q10form.htm
FORM
10-Q
SECURITIES
AND EXCHANGE
COMMISSION
WASHINGTON,
D.C. 20549
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended
November
30,
2007
OR
o
|
TRANSITION
REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from
____________________ to ____________________
|
Commission
File Number
001-08495
|
CONSTELLATION
BRANDS, INC.
|
(Exact
name of registrant as
specified in its charter)
|
|
Delaware
|
|
16-0716709
|
(State
or other jurisdiction
of
incorporation
or
organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
370
Woodcliff Drive, Suite
300, Fairport,
New
York
|
14450
|
(Address
of principal executive
offices)
|
(Zip
Code)
|
(585)
218-3600
|
(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 x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act. (Check One):
Large
Accelerated Filer X Accelerated
Filer ___ Non-accelerated
Filer
___
Indicate
by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No x
The
number of shares outstanding with
respect to each of the classes of common stock of Constellation Brands, Inc.,
as
of December 31, 2007, is set forth below:
Class
|
|
Number
of Shares Outstanding
|
Class
A Common Stock, Par Value
$.01 Per Share
|
|
191,830,481
|
Class
B Common Stock, Par Value
$.01 Per Share
|
|
23,798,838
|
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.
|
|
|
|
|
|
|
|
|
Item
1. Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(in
millions, except share and per share data)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
November
30,
|
|
|
February
28,
|
|
|
|
2007
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
Cash
and cash investments
|
|
$ |
24.9 |
|
|
$ |
33.5 |
|
Accounts
receivable, net
|
|
|
938.5 |
|
|
|
881.0 |
|
Inventories
|
|
|
2,041.4 |
|
|
|
1,948.1 |
|
Prepaid
expenses and other
|
|
|
142.7 |
|
|
|
160.7 |
|
Total
current assets
|
|
|
3,147.5 |
|
|
|
3,023.3 |
|
PROPERTY,
PLANT AND EQUIPMENT, net
|
|
|
1,791.9 |
|
|
|
1,750.2 |
|
GOODWILL
|
|
|
3,427.9 |
|
|
|
3,083.9 |
|
INTANGIBLE
ASSETS, net
|
|
|
1,252.7 |
|
|
|
1,135.4 |
|
OTHER
ASSETS, net
|
|
|
573.6 |
|
|
|
445.4 |
|
Total
assets
|
|
$ |
10,193.6 |
|
|
$ |
9,438.2 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
Notes
payable to banks
|
|
$ |
101.7 |
|
|
$ |
153.3 |
|
Current
maturities of long-term debt
|
|
|
366.9 |
|
|
|
317.3 |
|
Accounts
payable
|
|
|
350.8 |
|
|
|
376.1 |
|
Accrued
excise taxes
|
|
|
107.9 |
|
|
|
73.7 |
|
Other
accrued expenses and liabilities
|
|
|
667.3 |
|
|
|
670.7 |
|
Total
current liabilities
|
|
|
1,594.6 |
|
|
|
1,591.1 |
|
LONG-TERM
DEBT, less current maturities
|
|
|
4,235.2 |
|
|
|
3,714.9 |
|
DEFERRED
INCOME TAXES
|
|
|
498.2 |
|
|
|
474.1 |
|
OTHER
LIABILITIES
|
|
|
352.9 |
|
|
|
240.6 |
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
|
|
|
|
|
Class
A Common Stock, $.01 par value-
Authorized,
315,000,000 shares;
Issued,
220,992,674 shares at November 30, 2007,
and
219,090,309 shares at February 28, 2007
|
|
|
2.2 |
|
|
|
2.2 |
|
Class
B Convertible Common Stock, $.01 par value-
Authorized,
30,000,000 shares;
Issued,
28,811,638 shares at November 30, 2007,
and
28,831,138 shares at February 28, 2007
|
|
|
0.3 |
|
|
|
0.3 |
|
Additional
paid-in capital
|
|
|
1,327.5 |
|
|
|
1,271.1 |
|
Retained
earnings
|
|
|
2,140.8 |
|
|
|
1,919.3 |
|
Accumulated
other comprehensive income
|
|
|
665.5 |
|
|
|
349.1 |
|
|
|
|
4,136.3 |
|
|
|
3,542.0 |
|
Less: Treasury
stock -
|
|
|
|
|
|
|
|
|
Class
A Common Stock, 29,200,733 shares at
November
30, 2007, and 8,046,370 shares at
February
28, 2007, at cost
|
|
|
(621.4 |
) |
|
|
(122.3 |
) |
Class
B Convertible Common Stock, 5,005,800 shares
at
November 30, 2007, and February 28, 2007, at cost
|
|
|
(2.2 |
)
|
|
|
(2.2 |
)
|
|
|
|
(623.6 |
)
|
|
|
(124.5 |
)
|
Total
stockholders' equity
|
|
|
3,512.7 |
|
|
|
3,417.5 |
|
Total
liabilities and stockholders' equity
|
|
$ |
10,193.6 |
|
|
$ |
9,438.2 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
(in
millions, except per share data)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended November 30,
|
|
|
For
the Three Months Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
$ |
3,749.7 |
|
|
$ |
4,979.3 |
|
|
$ |
1,406.4 |
|
|
$ |
1,834.2 |
|
Less
- Excise taxes
|
|
|
(861.1 |
)
|
|
|
(905.1 |
)
|
|
|
(311.6 |
)
|
|
|
(333.4 |
)
|
Net
sales
|
|
|
2,888.6 |
|
|
|
4,074.2 |
|
|
|
1,094.8 |
|
|
|
1,500.8 |
|
COST
OF PRODUCT SOLD
|
|
|
(1,918.8 |
)
|
|
|
(2,895.6 |
)
|
|
|
(702.9 |
)
|
|
|
(1,055.6 |
)
|
Gross
profit
|
|
|
969.8 |
|
|
|
1,178.6 |
|
|
|
391.9 |
|
|
|
445.2 |
|
SELLING,
GENERAL AND ADMINISTRATIVE
EXPENSES
|
|
|
(580.2 |
) |
|
|
(574.8 |
) |
|
|
(192.1 |
) |
|
|
(197.8 |
) |
ACQUISITION-RELATED
INTEGRATION COSTS
|
|
|
(5.2 |
) |
|
|
(17.6 |
) |
|
|
(1.6 |
) |
|
|
(9.5 |
) |
RESTRUCTURING
AND RELATED CHARGES
|
|
|
(0.7 |
)
|
|
|
(26.1 |
)
|
|
|
0.1 |
|
|
|
(2.1 |
)
|
Operating
income
|
|
|
383.7 |
|
|
|
560.1 |
|
|
|
198.3 |
|
|
|
235.8 |
|
EQUITY
IN EARNINGS OF EQUITY
METHOD
INVESTEES
|
|
|
230.1 |
|
|
|
10.7 |
|
|
|
74.2 |
|
|
|
10.4 |
|
INTEREST
EXPENSE, net
|
|
|
(248.8 |
) |
|
|
(194.3 |
) |
|
|
(82.4 |
) |
|
|
(73.1 |
) |
GAIN
ON CHANGE IN FAIR VALUE OF
DERIVATIVE
INSTRUMENT
|
|
|
- |
|
|
|
55.1 |
|
|
|
- |
|
|
|
- |
|
Income
before income taxes
|
|
|
365.0 |
|
|
|
431.6 |
|
|
|
190.1 |
|
|
|
173.1 |
|
PROVISION
FOR INCOME TAXES
|
|
|
(143.5 |
)
|
|
|
(169.9 |
)
|
|
|
(70.5 |
)
|
|
|
(65.3 |
)
|
NET
INCOME
|
|
|
221.5 |
|
|
|
261.7 |
|
|
|
119.6 |
|
|
|
107.8 |
|
Dividends
on preferred stock
|
|
|
- |
|
|
|
(4.9 |
)
|
|
|
- |
|
|
|
- |
|
INCOME
AVAILABLE TO COMMON
STOCKHOLDERS
|
|
$ |
221.5 |
|
|
$ |
256.8 |
|
|
$ |
119.6 |
|
|
$ |
107.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARE
DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
- Class A Common Stock
|
|
$ |
1.02 |
|
|
$ |
1.14 |
|
|
$ |
0.56 |
|
|
$ |
0.47 |
|
Basic
- Class B Common Stock
|
|
$ |
0.92 |
|
|
$ |
1.04 |
|
|
$ |
0.51 |
|
|
$ |
0.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
- Class A Common Stock
|
|
$ |
0.99 |
|
|
$ |
1.09 |
|
|
$ |
0.55 |
|
|
$ |
0.45 |
|
Diluted
- Class B Common Stock
|
|
$ |
0.91 |
|
|
$ |
1.00 |
|
|
$ |
0.50 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
- Class A Common Stock
|
|
|
196.191 |
|
|
|
203.113 |
|
|
|
191.578 |
|
|
|
209.524 |
|
Basic
- Class B Common Stock
|
|
|
23.817 |
|
|
|
23.845 |
|
|
|
23.809 |
|
|
|
23.837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
- Class A Common Stock
|
|
|
224.093 |
|
|
|
239.889 |
|
|
|
219.432 |
|
|
|
239.396 |
|
Diluted
- Class B Common Stock
|
|
|
23.817 |
|
|
|
23.845 |
|
|
|
23.809 |
|
|
|
23.837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
statements.
|
|
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(in
millions)
|
|
(unaudited)
|
|
|
|
For
the Nine Months Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
income
|
|
$ |
221.5 |
|
|
$ |
261.7 |
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
|
109.3 |
|
|
|
92.2 |
|
Deferred
tax provision
|
|
|
29.9 |
|
|
|
31.5 |
|
Stock-based
compensation expense
|
|
|
24.1 |
|
|
|
12.1 |
|
Equity
in earnings of equity method investees, net of distributed
earnings
|
|
|
10.5 |
|
|
|
(7.2 |
) |
Amortization
of intangible and other assets
|
|
|
8.2 |
|
|
|
6.0 |
|
Loss
on disposal of business
|
|
|
6.8 |
|
|
|
16.9 |
|
(Gain)
loss on disposal or impairment of long-lived assets,
net
|
|
|
(4.9 |
) |
|
|
10.7 |
|
Gain
on change in fair value of derivative instrument
|
|
|
- |
|
|
|
(55.1 |
) |
Non-cash
portion of loss on extinguishment of debt
|
|
|
- |
|
|
|
11.8 |
|
Change
in operating assets and liabilities, net of effects
from
purchases and sales of businesses:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(200.2 |
) |
|
|
(275.7 |
) |
Inventories
|
|
|
(58.5 |
) |
|
|
(147.7 |
) |
Prepaid
expenses and other current assets
|
|
|
10.7 |
|
|
|
(45.1 |
) |
Accounts
payable
|
|
|
48.7 |
|
|
|
172.0 |
|
Accrued
excise taxes
|
|
|
46.9 |
|
|
|
13.3 |
|
Other
accrued expenses and liabilities
|
|
|
54.8 |
|
|
|
19.5 |
|
Other,
net
|
|
|
(55.5 |
)
|
|
|
(3.7 |
)
|
Total
adjustments
|
|
|
30.8 |
|
|
|
(148.5 |
)
|
Net
cash provided by operating activities
|
|
|
252.3 |
|
|
|
113.2 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of business, net of cash acquired
|
|
|
(389.7 |
) |
|
|
(1,093.7 |
) |
Purchases
of property, plant and equipment
|
|
|
(79.5 |
) |
|
|
(135.6 |
) |
Payment
of accrued earn-out amount
|
|
|
(4.0 |
) |
|
|
(3.7 |
) |
Investment
in equity method investee
|
|
|
(1.5 |
) |
|
|
- |
|
Proceeds
from formation of joint venture
|
|
|
185.6 |
|
|
|
- |
|
Proceeds
from sales of assets
|
|
|
8.7 |
|
|
|
8.8 |
|
Proceeds
from sales of businesses
|
|
|
3.0 |
|
|
|
28.4 |
|
Proceeds
from maturity of derivative instrument
|
|
|
- |
|
|
|
55.1 |
|
Other
investing activities
|
|
|
- |
|
|
|
(0.4 |
)
|
Net
cash used in investing activities
|
|
|
(277.4 |
)
|
|
|
(1,141.1 |
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
|
716.1 |
|
|
|
3,695.0 |
|
Exercise
of employee stock options
|
|
|
17.7 |
|
|
|
51.3 |
|
Excess
tax benefits from share-based payment awards
|
|
|
11.4 |
|
|
|
16.9 |
|
Proceeds
from employee stock purchases
|
|
|
3.0 |
|
|
|
3.3 |
|
Purchases
of treasury stock
|
|
|
(500.0 |
) |
|
|
(100.0 |
) |
Principal
payments of long-term debt
|
|
|
(168.6 |
) |
|
|
(2,780.3 |
) |
Net
(repayment of) proceeds from notes payable
|
|
|
(57.6 |
) |
|
|
210.5 |
|
Payment
of financing costs of long-term debt
|
|
|
(6.1 |
) |
|
|
(20.2 |
) |
Payment
of preferred stock dividends
|
|
|
- |
|
|
|
(7.3 |
)
|
Net
cash provided by financing activities
|
|
|
15.9 |
|
|
|
1,069.2 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash
investments
|
|
|
0.6 |
|
|
|
(17.5 |
)
|
|
|
|
|
|
|
|
|
|
NET
(DECREASE) INCREASE IN CASH AND CASH INVESTMENTS
|
|
|
(8.6 |
) |
|
|
23.8 |
|
CASH
AND CASH INVESTMENTS, beginning of period
|
|
|
33.5 |
|
|
|
10.9 |
|
CASH
AND CASH INVESTMENTS, end of period
|
|
$ |
24.9 |
|
|
$ |
34.7 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH INVESTING
AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired, including cash acquired
|
|
$ |
431.1 |
|
|
$ |
1,736.9 |
|
Liabilities
assumed
|
|
|
(40.0 |
)
|
|
|
(609.6 |
)
|
Net
assets acquired
|
|
|
391.1 |
|
|
|
1,127.3 |
|
Plus
- settlement of note payable
|
|
|
- |
|
|
|
2.3 |
|
Plus
- payment of direct acquisition costs previously
accrued
|
|
|
0.4 |
|
|
|
- |
|
Less
- cash acquired
|
|
|
(1.6 |
) |
|
|
(34.9 |
) |
Less
- direct acquisition costs accrued
|
|
|
(0.2 |
)
|
|
|
(1.0 |
)
|
Net
cash paid for purchases of businesses
|
|
$ |
389.7 |
|
|
$ |
1,093.7 |
|
The
accompanying notes are an integral part of these
statements.
|
|
CONSTELLATION
BRANDS, INC. AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
NOVEMBER
30, 2007
1)
|
MANAGEMENT’S
REPRESENTATIONS:
|
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, 2007. Results of operations for
interim periods are not necessarily indicative of annual results.
2) RECENTLY
ADOPTED ACCOUNTING
PRONOUNCEMENTS:
Effective
March 1, 2007, the Company
adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48
(“FIN No. 48”), “Accounting for Uncertainty in Income Taxes – an interpretation
of FASB Statement No. 109.” FIN No. 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109. FIN No. 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. Additionally, FIN No. 48 provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition (see Note 9).
3) ACQUISITIONS:
Acquisition
of Svedka –
On
March 19, 2007, the Company acquired
the SVEDKA Vodka brand (“Svedka”) in connection with the acquisition of Spirits
Marque One LLC and related business (the “Svedka
Acquisition”). Svedka is a premium Swedish vodka. The
acquisition of Svedka supports the Company’s strategy of expanding the Company’s
premium spirits business. The acquisition provides a foundation from
which the Company looks to leverage its existing and future premium spirits
portfolio for growth. In addition, Svedka complements the Company’s
existing portfolio of super-premium and value vodka brands by adding a premium
vodka brand.
Total
consideration paid in cash for
the Svedka Acquisition was $385.8 million. In addition, the Company
expects to incur direct acquisition costs of approximately $1.3
million. The purchase price was financed with revolver borrowings
under the Company’s June 2006 Credit Agreement (as defined in Note 8), as
amended in February 2007. In accordance with the purchase method of
accounting, the acquired net assets are recorded at fair value at the date
of
acquisition. The purchase price was based primarily on the estimated
future operating results of the Svedka business, including the factors described
above.
The
results of operations of the Svedka
business are reported in the Constellation Spirits segment and have been
included in the consolidated results of operations of the Company from the
date
of acquisition.
The
following table summarizes the
estimated fair values of the assets acquired and liabilities assumed in the
Svedka Acquisition at the date of acquisition. The Company is in the
process of obtaining third-party valuations of certain assets and
liabilities. Accordingly, the allocation of the purchase price is
preliminary and subject to change. Estimated fair values at March 19,
2007, are as follows:
(in
millions)
|
|
|
|
Current
assets
|
|
$ |
20.1 |
|
Property,
plant and equipment
|
|
|
0.1 |
|
Goodwill
|
|
|
349.7 |
|
Trademark
|
|
|
36.4 |
|
Other
assets
|
|
|
20.7 |
|
Total
assets
acquired
|
|
|
427.0 |
|
|
|
|
|
|
Current
liabilities
|
|
|
23.8 |
|
Long-term
liabilities
|
|
|
16.1 |
|
Total
liabilities
assumed
|
|
|
39.9 |
|
|
|
|
|
|
Net
assets acquired
|
|
$ |
387.1 |
|
The
trademark is not subject to
amortization. Approximately $85 million of the goodwill is expected
to be deductible for tax purposes.
Acquisition
of Vincor –
On
June 5, 2006, the Company acquired
all of the issued and outstanding common shares of Vincor International Inc.
(“Vincor”), Canada’s premier wine company. Vincor is Canada’s largest
producer and marketer of wine. At the time of the acquisition, Vincor
was the world’s eighth largest producer and distributor of wine and related
products by revenue and was also one of the largest wine importers, marketers
and distributors in the United Kingdom (“U.K.”). Through this
transaction, the Company acquired various additional winery and vineyard
interests used in the production of premium, super-premium and fine wines from
Canada, California, Washington State, Western Australia and New
Zealand. In addition, as a result of the acquisition, the Company
sources, markets and sells premium wines from South
Africa. Well-known premium brands acquired in the acquisition of
Vincor include Inniskillin, Jackson-Triggs, Sawmill Creek, Sumac Ridge, R.H.
Phillips, Toasted Head, Hogue, Kim Crawford and Kumala.
The
acquisition of Vincor supports the
Company’s strategy of strengthening the breadth of its portfolio across price
segments and geographic regions to capitalize on the overall growth in the
wine
industry. In addition to complementing the Company’s current
operations in the United States (“U.S.”), U.K., Australia and New Zealand, the
acquisition of Vincor increases the Company’s global presence by adding Canada
as another core market and provides the Company with the ability to capitalize
on broader geographic distribution in strategic international
markets. In addition, the acquisition of Vincor makes the Company the
largest wine company in Canada and strengthens the Company’s position as the
largest wine company in the world and the largest premium wine company in the
U.S.
Total
consideration paid in cash to the
Vincor shareholders was $1,115.8 million. In addition, the Company
incurred direct acquisition costs of $9.4 million. At closing, the
Company also assumed outstanding indebtedness of Vincor, net of cash acquired,
of $320.2 million. The purchase price was financed with borrowings
under the Company’s June 2006 Credit Agreement. In accordance with
the purchase method of accounting, the acquired net assets are recorded at
fair
value at the date of acquisition. The purchase price was based
primarily on the estimated future operating results of the Vincor business,
including the factors described above, as well as an estimated benefit from
operating cost synergies.
In
connection with the acquisition of
Vincor, the Company entered into a foreign currency forward contract to fix
the
U.S. dollar cost of the acquisition and the payment of certain outstanding
indebtedness in April 2006. During the nine months ended November 30,
2006, the Company recorded a gain of $55.1 million in connection with this
derivative instrument. Under Statement of Financial Accounting
Standards No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” as amended, a transaction that involves a business combination is
not eligible for hedge accounting treatment. As such, the gain was
recognized separately on the Company’s Consolidated Statements of
Income.
The
results of operations of the Vincor
business are reported in the Constellation Wines segment and have been included
in the Consolidated Statements of Income from the date of
acquisition.
The
following table summarizes the fair
values of the assets acquired and liabilities assumed in the acquisition of
Vincor at the date of acquisition:
(in
millions)
|
|
|
|
Current
assets
|
|
$ |
390.5 |
|
Property,
plant and equipment
|
|
|
241.4 |
|
Goodwill
|
|
|
874.8 |
|
Trademarks
|
|
|
224.3 |
|
Other
assets
|
|
|
49.5 |
|
Total
assets
acquired
|
|
|
1,780.5 |
|
|
|
|
|
|
Current
liabilities
|
|
|
418.3 |
|
Long-term
liabilities
|
|
|
237.0 |
|
Total
liabilities
assumed
|
|
|
655.3 |
|
|
|
|
|
|
Net
assets acquired
|
|
$ |
1,125.2 |
|
The
trademarks are not subject to
amortization. None of the goodwill is expected to be deductible for
tax purposes.
