||||||
| Quarter | Quarter | |||||||
| 2012 | 2011 | |||||||
| (in millions) | ||||||||
|
Cost of Product Sold
|
||||||||
|
Accelerated depreciation
|
$ | 0.1 | $ | 0.1 | ||||
|
|
||||||||
|
Selling, General and Administrative Expenses
|
||||||||
|
Acquisition-related integration costs
|
$ | - | $ | 0.1 | ||||
|
Other costs
|
$ | 3.1 | $ | 2.8 | ||||
|
|
||||||||
|
Restructuring Charges
|
$ | (0.3 | ) | $ | 13.7 | |||
For a discussion of costs expected to be incurred for Fiscal 2012 in connection with the
Company’s restructuring and acquisition-related integration plans, see “Six Months 2012 Compared to
Six Months 2011 – Restructuring Charges” below.
Operating Income
The following table sets forth the operating income (loss) by reportable segment of the
Company for Second Quarter 2012 and Second Quarter 2011.
| Second | Second | |||||||||||
| Quarter | Quarter | % (Decrease) | ||||||||||
| 2012 | 2011 | Increase | ||||||||||
| (in millions) | ||||||||||||
|
CWNA
|
$ | 167.3 | $ | 181.2 | (8 | )% | ||||||
|
CWAE
|
- | (3.2 | ) | (100 | )% | |||||||
|
Corporate Operations and Other
|
(18.7 | ) | (27.5 | ) | 32 | % | ||||||
|
Crown Imports
|
125.6 | 131.2 | (4 | )% | ||||||||
|
Consolidations and eliminations
|
(125.6 | ) | (131.2 | ) | 4 | % | ||||||
|
|
||||||||||||
|
Total Reportable Segments
|
148.6 | 150.5 | (1 | )% | ||||||||
|
Restructuring Charges and Unusual Items
|
(3.5 | ) | (17.3 | ) | NM | |||||||
|
|
||||||||||||
|
Consolidated Operating Income
|
$ | 145.1 | $ | 133.2 | 9 | % | ||||||
|
|
||||||||||||
NM = Not Meaningful
As a result of the factors discussed above, consolidated operating income increased to $145.1
million for Second Quarter 2012 from $133.2 million for Second Quarter 2011, an increase of $11.9
million, or 9%. Restructuring charges and unusual items of $3.5 million and $17.3 million for
Second Quarter 2012 and Second Quarter 2011, respectively, consist of certain amounts that are
excluded by management in their evaluation of the results of each operating segment. These amounts
include:
| Second | Second | |||||||
| Quarter | Quarter | |||||||
| 2012 | 2011 | |||||||
| (in millions) | ||||||||
|
Cost of Product Sold
|
||||||||
|
Accelerated depreciation
|
$ | 0.1 | $ | 0.1 | ||||
|
Flow through of inventory step-up
|
- | 0.6 | ||||||
|
|
||||||||
|
Cost of Product Sold
|
0.1 | 0.7 | ||||||
44
Table of Contents
| Second | Second | |||||||
| Quarter | Quarter | |||||||
| 2012 | 2011 | |||||||
| (in millions) | ||||||||
|
Selling, General and Administrative Expenses
|
||||||||
|
Net losses on CWAE Divestiture and related activities
|
0.7 | - | ||||||
|
Net foreign currency gain on contractual obligation
from put option of Ruffino shareholder
|
(0.1 | ) | - | |||||
|
Acquisition-related integration costs
|
- | 0.1 | ||||||
|
Other costs
|
3.1 | 2.8 | ||||||
|
|
||||||||
|
Selling, General and Administrative Expenses
|
3.7 | 2.9 | ||||||
|
|
||||||||
|
Restructuring Charges
|
(0.3 | ) | 13.7 | |||||
|
|
||||||||
|
|
||||||||
|
Restructuring Charges and Unusual Items
|
$ | 3.5 | $ | 17.3 | ||||
|
|
||||||||
Equity in Earnings of Equity Method Investees
The Company’s equity in earnings of equity method investees decreased to $64.0 million in
Second Quarter 2012 from $66.4 million in Second Quarter 2011, a decrease of $2.4 million, or (4%).
This decrease is primarily due to lower equity in earnings of Crown Imports.
Net sales for Crown Imports increased to $727.0 million for Second Quarter 2012 from $679.4
million for Second Quarter 2011, an increase of $47.6 million, or 7%. This increase resulted
primarily from volume growth combined with lower promotional spend and a favorable product mix
shift within the Crown Imports’ Mexican beer portfolio. Second Quarter 2012 volume growth was
primarily due to existing product portfolio growth in connection with recent summer advertising
spend and product line extensions for certain brands within the Crown Imports’ Mexican beer
portfolio combined with an overlap of unfavorable volumes for Second Quarter 2011 in connection
with a brewery strike in Mexico and the June 2010 Hurricane Alex, both of which disrupted product
distribution into the U.S. Crown Imports gross profit increased $18.5 million, or 10%, primarily
due to these factors. Selling, general and administrative expenses increased $24.1 million, or
40%, primarily due to a planned increase in advertising spend. Operating income decreased $5.6
million, or (4%), primarily due to these factors.
The Company currently anticipates that Crown Imports net sales and operating income for the
third quarter of fiscal 2012 will be lower than the third quarter of fiscal 2011. The Crown Imports
net sales and operating income both benefitted in the third quarter of fiscal 2011 from
the return of wholesaler inventories in the U.S. to more normal levels following the disruption of
product distribution during Second Quarter 2011. In addition, Crown Imports operating income for
the third quarter of fiscal 2012 will be negatively impacted from the planned increase in
advertising spend for Fiscal 2012.
Interest Expense, Net
Interest expense, net of interest income of $1.7 million and $0.5 million, for Second Quarter
2012 and Second Quarter 2011, respectively, decreased to $42.5 million for Second Quarter 2012 from
$50.3 million for Second Quarter 2011, a decrease of $7.8 million, or (16%). The decrease resulted
from lower average borrowings in total, partially offset by a higher weighted average interest rate
on outstanding borrowings resulting primarily from the repayment of the lower interest rate tranche
B term loan facility.
45
Table of Contents
Provision for Income Taxes
The Company’s effective tax rate for Second Quarter 2012 and Second Quarter 2011 was 2.3% and
38.8%, respectively. The Company’s effective tax rate for Second
Quarter 2012 was substantially impacted by a decrease
in uncertain tax positions in connection with the completion of various income tax examinations
during Second Quarter 2012.
Net Income
As a result of the above factors, net income increased to $162.7 million for Second Quarter
2012 from $91.3 million for Second Quarter 2011, an increase of $71.4 million, or 78%.
Six Months 2012 Compared to Six Months 2011
Net Sales
The following table sets forth the net sales by reportable segment of the Company for Six
Months 2012 and Six Months 2011.
| Six | Six | |||||||||||
| Months | Months | % Increase | ||||||||||
| 2012 | 2011 | (Decrease) | ||||||||||
| (in millions) | ||||||||||||
|
CWNA net sales
|
$ | 1,325.5 | $ | 1,245.5 | 6 | % | ||||||
|
CWAE net sales
|
- | 404.8 | (100 | )% | ||||||||
|
Crown Imports net sales
|
1,404.5 | 1,300.9 | 8 | % | ||||||||
|
Consolidations and eliminations
|
(1,404.5 | ) | (1,300.9 | ) | (8 | )% | ||||||
|
|
||||||||||||
|
Consolidated Net Sales
|
$ | 1,325.5 | $ | 1,650.3 | (20 | )% | ||||||
|
|
||||||||||||
Net sales for Six Months 2012 decreased to $1,325.5 million from $1,650.3 million for Six
Months 2011, a decrease of $324.8 million, or (20%). This decrease resulted primarily from the
CWAE Divestiture of $350.4 million, partially offset by an increase in U.S. base branded wine net
sales of $22.5 million.