The
following table sets forth the
unaudited historical results of operations and the unaudited pro forma results
of operations of the Company for the nine months and three months ended November
30, 2007, and November 30, 2006, respectively. Unaudited pro forma
results of operation of the Company for the nine months and three months ended
November 30, 2007, are not presented to give effect to the Svedka Acquisition
as
if it had occurred on March 1, 2006, as they are not significant. The
unaudited pro forma results of operations for the nine months and three months
ended November 30, 2006, give effect to the Svedka Acquisition and the
acquisition of Vincor as if they occurred on March 1, 2006. The
unaudited pro forma results of operations are presented after giving effect
to
certain adjustments for depreciation, amortization of certain intangible assets
and deferred financing costs, interest expense on the acquisition financing,
interest expense associated with adverse grape contracts, and related income
tax
effects. The unaudited pro forma results of operations are based upon
currently available information and certain assumptions that the Company
believes are reasonable under the circumstances. The unaudited pro
forma results of operations for the nine months ended November 30, 2006, do
not
reflect total pretax nonrecurring charges of $29.5 million ($0.09 per share
on a
diluted basis) related to transaction costs, primarily for the acceleration
of
vesting of stock options, legal fees and investment banker fees, all of which
were incurred by Vincor prior to the acquisition. The unaudited pro
forma results of operations do not purport to present what the Company’s results
of operations would actually have been if the aforementioned transactions had
in
fact occurred on such date or at the beginning of the period indicated, nor
do
they project the Company’s financial position or results of operations at any
future date or for any future period.
|
|
For
the Nine Months
Ended
November 30,
|
|
|
For
the Three
Months
Ended
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,888.6 |
|
|
$ |
4,225.4 |
|
|
$ |
1,094.8 |
|
|
$ |
1,512.9 |
|
Income
before income taxes
|
|
$ |
365.0 |
|
|
$ |
373.6 |
|
|
$ |
190.1 |
|
|
$ |
168.2 |
|
Net
income
|
|
$ |
221.5 |
|
|
$ |
223.3 |
|
|
$ |
119.6 |
|
|
$ |
104.6 |
|
Income
available to common stockholders
|
|
$ |
221.5 |
|
|
$ |
218.4 |
|
|
$ |
119.6 |
|
|
$ |
104.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common
Stock
|
|
$ |
1.02 |
|
|
$ |
0.97 |
|
|
$ |
0.56 |
|
|
$ |
0.45 |
|
Class
B Common
Stock
|
|
$ |
0.92 |
|
|
$ |
0.88 |
|
|
$ |
0.51 |
|
|
$ |
0.41 |
|
Earnings
per common share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common
Stock
|
|
$ |
0.99 |
|
|
$ |
0.93 |
|
|
$ |
0.55 |
|
|
$ |
0.44 |
|
Class
B Common
Stock
|
|
$ |
0.91 |
|
|
$ |
0.85 |
|
|
$ |
0.50 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common
Stock
|
|
|
196.191 |
|
|
|
203.113 |
|
|
|
191.578 |
|
|
|
209.524 |
|
Class
B Common
Stock
|
|
|
23.817 |
|
|
|
23.845 |
|
|
|
23.809 |
|
|
|
23.837 |
|
Weighted
average common shares outstanding – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common
Stock
|
|
|
224.093 |
|
|
|
239.889 |
|
|
|
219.432 |
|
|
|
239.396 |
|
Class
B Common
Stock
|
|
|
23.817 |
|
|
|
23.845 |
|
|
|
23.809 |
|
|
|
23.837 |
|
Inventories
are stated at the lower of
cost (computed in accordance with the first-in, first-out method) or
market. Elements of cost include materials, labor and overhead and
consist of the following:
|
|
November
30,
2007
|
|
|
February
28,
2007
|
|
(in
millions)
|
|
|
|
|
|
|
Raw
materials and supplies
|
|
$ |
117.3 |
|
|
$ |
106.5 |
|
In-process
inventories
|
|
|
1,304.5 |
|
|
|
1,264.4 |
|
Finished
case goods
|
|
|
619.6 |
|
|
|
577.2 |
|
|
|
$ |
2,041.4 |
|
|
$ |
1,948.1 |
|
The
changes in the carrying amount of
goodwill for the nine months ended November 30, 2007, are as
follows:
|
|
Constellation
Wines
|
|
|
Constellation
Spirits
|
|
|
Crown
Imports
|
|
|
Consolidations
and
Eliminations
|
|
|
Consolidated
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28,
2007
|
|
$ |
2,939.5 |
|
|
$ |
144.4 |
|
|
$ |
13.0 |
|
|
$ |
(13.0 |
) |
|
$ |
3,083.9 |
|
Purchase
accounting
allocations
|
|
|
(10.4 |
) |
|
|
349.7 |
|
|
|
- |
|
|
|
- |
|
|
|
339.3 |
|
Foreign
currency
translation
adjustments
|
|
|
144.3 |
|
|
|
2.6 |
|
|
|
- |
|
|
|
- |
|
|
|
146.9 |
|
Purchase
price
earn-out
|
|
|
1.2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1.2 |
|
Disposal
of business
|
|
|
(143.4 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(143.4 |
) |
Balance,
November
30,
2007
|
|
$ |
2,931.2 |
|
|
$ |
496.7 |
|
|
$ |
13.0 |
|
|
$ |
(13.0 |
) |
|
$ |
3,427.9 |
|
The
Constellation Spirits segment’s
purchase accounting allocations totaling $349.7 million consist of purchase
accounting allocations associated with the Svedka Acquisition. The
Constellation Wines segment’s purchase accounting allocations totaling ($10.4)
million consist primarily of a reduction of $17.0 million in connection with
an
adjustment to income taxes payable acquired in a prior acquisition, partially
offset by final purchase accounting allocations associated with the acquisition
of Vincor of $6.7 million. The Constellation Wines segment’s disposal
of business of $143.4 million consists of the Company’s reduction of goodwill in
connection with the Company’s contribution of its U.K. wholesale business
associated with the formation of a joint venture with Punch Taverns plc
(“Punch”) (see Note 7).
6) INTANGIBLE
ASSETS:
The
major components of intangible
assets are as follows:
|
|
November
30, 2007
|
|
|
February
28, 2007
|
|
|
|
Gross
Carrying
Amount
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Net
Carrying
Amount
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
57.0 |
|
|
$ |
52.7 |
|
|
$ |
32.9 |
|
|
$ |
31.3 |
|
Distribution
agreements
|
|
|
11.1 |
|
|
|
6.4 |
|
|
|
19.9 |
|
|
|
6.9 |
|
Other
|
|
|
3.4 |
|
|
|
1.8 |
|
|
|
2.4 |
|
|
|
1.1 |
|
Total
|
|
$ |
71.5 |
|
|
|
60.9 |
|
|
$ |
55.2 |
|
|
|
39.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonamortizable
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
|
|
1,187.6 |
|
|
|
|
|
|
|
1,091.9 |
|
Agency
relationships
|
|
|
|
|
|
|
4.2 |
|
|
|
|
|
|
|
4.2 |
|
Total
|
|
|
|
|
|
|
1,191.8 |
|
|
|
|
|
|
|
1,096.1 |
|
Total
intangible assets
|
|
|
|
|
|
$ |
1,252.7 |
|
|
|
|
|
|
$ |
1,135.4 |
|
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 $3.4 million and $2.1 million for the nine months ended November
30,
2007, and November 30, 2006, respectively, and $1.2 million and $0.8 million
for
the three months ended November 30, 2007, and November 30, 2006,
respectively. Estimated amortization expense for the remaining three
months of fiscal 2008 and for each of the five succeeding fiscal years and
thereafter is as follows:
(in
millions)
|
|
|
|
2008
|
|
$ |
1.2 |
|
2009
|
|
$ |
4.7 |
|
2010
|
|
$ |
4.7 |
|
2011
|
|
$ |
4.6 |
|
2012
|
|
$ |
4.0 |
|
2013
|
|
$ |
3.8 |
|
Thereafter
|
|
$ |
37.9 |
|
Investment
in Matthew Clark
–
On
April 17, 2007, the Company and
Punch commenced operations of a joint venture for the U.K. wholesale business
(“Matthew Clark”). The U.K. wholesale business was formerly owned
entirely by the Company. Under the terms of the arrangement, the
Company and Punch, directly or indirectly, each have a 50% voting and economic
interest in Matthew Clark. The Company received $185.6 million of
cash proceeds from the formation of the joint venture.
Upon
formation of the joint
venture, the Company
discontinued consolidation of the U.K.
wholesale business and accounts
for the
investment in Matthew
Clark under the
equity
method. Accordingly, the results of operations of Matthew Clark are
included in the equity in earnings of equity method investees line in the
Company’s Consolidated Statements of Income from the date of
investment. As of November 30, 2007, the Company’s investment
in Matthew Clark was $76.3 million.
Investment
in Crown Imports
–
On
January 2, 2007, Barton Beers, Ltd. (“Barton”), 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, Inc., completed the formation
of Crown Imports
LLC (“Crown Imports”), a joint venture in which Barton and Diblo each have,
directly or indirectly, equal interests. Crown Imports has the
exclusive right to import, market and sell Modelo’s
Mexican beer portfolio (the “Modelo
Brands”) in the 50 states of the U.S., the District of Columbia and
Guam. In addition, the owners of the Tsingtao and St. Pauli Girl
brands have transferred exclusive importing, marketing and selling rights with
respect to those brands in the U.S. to the joint venture. The
importer agreement that previously gave Barton the exclusive right to import,
market and sell the Modelo Brands primarily west of the Mississippi River was
superseded by the transactions consummated by the newly formed joint
venture.
Upon
commencement of operations of the
joint venture, the Company discontinued consolidation of the imported beer
business and accounts for the investment in Crown Imports under the equity
method. Accordingly, the results of operations of Crown Imports are
included in the equity in earnings of equity method investees line in the
Company’s Consolidated Statements of Income from the date of
investment. As of November 30, 2007, the Company’s investment in
Crown Imports was $143.3 million. 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 has received $234.0 million and $78.0 million of
cash distributions from Crown Imports for the nine months and three months
ended
November 30, 2007, respectively, all of which represent distributions of equity
in earnings.
Summary
financial information for Crown
Imports for the nine months and three months ended November 30, 2007, is
presented below. The amounts shown represent 100% of Crown Imports
consolidated operating results.
|
|
For
the Nine
Months
Ended
November
30,
2007
|
|
|
For
the Three
Months
Ended
November
30,
2007
|
|
(in
millions)
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,928.5 |
|
|
$ |
547.7 |
|
Gross
profit
|
|
$ |
599.7 |
|
|
$ |
175.7 |
|
Net
income
|
|
$ |
427.3 |
|
|
$ |
123.4 |
|
Senior
credit facility -
In
connection with the acquisition of
Vincor, on June 5, 2006, 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 entered into a new credit
agreement (the “June 2006 Credit Agreement”). On February 23, 2007,
and on November 19, 2007, the June 2006 Credit Agreement was amended
(collectively, the “2007 Amendments”). The June 2006 Credit Agreement
together with the 2007 Amendments is referred to as the “2006 Credit
Agreement”. The 2006 Credit Agreement provides for aggregate credit
facilities of $3.9 billion, consisting of a $1.2 billion tranche A term loan
facility due in June 2011, a $1.8 billion tranche B term loan facility due
in
June 2013, and a $900 million revolving credit facility (including a
sub-facility for letters of credit of up to $200 million) which terminates
in
June 2011. Proceeds of the June 2006 Credit Agreement were used to
pay off the Company’s obligations under its prior senior credit facility, to
fund the acquisition of Vincor and to repay certain indebtedness of
Vincor. The Company uses its revolving credit facility under the 2006
Credit Agreement for general corporate purposes, including working capital,
on
an as needed basis.
As
of November 30, 2007, the required
principal repayments of the tranche A term loan and the tranche B term loan
for
the remaining three months of fiscal 2008 and for each of the five succeeding
fiscal years are as follows:
|
|
Tranche
A
Term
Loan
|
|
|
Tranche
B
Term
Loan
|
|
|
Total
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
2009
|
|
|
210.0 |
|
|
|
2.0 |
|
|
|
212.0 |
|
2010
|
|
|
270.0 |
|
|
|
4.0 |
|
|
|
274.0 |
|
2011
|
|
|
300.0 |
|
|
|
4.0 |
|
|
|
304.0 |
|
2012
|
|
|
150.0 |
|
|
|
4.0 |
|
|
|
154.0 |
|
2013
|
|
|
- |
|
|
|
1,426.0 |
|
|
|
1,426.0 |
|
|
|
$ |
930.0 |
|
|
$ |
1,440.0 |
|
|
$ |
2,370.0 |
|
The
rate of interest on borrowings
under the 2006 Credit Agreement is a function of LIBOR plus a margin, the
federal funds rate plus a margin, or the prime rate plus a
margin. The margin is fixed with respect to the tranche B term loan
facility and is adjustable based upon the Company’s debt ratio (as defined in
the 2006 Credit Agreement) with respect to the tranche A term loan facility
and
the revolving credit facility. As of November 30, 2007, the LIBOR
margin for the revolving credit facility and the tranche A term loan facility
is
1.25%, while the LIBOR margin on the tranche B term loan facility is
1.50%.
The
February 23, 2007, amendment
amended the June 2006 Credit Agreement to, among other things,
(i) increase the revolving credit facility from $500.0 million to
$900.0 million, which increased the aggregate credit facilities from $3.5
billion to $3.9 billion; (ii) increase the aggregate amount of cash
payments the Company is permitted to make in respect or on account of its
capital stock; (iii) remove certain limitations on the incurrence of
senior unsecured indebtedness and the application of proceeds thereof;
(iv) increase the maximum permitted total “Debt Ratio” and decrease
the required minimum “Interest Coverage Ratio”; and (v) eliminate the
“Senior Debt Ratio” covenant and the “Fixed Charges Ratio”
covenant. The November 19, 2007, amendment clarified certain
provisions governing the incurrence of senior unsecured indebtedness and the
application of proceeds thereof under the June 2006 Credit Agreement, as
previously amended.
The
Company’s obligations are
guaranteed by certain of its U.S. subsidiaries. These obligations are
also secured by a pledge of (i) 100% of the ownership interests in
certain of the Company’s U.S. subsidiaries and (ii) 65% of the voting
capital stock of certain of the Company’s foreign subsidiaries.
The
Company and its subsidiaries are
also subject to covenants that are contained in the 2006 Credit Agreement,
including those restricting the incurrence of additional indebtedness (including
guarantees of indebtedness), additional liens, mergers and consolidations,
disposition or acquisition of property, the payment of dividends, transactions
with affiliates and the making of certain investments, in each case subject
to
numerous conditions, exceptions and thresholds. The financial
covenants are limited to maximum total debt coverage
ratios and minimum interest coverage ratios.
As
of November 30, 2007, under the 2006
Credit Agreement, the Company had outstanding tranche A term loans of $930.0
million bearing an interest rate of 6.4%, tranche B term loans of $1,440.0
million bearing an interest rate of 6.6%, revolving loans of $16.5 million
bearing an interest rate of 5.3%, outstanding letters of credit of $35.2
million, and $848.3 million in revolving loans available to be
drawn.
As
of November 30, 2007, the Company
had outstanding interest rate swap agreements which fixed LIBOR interest rates
on $1.2 billion of the Company’s floating LIBOR rate debt at an average rate of
4.1% through fiscal 2010. For the nine months ended November 30,
2007, and November 30, 2006, the Company reclassified $5.8 million, net of
tax
effect of $3.8 million, and $4.1 million, net of tax effect of $2.7 million,
respectively, from AOCI to the interest expense, net line in the Company’s
Consolidated Statements of Income. For the three months ended
November 30, 2007, and November 30, 2006, the Company reclassified $2.2 million,
net of tax effect of $1.4 million, and $1.8 million, net of tax effect of $1.2
million, respectively, from AOCI to the interest expense, net line in the
Company’s Consolidated Statements of Income. This non-cash operating
activity is included on the other, net line in the Company’s Consolidated
Statements of Cash Flows.
On
May 14, 2007, the Company issued
$700.0 million aggregate principal amount of 7 1/4% Senior Notes due May
2017
(the “May 2007 Senior Notes”). The net proceeds of the offering
($693.9 million) were used to reduce a corresponding amount of borrowings
under
the revolving portion of the Company’s 2006 Credit
Agreement. Interest on the May 2007 Senior Notes is payable
semiannually on May 15 and November 15 of each year, beginning November 15,
2007. The May 2007 Senior Notes are redeemable, in whole or in part,
at the option of the Company at any time at a redemption price equal to 100%
of
the outstanding principal amount, plus accrued and unpaid interest to the
redemption date, plus a make whole payment based on the present value of
the
future payments at the applicable Treasury Rate plus 50 basis
points. The May 2007 Senior Notes are senior unsecured obligations
and rank equally in right of payment to all existing and future senior unsecured
indebtedness of the Company. Certain of the Company’s significant
U.S. operating subsidiaries guarantee the May 2007 Senior Notes, on a senior
unsecured basis. As of November 30, 2007, the Company had outstanding
$700.0 million aggregate principal amount of May 2007 Senior
Notes. In December 2007, the Company initiated an offer
to holders of its May 2007 Senior Notes to exchange such
notes with new senior notes that have terms that are substantially
identical in all material respects to the May 2007 Senior Notes, except that
the
new senior notes will be registered under the Securities Act of 1933, as
amended. The offer to exchange is currently set to expire on January
10, 2008.
Subsidiary
credit facilities
–
The
Company has additional credit
arrangements totaling $464.4 million as of November 30, 2007. These
arrangements primarily support the financing needs of the Company’s domestic and
foreign subsidiary operations. Interest rates and other terms of
these borrowings vary from country to country, depending on local market
conditions. As of November 30, 2007, amounts outstanding under these
arrangements were $155.1 million.
As
noted in Note 2, effective March 1,
2007, the Company adopted FIN No. 48. The Company did not record any
cumulative effect adjustment to retained earnings as a result of the adoption
of
FIN No. 48. Upon adoption, the liability for income taxes associated
with uncertain tax positions was $108.1 million. Unrecognized tax
benefits of $62.8 million would affect the Company’s effective tax rate if
recognized. The Company reclassified $83.9 million of income tax
liabilities from current to non-current liabilities because payment of cash
is
not anticipated within one year of the balance sheet date. These
non-current liabilities are recorded in the other liabilities line in the
Company’s Consolidated Balance Sheet.
In
accordance with the Company’s
accounting policy, the Company recognizes accrued interest and penalties related
to unrecognized tax benefits as a component of income tax
expense. This policy did not change as a result of the adoption of
FIN No. 48. As of the date of adoption, $8.5 million, net of tax
benefit, was included in the liability for uncertain tax positions for the
possible payment of interest and penalties.
Various
U.S. federal, state, and
foreign income tax examinations are currently in progress. It is
reasonably possible that the liability associated with the Company’s
unrecognized tax benefits will increase or decrease within the next twelve
months as a result of these examinations or the expiration of statutes of
limitation. At this time, an estimate of the range of reasonably
possible outcomes cannot be made. The Company files U.S. federal
income tax returns and various state, local and foreign income tax
returns. With few exceptions, the Company is no longer subject to
U.S. federal, state, local or foreign income tax examinations for fiscal years
prior to February 29, 2000.
The
Company’s effective tax rate for
the nine months ended November 30, 2007, and November 30, 2006, was 39.3% and
39.4%, respectively. The slight decrease in the Company’s effective
tax rate for the nine months ended November 30, 2007, is primarily due to
reductions in deferred income tax liabilities as a result of legislative changes
in various state and foreign jurisdictions offset by the recognition of a
nondeductible pretax loss in connection with the Company’s contribution of its
U.K. wholesale business and increases to existing tax contingencies and related
interest.
The
Company’s effective tax rate for
the three months ended November 30, 2007, and November 30, 2006, was 37.1%
and
37.7%, respectively. The decrease in the Company’s effective tax rate
for the three months ended November 30, 2007, is primarily due to reductions
in
deferred income tax liabilities as a result of legislative changes in various
state and foreign jurisdictions and the tax effects of foreign earnings,
partially offset by increases to existing tax contingencies and related
interest.
10)
|
RETIREMENT
SAVINGS PLANS AND
POSTRETIREMENT BENEFIT
PLANS:
|
Net
periodic benefit costs reported in
the Consolidated Statements of Income for the Company’s defined benefit pension
plans include the following components:
|
|
For
the Nine
Months
Ended
November
30,
|
|
|
For
the Three Months
Ended
November
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
3.9 |
|
|
$ |
3.4 |
|
|
$ |
1.4 |
|
|
$ |
2.3 |
|
Interest
cost
|
|
|
18.7 |
|
|
|
16.0 |
|
|
|
6.4 |
|
|
|
6.3 |
|
Expected
return on plan
assets
|
|
|
(22.4 |
) |
|
|
(18.5 |
) |
|
|
(7.7 |
) |
|
|
(7.6 |
) |
Plan
participants’
contributions
|
|
|
- |
|
|
|
(0.5 |
) |
|
|
- |
|
|
|
(0.5 |
) |
Amortization
of prior service
cost
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Recognized
net actuarial
loss
|
|
|
6.5 |
|
|
|
4.6 |
|
|
|
2.2 |
|
|
|
2.0 |
|
Net
periodic benefit
cost
|
|
$ |
7.0 |
|
|
$ |
5.2 |
|
|
$ |
2.4 |
|
|
$ |
2.6 |
|
Net
periodic benefit costs reported in
the Consolidated Statements of Income for the Company’s unfunded postretirement
benefit plans include the following components:
|
|
For
the Nine
Months Ended
November
30,
|
|
|
For
the Three Months
Ended
November
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Interest
cost
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Amortization
of prior service
cost
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recognized
net actuarial
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
periodic benefit
cost
|
|
$ |
0.5 |
|
|
$ |
0.4 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
Contributions
of $8.6 million have been
made by the Company to fund its defined benefit pension plans for the nine
months ended November 30, 2007. The Company presently anticipates
contributing an additional $3.2 million to fund its defined benefit pension
plans during the year ending February 29, 2008, resulting in total employer
contributions of $11.8 million for the year ending February 29,
2008.
11)
|
STOCKHOLDERS’
EQUITY:
|
Stock
repurchase –
In
February 2007, 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 Common Stock. During the nine months
ended November 30, 2007, the Company repurchased 21,332,468 shares of Class
A
Common Stock pursuant to this authorization at an aggregate cost of $500.0
million, or an average cost of $23.44 per share, through a combination of open
market transactions and an accelerated share repurchase (“ASR”) transaction that
was announced in May 2007. The repurchased shares include 933,206
shares of Class A Common Stock that were received by the Company in July 2007
in
connection with the early termination of the calculation period for the ASR
transaction by the counterparty to the ASR transaction. The Company
used revolver borrowings under the 2006 Credit Agreement to pay the purchase
price for the repurchased shares. The repurchased shares have become
treasury shares.
Class
A Common Stock –
In
July 2007, the stockholders of the
Company approved an increase in the number of authorized shares of Class A
Common Stock from 300,000,000 shares to 315,000,000 shares, thereby increasing
the aggregate number of authorized shares of the Company’s common and preferred
stock to 346,000,000 shares.
Long-term
stock incentive plan
–
In
July 2007, the stockholders of the
Company approved, among other things, an increase in the number of shares of
Class A Common Stock available for awards under the Company’s Long-Term Stock
Incentive Plan from 80,000,000 shares to 94,000,000 shares.
Class
1 Common Stock –
Subsequent
to November 30, 2007, the
Company filed a Restated Certificate of Incorporation (the “Restated
Certificate”) which created a new class of common stock consisting of 15,000,000
shares of Class 1 Common Stock, $0.01 par value per share (the “Class 1 Common
Stock”), effective December 6, 2007. The Restated Certificate
increased the aggregate number of authorized shares of the Company’s common and
preferred stock to 361,000,000 shares. While the aggregate number of
authorized shares of the Company’s common and preferred stock has been increased
by the Restated Certificate, the Company’s ability to actually issue more shares
has not been increased. Because shares of Class 1 Common Stock are
convertible into shares of Class A Common Stock, for each share of Class 1
Common Stock issued, the Company must reserve one share of Class A Common Stock
for issuance upon the conversion of the share of Class 1 Common
Stock. This requirement effectively reduces the number of shares of
Class A Common Stock that the Company may issue by the number of shares of
Class
1 Common Stock that the Company issues. Because the number of
authorized shares of Class A Common Stock was not increased by the Restated
Certificate, the aggregate number of shares that the Company is able to issue
has not been increased.
In
addition, on December 6, 2007, the
stockholders of the Company approved an amendment and restatement of the
Company’s Long-Term Stock Incentive Plan to, among other things, permit awards
to be granted under the Company’s Long-Term Stock Incentive Plan with respect to
the Company’s newly created Class 1 Common Stock. The amendment and
restatement of the Company’s Long-Term Stock Incentive Plan did not affect the
underlying economics of the Company’s stock option program and did not increase
the aggregate number of shares available for granting awards under the Company’s
Long-Term Stock Incentive Plan.
12)
|
EARNINGS
PER COMMON
SHARE:
|
Basic
earnings per common share
excludes the effect of common stock equivalents and is computed using the
two-class computation method. Diluted earnings per common share for
Class A Common Stock reflects the potential dilution that could result if
securities to issue common stock were exercised or converted into common
stock. Diluted earnings per common share 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 and Preferred Stock using the
more dilutive if-converted method. Diluted earnings per common share
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 Nine
Months
Ended
November 30,
|
|
|
For
the Three
Months
Ended
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
221.5 |
|
|
$ |
261.7 |
|
|
$ |
119.6 |
|
|
$ |
107.8 |
|
Dividends
on preferred stock
|
|
|
- |
|
|
|
(4.9 |
) |
|
|
- |
|
|
|
- |
|
Income
available to common stockholders
|
|
$ |
221.5 |
|
|
$ |
256.8 |
|
|
$ |
119.6 |
|
|
$ |
107.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common
Stock
|
|
|
196.191 |
|
|
|
203.113 |
|
|
|
191.578 |
|
|
|
209.524 |
|
Class
B Common
Stock
|
|
|
23.817 |
|
|
|
23.845 |
|
|
|
23.809 |
|
|
|
23.837 |
|
Total
weighted average common shares outstanding – basic
|
|
|
220.008 |
|
|
|
226.958 |
|
|
|
215.387 |
|
|
|
233.361 |
|
Stock
options
|
|
|
4.085 |
|
|
|
6.251 |
|
|
|
4.045 |
|
|
|
6.035 |
|
Preferred
stock
|
|
|
- |
|
|
|
6.680 |
|
|
|
- |
|
|
|
- |
|
Weighted
average common shares outstanding – diluted
|
|
|
224.093 |
|
|
|
239.889 |
|
|
|
219.432 |
|
|
|
239.396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share – basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common
Stock
|
|
$ |
1.02 |
|
|
$ |
1.14 |
|
|
$ |
0.56 |
|
|
$ |
0.47 |
|
Class
B Common
Stock
|
|
$ |
0.92 |
|
|
$ |
1.04 |
|
|
$ |
0.51 |
|
|
$ |
0.42 |
|
Earnings
per common share – diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
A Common
Stock
|
|
$ |
0.99 |
|
|
$ |
1.09 |
|
|
$ |
0.55 |
|
|
$ |
0.45 |
|
Class
B Common
Stock
|
|
$ |
0.91 |
|
|
$ |
1.00 |
|
|
$ |
0.50 |
|
|
$ |
0.41 |
|
Stock
options to purchase 9.0 million
and 3.8 million shares of Class A Common Stock at a weighted average price
per
share of $26.30 and $27.24 were outstanding during the nine months ended
November 30, 2007, and November 30, 2006, respectively, but were not included
in
the computation of the diluted earnings per common share because the stock
options’ exercise price was greater than the average market price of the Class A
Common Stock for the period. Stock options to purchase 8.7 million
and 0.2 million shares of Class A Common Stock at a weighted average price
per
share of $26.38 and $29.56 were outstanding during the three months ended
November 30, 2007, and November 30, 2006, respectively, but were not included
in
the computation of the diluted earnings per common share because the stock
options’ exercise price was greater than the average market price of the Class A
Common Stock for the period.
13) STOCK-BASED
COMPENSATION:
The
Company recorded $24.1 million and
$12.1 million of stock-based compensation cost in its Consolidated Statements
of
Income for the nine months ended November 30, 2007, and November 30,
2006, respectively. The Company recorded $7.2 million and $4.4
million of stock-based compensation cost in its Consolidated Statements of
Income for the three months ended November 30, 2007, and November 30, 2006,
respectively. Of the $24.1 million, $11.6 million is related to the
granting of 9.0 million nonqualified stock options under the Company’s Long-Term
Stock Incentive Plan to employees and nonemployee directors during the year
ending February 29, 2008. The remainder is related primarily to the
amortization of employee and nonemployee directors stock options granted during
the year ended February 28, 2007.
14) COMPREHENSIVE
INCOME:
Comprehensive
income (loss) consists of
net income, foreign currency translation adjustments, net unrealized gains
or
losses on derivative instruments and pension/postretirement
adjustments. The reconciliation of net income to comprehensive income
is as follows:
|
|
For
the Nine Months
Ended
November 30,
|
|
|
For
the Three
Months
Ended
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
221.5 |
|
|
$ |
261.7 |
|
|
$ |
119.6 |
|
|
$ |
107.8 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustments, net of tax (expense) benefit of ($5.9), $10.8,
($5.3) and $2.1, respectively
|
|
|
341.2 |
|
|
|
150.2 |
|
|
|
196.3 |
|
|
|
53.1 |
|
Cash
flow
hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
derivative losses, net of tax benefit of
$18.5,
$10.3, $9.2 and $3.2, respectively
|
|
|
(21.2 |
) |
|
|
(17.8 |
) |
|
|
(8.3 |
) |
|
|
(3.2 |
) |
Reclassification
adjustments,
net of tax benefit (expense) of $0.2, $4.4, ($0.9) and $1.0,
respectively
|
|
|
(2.4 |
) |
|
|
(9.3 |
) |
|
|
0.6 |
|
|
|
(2.1 |
) |
Net
cash flow
hedges
|
|
|
(23.6 |
) |
|
|
(27.1 |
) |
|
|
(7.7 |
) |
|
|
(5.3 |
) |
Pension/postretirement
adjustments, net of tax benefit of $0.5, $4.8, $0.3 and $1.3,
respectively
|
|
|
(1.2 |
) |
|
|
(11.1 |
) |
|
|
(0.8 |
) |
|
|
(3.0 |
) |
Total
comprehensive income
|
|
$ |
537.9 |
|
|
$ |
373.7 |
|
|
$ |
307.4 |
|
|
$ |
152.6 |
|
Accumulated
other comprehensive income
(“AOCI”), net of tax effects, includes the following
components:
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Net
Unrealized
Gains
(Losses)
on
Derivatives
|
|
|
Pension/
Postretirement
Adjustments
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
February 28,
2007
|
|
$ |
446.8 |
|
|
$ |
13.3 |
|
|
$ |
(111.0 |
) |
|
$ |
349.1 |
|
Current
period
change
|
|
|
341.2 |
|
|
|
(23.6 |
) |
|
|
(1.2 |
) |
|
|
316.4 |
|
Balance,
November
30,
2007
|
|
$ |
788.0 |
|
|
$ |
(10.3 |
) |
|
$ |
(112.2 |
) |
|
$ |
665.5 |
|
15)
ACQUISITION-RELATED INTEGRATION COSTS:
For
the nine months ended November 30,
2007, the Company recorded $5.2 million of acquisition-related integration
costs
associated primarily with the Vincor Plan (as defined in Note
16). The Company defines acquisition-related integration costs as
nonrecurring costs incurred to integrate newly acquired businesses after a
business combination which are incremental to those of the Company prior to
the
business combination. As such, acquisition-related integration costs
include, but are not limited to, (i) employee-related costs such as
salaries and stay bonuses paid to employees of the acquired business that will
be terminated after their integration activities are completed,
(ii) costs to relocate fixed assets and inventories, and
(iii) facility costs and other one-time costs such as external
services and consulting fees. For the nine months ended November 30,
2007, acquisition-related integration costs included $0.8 million of
employee-related costs and $4.4 million of facilities and other one-time
costs. For the nine months ended November 30, 2006, the Company
recorded $17.6 million of acquisition-related integration costs associated
primarily with the Vincor Plan.
For
the three months ended November 30,
2007, the Company recorded $1.6 million of acquisition-related integration
costs
associated primarily with the Vincor Plan. Acquisition-related
integration costs included $0.1 million of employee-related costs and $1.5
million of facilities and other one-time costs. For the three months
ended November 30, 2006, the Company recorded $9.5 million of
acquisition-related integration costs associated primarily with the Vincor
Plan.
16)
|
RESTRUCTURING
AND RELATED CHARGES:
|
The
Company has several restructuring
plans primarily within its Constellation Wines segment as follows:
Robert
Mondavi Plan –
The
Company announced in January 2005 a
plan to restructure and integrate the operations of The Robert Mondavi
Corporation (the “Robert Mondavi Plan”). The objective of the Robert
Mondavi Plan is to achieve operational efficiencies and eliminate redundant
costs resulting from the December 22, 2004, acquisition of The Robert Mondavi
Corporation (“Robert Mondavi”). The Robert Mondavi Plan includes the
elimination of certain employees, the consolidation of certain field sales
and
administrative offices, and the termination of various
contracts. Although restructuring and related charges in connection
with the Robert Mondavi Plan have been completed as of February 28, 2007,
a
balance remains for amounts not yet paid as of November 30, 2007. The
remaining liability is expected to be paid through the year ending February
29,
2012.
Fiscal
2006 Plan –
The
Company announced during fiscal
2006 a plan to reorganize certain worldwide wine operations and a plan to
consolidate certain west coast production processes in the U.S. (collectively,
the “Fiscal 2006 Plan”). The Fiscal 2006 Plan’s principal features
are to reorganize and simplify the infrastructure and reporting structure
of the
Company’s global wine business and to consolidate certain west coast production
processes. This Fiscal 2006 Plan is part of the Company’s ongoing
effort to enhance its administrative, operational and production efficiencies
in
light of its ongoing growth. The objective of the Fiscal 2006 Plan is
to achieve greater efficiency in sales, administrative and operational
activities and eliminate redundant costs. The Fiscal 2006 Plan
includes the termination of employment of certain employees in various locations
worldwide, the consolidation of certain worldwide wine selling and
administrative functions, the consolidation of certain warehouse and production
functions, the termination of various contracts, investment in new assets
and
the reconfiguration of certain existing assets. The Company expects
the Fiscal 2006 Plan to be complete by February 28, 2009.
Vincor
Plan –
The
Company announced in July 2006 a
plan to restructure and integrate the operations of Vincor (the “Vincor
Plan”). The objective of the Vincor Plan is to achieve operational
efficiencies and eliminate redundant costs resulting from the June 5, 2006,
acquisition of Vincor, as well as to achieve greater efficiency in sales,
marketing, administrative and operational activities. The Vincor Plan
includes the elimination of certain employment redundancies, primarily in
the
U.S., U.K. and Australia, and the termination of various
contracts. The Company expects the Vincor Plan to be complete by
February 28, 2009.
Fiscal
2007 Wine Plan –
The
Company announced in August 2006 a
plan to invest in new distribution and bottling facilities in the U.K. and
to
streamline certain Australian wine operations (collectively, the “Fiscal 2007
Wine Plan”). The U.K. portion of the plan includes new investments in
property, plant and equipment and certain disposals of property, plant and
equipment and is expected to increase wine bottling capacity and efficiency
and
reduce costs of transport, production and distribution. The U.K.
portion of the plan also includes costs for employee
terminations. The Australian portion of the plan includes the buy-out
of certain grape supply and processing contracts and the sale of certain
property, plant and equipment. The initiatives are part of the
Company’s ongoing efforts to maximize asset utilization, further reduce costs
and improve long-term return on invested capital throughout its international
operations. The Company expects the Australian portion of the plan to
be complete by February 29, 2008, and the U.K. portion of the plan to be
complete by February 28, 2010.
Fiscal
2008 Plan –
During
November 2007, the Company
initiated its plans to streamline certain of its international operations,
including the consolidation of certain winemaking and packaging operations
in
Australia, the buy-out of certain grape processing and wine storage contracts
in
Australia, equipment relocation costs in Australia, and certain employee
termination costs. In addition, the Company incurred certain other
restructuring and related charges during the third quarter of fiscal 2008 in
connection with the consolidation of certain spirits production processes in
the
U.S. Subsequent to November 30, 2007, the Company announced its plans
to streamline certain of its operations in the U.S., primarily in connection
with the restructuring and integration of the operations of the recently
acquired Beam Wine Estates, Inc. (the “U.S. Initiative”). These
initiatives will collectively be referred to as the Fiscal 2008
Plan. The Fiscal 2008 Plan is part of the Company’s ongoing efforts
to maximize asset utilization, further reduce costs and improve long-term return
on invested capital throughout its domestic and international
operations. The Company expects the Fiscal 2008 Plan to be
substantially complete by February 28, 2009.
For
the nine months ended November 30,
2007, the Company recorded $0.7 million of restructuring and related charges
associated primarily with the Fiscal 2008 Plan and the Fiscal 2006 Plan of
$2.2
million, partially offset by the reversal of prior accruals related primarily
to
the Vincor Plan and the Fiscal 2006 Plan of $1.5 million. For the
nine months ended November 30, 2006, the Company recorded $26.1 million of
restructuring and related charges associated primarily with the Fiscal 2007
Wine
Plan and Fiscal 2006 Plan.
For
the three months ended November 30,
2007, the Company recorded ($0.1) million of restructuring and related charges
associated with the reversal of prior accruals of $1.5 million related primarily
to the Vincor Plan and the Fiscal 2006 Plan, partially offset by $1.4 million
of
restructuring and related charges recorded primarily in connection with the
Fiscal 2008 Plan. For the three months ended November 30, 2006, the
Company recorded $2.1 million of restructuring and related charges associated
primarily with the Fiscal 2007 Wine Plan.
Restructuring
and related charges
consisting of employee termination benefit costs, contract termination costs,
and other associated costs are accounted for under either Statement of Financial
Accounting Standards No. 112 (“SFAS No. 112”), “Employers’ Accounting for
Postemployment Benefits – an Amendment of FASB Statements No. 5 and 43,” or
Statement of Financial Accounting Standards No. 146 (“SFAS No. 146”),
“Accounting for Costs Associated with Exit or Disposal Activities,” as
appropriate. Employee termination benefit costs are accounted for
under SFAS No. 112, 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 SFAS No. 146. Per SFAS No.
146, contract termination costs are costs to terminate a contract that is not
a
capital lease, including costs to terminate the contract before the end of
its
term or costs that will continue to be incurred under the contract for its
remaining term without economic benefit to the entity. The Company
includes costs to terminate certain operating leases for buildings, computer
and
IT equipment, and costs to terminate contracts, including distributor contracts
and contracts for long-term purchase commitments, as contract termination
costs. Per SFAS No. 146, 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.