Constellation Wines North America
Net sales for CWNA increased to $1,325.5 million for Six Months 2012 from $1,245.5 million for
Six Months 2011, an increase of $80.0 million, or 6%. This increase is primarily due to favorable
product mix shift in the U.S. base branded wine portfolio combined with a benefit of $54.4 million
from wine net sales to Europe, Australia and Japan which were previously sold through the Company’s
CWAE segment, partially offset by lower U.S. base branded wine volume.
Constellation Wines Australia and Europe
Net sales for CWAE decreased $404.8 million, or (100%), from Six Months 2011 due to the
January 2011 CWAE Divestiture.
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.
46
Table of Contents
Gross Profit
The Company’s gross profit decreased to $534.0 million for Six Months 2012 from $584.2 million
for Six Months 2011, a decrease of $50.2 million, or (9%). This decrease is primarily due to a
decrease in CWAE’s gross profit of $55.5 million, partially offset by an increase in CWNA’s gross
profit of $2.9 million. The decrease in CWAE’s gross profit is due to the January 2011 CWAE
Divestiture. The increase in CWNA’s gross profit is primarily due to favorable product mix shift
in the U.S. base branded wine portfolio and a benefit of
$9.7 million from lower-margin wine net
sales to Europe, Australia and Japan which were previously sold through the Company’s CWAE segment,
partially offset by lower U.S. base branded wine volume and higher cost of product sold in the U.S.
(due largely to higher costs for transportation and imported products in the Company’s wine and
spirits portfolio). In addition, unusual items, which consist of certain amounts that are excluded
by management in their evaluation of the results of each operating segment, were lower by $2.4
million in Six Months 2012 versus Six Months 2011. Gross profit as a percent of net sales
increased to 40.3% for Six Months 2012 from 35.4% for Six Months 2011 primarily due to the factors
discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $276.4 million for Six Months 2012
from $336.1 million for Six Months 2011, a decrease of $59.7 million, or (18%). This decrease is
due to decreases in the CWAE segment of $61.5 million and the Corporate Operations and Other
segment of $14.2 million, partially offset by increases in the CWNA segment of $12.7 million and
unusual items, which consist of certain amounts that are excluded by management in their evaluation
of the results of each operating segment, of $3.3 million. The decrease in CWAE’s selling, general
and administrative expenses is due to the January 2011 CWAE Divestiture. The decrease in Corporate
Operations and Other’s selling, general and administrative expenses is due to a decrease in general
and administrative expenses primarily relating to lower expenses incurred in connection with
Project Fusion and lower annual management incentive compensation expense. The increase in CWNA’s
selling, general and administrative expenses is primarily due to an increase in advertising
expenses (on a constant currency basis) of $7.5 million and an unfavorable year-over-year foreign
currency translation impact of $4.3 million. The increase in advertising expenses is due largely
to the launch of several new products in the segment’s U.S. branded wine portfolio. Selling,
general and administrative expenses as a percent of net sales increased to 20.9% for Six Months
2012 as compared to 20.4% for Six Months 2011 primarily due to the factors discussed above.
Restructuring Charges
The Company recorded $10.8 million of restructuring charges for Six Months 2012 associated
primarily with the Fiscal 2012 Initiative. Restructuring charges consisted of $10.7 million of
employee termination benefit costs and $0.1 million of facility consolidation/relocation costs.
The Company recorded $18.6 million of restructuring charges for Six Months 2011 associated
primarily with the Company’s Global Initiative and Australian Initiative.
In addition, the Company incurred additional costs for Six Months 2012 and Six Months 2011 in
connection with the Company’s restructuring and acquisition-related integration plans. Total costs
incurred in connection with these plans for Six Months 2012 and Six Months 2011 are as follows:
47
Table of Contents
| Six | Six | |||||||
| Months | Months | |||||||
| 2012 | 2011 | |||||||
| (in millions) | ||||||||
|
Cost of
Product Sold
|
||||||||
|
Accelerated depreciation
|
$ | 0.3 | $ | 1.1 | ||||
|
|
||||||||
|
Selling,
General and Administrative Expenses
|
||||||||
|
Net gain on sale of nonstrategic assets
|
$ | - | $ | (1.0 | ) | |||
|
Acquisition-related integration costs
|
$ | - | $ | 0.2 | ||||
|
Other costs
|
$ | 4.2 | $ | 3.7 | ||||
|
|
||||||||
|
Restructuring Charges
|
$ | 10.8 | $ | 18.6 | ||||
The Company expects to incur the following costs in connection with its restructuring and
acquisition-related integration plans for Fiscal 2012.