Details
of each plan are presented in
the following table:
|
|
Fiscal
2008
Plan
|
|
|
Fiscal
2007
Wine
Plan
|
|
|
Vincor
Plan
|
|
|
Fiscal
2006
Plan
|
|
|
Robert
Mondavi
Plan
|
|
|
Total
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
liability, February 28, 2007
|
|
$ |
- |
|
|
$ |
2.8 |
|
|
$ |
21.2 |
|
|
$ |
3.5 |
|
|
$ |
5.4 |
|
|
$ |
32.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vincor
acquisition
|
|
|
- |
|
|
|
- |
|
|
|
(0.6 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination benefit costs
|
|
|
- |
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
Contract termination costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.2 |
|
|
|
- |
|
|
|
0.2 |
|
Facility
consolidation/relocation costs
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
0.2 |
|
Restructuring
charges, May 31, 2007
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.4 |
|
|
|
- |
|
|
|
0.4 |
|
Employee
termination benefit
costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
0.1 |
|
Contract
termination
costs
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.2 |
|
|
|
- |
|
|
|
0.2 |
|
Facility
consolidation/relocation costs
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
Restructuring
charges, August 31, 2007
|
|
|
- |
|
|
|
- |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
- |
|
|
|
0.4 |
|
Employee
termination benefit
costs
|
|
|
1.2 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
(0.4 |
) |
|
|
(0.1 |
) |
|
|
0.8 |
|
Contract
termination
costs
|
|
|
- |
|
|
|
- |
|
|
|
(0.7 |
) |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
(0.8 |
) |
Facility
consolidation/relocation costs
|
|
|
- |
|
|
|
- |
|
|
|
(0.1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(0.1 |
) |
Restructuring
charges, November 30, 2007
|
|
|
1.2 |
|
|
|
0.1 |
|
|
|
(0.8 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
(0.1 |
) |
Total
restructuring charges
|
|
|
1.2 |
|
|
|
0.1 |
|
|
|
(0.7 |
) |
|
|
0.4 |
|
|
|
(0.3 |
) |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
expenditures
|
|
|
(0.2 |
) |
|
|
(0.7 |
) |
|
|
(11.9 |
) |
|
|
(2.5 |
) |
|
|
(1.0 |
) |
|
|
(16.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
- |
|
|
|
0.1 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
1.2 |
|
Restructuring
liability, November 30, 2007
|
|
$ |
1.0 |
|
|
$ |
2.3 |
|
|
$ |
9.0 |
|
|
$ |
1.5 |
|
|
$ |
4.1 |
|
|
$ |
17.9 |
|
In
addition, the following table
presents other related costs incurred in connection with the Fiscal 2008
Plan,
Fiscal 2007 Wine Plan, Vincor Plan and the Fiscal 2006 Plan:
|
|
For
the Nine Months Ended November 30,
2007
|
|
|
|
Fiscal
2008
Plan
|
|
|
Fiscal
2007
Wine
Plan
|
|
|
Vincor
Plan
|
|
|
Fiscal
2006
Plan
|
|
|
Total
|
|
Accelerated
depreciation/inventory write-down (cost of product sold)
|
|
$ |
0.6 |
|
|
$ |
3.4 |
|
|
$ |
0.1 |
|
|
$ |
2.6 |
|
|
$ |
6.7 |
|
Asset
write-down/other charges (selling, general and administrative
expenses)
|
|
$ |
- |
|
|
$ |
1.2 |
|
|
$ |
- |
|
|
$ |
0.2 |
|
|
$ |
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended November 30,
2007
|
|
|
|
Fiscal
2008
Plan
|
|
|
Fiscal
2007
Wine
Plan
|
|
|
Vincor
Plan
|
|
|
Fiscal
2006
Plan
|
|
|
Total
|
|
Accelerated
depreciation/inventory write-down (cost of product sold)
|
|
$ |
0.6 |
|
|
$ |
1.1 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1.7 |
|
Asset
write-down/other charges (selling, general and administrative
expenses)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
0.7 |
|
|
$ |
0.7 |
|
A
summary of restructuring charges and
other related costs incurred since inception for each plan, as well as total
expected costs for each plan, are presented in the following table:
|
|
Fiscal
2008
Plan
|
|
|
Fiscal
2007
Wine
Plan
|
|
|
Vincor
Plan
|
|
|
Fiscal
2006
Plan
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
incurred to date
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination benefit
costs
|
|
$ |
1.2 |
|
|
$ |
2.1 |
|
|
$ |
1.5 |
|
|
$ |
26.1 |
|
Contract
termination
costs
|
|
|
- |
|
|
|
24.0 |
|
|
|
0.2 |
|
|
|
1.3 |
|
Facility
consolidation/relocation costs
|
|
|
- |
|
|
|
- |
|
|
|
0.4 |
|
|
|
1.0 |
|
Total
restructuring charges
|
|
|
1.2 |
|
|
|
26.1 |
|
|
|
2.1 |
|
|
|
28.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation/inventory write-down
|
|
|
0.6 |
|
|
|
6.7 |
|
|
|
0.4 |
|
|
|
19.6 |
|
Asset
write-down/other
charges
|
|
|
- |
|
|
|
14.1 |
|
|
|
- |
|
|
|
3.7 |
|
Total
other related costs
|
|
|
0.6 |
|
|
|
20.8 |
|
|
|
0.4 |
|
|
|
23.3 |
|
Total
costs incurred to date
|
|
$ |
1.8 |
|
|
$ |
46.9 |
|
|
$ |
2.5 |
|
|
$ |
51.7 |
|
|
|
Fiscal
2008
Plan
|
|
|
Fiscal
2007
Wine
Plan
|
|
|
Vincor
Plan
|
|
|
Fiscal
2006
Plan
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
termination benefit
costs
|
|
$ |
11.0 |
|
|
$ |
2.1 |
|
|
$ |
1.5 |
|
|
$ |
26.6 |
|
Contract
termination
costs
|
|
|
9.2 |
|
|
|
24.8 |
|
|
|
0.3 |
|
|
|
8.2 |
|
Facility
consolidation/relocation costs
|
|
|
4.5 |
|
|
|
0.3 |
|
|
|
0.4 |
|
|
|
1.5 |
|
Total
restructuring charges
|
|
|
24.7 |
|
|
|
27.2 |
|
|
|
2.2 |
|
|
|
36.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
depreciation/inventory write-down
|
|
|
20.7 |
|
|
|
10.5 |
|
|
|
0.6 |
|
|
|
19.6 |
|
Asset
write-down/other
charges
|
|
|
10.3 |
|
|
|
27.6 |
|
|
|
- |
|
|
|
3.7 |
|
Total
other related costs
|
|
|
31.0 |
|
|
|
38.1 |
|
|
|
0.6 |
|
|
|
23.3 |
|
Total
expected costs
|
|
$ |
55.7 |
|
|
$ |
65.3 |
|
|
$ |
2.8 |
|
|
$ |
59.6 |
|
In
connection with the Company’s
acquisition of Vincor and Robert Mondavi, the Company accrued $38.4 million
and
$50.5 million of liabilities for exit costs, respectively, as of the respective
acquisition date. As of November 30, 2007, the balances of the Vincor
and Robert Mondavi purchase accounting accruals were $7.7 million and $4.1
million, respectively. As of February 28, 2007, the balances of the
Vincor and Robert Mondavi purchase accounting accruals were $19.3 million
and
$5.4 million, respectively.
17)
|
CONDENSED
CONSOLIDATING FINANCIAL
INFORMATION:
|
The
following information sets forth
the condensed consolidating balance sheets as of November 30, 2007, and February
28, 2007, the condensed consolidating statements of income for the nine months
and three months ended November 30, 2007, and November 30, 2006, and the
condensed consolidating statements of cash flows for the nine months ended
November 30, 2007, and November 30, 2006, for the Company, the parent company,
the combined subsidiaries of the Company which guarantee the Company’s senior
notes and senior subordinated notes (“Subsidiary Guarantors”) and the combined
subsidiaries of the Company which are not Subsidiary Guarantors (primarily
foreign subsidiaries). 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,
2007, and include the recently adopted accounting pronouncements 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
Company
|
|
|
Subsidiary
Guarantors
|
|
|
Subsidiary
Nonguarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Balance Sheet at November 30, 2007
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash
investments
|
|
$ |
3.4 |
|
|
$ |
0.8 |
|
|
$ |
20.7 |
|
|
$ |
- |
|
|
$ |
24.9 |
|
Accounts
receivable,
net
|
|
|
315.1 |
|
|
|
89.7 |
|
|
|
533.7 |
|
|
|
- |
|
|
|
938.5 |
|
Inventories
|
|
|
46.9 |
|
|
|
1,133.7 |
|
|
|
868.6 |
|
|
|
(7.8 |
)
|
|
|
2,041.4 |
|
Prepaid
expenses and
other
|
|
|
7.6 |
|
|
|
189.4 |
|
|
|
35.3 |
|
|
|
(89.6 |
)
|
|
|
142.7 |
|
Intercompany
receivable
(payable)
|
|
|
756.7 |
|
|
|
(716.4 |
)
|
|
|
(40.3 |
)
|
|
|
- |
|
|
|
- |
|
Total
current
assets
|
|
|
1,129.7 |
|
|
|
697.2 |
|
|
|
1,418.0 |
|
|
|
(97.4 |
)
|
|
|
3,147.5 |
|
Property,
plant and equipment,
net
|
|
|
48.5 |
|
|
|
793.9 |
|
|
|
949.5 |
|
|
|
- |
|
|
|
1,791.9 |
|
Investments
in
subsidiaries
|
|
|
7,143.1 |
|
|
|
86.0 |
|
|
|
153.0 |
|
|
|
(7,382.1 |
)
|
|
|
- |
|
Goodwill
|
|
|
- |
|
|
|
1,843.7 |
|
|
|
1,584.2 |
|
|
|
- |
|
|
|
3,427.9 |
|
Intangible
assets,
net
|
|
|
- |
|
|
|
622.3 |
|
|
|
630.4 |
|
|
|
- |
|
|
|
1,252.7 |
|
Other
assets,
net
|
|
|
73.9 |
|
|
|
242.3 |
|
|
|
292.1 |
|
|
|
(34.7 |
)
|
|
|
573.6 |
|
Total
assets
|
|
$ |
8,395.2 |
|
|
$ |
4,285.4 |
|
|
$ |
5,027.2 |
|
|
$ |
(7,514.2 |
)
|
|
$ |
10,193.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to
banks
|
|
$ |
16.5 |
|
|
$ |
- |
|
|
$ |
85.2 |
|
|
$ |
- |
|
|
$ |
101.7 |
|
Current
maturities of long-term
debt
|
|
|
354.1 |
|
|
|
9.0 |
|
|
|
3.8 |
|
|
|
- |
|
|
|
366.9 |
|
Accounts
payable
|
|
|
4.3 |
|
|
|
182.0 |
|
|
|
164.5 |
|
|
|
- |
|
|
|
350.8 |
|
Accrued
excise
taxes
|
|
|
8.7 |
|
|
|
20.4 |
|
|
|
78.8 |
|
|
|
- |
|
|
|
107.9 |
|
Other
accrued expenses and
liabilities
|
|
|
213.5 |
|
|
|
172.8 |
|
|
|
372.9 |
|
|
|
(91.9 |
)
|
|
|
667.3 |
|
Total
current
liabilities
|
|
|
597.1 |
|
|
|
384.2 |
|
|
|
705.2 |
|
|
|
(91.9 |
)
|
|
|
1,594.6 |
|
Long-term
debt, less current
maturities
|
|
|
4,185.3 |
|
|
|
21.6 |
|
|
|
28.3 |
|
|
|
- |
|
|
|
4,235.2 |
|
Deferred
income
taxes
|
|
|
- |
|
|
|
418.8 |
|
|
|
114.0 |
|
|
|
(34.6 |
)
|
|
|
498.2 |
|
Other
liabilities
|
|
|
100.1 |
|
|
|
96.1 |
|
|
|
156.7 |
|
|
|
- |
|
|
|
352.9 |
|
|
|
Parent
Company
|
|
|
Subsidiary
Guarantors
|
|
|
Subsidiary
Nonguarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
- |
|
|
|
162.0 |
|
|
|
1,430.9 |
|
|
|
(1,592.9 |
)
|
|
|
- |
|
Class
A and Class B common
stock
|
|
|
2.5 |
|
|
|
100.7 |
|
|
|
184.3 |
|
|
|
(285.0 |
)
|
|
|
2.5 |
|
Additional
paid-in
capital
|
|
|
1,327.5 |
|
|
|
1,280.7 |
|
|
|
1,233.3 |
|
|
|
(2,514.0 |
)
|
|
|
1,327.5 |
|
Retained
earnings
|
|
|
2,140.8 |
|
|
|
1,823.6 |
|
|
|
404.3 |
|
|
|
(2,227.9 |
)
|
|
|
2,140.8 |
|
Accumulated
other
comprehensive
income
|
|
|
665.5 |
|
|
|
(2.3 |
)
|
|
|
770.2 |
|
|
|
(767.9 |
)
|
|
|
665.5 |
|
Treasury
stock
|
|
|
(623.6 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(623.6 |
)
|
Total
stockholders’equity
|
|
|
3,512.7 |
|
|
|
3,364.7 |
|
|
|
4,023.0 |
|
|
|
(7,387.7 |
)
|
|
|
3,512.7 |
|
Total
liabilities
and
stockholders’equity
|
|
$ |
8,395.2 |
|
|
$ |
4,285.4 |
|
|
$ |
5,027.2 |
|
|
$ |
(7,514.2 |
)
|
|
$ |
10,193.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Balance Sheet at February 28, 2007
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash
investments
|
|
$ |
2.4 |
|
|
$ |
1.1 |
|
|
$ |
30.0 |
|
|
$ |
- |
|
|
$ |
33.5 |
|
Accounts
receivable,
net
|
|
|
342.7 |
|
|
|
57.5 |
|
|
|
480.8 |
|
|
|
- |
|
|
|
881.0 |
|
Inventories
|
|
|
38.1 |
|
|
|
1,045.3 |
|
|
|
870.5 |
|
|
|
(5.8 |
)
|
|
|
1,948.1 |
|
Prepaid
expenses and
other
|
|
|
2.0 |
|
|
|
105.3 |
|
|
|
62.1 |
|
|
|
(8.7 |
)
|
|
|
160.7 |
|
Intercompany
receivable
(payable)
|
|
|
1,080.3 |
|
|
|
(775.1 |
)
|
|
|
(305.2 |
)
|
|
|
- |
|
|
|
- |
|
Total
current
assets
|
|
|
1,465.5 |
|
|
|
434.1 |
|
|
|
1,138.2 |
|
|
|
(14.5 |
)
|
|
|
3,023.3 |
|
Property,
plant and equipment,
net
|
|
|
42.2 |
|
|
|
810.9 |
|
|
|
897.1 |
|
|
|
- |
|
|
|
1,750.2 |
|
Investments
in
subsidiaries
|
|
|
6,119.9 |
|
|
|
115.6 |
|
|
|
- |
|
|
|
(6,235.5 |
)
|
|
|
- |
|
Goodwill
|
|
|
- |
|
|
|
1,509.1 |
|
|
|
1,574.8 |
|
|
|
- |
|
|
|
3,083.9 |
|
Intangible
assets,
net
|
|
|
- |
|
|
|
566.7 |
|
|
|
568.7 |
|
|
|
- |
|
|
|
1,135.4 |
|
Other
assets,
net
|
|
|
32.2 |
|
|
|
245.4 |
|
|
|
167.8 |
|
|
|
- |
|
|
|
445.4 |
|
Total
assets
|
|
$ |
7,659.8 |
|
|
$ |
3,681.8 |
|
|
$ |
4,346.6 |
|
|
$ |
(6,250.0 |
)
|
|
$ |
9,438.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to
banks
|
|
$ |
30.0 |
|
|
$ |
- |
|
|
$ |
123.3 |
|
|
$ |
- |
|
|
$ |
153.3 |
|
Current
maturities of long-term
debt
|
|
|
299.2 |
|
|
|
10.2 |
|
|
|
7.9 |
|
|
|
- |
|
|
|
317.3 |
|
Accounts
payable
|
|
|
7.1 |
|
|
|
112.8 |
|
|
|
256.2 |
|
|
|
- |
|
|
|
376.1 |
|
Accrued
excise
taxes
|
|
|
10.9 |
|
|
|
31.4 |
|
|
|
31.4 |
|
|
|
- |
|
|
|
73.7 |
|
Other
accrued expenses and
liabilities
|
|
|
242.4 |
|
|
|
105.2 |
|
|
|
333.5 |
|
|
|
(10.4 |
)
|
|
|
670.7 |
|
Total
current
liabilities
|
|
|
589.6 |
|
|
|
259.6 |
|
|
|
752.3 |
|
|
|
(10.4 |
)
|
|
|
1,591.1 |
|
Long-term
debt, less current
maturities
|
|
|
3,672.7 |
|
|
|
18.5 |
|
|
|
23.7 |
|
|
|
- |
|
|
|
3,714.9 |
|
Deferred
income
taxes
|
|
|
(24.1 |
)
|
|
|
405.0 |
|
|
|
93.2 |
|
|
|
- |
|
|
|
474.1 |
|
Other
liabilities
|
|
|
4.1 |
|
|
|
36.7 |
|
|
|
199.8 |
|
|
|
- |
|
|
|
240.6 |
|
Stockholders’equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
- |
|
|
|
9.0 |
|
|
|
1,013.9 |
|
|
|
(1,022.9 |
)
|
|
|
- |
|
Class
A and Class B common
stock
|
|
|
2.5 |
|
|
|
100.7 |
|
|
|
190.3 |
|
|
|
(291.0 |
)
|
|
|
2.5 |
|
Additional
paid-in
capital
|
|
|
1,271.1 |
|
|
|
1,280.9 |
|
|
|
1,296.9 |
|
|
|
(2,577.8 |
)
|
|
|
1,271.1 |
|
Retained
earnings
|
|
|
1,919.3 |
|
|
|
1,553.6 |
|
|
|
349.1 |
|
|
|
(1,902.7 |
)
|
|
|
1,919.3 |
|
Accumulated
other
comprehensive
income
|
|
|
349.1 |
|
|
|
17.8 |
|
|
|
427.4 |
|
|
|
(445.2 |
)
|
|
|
349.1 |
|
Treasury
stock
|
|
|
(124.5 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(124.5 |
)
|
Total
stockholders’equity
|
|
|
3,417.5 |
|
|
|
2,962.0 |
|
|
|
3,277.6 |
|
|
|
(6,239.6 |
)
|
|
|
3,417.5 |
|
Total
liabilities
and
stockholders’equity
|
|
$ |
7,659.8 |
|
|
$ |
3,681.8 |
|
|
$ |
4,346.6 |
|
|
$ |
(6,250.0 |
)
|
|
$ |
9,438.2 |
|
|
|
Parent
Company
|
|
|
Subsidiary
Guarantors
|
|
|
Subsidiary
Nonguarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(in
millions)
|
|
Condensed
Consolidating Statement of Income for the Nine Months Ended November
30,
2007
|
|
Sales
|
|
$ |
515.9 |
|
|
$ |
1,747.4 |
|
|
$ |
1,891.3 |
|
|
$ |
(404.9 |
)
|
|
$ |
3,749.7 |
|
Less
–
excise
taxes
|
|
|
(77.4 |
)
|
|
|
(323.0 |
)
|
|
|
(460.7 |
)
|
|
|
- |
|
|
|
(861.1 |
)
|
Net
sales
|
|
|
438.5 |
|
|
|
1,424.4 |
|
|
|
1,430.6 |
|
|
|
(404.9 |
)
|
|
|
2,888.6 |
|
Cost
of product
sold
|
|
|
(289.6 |
)
|
|
|
(916.6 |
)
|
|
|
(1,046.0 |
)
|
|
|
333.4 |
|
|
|
(1,918.8 |
)
|
Gross
profit
|
|
|
148.9 |
|
|
|
507.8 |
|
|
|
384.6 |
|
|
|
(71.5 |
)
|
|
|
969.8 |
|
Selling,
general and
administrative
expenses
|
|
|
(175.3 |
)
|
|
|
(251.6 |
)
|
|
|
(221.5 |
)
|
|
|
68.2 |
|
|
|
(580.2 |
)
|
Acquisition-related
integration
costs
|
|
|
(0.3 |
)
|
|
|
(1.1 |
)
|
|
|
(3.8 |
)
|
|
|
- |
|
|
|
(5.2 |
)
|
Restructuring
and related
charges
|
|
|
- |
|
|
|
(0.4 |
)
|
|
|
(0.3 |
)
|
|
|
- |
|
|
|
(0.7 |
)
|
Operating(loss)
income
|
|
|
(26.7 |
)
|
|
|
254.7 |
|
|
|
159.0 |
|
|
|
(3.3 |
)
|
|
|
383.7 |
|
Equity
in earnings of
equity
method
investees and
subsidiaries
|
|
|
435.1 |
|
|
|
225.6 |
|
|
|
6.7 |
|
|
|
(437.3 |
)
|
|
|
230.1 |
|
Interest
expense,
net
|
|
|
(186.8 |
)
|
|
|
(44.7 |
)
|
|
|
(17.3 |
)
|
|
|
- |
|
|
|
(248.8 |
)
|
Gain
on change in fair value
of
derivative
instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income
before income
taxes
|
|
|
221.6 |
|
|
|
435.6 |
|
|
|
148.4 |
|
|
|
(440.6 |
)
|
|
|
365.0 |
|
Benefit
from (provision
for) income
taxes
|
|
|
(0.1 |
)
|
|
|
(165.0 |
)
|
|
|
20.8 |
|
|
|
0.8 |
|
|
|
(143.5 |
)
|
Net
income
|
|
|
221.5 |
|
|
|
270.6 |
|
|
|
169.2 |
|
|
|
(439.8 |
)
|
|
|
221.5 |
|
Dividends
on preferred
stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income
available to
common
stockholders
|
|
$ |
221.5 |
|
|
$ |
270.6 |
|
|
$ |
169.2 |
|
|
$ |
(439.8 |
)
|
|
$ |
221.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statement of Income for the Nine Months Ended November
30,
2006
|
|
Sales
|
|
$ |
707.5 |
|
|
$ |
2,728.7 |
|
|
$ |
2,140.1 |
|
|
$ |
(597.0 |
)
|
|
$ |
4,979.3 |
|
Less
–
excise
taxes
|
|
|
(103.3 |
)
|
|
|
(372.4 |
)
|
|
|
(429.4 |
)
|
|
|
- |
|
|
|
(905.1 |
)
|
Net
sales
|
|
|
604.2 |
|
|
|
2,356.3 |
|
|
|
1,710.7 |
|
|
|
(597.0 |
)
|
|
|
4,074.2 |
|
Cost
of product
sold
|
|
|
(451.1 |
)
|
|
|
(1,643.2 |
)
|
|
|
(1,361.1 |
)
|
|
|
559.8 |
|
|
|
(2,895.6 |
)
|
Gross
profit
|
|
|
153.1 |
|
|
|
713.1 |
|
|
|
349.6 |
|
|
|
(37.2 |
)
|
|
|
1,178.6 |
|
Selling,
general and
administrative
expenses
|
|
|
(159.3 |
)
|
|
|
(235.3 |
)
|
|
|
(218.3 |
)
|
|
|
38.1 |
|
|
|
(574.8 |
)
|
Acquisition-related
integration
costs
|
|
|
(0.4 |
)
|
|
|
(4.6 |
)
|
|
|
(12.6 |
)
|
|
|
- |
|
|
|
(17.6 |
)
|
Restructuring
and related
charges
|
|
|
(0.2 |
)
|
|
|
(4.3 |
)
|
|
|
(21.6 |
)
|
|
|
- |
|
|
|
(26.1 |
)
|
Operating
(loss)
income
|
|
|
(6.8 |
)
|
|
|
468.9 |
|
|
|
97.1 |
|
|
|
0.9 |
|
|
|
560.1 |
|
Equity
in earnings of
equity
method
investees and
subsidiaries
|
|
|
342.5 |
|
|
|
12.5 |
|
|
|
2.8 |
|
|
|
(347.1 |
)
|
|
|
10.7 |
|
Interest
expense,
net
|
|
|
(107.6 |
)
|
|
|
(61.6 |
)
|
|
|
(25.1 |
)
|
|
|
- |
|
|
|
(194.3 |
)
|
Gain
on change in fair value
of
derivative
instrument
|
|
|
- |
|
|
|
55.1 |
|
|
|
- |
|
|
|
- |
|
|
|
55.1 |
|
Income
before income
taxes
|
|
|
228.1 |
|
|
|
474.9 |
|
|
|
74.8 |
|
|
|
(346.2 |
)
|
|
|
431.6 |
|
Benefit
from (provision
for)
income
taxes
|
|
|
33.6 |
|
|
|
(204.5 |
)
|
|
|
1.4 |
|
|
|
(0.4 |
)
|
|
|
(169.9 |
)
|
Net
income
|
|
|
261.7 |
|
|
|
270.4 |
|
|
|
76.2 |
|
|
|
(346.6 |
)
|
|
|
261.7 |
|
Dividends
on preferred
stock
|
|
|
(4.9 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4.9 |
)
|
Income
available to
common
stockholders
|
|
$ |
256.8 |
|
|
$ |
270.4 |
|
|
$ |
76.2 |
|
|
$ |
(346.6 |
)
|
|
$ |
256.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
|
Subsidiary
Guarantors
|
|
|
Subsidiary
Nonguarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statement of Income for the Three Months Ended
November 30,
2007
|
|
Sales
|
|
$ |
93.8 |
|
|
$ |
709.2 |
|
|
$ |
652.6 |
|
|
$ |
(49.2 |
)
|
|
$ |
1,406.4 |
|
Less
–
excise
taxes
|
|
|
(18.2 |
)
|
|
|
(129.2 |
)
|
|
|
(164.2 |
)
|
|
|
- |
|
|
|
(311.6 |
)
|
Net
sales
|
|
|
75.6 |
|
|
|
580.0 |
|
|
|
488.4 |
|
|
|
(49.2 |
)
|
|
|
1,094.8 |
|
Cost
of product
sold
|
|
|
(5.7 |
)
|
|
|
(366.4 |
)
|
|
|
(347.1 |
)
|
|
|
16.3 |
|
|
|
(702.9 |
)
|
Gross
profit
|
|
|
69.9 |
|
|
|
213.6 |
|
|
|
141.3 |
|
|
|
(32.9 |
)
|
|
|
391.9 |
|
Selling,
general and
administrative
expenses
|
|
|
(51.1 |
)
|
|
|
(113.6 |
)
|
|
|
(59.4 |
)
|
|
|
32.0 |
|
|
|
(192.1 |
)
|
Acquisition-related
integration
costs
|
|
|
(0.1 |
)
|
|
|
(0.1 |
)
|
|
|
(1.4 |
)
|
|
|
- |
|
|
|
(1.6 |
)
|
Restructuring
and related
charges
|
|
|
- |
|
|
|
0.3 |
|
|
|
(0.2 |
)
|
|
|
- |
|
|
|
0.1 |
|
Operating
(loss)
income
|
|
|
18.7 |
|
|
|
100.2 |
|
|
|
80.3 |
|
|
|
(0.9 |
)
|
|
|
198.3 |
|
Equity
in earnings of
equity
method
investees and
subsidiaries
|
|
|
170.5 |
|
|
|
73.1 |
|
|
|
2.3 |
|
|
|
(171.7 |
)
|
|
|
74.2 |
|
Interest
expense,
net
|
|
|
(65.5 |
)
|
|
|
(11.1 |
)
|
|
|
(5.8 |
)
|
|
|
- |
|
|
|
(82.4 |
)
|
Gain
on change in fair value
of
derivative
instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income
before income
taxes
|
|
|
123.7 |
|
|
|
162.2 |
|
|
|
76.8 |
|
|
|
(172.6 |
)
|
|
|
190.1 |
|
Benefit
from (provision
for) income
taxes
|
|
|
(4.1 |
)
|
|
|
(63.7 |
)
|
|
|
(2.8 |
)
|
|
|
0.1 |
|
|
|
(70.5 |
)
|
Net
income
|
|
|
119.6 |
|
|
|
98.5 |
|
|
|
74.0 |
|
|
|
(172.5 |
)
|
|
|
119.6 |
|
Dividends
on preferred
stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income
available to
common
stockholders
|
|
$ |
119.6 |
|
|
$ |
98.5 |
|
|
$ |
74.0 |
|
|
$ |
(172.5 |
)
|
|
$ |
119.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statement of Income for the Three Months Ended
November 30,
2006
|
|
Sales
|
|
$ |
282.1 |
|
|
$ |
958.2 |
|
|
$ |
737.8 |
|
|
$ |
(143.9 |
)
|
|
$ |
1,834.2 |
|
Less
–
excise
taxes
|
|
|
(39.9 |
)
|
|
|
(125.6 |
)
|
|
|
(167.9 |
)
|
|
|
- |
|
|
|
(333.4 |
)
|
Net
sales
|
|
|
242.2 |
|
|
|
832.6 |
|
|
|
569.9 |
|
|
|
(143.9 |
)
|
|
|
1,500.8 |
|
Cost
of product
sold
|
|
|
(174.7 |
)
|
|
|
(582.4 |
)
|
|
|
(427.4 |
)
|
|
|
128.9 |
|
|
|
(1,055.6 |
)
|
Gross
profit
|
|
|
67.5 |
|
|
|
250.2 |
|
|
|
142.5 |
|
|
|
(15.0 |
)
|
|
|
445.2 |
|
Selling,
general and
administrative
expenses
|
|
|
(52.1 |
)
|
|
|
(79.2 |
)
|
|
|
(82.8 |
)
|
|
|
16.3 |
|
|
|
(197.8 |
)
|
Acquisition-related
integration
costs
|
|
|
(0.4 |
)
|
|
|
(2.1 |
)
|
|
|
(7.0 |
)
|
|
|
- |
|
|
|
(9.5 |
)
|
Restructuring
and related
charges
|
|
|
(0.2 |
)
|
|
|
0.4 |
|
|
|
(2.3 |
)
|
|
|
- |
|
|
|
(2.1 |
)
|
Operating
income
|
|
|
14.8 |
|
|
|
169.3 |
|
|
|
50.4 |
|
|
|
1.3 |
|
|
|
235.8 |
|
Equity
in earnings of
equity
method
investees and
subsidiaries
|
|
|
130.0 |
|
|
|
10.4 |
|
|
|
1.4 |
|
|
|
(131.4 |
)
|
|
|
10.4 |
|
Interest
expense,
net
|
|
|
(49.3 |
)
|
|
|
(11.4 |
)
|
|
|
(12.4 |
)
|
|
|
- |
|
|
|
(73.1 |
)
|
Gain
on change in fair value
of
derivative
instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income
before income
taxes
|
|
|
95.5 |
|
|
|
168.3 |
|
|
|
39.4 |
|
|
|
(130.1 |
)
|
|
|
173.1 |
|
Benefit
from (provision
for)
income
taxes
|
|
|
12.3 |
|
|
|
(76.2 |
)
|
|
|
(1.0 |
)
|
|
|
(0.4 |
)
|
|
|
(65.3 |
)
|
Net
income
|
|
|
107.8 |
|
|
|
92.1 |
|
|
|
38.4 |
|
|
|
(130.5 |
)
|
|
|
107.8 |
|
Dividends
on preferred
stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Income
available to
common
stockholders
|
|
$ |
107.8 |
|
|
$ |
92.1 |
|
|
$ |
38.4 |
|
|
$ |
(130.5 |
)
|
|
$ |
107.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
|
Subsidiary
Guarantors
|
|
|
Subsidiary
Nonguarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(in
millions)
|
|
Condensed
Consolidating Statement of Cash Flows for the Nine Months Ended
November
30, 2007
|
|
Net
cash (used in) provided
by
operating
activities
|
|
$ |
(143.0 |
)
|
|
$ |
318.0 |
|
|
$ |
77.3 |
|
|
$ |
- |
|
|
$ |
252.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of business,
net of
cash
acquired
|
|
|
(1.6 |
)
|
|
|
(384.2 |
)
|
|
|
(3.9 |
)
|
|
|
|
|
|
|
(389.7 |
)
|
Purchases
of property, plant
and
equipment
|
|
|
(5.6 |
)
|
|
|
(21.3 |
)
|
|
|
(52.6 |
)
|
|
|
- |
|
|
|
(79.5 |
)
|
Payment
of accrued earn-out
amount
|
|
|
- |
|
|
|
(4.0 |
)
|
|
|
- |
|
|
|
- |
|
|
|
(4.0 |
)
|
Investment
in equity method
investee
|
|
|
- |
|
|
|
(1.5 |
)
|
|
|
- |
|
|
|
- |
|
|
|
(1.5 |
)
|
Proceeds
from formation of
joint
venture
|
|
|
- |
|
|
|
- |
|
|
|
185.6 |
|
|
|
|
|
|
|
185.6 |
|
Proceeds
from sales of
businesses
|
|
|
(4.0 |
)
|
|
|
7.8 |
|
|
|
(0.8 |
)
|
|
|
- |
|
|
|
3.0 |
|
Proceeds
from sales of
assets
|
|
|
- |
|
|
|
2.1 |
|
|
|
6.6 |
|
|
|
- |
|
|
|
8.7 |
|
Proceeds
from maturity of
derivative
instrument
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
investing
activities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
cash (used in) provided
by
investing
activities
|
|
|
(11.2 |
)
|
|
|
(401.1 |
)
|
|
|
134.9 |
|
|
|
- |
|
|
|
(277.4 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
financings,
net
|
|
|
94.6 |
|
|
|
92.3 |
|
|
|
(186.9 |
)
|
|
|
- |
|
|
|
- |
|
Proceeds
from issuance
of
long-term
debt
|
|
|
700.0 |
|
|
|
- |
|
|
|
16.1 |
|
|
|
- |
|
|
|
716.1 |
|
Exercise
of employee stock
options
|
|
|
17.7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17.7 |
|
Excess
tax benefits from
share-based
payment
awards
|
|
|
11.4 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11.4 |
|
Proceeds
from employee
stock
purchases
|
|
|
3.0 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3.0 |
|
Purchases
of treasury
stock
|
|
|
(500.0 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(500.0 |
)
|
Principal
payments of long-term
debt
|
|
|
(151.9 |
)
|
|
|
(9.5 |
)
|
|
|
(7.2 |
)
|
|
|
- |
|
|
|
(168.6 |
)
|
Payment
of financing costs
of
long-term
debt
|
|
|
(6.1 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6.1 |
)
|
Net
(repayment
of) proceeds
from
notes
payable
|
|
|
(13.5 |
)
|
|
|
- |
|
|
|
(44.1 |
)
|
|
|
- |
|
|
|
(57.6 |
)
|
Payment
of preferred stock
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
cash provided by (used
in)
financing
activities
|
|
|
155.2 |
|
|
|
82.8 |
|
|
|
(222.1 |
)
|
|
|
- |
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes
on
cash
and cash
investments
|
|
|
- |
|
|
|
- |
|
|
|
0.6 |
|
|
|
- |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease)
increase
in cash
and
cash
investments
|
|
|
1.0 |
|
|
|
(0.3 |
)
|
|
|
(9.3 |
)
|
|
|
- |
|
|
|
(8.6 |
)
|
Cash
and cash investments,
beginning
of
period
|
|
|
2.4 |
|
|
|
1.1 |
|
|
|
30.0 |
|
|
|
- |
|
|
|
33.5 |
|
Cash
and cash investments, end
of
period
|
|
$ |
3.4 |
|
|
$ |
0.8 |
|
|
$ |
20.7 |
|
|
$ |
- |
|
|
$ |
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
|
Subsidiary
Guarantors
|
|
|
Subsidiary
Nonguarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
(in
millions)
|
|
Condensed
Consolidating Statement of Cash Flows for the Nine Months Ended
November
30, 2006
|
|
Net
cash (used in) provided
by
operating
activities
|
|
$ |
(217.2 |
)
|
|
$ |
407.5 |
|
|
$ |
(77.1 |
)
|
|
$ |
- |
|
|
$ |
113.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchaseof
business, net of
cash
acquired
|
|
|
- |
|
|
|
(2.1 |
)
|
|
|
(1,091.6 |
)
|
|
|
- |
|
|
|
(1,093.7 |
)
|
Purchases
of property, plant
and
equipment
|
|
|
(2.7 |
)
|
|
|
(58.5 |
)
|
|
|
(74.4 |
)
|
|
|
- |
|
|
|
(135.6 |
)
|
Payment
of accrued earn-out
amount
|
|
|
- |
|
|
|
(3.7 |
)
|
|
|
- |
|
|
|
- |
|
|
|
(3.7 |
)
|
Investment
in equity method
investee
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Proceeds
from formation of
joint
venture
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Proceeds
from sales of
businesses
|
|
|
- |
|
|
|
- |
|
|
|
28.4 |
|
|
|
- |
|
|
|
28.4 |
|
Proceeds
from sales of
assets
|
|
|
- |
|
|
|
- |
|
|
|
8.8 |
|
|
|
- |
|
|
|
8.8 |
|
Proceeds
from maturity of
derivative
instrument
|
|
|
- |
|
|
|
55.1 |
|
|
|
- |
|
|
|
- |
|
|
|
55.1 |
|
Other
investing
activities
|
|
|
- |
|
|
|
- |
|
|
|
(0.4 |
)
|
|
|
- |
|
|
|
(0.4 |
)
|
Net
cash used in investing
activities
|
|
|
(2.7 |
)
|
|
|
(9.2 |
)
|
|
|
(1,129.2 |
)
|
|
|
- |
|
|
|
(1,141.1 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany
financings,
net
|
|
|
(991.0 |
)
|
|
|
(316.9 |
)
|
|
|
1,307.9 |
|
|
|
- |
|
|
|
- |
|
Proceeds
from issuance of
long-term
debt
|
|
|
3,693.1 |
|
|
|
1.9 |
|
|
|
- |
|
|
|
- |
|
|
|
3,695.0 |
|
Exercise
of employee stock
options
|
|
|
51.3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
51.3 |
|
Excess
tax benefits from
share-based
payment
awards
|
|
|
16.9 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16.9 |
|
Proceeds
from employee
stock
purchases
|
|
|
3.3 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3.3 |
|
Purchases
of treasury
stock
|
|
|
(100.0 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(100.0 |
)
|
Principal
payments of long-term
debt
|
|
|
(2,444.3 |
)
|
|
|
(81.4 |
)
|
|
|
(254.6 |
)
|
|
|
- |
|
|
|
(2,780.3 |
)
|
Payment
of financing costs
of
long-term
debt
|
|
|
(20.2 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20.2 |
)
|
Net
proceeds from notes
payable
|
|
|
19.5 |
|
|
|
- |
|
|
|
191.0 |
|
|
|
- |
|
|
|
210.5 |
|
Payment
of preferred stock
dividends
|
|
|
(7.3 |
)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7.3 |
)
|
Net
cash provided by (used
in)
financing
activities
|
|
|
221.3 |
|
|
|
(396.4 |
)
|
|
|
1,244.3 |
|
|
|
- |
|
|
|
1,069.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes
on
cash
and cash
investments
|
|
|
- |
|
|
|
- |
|
|
|
(17.5 |
)
|
|
|
- |
|
|
|
(17.5 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
and
cash
investments
|
|
|
1.4 |
|
|
|
1.9 |
|
|
|
20.5 |
|
|
|
- |
|
|
|
23.8 |
|
Cash
and cash investments,
beginning
of
period
|
|
|
0.9 |
|
|
|
1.2 |
|
|
|
8.8 |
|
|
|
- |
|
|
|
10.9 |
|
Cash
and cash investments, end
of
period
|
|
$ |
2.3 |
|
|
$ |
3.1 |
|
|
$ |
29.3 |
|
|
$ |
- |
|
|
$ |
34.7 |
|
18)
|
BUSINESS
SEGMENT
INFORMATION:
|
As
a result of the Company’s investment
in Crown Imports, the Company has changed its internal management financial
reporting to consist of three business divisions, Constellation Wines,
Constellation Spirits and Crown Imports. Prior to the investment in
the joint venture, the Company’s internal management financial reporting
included the Constellation Beers business division. Consequently, the
Company reports its operating results in five segments: Constellation
Wines (branded wine, and wholesale and other), Constellation Spirits (distilled
spirits), Constellation Beers (imported beer), Corporate Operations and
Other
and Crown Imports (imported beer). Segment results for Constellation
Beers are for the period prior to January 2, 2007, and segment results
for Crown
Imports are for the period on and after January 2, 2007. Amounts
included in the Corporate Operations and Other segment consist of general
corporate administration and finance expenses. These amounts include
costs of executive management, corporate development, corporate finance,
human
resources, internal audit, investor relations, legal, public relations,
global information technology
and global
strategic sourcing. 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 operating segments.
The
new business segments reflect how
the Company’s operations are managed, how operating performance within the
Company is evaluated by senior management and the structure of its internal
financial reporting. The financial information for the nine months
and three months ended November 30, 2006, has been restated to conform
to the
new segment presentation.
In
addition, the Company excludes
acquisition-related integration costs, restructuring and related 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 nine months ended November
30, 2007, acquisition-related
integration costs,
restructuring and related charges and unusual costs consist of the flow through
of inventory step-up
associated primarily with the Company’s acquisition of Vincor of $8.1 million,
the loss on the contribution of the U.K. wholesale business of $6.6 million,
accelerated depreciation associated primarily with the Fiscal 2007 Wine
Plan and
Fiscal 2006 Plan of $6.6 million, acquisition-related integration costs
of $5.2
million associated
primarily with the Vincor Plan, other related costs, restructuring and
related
charges and inventory write-offs associated with the Fiscal 2006 Plan,
Fiscal
2007 Wine Plan, the Fiscal 2008 Plan and the Vincor Plan
of $1.4 million,
$0.7 million and $0.2 million, respectively, and the flow through of adverse
grape cost of $0.1 million associated with the acquisition of Robert Mondavi,
partially offset
by
a $4.8 million realized
gain on a prior asset sale. For
the nine months ended November
30, 2006, acquisition-related
integration costs,
restructuring and related charges and unusual costs consist of restructuring and
related charges of
$26.1 million
associated
primarily
with
the Fiscal 2007 Wine
Plan and Fiscal 2006 Plan;
the
flow through of inventory
step-up of $24.4
million
associated primarily with the Company’s acquisition of Vincor;
acquisition-related integration costs of $17.6 million associated primarily
with
the Vincor Plan; other
charges of $14.7 million
associated with the Fiscal 2007 Wine Plan and Fiscal 2006 Plan included
within
selling, general and administrative expenses; loss on the sale of the branded
bottled water business of $13.4 million; financing costs of $11.8 million
related to the
Company’s new senior credit facility
entered into in connection with the Vincor acquisition; foreign
currency losses of $5.4 million
on foreign denominated intercompany loan balances associated with the Vincor
acquisition; the
flow through of adverse
grape cost (as
described below) of $3.0 million associated with the acquisition of Robert
Mondavi; and accelerated depreciation and the write-down of certain
inventory of $4.2
million
and $0.5 million,
respectively, associated primarily with the Fiscal 2006 Plan and Fiscal
2007
Wine Plan. Adverse
grape cost represents the amount
of historical inventory cost on Robert Mondavi’s balance sheet that exceeds the
Company’s estimated ongoing grape cost and is primarily due to the purchase of
grapes by Robert Mondavi prior to the acquisition date at above-market
prices as
required under the terms of their then existing grape purchase
contracts.