| Expected | ||||
| Fiscal | ||||
| 2012 | ||||
| (in millions) | ||||
|
Cost of
Product Sold
|
||||
|
Accelerated depreciation
|
$ | 0.3 | ||
|
|
||||
|
Selling,
General and Administrative Expenses
|
||||
|
Other costs
|
$ | 11.4 | ||
|
|
||||
|
Restructuring Charges
|
$ | 11.8 | ||
Operating Income
The following table sets forth the operating income (loss) by reportable segment of the
Company for Six Months 2012 and Six Months 2011.
| Six | Six | |||||||||||
| Months | Months | % (Decrease) | ||||||||||
| 2012 | 2011 | Increase | ||||||||||
| (in millions) | ||||||||||||
|
CWNA
|
$ | 303.9 | $ | 313.7 | (3 | )% | ||||||
|
CWAE
|
- | (6.0 | ) | (100 | )% | |||||||
|
Corporate Operations and Other
|
(39.8 | ) | (54.0 | ) | 26 | % | ||||||
|
Crown Imports
|
245.4 | 240.1 | 2 | % | ||||||||
|
Consolidations and eliminations
|
(245.4 | ) | (240.1 | ) | (2 | )% | ||||||
|
|
||||||||||||
|
Total Reportable Segments
|
264.1 | 253.7 | 4 | % | ||||||||
|
Restructuring Charges and Unusual Items
|
(17.3 | ) | (24.2 | ) | NM | |||||||
|
|
||||||||||||
|
Consolidated Operating Income
|
$ | 246.8 | $ | 229.5 | 8 | % | ||||||
|
|
||||||||||||
48
Table of Contents
As a result of the factors discussed above, consolidated operating income increased to
$246.8 million for Six Months 2012 from $229.5 million for Six Months 2011, an increase of $17.3
million, or 8%. Restructuring charges and unusual items of $17.3 million and $24.2 million for Six
Months 2012 and Six Months 2011, respectively, consist of certain amounts that are excluded by
management in their evaluation of the results of each operating segment. These amounts include:
| Six | Six | |||||||
| Months | Months | |||||||
| 2012 | 2011 | |||||||
| (in millions) | ||||||||
|
Cost of
Product Sold
|
||||||||
|
Accelerated depreciation
|
$ | 0.3 | $ | 1.1 | ||||
|
Flow through of inventory step-up
|
- | 1.6 | ||||||
|
|
||||||||
|
Cost of Product Sold
|
0.3 | 2.7 | ||||||
|
|
||||||||
|
Selling,
General and Administrative Expenses
|
||||||||
|
Net foreign currency loss on contractual obligation
from put option of Ruffino shareholder
|
2.1 | - | ||||||
|
Net gains on CWAE Divestiture and related activities
|
(0.1 | ) | - | |||||
|
Net gain on sale of nonstrategic assets
|
- | (1.0 | ) | |||||
|
Acquisition-related integration costs
|
- | 0.2 | ||||||
|
Other costs
|
4.2 | 3.7 | ||||||
|
|
||||||||
|
Selling, General and Administrative Expenses
|
6.2 | 2.9 | ||||||
|
|
||||||||
|
Restructuring Charges
|
10.8 | 18.6 | ||||||
|
|
||||||||
|
|
||||||||
|
Restructuring Charges and Unusual Items
|
$ | 17.3 | $ | 24.2 | ||||
|
|
||||||||
Equity in Earnings of Equity Method Investees
The Company’s equity in earnings of equity method investees increased to $126.2 million in Six
Months 2012 from $120.9 million in Six Months 2011, an increase of $5.3 million, or 4%. This
increase is primarily due to higher equity in earnings from the Company’s Ruffino and Crown Imports
equity method investments. The increase in equity in earnings of Ruffino is due largely to
favorable product mix shift and an overlap of prior year losses on foreign currency transactions.
The increase in equity in earnings of Crown Imports is primarily due to volume growth within the
Crown Imports’ Mexican beer portfolio, partially offset by a planned increase in advertising spend,
as further discussed below.
Net sales for Crown Imports increased to $1,404.5 million for Six Months 2012 from $1,300.9
million for Six Months 2011, an increase of $103.6 million, or 8%. This increase resulted
primarily from volume growth within the Crown Imports’ Mexican beer portfolio. Six Months 2012
volume growth was primarily due to the overlap of unfavorable volumes for Six Months 2011 in
connection with a brewery strike in Mexico and the June 2010 Hurricane Alex, both of which
disrupted product distribution into the U.S., coupled with the continuing launch of the Victoria
brand which began during the Company’s fourth quarter of fiscal 2011. Crown Imports gross profit
increased $41.9 million, or 11%, primarily due to the volume growth combined with lower promotional
spend and a favorable product mix shift within the Crown Imports’ Mexican beer portfolio. Selling,
general and administrative expenses increased $36.6 million, or 29%, primarily due to a planned
increase in advertising spend. Operating income increased $5.3 million, or 2%, primarily due to
these factors.
49
Table of Contents
Interest Expense, Net
Interest expense, net of interest income of $3.4 million and $1.7 million, for Six Months 2012
and Six Months 2011, respectively, decreased to $86.8 million for Six Months 2012 from $98.8
million for Six Months 2011, a decrease of $12.0 million, or (12%). The decrease resulted from
lower average borrowings in total, partially offset by a higher weighted average interest rate on
outstanding borrowings resulting primarily from the repayment of the lower interest rate tranche B
term loan facility.
Provision for Income Taxes
The Company’s effective tax rate for Six Months 2012 and Six Months 2011 was 17.1% and 44.2%,
respectively. The Company’s effective tax rate for Six Months
2012 was substantially impacted by a decrease in
uncertain tax positions in connection with the completion of various income tax examinations during
Six Months 2012. The Company’s effective tax rate for Six 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 Six Months 2011.
Net Income
As a result of the above factors, net income increased to $237.2 million for Six Months 2012
from $140.4 million for Six Months 2011, an increase of $96.8 million, or 69%.
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 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 the majority of payments for such grapes coming
due within 90 days. 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.
As of September 30, 2011, the Company had $631.9 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.
50
Table of Contents
Six Months 2012 Cash Flows
Operating Activities
Net cash provided by operating activities for Six Months 2012 was $517.4 million, which
resulted primarily from net income of $237.2 million, plus net noncash items charged to the
Consolidated Statements of Operations of $110.5 million and net cash provided by the net change in
the Company’s operating assets and liabilities of $149.8 million.
The net noncash items consisted primarily of depreciation expense, deferred tax provision and
stock-based compensation expense. The net cash provided by the net change in the Company’s
operating assets and liabilities resulted primarily from a decrease in inventories of $118.7
million and an increase in other accrued expenses and liabilities of $83.0 million, partially
offset by an increase in accounts receivable, net, of $84.5 million. The decrease in inventories
and the increase in accounts receivable, net, were both due largely to seasonality as January and
February are typically the Company’s lowest selling months. The increase in other accrued expenses
and liabilities is due largely to an increase in current income taxes payable due primarily to a
refund of $85.5 million received in the first quarter of fiscal 2012 associated with the
recognition of income tax benefits in the fourth quarter of fiscal 2011 in connection with the
January 2011 CWAE Divestiture.
Investing Activities
Net cash used in investing activities for Six Months 2012 was $73.2 million, which resulted
primarily from capital expenditures of $39.2 million and payments of post-closing adjustments and
direct costs associated with the January 2011 CWAE Divestiture of $28.8 million.
Financing Activities
Net cash used in financing activities for Six Months 2012 was $444.3 million resulting
primarily from principal payments of long-term debt of $419.9 million and purchases of treasury
stock of $187.5 million (see “Share Repurchase” below), partially offset by net proceeds from notes
payable of $113.3 million and proceeds from exercises of employee stock options of $39.0 million.