For
the three months
ended November 30, 2007,
acquisition-related integration costs,
restructuring and related charges and unusual costs consist of the
flow through of inventory
step-up associated
primarily with the Company’s acquisition of Vincor of $2.9 million, accelerated
depreciation associated with the Fiscal 2007 Wine
Plan, Fiscal
2006 Plan and the Fiscal 2008
Plan of $2.4
million,
and
acquisition-related
integration costs of
$1.6 million
associated
primarily with the Vincor
Plan, partially
offset by a $4.8 million realized
gain on a prior
asset sale. For
the three months
ended November 30, 2006,
acquisition-related integration costs,
restructuring and related charges and unusual costs consist of the flow through
of inventory step-up of
$17.9 million
associated primarily with the
Company’s acquisition of Vincor; other charges of $11.6 million
associated primarily with the
Fiscal 2007 Wine Plan included in selling, general and administrative expenses;
acquisition-related integration costs of $9.5 million
associated primarily with the
Vincor Plan; restructuring and related charges of $2.1 million associated
primarily with the Fiscal 2007 Wine Plan; accelerated depreciation of
$1.8 million
associated primarily with the
Fiscal 2007 Wine Plan; the flow through of adverse grape cost of $0.6 million
associated with the acquisition
of Robert Mondavi; and the write-down of certain inventory of $0.5 million
associated with the Fiscal 2006 Plan and the Vincor Plan; partially offset
by a
reduction in the loss on the sale of the Company’s branded bottled water
business of $0.8
million.
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, 2007, and include the
recently adopted
accounting pronouncements described in Note 2 herein. Transactions
between segments consist
mainly of sales of products and are accounted for at cost plus an applicable
margin.
Segment
information is as
follows:
|
|
For
the Nine Months
Ended
November 30,
|
|
|
For
the Three Months
Ended
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Constellation
Wines:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded
wine
|
|
$ |
2,270.1 |
|
|
$ |
2,049.6 |
|
|
$ |
911.3 |
|
|
$ |
815.9 |
|
Wholesale
and
other
|
|
|
299.4 |
|
|
|
814.4 |
|
|
|
66.1 |
|
|
|
291.3 |
|
Net
sales
|
|
$ |
2,569.5 |
|
|
$ |
2,864.0 |
|
|
$ |
977.4 |
|
|
$ |
1,107.2 |
|
Segment
operating income
|
|
$ |
413.0 |
|
|
$ |
474.3 |
|
|
$ |
201.9 |
|
|
$ |
214.3 |
|
Equity
in earnings of equity method investees
|
|
$ |
16.2 |
|
|
$ |
10.7 |
|
|
$ |
12.5 |
|
|
$ |
10.4 |
|
Long-lived
tangible assets
|
|
$ |
1,647.2 |
|
|
$ |
1,575.6 |
|
|
$ |
1,647.2 |
|
|
$ |
1,575.6 |
|
Investment
in equity method investees
|
|
$ |
257.0 |
|
|
$ |
171.5 |
|
|
$ |
257.0 |
|
|
$ |
171.5 |
|
Total
assets
|
|
$ |
8,841.1 |
|
|
$ |
8,837.5 |
|
|
$ |
8,841.1 |
|
|
$ |
8,837.5 |
|
Capital
expenditures
|
|
$ |
67.9 |
|
|
$ |
109.2 |
|
|
$ |
27.8 |
|
|
$ |
29.2 |
|
Depreciation
and amortization
|
|
$ |
100.0 |
|
|
$ |
83.9 |
|
|
$ |
34.4 |
|
|
$ |
30.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constellation
Spirits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
319.1 |
|
|
$ |
256.7 |
|
|
$ |
117.4 |
|
|
$ |
89.8 |
|
Segment
operating income
|
|
$ |
58.1 |
|
|
$ |
52.5 |
|
|
$ |
21.4 |
|
|
$ |
17.1 |
|
Long-lived
tangible assets
|
|
$ |
102.4 |
|
|
$ |
95.4 |
|
|
$ |
102.4 |
|
|
$ |
95.4 |
|
Total
assets
|
|
$ |
1,112.8 |
|
|
$ |
671.7 |
|
|
$ |
1,112.8 |
|
|
$ |
671.7 |
|
Capital
expenditures
|
|
$ |
7.5 |
|
|
$ |
8.0 |
|
|
$ |
2.1 |
|
|
$ |
3.6 |
|
Depreciation
and amortization
|
|
$ |
10.4 |
|
|
$ |
7.4 |
|
|
$ |
3.7 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constellation
Beers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
- |
|
|
$ |
953.5 |
|
|
$ |
- |
|
|
$ |
303.8 |
|
Segment
operating income
|
|
$ |
- |
|
|
$ |
199.2 |
|
|
$ |
- |
|
|
$ |
60.2 |
|
Long-lived
tangible assets
|
|
$ |
- |
|
|
$ |
1.0 |
|
|
$ |
- |
|
|
$ |
1.0 |
|
Total
assets
|
|
$ |
- |
|
|
$ |
244.8 |
|
|
$ |
- |
|
|
$ |
244.8 |
|
Capital
expenditures
|
|
$ |
- |
|
|
$ |
0.2 |
|
|
$ |
- |
|
|
$ |
0.2 |
|
Depreciation
and amortization
|
|
$ |
- |
|
|
$ |
1.4 |
|
|
$ |
- |
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Operations and
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Segment
operating loss
|
|
$ |
(63.3 |
) |
|
$ |
(44.8 |
) |
|
$ |
(22.9 |
) |
|
$ |
(12.6 |
) |
Long-lived
tangible assets
|
|
$ |
42.3 |
|
|
$ |
34.1 |
|
|
$ |
42.3 |
|
|
$ |
34.1 |
|
Total
assets
|
|
$ |
96.4 |
|
|
$ |
91.3 |
|
|
$ |
96.4 |
|
|
$ |
91.3 |
|
Capital
expenditures
|
|
$ |
4.1 |
|
|
$ |
18.2 |
|
|
$ |
2.6 |
|
|
$ |
(0.5 |
) |
Depreciation
and amortization
|
|
$ |
7.1 |
|
|
$ |
5.5 |
|
|
$ |
2.4 |
|
|
$ |
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crown
Imports:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,928.5 |
|
|
$ |
- |
|
|
$ |
547.7 |
|
|
$ |
- |
|
Segment
operating income
|
|
$ |
426.6 |
|
|
$ |
- |
|
|
$ |
123.0 |
|
|
$ |
- |
|
Long-lived
tangible assets
|
|
$ |
4.1 |
|
|
$ |
- |
|
|
$ |
4.1 |
|
|
$ |
- |
|
Total
assets
|
|
$ |
341.8 |
|
|
$ |
- |
|
|
$ |
341.8 |
|
|
$ |
- |
|
Capital
expenditures
|
|
$ |
3.4 |
|
|
$ |
- |
|
|
$ |
1.5 |
|
|
$ |
- |
|
Depreciation
and amortization
|
|
$ |
0.5 |
|
|
$ |
- |
|
|
$ |
0.2 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-Related
Integration Costs,
Restructuring and Related Charges and Unusual
Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
$ |
(24.1 |
) |
|
$ |
(121.1 |
) |
|
$ |
(2.1 |
) |
|
$ |
(43.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months
Ended
November 30,
|
|
|
For
the Three Months
Ended
November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
and
Eliminations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
(1,928.5 |
) |
|
$ |
- |
|
|
$ |
(547.7 |
) |
|
$ |
- |
|
Operating
income
|
|
$ |
(426.6 |
) |
|
$ |
- |
|
|
$ |
(123.0 |
) |
|
$ |
- |
|
Equity
in earnings of Crown Imports
|
|
$ |
213.9 |
|
|
$ |
- |
|
|
$ |
61.7 |
|
|
$ |
- |
|
Long-lived
tangible assets
|
|
$ |
(4.1 |
) |
|
$ |
- |
|
|
$ |
(4.1 |
) |
|
$ |
- |
|
Investment
in equity method investees
|
|
$ |
143.3 |
|
|
$ |
- |
|
|
$ |
143.3 |
|
|
$ |
- |
|
Total
assets
|
|
$ |
(198.5 |
) |
|
$ |
- |
|
|
$ |
(198.5 |
) |
|
$ |
- |
|
Capital
expenditures
|
|
$ |
(3.4 |
) |
|
$ |
- |
|
|
$ |
(1.5 |
) |
|
$ |
- |
|
Depreciation
and amortization
|
|
$ |
(0.5 |
) |
|
$ |
- |
|
|
$ |
(0.2 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,888.6 |
|
|
$ |
4,074.2 |
|
|
$ |
1,094.8 |
|
|
$ |
1,500.8 |
|
Operating
income
|
|
$ |
383.7 |
|
|
$ |
560.1 |
|
|
$ |
198.3 |
|
|
$ |
235.8 |
|
Equity
in earnings of equity method investees
|
|
$ |
230.1 |
|
|
$ |
10.7 |
|
|
$ |
74.2 |
|
|
$ |
10.4 |
|
Long-lived
tangible assets
|
|
$ |
1,791.9 |
|
|
$ |
1,706.1 |
|
|
$ |
1,791.9 |
|
|
$ |
1,706.1 |
|
Investment
in equity method investees
|
|
$ |
400.3 |
|
|
$ |
171.5 |
|
|
$ |
400.3 |
|
|
$ |
171.5 |
|
Total
assets
|
|
$ |
10,193.6 |
|
|
$ |
9,845.3 |
|
|
$ |
10,193.6 |
|
|
$ |
9,845.3 |
|
Capital
expenditures
|
|
$ |
79.5 |
|
|
$ |
135.6 |
|
|
$ |
32.5 |
|
|
$ |
32.5 |
|
Depreciation
and amortization
|
|
$ |
117.5 |
|
|
$ |
98.2 |
|
|
$ |
40.5 |
|
|
$ |
36.0 |
|
19)
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED:
In
September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair
Value Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS No. 157 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 the asset or liability. The Company
is required to adopt SFAS No. 157 for fiscal years and interim periods beginning
March 1, 2008. The Company is currently assessing the financial
impact of SFAS No. 157 on its consolidated financial statements.
In
September 2006, the FASB issued
Statement of Financial Accounting Standards No. 158 (“SFAS No. 158”),
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106, and
132(R).” SFAS No. 158 requires companies to recognize the overfunded
or underfunded status of a defined benefit postretirement plan (other than
a
multiemployer plan) as an asset or liability in its balance sheet and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income. The Company has adopted this provision
of SFAS No. 158 and has provided the required disclosures as of February 28,
2007. SFAS No. 158 also requires companies to measure the funded
status of a plan as of the date of the company’s fiscal year-end (with limited
exceptions), which provision the Company is required to adopt as of February
28,
2009. The Company does not expect the adoption of the remaining
provision of SFAS No. 158 to have a material impact on its consolidated
financial statements.
In February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159 (“SFAS
No. 159”), “The Fair Value Option
for Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115.” SFAS
No. 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. Most of the provisions in SFAS No. 159 are
elective; however, the amendment to Statement of Financial Accounting Standards
No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”,applies
to all entities with
available-for-sale and trading securities. The fair value option established
by
SFAS No. 159 allows companies to choose to measure eligible items at fair value
at specified election dates. The Company will report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each
subsequent reporting date. The fair value option: (i) may
be applied instrument by instrument,
with a few exceptions, such as investments otherwise accounted for by the equity
method; (ii) is
irrevocable (unless a new election
date occurs); and (iii)
is applied only to entire instruments
and not to portions of instruments. The Company is required to adopt
SFAS No. 159 for fiscal years beginning March 1, 2009. The Company does not
expect the adoption of SFAS No. 159 to have a material
impact on its
consolidated financial
statements.
In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141 (revised 2007) (“SFAS No.
141(R)”), “Business Combinations.” SFAS No. 141(R), among other
things, establishes principles and requirements for how the acquirer in a
business combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired business, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The Company is required to adopt
SFAS No. 141(R) for all business combinations for which the acquisition date
is
on or after March 1, 2009. Earlier adoption is
prohibited.
In
December 2007, the FASB issued
Statement of Financial Accounting Standards No. 160 (“SFAS No. 160”),
“Noncontrolling Interests in Consolidated Financial Statements – An Amendment of
ARB No. 51.” SFAS No. 160 amends Accounting Research Bulletin No. 51
(“ARB No. 51”), “Consolidated Financial Statements,” to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for
the
deconsolidation of a subsidiary. This statement also amends certain
of ARB No. 51’s consolidation procedures for consistency with the requirements
of SFAS No. 141(R). In addition, SFAS No. 160 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The Company is required to adopt SFAS No.
160 for fiscal years beginning March 1, 2009. Earlier adoption
is prohibited. The Company is currently assessing the
financial impact of SFAS No. 160 on its consolidated financial
statements.
20)
SUBSEQUENT EVENTS:
December
2007 Senior Notes
–
On
December 5, 2007, the Company issued
$500.0 million aggregate principal amount of 8 3/8% Senior Notes due December
2014 at an issuance price of $496.7 million (net of $3.3 million unamortized
discount, with an effective interest rate of 8.5%) (the “December 2007 Senior
Notes”). The net proceeds of the offering ($493.0 million) were used
to fund a portion of the purchase price of BWE (as defined
below). Interest on the December 2007 Senior Notes is payable
semiannually on June 15 and December 15 of each year, beginning June 15,
2008. The December 2007 Senior Notes are redeemable, in whole or in
part, at the option of the Company at any time at a redemption price equal
to
100% of the outstanding principal amount, plus a make whole payment based on
the
present value of the remaining scheduled payments of principal and interest
on
the notes at a discount rate equal to the Treasury Rate plus 50 basis
points. The December 2007 Senior Notes are
senior unsecured obligations and rank equally in right of payment to
all existing and future senior unsecured indebtedness of the
Company. Certain of the Company’s significant operating subsidiaries
guarantee the December 2007 Senior Notes, on a senior unsecured
basis.
Acquisition of Beam Wine Estates –
On
December 17, 2007, the Company
acquired all of the issued and outstanding capital stock of Beam Wine Estates,
Inc. (“BWE”) from a wholly-owned subsidiary of Fortune Brands,
Inc. BWE owns all of the outstanding stock of its
subsidiaries: Atlas Peak Vineyards, Inc., Buena Vista Winery, Inc.,
Clos du Bois, Inc., Gary Farrell Wines, Inc. and Peak Wines International,
Inc. As a result of this acquisition, the Company has acquired the
U.S. wine portfolio of Fortune Brands, Inc., including certain wineries,
vineyards or interests therein in the State of California. Through
its subsidiaries, BWE produces, markets and sells super-premium and fine
California wines including Clos du Bois, Wild Horse and Geyser
Peak.
The
acquisition of BWE supports the
Company’s strategy of strengthening its portfolio of fine wines in the
U.S. with fast-growing super-premium plus wines. The
acquisition strengthens the Company’s position as the largest wine company in
the world and the largest premium wine company in the U.S.
Total
consideration paid in cash was
$885.0 million, subject to certain purchase price adjustments. The
purchase price was financed with the net proceeds from the Company’s December
2007 Senior Notes and revolver borrowings under the Company’s 2006 Credit
Agreement. In accordance with the purchase method of accounting, the
acquired net assets are recorded at fair value at the date of
acquisition. The results of operations of the BWE business will be
included in the Consolidated Statements of Income beginning on the date of
acquisition. The purchase price allocation, including the third-party
appraisal, is in process.
Item
2. Management’s Discussion and Analysis
of
Financial Condition and Results of Operations
Overview
The
Company is a leading international
producer and marketer of beverage alcohol brands with a broad portfolio across
the wine, spirits and imported beer categories. The Company continues
to supply imported beer in the United States (“U.S.”) through its investment in
Crown Imports (as defined in “Equity Method Investments in Fiscal 2008 and
Fiscal 2007” below). The Company has the largest wine business in the
world and is the largest multi-category (wine, spirits and imported beer)
supplier of beverage alcohol in the U.S.; a leading producer and exporter of
wine from Australia and New Zealand; the largest producer and marketer of wine
in Canada; and both a major supplier of beverage alcohol and, through its
investment in Matthew Clark (see “Equity Method Investments in Fiscal 2008 and
Fiscal 2007” below), a major independent drinks wholesaler in the United Kingdom
(“U.K.”).
Through
January 1, 2007, the Company
reported its operating results in three segments: Constellation Wines
(branded wines, and U.K. wholesale and other), Constellation Beers and Spirits
(imported beers and distilled spirits) and Corporate Operations and
Other. As a result of the Company’s investment in Crown Imports, the
Company has changed its internal management financial reporting to consist
of
three business divisions, Constellation Wines, Constellation Spirits and Crown
Imports. Prior to the investment in Crown Imports, the Company’s
internal management financial reporting included the Constellation Beers
business division. Consequently, the Company reports its operating
results in five segments: Constellation Wines (branded wine, and
wholesale and other), Constellation Beers (imported beer), Constellation Spirits
(distilled spirits), Corporate Operations and Other and Crown Imports (imported
beer). Segment results for Constellation Beers are for the period
prior to January 2, 2007, and segment results for Crown Imports are for the
period on and after January 2, 2007. Amounts included in the
Corporate Operations and Other segment consist of general corporate
administration and finance expenses. These amounts include costs of
executive management, corporate development, corporate finance, human resources,
internal audit, investor relations, legal, public relations, global information technology
and global
strategic sourcing. 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 operating segments.
The
new business segments reflect how
the Company’s operations are managed, how operating performance within the
Company is evaluated by senior management and the structure of its internal
financial reporting. The financial information for Third Quarter 2007
and Nine Months 2007 (as defined below) has been restated to conform to the
new
segment presentation.
In
addition, the Company excludes
acquisition-related integration costs, restructuring and related 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 is to
remain focused across the beverage alcohol industry by offering a broad range
of
products in each of the Company’s three major categories: wine,
spirits and, through Crown Imports, imported beer. The Company
intends to keep its portfolio positioned for top-line growth while maximizing
the profitability of its brands. In addition, the Company seeks to
increase its relative importance to key customers in major markets by increasing
its share of their overall purchasing, which is increasingly important in a
consolidating industry. The Company’s strategy of breadth across
categories and geographies is designed to deliver long-term profitable
growth. This strategy allows the Company more investment choices,
provides flexibility to address changing market conditions and creates stronger
routes-to-market.
Marketing,
sales and distribution of
the Company’s products, particularly the Constellation Wines segment’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 five core markets (U.S., Canada,
U.K., Australia and New Zealand) within the Company’s three geographic regions
(North America, Europe and Australia/New Zealand). Within North
America, the Company offers a wide range of beverage alcohol products across
the
branded wine and spirits and, through Crown Imports, imported beer categories
in
the U.S. and is the largest producer and marketer of branded wines in
Canada. In Europe, the Company leverages its position as the largest
wine supplier in the U.K. In addition, the Company leverages its
investment in Matthew Clark both as a strategic route-to-market for its imported
wine portfolio and as a key supplier of a full range of beverage alcohol
products primarily to the on-premise business. Within Australia/New
Zealand, where consumer trends favor domestic wine products, the Company
leverages its position as one of the largest producers and marketers of wine
in
Australia and New Zealand.
The
Company remains committed to its
long-term financial model of growing sales (both organically and through
acquisitions), expanding margins and increasing cash flow to achieve superior
earnings per share growth and improve return on invested capital.
The
environment for the Company’s
products is competitive in each of the Company’s core markets, due, in part, to
industry and retail consolidation. In particular, the U.K. and
Australian markets have grown highly competitive, as further described
below. Competition in the U.S. beer and spirits markets is normally
intense, with domestic and imported beer producers increasing brand spending
in
an effort to gain market share.
The
U.K. wine market is primarily an
import market, with Australian wines comprising nearly one-quarter of all wine
sales in the U.K. off-premise business. The Australian wine market is
primarily a domestic market. The Company has leading share positions
in the Australian wine category in both the U.K. and Australian
markets.