Share Repurchase
In April 2011, the Company’s Board of Directors authorized the repurchase of up to $500.0
million of the Company’s Class A Common Stock and Class B Convertible Common Stock. The Board of
Directors did not specify a date upon which this authorization would expire. Share repurchases
under this authorization are expected to be accomplished from time to time based on market
conditions, the Company’s cash and debt position, and other factors as determined by management.
Shares may be repurchased through open market or privately negotiated transactions, and management
currently expects that the repurchases under this authorization will be implemented over a
multi-year period. The Company may fund share repurchases with cash generated from operations or
proceeds of borrowings under its senior credit facility. Any repurchased shares will become
treasury shares.
51
Table of Contents
During Six Months 2012, the Company repurchased 9,766,888 shares of Class A Common Stock
pursuant to this authorization at an aggregate cost of $187.5 million, or an average cost of $19.20
per share, through open market transactions. Subsequent to August 31, 2011, and through October
11, 2011, the Company repurchased an additional 4,751,600 shares of Class A Common Stock pursuant to
this authorization at an aggregate cost of $85.7 million,
or an average cost of $18.02 per share,
through open market transactions. In total, the Company has
repurchased 14,518,488 shares of Class A
Common Stock pursuant to this authorization at an aggregate cost of
$273.2 million, or an average
cost of $18.82 per share. The Company used revolver borrowings under the 2006 Credit Agreement and
cash flows from operating activities to pay the purchase price for the repurchased shares. The
repurchased shares have become treasury shares.
Debt
Total debt outstanding as of August 31, 2011, amounted to $2,946.4 million, a decrease of
$289.9 million from February 28, 2011.
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 an original final maturity in June 2011, fully repaid as of February 28,
2011, (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 $200.0 million), of which $192.0 million
terminated in June 2011 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 August 31, 2011, following the prepayment of $400.0 million of the tranche B term loan
facility during the first quarter of fiscal 2012, under the 2006 Credit Agreement, the Company had
outstanding 2013 Tranche B Term Loans of $624.7 million bearing an interest rate of 1.8%, 2015
Tranche B Term Loans of $201.9 million bearing an interest rate of 3.0%, 2013 Revolving Facility of
$189.8 million bearing an interest rate of 2.7%, outstanding letters of credit of $12.8 million,
and $447.4 million in revolving loans available to be drawn.
As of August 31, 2011, the required principal repayments of the tranche B term loan facility
for the remaining six months of fiscal 2012 and for each of the four succeeding fiscal years are as
follows:
| Tranche B | ||||
| Term Loan | ||||
| Facility | ||||
| (in millions) | ||||
|
2012
|
$ | - | ||
|
2013
|
314.1 | |||
|
2014
|
314.1 | |||
|
2015
|
99.7 | |||
|
2016
|
98.7 | |||
|
|
||||
|
|
$ | 826.6 | ||
|
|
||||
52
Table of Contents
As of September 30, 2011, under the 2006 Credit Agreement, the Company had outstanding
2013 Tranche B Term Loans of $624.7 million bearing an interest rate of 1.9%, 2015 Tranche B Term
Loans of $201.9 million bearing an interest rate of 3.0%, 2013 Revolving Facility of $5.4 million
bearing an interest rate of 2.1%, outstanding letters of credit of $12.7 million, and $631.9
million in revolving loans available to be drawn.
In June 2010, the Company entered into a 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 Six Months 2012 and Six Months 2011, and for
Second Quarter 2012 and Second Quarter 2011, the Company did not reclassify any amount from
Accumulated Other Comprehensive Income to interest expense, net on its Consolidated Statements of
Operations.
Accounting Guidance Not Yet Adopted
Fair
value measurement –
In May 2011, the FASB issued amended guidance to achieve common fair value measurement and
disclosure requirements under generally accepted accounting principles in the U.S. and
International Financial Reporting Standards. This amended guidance provides clarification about
the application of existing fair value measurement and disclosure requirements, and expands certain
other disclosure requirements. The Company is required to adopt this amended guidance for its
annual and interim periods beginning March 1, 2012. The Company does not expect the adoption of
this amended guidance to have a material impact on the Company’s consolidated financial statements.
Presentation
of comprehensive income –
In June 2011, the FASB issued amended guidance requiring an entity to present the total of
comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but
consecutive statements. This amended guidance eliminates the option to present the components of
other comprehensive income as part of the statement of stockholders’ equity. In addition, this
amended guidance requires retrospective application. The Company is required to adopt this amended
guidance for its annual and interim periods beginning March 1, 2012. The Company does not expect
the adoption of this amended guidance to have a material impact on the Company’s consolidated
financial statements.
Intangibles
– goodwill and other –
In September 2011, the FASB issued amended guidance for goodwill impairment testing. The
amended guidance allows an entity to assess qualitative factors to determine whether the existence
of events or circumstances leads to a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If an entity determines it is not more
likely than not that the fair value of the reporting unit is less than its carrying amount, then
performing the two-step impairment test would be unnecessary. If an entity concludes otherwise,
the entity would be required to complete the two-step impairment test by calculating the fair value
of the reporting unit and then comparing the fair value with the carrying amount of the reporting
unit. The Company is required to adopt this amended guidance for its annual and interim periods
beginning March 1, 2012. The Company does not expect the adoption of this amended guidance to have
a material impact on the Company’s consolidated financial statements.
53
Table of Contents
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 Operation” 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 and other costs, (iii) information concerning expected or potential
actions of third parties, (iv) information concerning the future expected balance of supply and
demand for wine, (v) information regarding net sales and
operating income for the U.S. and for Crown Imports, and (vi) the duration of the share
repurchase implementation 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 actual
balance of supply and demand for wine products will vary from current expectations due to, among
other reasons, actual consumer demand, (ii) the Company’s restructuring charges, accelerated depreciation and other costs 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, (iii) the net sales and operating
income for the U.S. and for Crown Imports may vary materially from
current expectations due to actual sales experience and actual
advertising spend for Crown Imports, and (iv) the amount and timing of any share repurchases may vary due to
market conditions, the Company’s cash and debt position, and other factors as determined by
management from time to time. 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, 2011.
54
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
August 31, 2011, the Company had exposures to foreign currency risk primarily related to the euro,
New Zealand dollar, and Canadian dollar.
As of August 31, 2011, and August 31, 2010, the Company had outstanding foreign currency
derivative instruments with a notional value of $689.1 million and $1,290.4 million
,
respectively.
As of August 31, 2011, approximately 80.3% of the Company’s
balance sheet exposures and forecasted transactional exposures for
the remaining six months of fiscal 2012 were hedged. The estimated fair value of the Company’s foreign currency derivative instruments was a
net asset of $23.7 million and $14.7 million as of August 31, 2011, and August 31, 2010,
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 August 31, 2011, and August
31, 2010, the fair value of open foreign currency contracts would have been increased by $1.9
million and decreased by $9.9 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 $2,078.7 million and $2,031.1 million as of August 31, 2011, and August 31, 2010,
respectively. A hypothetical 1% increase from prevailing interest rates as of August 31, 2011, and
August 31, 2010, would have resulted in a decrease in the fair value of the fixed interest rate
long-term debt by $84.9 million and $95.8 million, respectively.
As of August 31, 2011, the Company had outstanding cash flow designated interest rate swap
agreements to minimize interest rate volatility. As of August 31, 2011, 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. The estimated fair value of
the Company’s interest rate swap agreements was a net liability of $41.5 million as of August 31,
2011. A hypothetical 1% increase from prevailing interest rates as of August 31, 2011, would have
favorably increased the fair value of the interest rate swap agreements by $25.5 million.
In addition to the $2,078.7 million and $2,031.1 million estimated fair value of fixed rate
debt outstanding as of August 31, 2011, and August 31, 2010, respectively, the Company also had
variable rate debt outstanding (primarily LIBOR-based), certain of which includes a fixed margin.