These
markets continue to be
competitive making it difficult for the Company to recover certain cost
increases, in particular, the duty increases in the U.K. which have been imposed
annually for the past several years. In the U.K., significant
consolidation at the retail level has resulted in a limited number of large
retailers controlling a significant portion of the off-premise wine
business. The current surplus of Australian wine made very low cost
bulk wine available to retailers which allowed certain of these large retailers
to create and build private label brands in the Australian wine
category. In Australia, the domestic market remains competitive due
to the surplus of Australian bulk wine, resulting in pricing pressures on the
Company’s products, in particular on the box wine category.
Prior
years of record Australian grape
harvests have contributed to the surplus of Australian bulk
wine. However, the calendar 2007 Australian grape harvest was
significantly lower than the calendar 2006 Australian grape harvest as a result
of an ongoing drought and late spring frosts in several
regions. Drought conditions continue to affect key wine producing
regions of Australia. The effects of the ongoing drought conditions
are expected by many industry projections to impact the size of the calendar
2008 Australian grape harvest. As a result of the significant
reduction in the calendar 2007 Australian grape harvest, the Company has begun
to see a reduction in the current surplus and an increase in pricing for
Australian bulk wine. A calendar 2008 Australian grape harvest
similar to the calendar 2007 Australian grape harvest may also have a
substantial impact on the current surplus and may result in higher pricing
for
Australian bulk wine. In the U.S., while the calendar 2007 U.S. grape
harvest yielded lower levels than the calendar 2006 U.S. grape harvest, the
Company expects that the overall supply should remain generally in balance
with
demand.
For
the three months ended November 30,
2007 (“Third Quarter 2008”), the Company’s net sales decreased 27% over the
three months ended November 30, 2006 (“Third Quarter 2007”), primarily due to
the formation of Crown Imports on January 2, 2007, and Matthew Clark on April
17, 2007, and the accounting for these investments under the equity method
of
accounting, partially offset by a favorable foreign currency impact and growth
in the Company’s branded wine net sales. Operating income decreased
16% over the comparable prior year period resulting primarily from the decreased
imported beer and U.K. wholesale sales discussed above, partially offset by
lower unusual items, which consist of certain costs that are excluded by
management in their evaluation of the results of each operating
segment. Net income increased 11% over the comparable prior year
period primarily due to an increase in equity in earnings of equity method
investees in connection primarily with Crown Imports, partially offset by the
factors discussed above combined with increased interest expense.
For
the nine months ended November 30,
2007 (“Nine Months 2008”), the Company’s net sales decreased 29% over the nine
months ended November 30, 2006 (“Nine Months 2007”), primarily due to the
accounting for the Crown Imports and Matthew Clark investments under the equity
method of accounting, partially offset by net sales of products acquired in
the
acquisition of Vincor (see “Acquisitions in Fiscal 2008 and 2007” below) and a
favorable foreign currency impact. Operating income decreased 31%
over the comparable prior year period resulting primarily from
(i) the decreased imported beer and U.K. wholesale sales discussed
above and (ii) the Company’s Constellation Wines segment’s program to
reduce distributor wine inventory levels in the U.S. during the first half
of
fiscal 2008 (as discussed below) without a corresponding decrease in
promotional, advertising, selling and general and administrative spend within
the Constellation Wines segment, partially offset by lower unusual items and
the
incremental benefit from the acquisition of Vincor and the Svedka Acquisition
(as defined below). Net income decreased 15% over the comparable
prior year period primarily due to the factors discussed above combined with
increased interest expense, partially offset by an increase in equity in
earnings of equity method investees in connection primarily with Crown
Imports.
The
Company’s Constellation Wines
segment implemented a program to
reduce distributor wine inventory levels in the U.S. during the first half
of the year
ending February 29, 2008 (“Fiscal 2008”), in
response to the consolidation
of distributors over the past few
years and supply chain
technology improvements.
As
distributors are looking
to operate with
lower levels of inventory while maintaining appropriate service levels to
retailers, the
Company has
worked closely with its
distributors on supply-chain efficiencies, thereby lowering costs for both
the
Company and its distributors, and ultimately making the Company’s brands more
competitive in the marketplace. The Company substantially completed
its reduction of distributor inventory levels during the second quarter of
fiscal 2008. This initiative will have a significant impact on the
Company’s Fiscal 2008 financial performance, including a reduction of net sales
of approximately $110 million and a reduction in diluted earnings per share
of
approximately $0.15 per share.
The
following discussion and analysis
summarizes the significant factors affecting (i) consolidated
results of operations of
the Company for Third
Quarter 2008 compared to
Third
Quarter
2007 and
Nine Months 2008 compared to Nine
Months 2007 and (ii)
financial
liquidity and capital
resources for Nine Months
2008. This
discussion and analysis also
identifies certain acquisition-related integration costs, restructuring
and related charges
and unusual items
expected
to affect
consolidated results of operations of the Company for Fiscal 2008. 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, 2007 (“Fiscal
2007”). References to base branded wine net sales, base branded wine
gross profit and base branded wine business exclude the impact of
branded wine acquired in the acquisition of Vincor. References to
base branded spirits net sales and base branded spirits gross profit exclude
the
impact of branded spirits acquired in the Svedka Acquisition.
Recent
Developments
Acquisition
of Beam Wine
Estates
On
December 17, 2007, the Company
acquired all of the issued and outstanding capital stock of Beam Wine Estates,
Inc. (“BWE”) from a wholly-owned subsidiary of Fortune Brands,
Inc. BWE owns all of the outstanding stock of its
subsidiaries: Atlas Peak Vineyards, Inc., Buena Vista Winery, Inc.,
Clos du Bois, Inc., Gary Farrell Wines, Inc. and Peak Wines International,
Inc. As a result of this acquisition, the Company has acquired the
U.S. wine portfolio of Fortune Brands, Inc., including certain wineries,
vineyards or interests therein in the State of California. Through
its subsidiaries, BWE produces, markets and sells super-premium and fine
California wines including Clos du Bois, Wild Horse and Geyser
Peak.
The
acquisition of BWE supports the
Company’s strategy of strengthening its portfolio of fine wines in the U.S. with
fast-growing super-premium plus wines. The acquisition strengthens
the Company’s position as the largest wine company in the world and the largest
premium wine company in the U.S.
Total
consideration paid in cash was
$885.0 million, subject to certain purchase price adjustments. The
purchase price was financed with the net proceeds from the Company’s December
2007 Senior Notes and revolver borrowings under the Company’s 2006 Credit
Agreement (as defined below). In accordance with the purchase method
of accounting, the acquired net assets are recorded at fair value at the date
of
acquisition. The purchase price allocation, including the third-party
appraisal, is in process.
The
results of operations of the BWE
business will be reported in the Constellation Wines segment and will be
included in the consolidated results of operations of the Company from the
date
of acquisition. The Company expects the acquisition of BWE to
have a material impact on the Company’s future results of operations, financial
position and cash flows. In particular, the Company expects its
future results of operations to be significantly impacted by, among other
things, the flow through of anticipated inventory step-up, restructuring,
integration and related charges, and interest expense associated with borrowings
to finance the purchase price. The restructuring, integration and
related charges relate to the Company’s January 2008 announcement of its plans
to streamline certain of its operations in the U.S., primarily in connection
with the restructuring and integration of the operations of BWE (the “U.S.
Initiative”).
Acquisitions
in Fiscal 2008 and Fiscal 2007
Acquisition
of Svedka
On
March 19, 2007, the Company acquired
the SVEDKA Vodka brand (“Svedka”) in connection with the acquisition of Spirits
Marque One LLC and related business (the “Svedka
Acquisition”). Svedka is a premium Swedish vodka and is the fastest
growing major imported premium vodka in the U.S. Svedka
is the fifth largest
imported vodka in the U.S. The
acquisition of Svedka
supports the Company’s strategy of expanding the Company’s premium spirits
business. The acquisition provides a foundation from which the
Company looks to leverage its existing and future premium spirits portfolio
for
growth. In addition, Svedka complements the Company’s existing
portfolio of super-premium and value vodka brands by adding a premium vodka
brand that has experienced rapid growth.
Total
consideration paid in cash for
the Svedka Acquisition was $385.8 million. In addition, the Company
expects to incur direct acquisition costs of approximately $1.3
million. The purchase price was financed with revolver borrowings
under the Company’s June 2006 Credit Agreement (as defined below) as amended in
February 2007.
The
results of operations of the Svedka
business are reported in the Constellation Spirits segment and have been
included in the consolidated results of operations of the Company from the
date
of acquisition. The Svedka Acquisition has a significant impact on
the Company’s interest expense associated with the additional revolver
borrowings.
Acquisition
of Vincor
On
June 5, 2006, the Company acquired
all of the issued and outstanding common shares of Vincor International Inc.
(“Vincor”), Canada’s premier wine company. Vincor is Canada’s largest
producer and marketer of wine. At the time of the acquisition, Vincor
was the world’s eighth largest producer and distributor of wine and related
products by revenue and was also one of the largest wine importers, marketers
and distributors in the U.K. Through this transaction, the Company
acquired various additional winery and vineyard interests used in the production
of premium, super-premium and fine wines from Canada, California, Washington
State, Western Australia and New Zealand. In addition, as a result of
the acquisition, the Company sources, markets and sells premium wines from
South
Africa. Well-known premium brands acquired in the acquisition of
Vincor include Inniskillin, Jackson-Triggs, Sawmill Creek, Sumac Ridge, R.H.
Phillips, Toasted Head, Hogue, Kim Crawford and Kumala.
The
acquisition of Vincor supports the
Company’s strategy of strengthening the breadth of its portfolio across price
segments and geographic regions to capitalize on the overall growth in the
wine
industry. In addition to complementing the Company’s current
operations in the U.S., U.K., Australia and New Zealand, the acquisition of
Vincor increases the Company’s global presence by adding Canada as another core
market and provides
the Company with the
ability to capitalize on broader
geographic distribution in strategic international markets. In
addition, the acquisition of Vincor makes the Company the largest wine company
in Canada and strengthens the Company’s position as the largest wine company in
the world and the largest premium wine company in the U.S.
Total
consideration paid in cash to the
Vincor shareholders was $1,115.8 million. In addition, the Company
incurred direct acquisition costs of $9.4 million. At closing, the
Company also assumed outstanding indebtedness of Vincor, net of cash acquired,
of $320.2 million, resulting in a total transaction value of $1,445.4
million. The purchase price was financed with borrowings under the
Company’s June 2006 Credit Agreement (as defined below). The results
of operations of the Vincor business are reported in the Constellation Wines
segment and are included in the consolidated results of operations of the
Company from the date of acquisition.
Equity
Method Investments in Fiscal 2008 and Fiscal 2007
Investment
in Matthew
Clark
On
April 17, 2007, the Company and
Punch Taverns plc (“Punch”) commenced operations of a joint venture for the U.K.
wholesale business (“Matthew Clark”). The U.K. wholesale business was
formerly owned entirely by the Company. Under the terms of the
arrangement, the Company and Punch, directly or indirectly, each have a 50%
voting and economic interest in Matthew Clark. The joint venture will
reinforce Matthew Clark’s position as the U.K.’s largest independent premier
drinks wholesaler serving the on-trade drinks industry. The Company
received $185.6 million of cash proceeds from the formation of the joint
venture.
Upon
formation of the joint
venture, the Company
discontinued consolidation of the U.K.
wholesale business and accounts
for the
investment in Matthew
Clark under the equity
method. Accordingly, the results of operations of Matthew Clark are
included in the equity in earnings of
equity method investees line in the Company’s
Consolidated Statements of Income from
the date of investment.
Investment
in Crown
Imports
On
July 17, 2006, Barton Beers, Ltd.
(“Barton”), an indirect wholly-owned subsidiary of the Company, entered into an
Agreement to Establish Joint Venture (the “Joint Venture Agreement”) with 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., pursuant to which
Modelo’s
Mexican beer portfolio (the “Modelo
Brands”) will be exclusively imported,
marketed and
sold in the 50 states
of
the U.S.,
the District of Columbia and Guam.
In addition,
the owners of
the Tsingtao and St. Pauli Girl
brands transferred exclusive
importing,
marketing and selling rights
with respect to
these brands
in the U.S. to
the joint venture. On
January 2, 2007, the parties
completed the closing (the
“Closing”) of
the
transactions contemplated in the Joint Venture Agreement, as amended at
Closing.
Pursuant
to the Joint Venture Agreement,
Barton established Crown Imports LLC, a wholly-owned subsidiary formed as
a
Delaware limited
liability company. On
January 2, 2007, pursuant to a Barton Contribution Agreement, dated
July 17,
2006, among Barton, Diblo and Crown
Imports LLC,
Barton transferred to Crown
Imports LLC substantially
all of its assets relating
to importing, marketing and selling beer under the Corona Extra, Corona Light,
Coronita, Modelo Especial, Negra Modelo, Pacifico, St. Pauli Girl and Tsingtao
brands and the liabilities associated there with (the
“Barton
Contributed Net
Assets”). At the Closing, GModelo Corporation, a Delaware corporation
(the “Diblo Subsidiary”), a subsidiary of Diblo joined Barton as a member of
Crown Imports
LLC, and, in exchange
for a
50% membership interest in Crown Imports LLC,
contributed cash in an amount equal to
the Barton Contributed Net Assets, subject to specified adjustments. This imported beers
joint
venture is referred to herein after as “Crown Imports”.
Also
on January 2, 2007, Crown
Imports and
Extrade II S.A. de C.V. (“Extrade
II”), an affiliate of Modelo, entered into an Importer Agreement, pursuant to
which Extrade II granted to Crown Imports the
exclusive right to import, market and
sell the Modelo Brands in
the territories
mentioned above, and Crown Imports and
Marcas Modelo, S.A. de C.V. (“Marcas
Modelo”), entered into a Sub-license Agreement, pursuant to which Marcas Modelo
granted Crown Imports
an
exclusive sub-license to
use certain trademarks related to the Modelo Brands within this
territory.
As
a result of these transactions,
Barton and Diblo each have, directly or indirectly, equal interests in Crown
Imports and
each of Barton and Diblo have
appointed an equal number of directors to the Board of Directors of Crown
Imports.
The
importer agreement that previously
gave Barton the exclusive right to import, market and sell the Modelo Brands
primarily west of the Mississippi River was superseded by the transactions
contemplated by the Joint Venture Agreement, as amended. The
contribution by Diblo Subsidiary in exchange for a 50% membership interest
in
Crown does not constitute the acquisition of a business by the
Company.
The
joint venture and the related
importation arrangements provide that, subject to the terms
and conditions of
those agreements, the joint
venture and the related
importation arrangements will continue for an
initial term of 10
years, and renew in 10-year periods unless Diblo Subsidiary gives notice prior
to the end of year seven of any term. Upon consummation of the
transactions, the Company discontinued consolidation of the imported beer
business and accounts for the investment in Crown Imports under
the equity
method. Accordingly, the results of operations of Crown Imports are
included in the equity in earnings
of equity method investees line in the Company’s
Consolidated Statements of Income from
the date of investment.
Results
of Operations
Third
Quarter 2008 Compared to Third
Quarter 2007
Net
Sales
The
following table sets forth the net
sales (in millions of dollars) by operating segment of the Company for Third
Quarter 2008 and Third Quarter 2007.
|
|
Third
Quarter 2008 Compared to
Third Quarter 2007
|
|
|
|
Net
Sales
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Increase
(Decrease)
|
|
Constellation
Wines:
|
|
|
|
|
|
|
|
|
|
Branded
wine
|
|
$ |
911.3 |
|
|
$ |
815.9 |
|
|
|
12% |
|
Wholesale
and
other
|
|
|
66.1 |
|
|
|
291.3 |
|
|
|
(77)% |
|
Constellation
Wines net
sales
|
|
|
977.4 |
|
|
|
1,107.2 |
|
|
|
(12)% |
|
Constellation
Spirits net
sales
|
|
|
117.4 |
|
|
|
89.8 |
|
|
|
31% |
|
Constellation
Beers net
sales
|
|
|
- |
|
|
|
303.8 |
|
|
|
(100)% |
|
Crown
Imports net
sales
|
|
|
547.7 |
|
|
|
- |
|
|
|
N/A |
|
Consolidations
and
eliminations
|
|
|
(547.7 |
)
|
|
|
- |
|
|
|
N/A |
|
Consolidated
Net
Sales
|
|
$ |
1,094.8 |
|
|
$ |
1,500.8 |
|
|
|
(27)% |
|
Net
sales for Third Quarter 2008
decreased to $1,094.8 million from $1,500.8 million for Third Quarter 2007,
a
decrease of $406.0 million, or (27%). This decrease resulted
primarily from a decrease in net sales of $303.8 million and $222.8 million
for
the Crown Imports and Matthew Clark investments, respectively, which are
accounted for under the equity method of accounting, partially offset by a
favorable foreign currency impact of $44.2 million, and growth in branded wine
net sales of $37.3 million.
Constellation
Wines
Net
sales for Constellation Wines
decreased to $977.4 million for Third Quarter 2008 from $1,107.2 million for
Third Quarter 2007, a decrease of $129.8 million, or (12%). Branded
wine net sales increased $95.4 million due to a favorable foreign currency
impact of $39.5 million, growth in branded wine net sales of $37.1 million,
and
a benefit of $18.8 million due to branded wine net sales for the U.K. previously
sold through the Company’s U.K. wholesale business. The increase in
branded wine net sales is due primarily to growth in the U.S. resulting from
higher average selling prices as the consumer continues to trade up to higher
priced premium wines as supported by volume gains in the premium
categories. Wholesale and other net sales decreased $225.2 million
primarily due to the accounting for the Matthew Clark investment under the
equity method of accounting.
Constellation
Spirits
Net
sales for Constellation Spirits
increased to $117.4 million for Third Quarter 2008 from $89.8 million for Third
Quarter 2007, an increase of $27.6 million, or 31%. This increase
resulted primarily from $16.9 million of net sales of branded spirits acquired
in the Svedka Acquisition and an increase in base branded spirits net sales
of
$7.3 million due primarily to higher average selling prices and volume
gains.
Constellation
Beers
Net
sales for Constellation Beers
decreased $303.8 million, or (100%), from Third Quarter 2007 as the Crown
Imports investment is accounted for under the equity method of
accounting.
Gross
Profit
The
Company’s gross profit decreased to
$391.9 million for Third Quarter 2008 from $445.2 million for Third Quarter
2007, a decrease of $53.3 million, or (12%). The Constellation Wines
segment’s gross profit decreased $2.1 million primarily due to a decrease of
$23.0 million resulting from the accounting for the Matthew Clark investment
under the equity method of accounting, partially offset by a favorable foreign
currency impact of $14.0 million. The Constellation Spirits segment’s
gross profit increased $13.5 million primarily due to increased gross profit
of
$7.5 million due to the Svedka Acquisition and increased base branded spirits
gross profit of $4.6 million resulting from the higher average selling prices
and volume gains. The Constellation Beers segment’s gross profit was
down $80.0 million due to the accounting for the Crown Imports investment under
the equity method of accounting. In addition, unusual items, which
consist of certain costs that are excluded by management in their evaluation
of
the results of each operating segment, were lower by $15.3 million in Third
Quarter 2008 versus Third Quarter 2007. This decrease resulted
primarily from decreased flow through of inventory step-up associated primarily
with the acquisition of Vincor. Gross profit as a percent of net
sales increased to 35.8% for Third Quarter 2008 from 29.7% for Third Quarter
2007 primarily due to the benefit of reporting the lower margin U.K. wholesale
and imported beer businesses under the equity method of accounting.
Selling,
General and Administrative
Expenses
Selling,
general and administrative
expenses decreased to $192.1 million for Third Quarter 2008 from $197.8 million
for Third Quarter 2007, a decrease of $5.7 million, or (3%). This
decrease is due to a $19.8 million decrease in selling, general and
administrative expenses within the Constellation Beers segment as the Crown
Imports investment is accounted for under the equity method of accounting,
and a
reduction in unusual costs which consist of certain items that are excluded
by
management in their evaluation of the results of each operating segment of
$15.7
million, partially offset by an increase of $10.3 million in Corporate
Operations and Other, an increase of $10.2 million in the Constellation Wines
segment, and an increase of $9.2 million in the Constellation Spirits
segment. The decrease in unusual costs was primarily due to the
write-down in Third Quarter 2007 of an Australian winery and certain Australian
vineyards to fair value less cost to sell in connection with the Fiscal 2007
Wine Plan (as defined below). The increase in the Corporate
Operations and Other segment’s selling, general and administrative expenses is
primarily due to increased general and administrative expenses to support the
Company’s growth. The increase in the Constellation Wines segment’s
selling, general and administrative expenses is primarily due to increased
general and administrative expenses resulting primarily from a negative foreign
currency impact, partially offset by the reporting of the U.K. wholesale
business under the equity method of accounting. The increase in the
Constellation Spirits segment’s selling, general and administrative expenses is
primarily due to an increase in advertising expenses of $6.5 million and selling
expenses of $2.7 million resulting primarily from the Svedka
Acquisition.