As of August 31, 2011, and August 31, 2010, the estimated fair value of the Company’s total
variable rate debt, including current maturities, was $999.3 million and $1,789.1 million,
respectively. A hypothetical 1% increase from prevailing interest rates as of August 31, 2011, and
August 31, 2010, would have resulted in a decrease in the fair value of the variable interest rate
long-term debt by $18.2 million and $39.2 million, respectively.
55
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 August 31, 2011, that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
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) | ||||||||||||
|
June 1 – 30, 2011
|
- | $ | - | - | $ | 500,000,000 | ||||||||||
|
July 1 – 31, 2011
|
1,522,809 | 20.72 | 1,522,809 | $ | 468,446,140 | |||||||||||
|
August 1
– 31, 2011
|
8,244,079 | 18.92 | 8,244,079 | $ | 312,473,533 | |||||||||||
|
|
||||||||||||||||
|
Total
|
9,766,888 | $ | 19.20 | 9,766,888 | $ | 312,473,533 | (2) | |||||||||
|
|
||||||||||||||||
| (1) | On April 7, 2011, the Company announced that its Board of Directors had authorized the repurchase from time to time of up to an aggregate amount of $500.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock (the “2012 Authorization”). The Board of Directors did not specify a date upon which the 2012 Authorization would expire. | |
| (2) | Subsequent to August 31, 2011 and through October 11, 2011, the Company repurchased an additional 4,751,600 shares of Class A Common Stock pursuant to the 2012 Authorization at an aggregate cost of $85.7 million, or an average cost of $18.02 per share, through open market transactions, thereby reducing the approximate dollar value of shares that may yet be purchased under the 2012 Authorization subsequent to October 11, 2011 to $226.8 million. |
56
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 59 of this report. The Index to Exhibits is incorporated herein by
reference.
57
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: October 11, 2011 | By: | /s/ David M. Thomas | ||
| David M. Thomas, Senior Vice President, | ||||
| Finance and Controller | ||||
| Dated: October 11, 2011 | By: | /s/ Robert Ryder | ||
| Robert Ryder, Executive Vice President and | ||||
|
Chief Financial Officer (principal financial
officer and principal accounting officer) |
||||
58
Table of Contents
INDEX TO EXHIBITS
| Exhibit No. | ||
|
|
||
|
2.1
|
Share Subscription Agreement, dated December 23, 2010 among
Constellation Brands, Inc., Vincor U.K. Limited, CBI
Australia Holding 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 to the Company’s Current
Report on Form 8-K dated December 23, 2010, filed December
28, 2010 and incorporated herein by reference).
|
|
|
|
||
|
2.2
|
Deed of Amendment and Restatement dated January 31, 2011 to
the Share Subscription Agreement dated December 23, 2010
among Constellation Brands, Inc., Vincor U.K. Limited, CBI
Australia Holding 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 to the Company’s Current
Report on Form 8-K dated January 31, 2011, filed February 4,
2011 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).#
|
|
|
|
||
|
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).#
|
59
Table of Contents
|
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).#
|
|
|
|
||
|
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).
|
60
Table of Contents
|
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).
|
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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).
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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).#
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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).#
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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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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).#
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61
Table of Contents
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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).#
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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).#
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||
|
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).
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||
|
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).
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|
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).
|
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|
||
|
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
|
Certification of Chief Executive Officer pursuant to Section
18 U.S.C. 1350 (filed herewith).
|
|
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|
||
|
32.2
|
Certification of Chief Financial Officer pursuant to Section
18 U.S.C. 1350 (filed herewith).
|
62
Table of Contents
|
101.1
|
The following materials from the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 2011,
formatted in XBRL (eXtensible Business Reporting Language):
|
|
|
|
(i) Consolidated Balance Sheets as of August 31, 2011 and
February 28, 2011, (ii) Consolidated Statements of
Operations for the six months and the three months ended
August 31, 2011 and 2010, (iii) Consolidated Statements of
Cash Flows for the six months ended August 31, 2011 and
2010, 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.
|
|
| # |
Company’s Commission File No. 001-08495. For filings prior to October
4, 1999, use Commission File No. 000-07570.
|
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.
63
TABLE OF CONTENTS
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