Selling,
general and administrative
expenses as a percent of net sales increased to 17.5% for Third Quarter 2008
as
compared to 13.2% for Third Quarter 2007 primarily due to the reporting of
the
imported beer and U.K. wholesale businesses under the equity method of
accounting and the percent increase in general and administrative expenses
supporting the Company’s growth within the Corporate Operations and Other
segment and the Constellation Wines segment growing at a faster rate than the
increase in the respective segment’s net sales, partially offset by lower
unusual costs.
Acquisition-Related
Integration
Costs
Acquisition-related
integration costs
decreased
to $1.6 million
for Third Quarter 2008 from
$9.5 million
for Third Quarter 2007.
Acquisition-related
integration
costs for Third Quarter
2008 consisted of costs
recorded primarily in connection with the Company’s
plan
to
restructure and integrate the
operations of Vincor (the “Vincor Plan”). These
costs
included $0.1 million of
employee-related costs and $1.5 million of facilities and other one-time
costs. Acquisition-related integration costs for Third Quarter 2007
consisted of costs recorded primarily in connection with the Vincor Plan.
For
Fiscal 2008, the Company expects to
incur total acquisition-related integration costs of $14.3 million primarily
in
connection with the Fiscal 2008 Plan (as defined below) and the Vincor
Plan.
Restructuring
and Related
Charges
The
Company recorded a credit of $0.1
million of restructuring and related charges for Third Quarter 2008 associated
with the reversal of prior accruals of $1.5 million related primarily to
the
Vincor Plan and the Company’s worldwide wine reorganizations announced during
Fiscal 2006 and the Company’s program to consolidate certain west coast
production processes in the U.S. (collectively, the “Fiscal 2006 Plan”),
partially offset by $1.4 million of restructuring and related charges recorded
primarily in connection with the Company’s plan to streamline certain of its
international operations and costs associated with the consolidation of certain
spirits production processes in the U.S., collectively with the U.S. Initiative,
the “Fiscal 2008 Plan.” Restructuring and related charges included
$0.8 million of employee termination costs, ($0.8) million of contract
termination costs and ($0.1) million of facility consolidation/relocation
costs. In addition, in connection with the Company’s plan to invest
in new distribution and bottling facilities in the U.K. and to streamline
certain Australian wine operations (collectively, the “Fiscal 2007 Wine Plan”),
the Fiscal 2006 Plan, the Fiscal 2008 Plan and the Vincor Plan, the Company
recorded $2.5 million of costs, primarily accelerated depreciation, which
were
recorded in the cost of product sold line within the Company’s Consolidated
Statements of Income. The Company recorded $2.1 million of
restructuring and related charges for Third Quarter 2007 associated primarily
with the Fiscal 2007 Wine Plan.
For
Fiscal 2008, the Company expects to
incur total restructuring and related charges of $19.6 million associated with
the Fiscal 2008 Plan, the Vincor Plan and the Fiscal 2006 Plan. In
addition, with respect to the Fiscal 2008 Plan, Fiscal 2007 Wine Plan, the
Fiscal 2006 Plan and the Vincor Plan, the Company expects to incur inventory
write-downs, accelerated depreciation and other charges of $12.1 million,
$11.5 million and $11.0 million, respectively, for Fiscal 2008.
Operating
Income
The
following table sets forth the
operating income (loss) (in millions of dollars) by operating segment of the
Company for Third Quarter 2008 and Third Quarter 2007.
|
|
Third
Quarter 2008 Compared to
Third Quarter 2007
|
|
|
|
Operating
Income
(Loss)
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Increase
(Decrease)
|
|
Constellation
Wines
|
|
$ |
201.9 |
|
|
$ |
214.3 |
|
|
|
(6)% |
|
Constellation
Spirits
|
|
|
21.4 |
|
|
|
17.1 |
|
|
|
25% |
|
Constellation
Beers
|
|
|
- |
|
|
|
60.2 |
|
|
|
(100)% |
|
Corporate
Operations and
Other
|
|
|
(22.9 |
)
|
|
|
(12.6 |
)
|
|
|
82% |
|
Crown
Imports
|
|
|
123.0 |
|
|
|
- |
|
|
|
N/A |
|
Consolidations
and
eliminations
|
|
|
(123.0 |
)
|
|
|
- |
|
|
|
N/A |
|
Total
Reportable
Segments
|
|
|
200.4 |
|
|
|
279.0 |
|
|
|
(28)% |
|
Acquisition-Related
Integration
Costs,
Restructuring
and Related
Charges
and
Unusual
Costs
|
|
|
(2.1 |
)
|
|
|
(43.2 |
)
|
|
|
(95)% |
|
Consolidated
Operating
Income
|
|
$ |
198.3 |
|
|
$ |
235.8 |
|
|
|
(16)% |
|
As
a result of the factors discussed
above, consolidated operating income decreased to $198.3 million for Third
Quarter 2008 from $235.8 million for Third Quarter 2007, a decrease of $37.5
million, or (16%). Acquisition-related integration costs,
restructuring and related charges and unusual costs of $2.1 million for Third
Quarter 2008 consist of certain costs that are excluded by management in their
evaluation of the results of each operating segment. These costs
represent primarily the flow through of inventory step-up associated primarily
with the Company’s acquisition of Vincor of $2.9 million, accelerated
depreciation associated with the Fiscal 2007 Wine Plan, Fiscal 2006 Plan and
the
Fiscal 2008 Plan of $2.4 million, and acquisition-related integration costs
of
$1.6 million associated primarily with the Vincor Plan, partially offset by
a
$4.8 million realized gain on a prior asset sale. Acquisition-related
integration costs, restructuring and related charges and unusual costs of $43.2
million for Third Quarter 2007 consist of the flow through of inventory step-up
of $17.9 million associated primarily with the Company’s acquisition of Vincor;
other charges of $11.6 million associated primarily with the Fiscal 2007 Wine
Plan included in selling, general and administrative expenses;
acquisition-related integration costs of $9.5 million associated primarily
with
the Vincor Plan; restructuring and related charges of $2.1 million associated
primarily with the Fiscal 2007 Wine Plan; accelerated depreciation of $1.8
million associated primarily with the Fiscal 2007 Wine Plan; the flow through
of
adverse grape cost of $0.6 million associated with the acquisition of Robert
Mondavi; and the write-down of certain inventory of $0.5 million associated
with
the Fiscal 2006 Plan and the Vincor Plan; partially offset by a reduction in
the
loss on the sale of the Company’s branded bottled water business of $0.8
million.
Equity
in Earnings of Equity Method
Investees
The
Company’s equity in earnings of
equity method investees increased to $74.2 million in Third Quarter 2008 from
$10.4 million in Third Quarter 2007. This increase is primarily due
to the January 2, 2007, consummation of the Crown Imports beer joint venture
and
the reporting of the results of operations of that joint venture since that
date
under the equity method of accounting of $61.7 million.
Interest
Expense,
Net
Interest
expense, net of interest
income of $1.7 million and $1.5 million, for Third Quarter 2008 and Third
Quarter 2007, respectively, increased to $82.4 million for Third Quarter 2008
from $73.1 million for Third Quarter 2007, an increase of $9.3 million, or
13%. The increase resulted primarily from higher average borrowings
in Third Quarter 2008 as a result of the funding of the Svedka Acquisition
and
the $500.0 million of share repurchases (see discussion below).
Provision
for Income Taxes
The
Company’s effective tax rate
decreased to 37.1% for Third Quarter 2008 from 37.7% for Third Quarter 2007,
a
decrease of 0.6 percentage points. The decrease in the Company’s
effective tax rate for Third Quarter 2008 is primarily due to reductions in
deferred income tax liabilities as a result of legislative changes in various
state and foreign jurisdictions and the tax effects of foreign earnings,
partially offset by increases to existing tax contingencies and related
interest.
Net
Income
As
a result of the above factors, net
income increased to $119.6
million for Third Quarter 2008 from $107.8 million for Third Quarter
2007, an
increase of $11.8 million, or 11%.
Nine
Months 2008 Compared to Nine
Months 2007
Net
Sales
The
following table sets forth the net
sales (in millions of dollars) by operating segment of the Company for Nine
Months 2008 and Nine Months 2007.
|
|
Nine
Months 2008 Compared to Nine
Months 2007
|
|
|
|
Net
Sales
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Increase
(Decrease)
|
|
Constellation
Wines:
|
|
|
|
|
|
|
|
|
|
Branded
wine
|
|
$ |
2,270.1 |
|
|
$ |
2,049.6 |
|
|
|
11% |
|
Wholesale
and
other
|
|
|
299.4 |
|
|
|
814.4 |
|
|
|
(63)% |
|
Constellation
Wines net
sales
|
|
|
2,569.5 |
|
|
|
2,864.0 |
|
|
|
(10)% |
|
Constellation
Spirits net
sales
|
|
|
319.1 |
|
|
|
256.7 |
|
|
|
24% |
|
Constellation
Beers net
sales
|
|
|
- |
|
|
|
953.5 |
|
|
|
(100)% |
|
Crown
Imports net
sales
|
|
|
1,928.5 |
|
|
|
- |
|
|
|
N/A |
|
Consolidations
and
eliminations
|
|
|
(1,928.5 |
)
|
|
|
- |
|
|
|
N/A |
|
Consolidated
Net
Sales
|
|
$ |
2,888.6 |
|
|
$ |
4,074.2 |
|
|
|
(29)% |
|
Net
sales for Nine Months 2008
decreased to $2,888.6 million from $4,074.2 million for Nine Months 2007, a
decrease of $1,185.6 million, or (29%). This decrease resulted
primarily from a decrease in net sales of $953.5 million and $536.1 million
for
the Crown Imports and Matthew Clark investments, respectively, which are
accounted for under the equity method of accounting, partially offset by net
sales of products acquired in the acquisition of Vincor of $133.7 million and
a
favorable foreign currency impact of $108.3 million.
Constellation
Wines
Net
sales for Constellation Wines
decreased to $2,569.5 million for Nine Months 2008 from $2,864.0 million in
Nine
Months 2007, a decrease of $294.5 million, or (10%). Branded wine net
sales increased $220.5 million primarily due to $126.3 million of net sales
of
branded wine acquired in the acquisition of Vincor and a favorable foreign
currency impact of $85.0 million. Wholesale and other net sales
decreased $515.0 million primarily due to the accounting for the Matthew Clark
investment under the equity method of accounting, partially offset by a
favorable foreign currency impact of $23.3 million.
Constellation
Spirits
Net
sales for Constellation Spirits
increased to $319.1 million for Nine Months 2008 from $256.7 million for Nine
Months 2007, an increase of $62.4 million, or 24%. This increase
resulted primarily from $40.3 million of net sales of branded spirits acquired
in the Svedka Acquisition and an increase in base branded spirits net sales
of
$16.2 million due primarily to higher average selling prices.
Constellation
Beers
Net
sales for Constellation Beers
decreased $953.5 million, or (100%), from Nine Months 2007 as the Crown Imports
investment is accounted for under the equity method of
accounting.
Gross
Profit
The
Company’s gross profit decreased to
$969.8 million for Nine Months 2008 from $1,178.6 million for Nine Months 2007,
a decrease of $208.8 million, or (18%). The Constellation Wines
segment’s gross profit increased $6.3 million primarily due to increased gross
profit of $53.2 million due to the acquisition of Vincor and a favorable foreign
currency impact of $29.6 million, partially offset by a decrease of $55.7
million resulting from the accounting for the Matthew Clark investment under
the
equity method of accounting and lower U.S. base branded wine gross profit
resulting from the lower U.S. base branded wine net sales primarily as a result
of the Company’s program to reduce distributor inventory levels. The
Constellation Spirits segment’s gross profit increased $27.3 million primarily
due to increased gross profit of $19.0 million due to the Svedka Acquisition
and
increased base branded spirits gross profit of $7.5 million resulting from
the
higher average selling prices. The Constellation Beers segment’s
gross profit was down $259.4 million due to the accounting for the Crown Imports
investment under the equity method of accounting. In addition,
unusual items, which consist of certain costs that are excluded by management
in
their evaluation of the results of each operating segment, were lower by $17.0
million in Nine Months 2008 versus Nine Months 2007. This decrease
resulted primarily from decreased flow through of inventory step-up of $16.3
million associated primarily with the acquisition of Vincor. Gross
profit as a percent of net sales increased to 33.6% for Nine Months 2008 from
28.9% for Nine Months 2007 primarily due to the benefit of reporting the lower
margin U.K. wholesale and imported beer businesses under the equity method
of
accounting, partially offset by lower margins in the U.S. base branded wine
business primarily due to the distributor inventory reduction program and lower
margins in the U.K. branded wine business primarily due to the Company’s
absorption of increased duty costs.
Selling,
General and Administrative
Expenses
Selling,
general and administrative
expenses increased to $580.2 million for Nine Months 2008 from $574.8 million
for Nine Months 2007, an increase of $5.4 million, or 1%. This
increase is due to an increase of $67.6 million in the Constellation Wines
segment, an increase of $21.7 million in the Constellation Spirits segment,
and
an increase of $18.5 million in Corporate Operations and Other, partially offset
by a $60.2 million decrease in selling, general and administrative expenses
within the Constellation Beers segment as the Crown Imports investment is
accounted for under the equity method of accounting, and a reduction in unusual
costs which consist of certain items that are excluded by management in their
evaluation of the results of each operating segment of $42.1
million. The increase in the Constellation Wines segment’s selling,
general and administrative expenses is due to increased general and
administrative expenses of $34.6 million, advertising expenses of $18.2 million
and selling expenses of $14.3 million resulting primarily from the acquisition
of Vincor and the recognition of an additional $7.3 million of stock-based
compensation expense. The increase in the Constellation Spirits
segment’s selling, general and administrative expenses is primarily due to
increases in advertising expenses of $11.6 million and selling expenses of
$8.1
million resulting primarily from the Svedka Acquisition. The
Corporate Operations and Other segment’s selling, general and administrative
expenses increased primarily due to increased general and administrative
expenses to support the Company’s growth and the recognition of additional
stock-based compensation expense in Nine Months 2008 of $6.1
million. The decrease in unusual costs was primarily due to the
recognition in Nine Months 2007 of (i) $14.7 million of other charges
associated with the Fiscal 2007 Wine Plan (primarily from the write-down of
an
Australian winery and certain Australian vineyards to fair value less cost
to
sell) and the Fiscal 2006 Plan, (ii) a $13.4 million loss on the sale
of the Company’s branded bottled water business, (iii) financing
costs of $11.8 million related to the Company’s new senior credit facility
entered into in connection with the Vincor acquisition, and
(iv) foreign currency losses of $5.4 million on foreign denominated
intercompany loan balances associated with the Vincor acquisition; partially
offset by the recognition of a $6.6 million loss in Nine Months 2008 in
connection with the contribution of the Company’s U.K. wholesale business to the
Matthew Clark joint venture and a $4.8 million realized gain on a prior asset
sale.
Selling,
general and administrative
expenses as a percent of net sales increased to 20.1% for Nine Months 2008
as
compared to 14.1% for Nine Months 2007 primarily due to (i) the
reporting of the imported beer and U.K. wholesale businesses under the equity
method of accounting, (ii) the percent increase in general and
administrative expenses supporting the Company’s growth within the Corporate
Operations and Other segment and the Constellation Wines segment growing at
a
faster rate than the increase in the respective segment’s net sales (including a
combined increase of $13.3 million of stock-based compensation expense) and
(iii) the lower net sales associated with the reduction in the
distributor wine inventory levels without a corresponding decrease in selling,
general and administrative expenses within the U.S. branded wine business,
partially offset by the lower unusual costs.
Acquisition-Related
Integration
Costs
Acquisition-related
integration costs
decreased to $5.2 million for Nine Months 2008 from $17.6 million for Nine
Months 2007. Acquisition-related integration costs for Nine Months
2008 consisted of costs recorded primarily in connection with the Vincor
Plan. These costs included $0.8 million of employee-related costs and
$4.4 million of facilities and other one-time
costs. Acquisition-related integration costs for Nine Months 2007
consisted of costs recorded in connection with the Vincor Plan and the Company's
plan to restructure and integrate the operations of the Robert Mondavi
Corporation of $16.7 million and $0.9 million, respectively.
For
Fiscal 2008, the Company expects to
incur total acquisition-related integration costs of $14.3 million primarily
in
connection with the Fiscal 2008 Plan and the Vincor Plan.
Restructuring
and Related
Charges
The
Company recorded $0.7 million of
restructuring and related charges for Nine Months 2008 associated primarily
with
the Fiscal 2008 Plan and the Fiscal 2006 Plan of $2.2 million, partially offset
by the reversal of prior accruals related primarily to the Vincor Plan and
the
Fiscal 2006 Plan of $1.5 million. Restructuring and related
charges included $0.9 million of employee termination benefit costs, ($0.4)
million of contract termination costs and $0.2 million of facility
consolidation/relocation costs. In addition, in connection with the
Company’s Fiscal 2007 Wine Plan, the Fiscal 2006 Plan, the Fiscal 2008 Plan and
the Vincor Plan, the Company recorded (i) $6.6 million of accelerated
depreciation and $0.2 million of inventory write-downs and (ii) $1.5
million of other related costs which were recorded in the cost of product sold
line and selling, general and administrative expenses line, respectively, within
the Company’s Consolidated Statements of Income. The Company recorded
$26.1 million of restructuring and related charges for Nine Months 2007
associated primarily with the Fiscal 2007 Wine Plan and Fiscal 2006
Plan.
For
Fiscal 2008, the Company expects to
incur total restructuring and related charges of $19.6 million associated with
the Fiscal 2008 Plan, the Vincor Plan and the Fiscal 2006 Plan. In
addition, with respect to the Fiscal 2008 Plan, Fiscal 2007 Wine Plan, the
Fiscal 2006 Plan and the Vincor Plan, the Company expects to incur inventory
write-downs, accelerated depreciation and other charges of $12.1 million, $11.5
million and $11.0 million, respectively, for Fiscal 2008.
Operating
Income
The
following table sets forth the
operating income (loss) (in millions of dollars) by operating segment of the
Company for Nine Months 2008 and Nine Months 2007.
|
|
Nine
Months 2008 Compared to Nine
Months 2007
|
|
|
|
Operating
Income
(Loss)
|
|
|
|
2008
|
|
|
2007
|
|
|
%
Increase
(Decrease)
|
|
Constellation
Wines
|
|
$ |
413.0 |
|
|
$ |
474.3 |
|
|
|
(13)% |
|
Constellation
Spirits
|
|
|
58.1 |
|
|
|
52.5 |
|
|
|
11% |
|
Constellation
Beers
|
|
|
- |
|
|
|
199.2 |
|
|
|
(100)% |
|
Corporate
Operations and
Other
|
|
|
(63.3 |
)
|
|
|
(44.8 |
)
|
|
|
41% |
|
Crown
Imports
|
|
|
426.6 |
|
|
|
- |
|
|
|
N/A |
|
Consolidations
and
eliminations
|
|
|
(426.6 |
)
|
|
|
- |
|
|
|
N/A |
|
Total
Reportable
Segments
|
|
|
407.8 |
|
|
|
681.2 |
|
|
|
(40)% |
|
Acquisition-Related
Integration
Costs,
Restructuring
and Related
Charges
and
Unusual
Costs
|
|
|
(24.1 |
)
|
|
|
(121.1 |
)
|
|
|
(80)% |
|
Consolidated
Operating
Income
|
|
$ |
383.7 |
|
|
$ |
560.1 |
|
|
|
(31)% |
|
As
a result of the factors discussed
above, consolidated operating income decreased to $383.7 million for Nine Months
2008 from $560.1 million for Nine Months 2007, a decrease of $176.4 million,
or
(31%). Acquisition-related integration costs, restructuring and
related charges and unusual costs of $24.1 million for Nine Months 2008 consist
of certain costs that are excluded by management in their evaluation of the
results of each operating segment. These costs represent the flow
through of inventory step-up associated primarily with the Company’s acquisition
of Vincor of $8.1 million, the loss on the contribution of the U.K. wholesale
business of $6.6 million, accelerated depreciation associated primarily with
the
Fiscal 2007 Wine Plan and Fiscal 2006 Plan of $6.6 million, acquisition-related
integration costs of $5.2 million associated primarily with the Vincor Plan,
other related costs, restructuring and related charges and inventory write-offs
associated with the Fiscal 2006 Plan, Fiscal 2007 Wine Plan, the Fiscal 2008
Plan and the Vincor Plan of $1.4 million, $0.7 million and $0.2 million,
respectively, and the flow through of adverse grape cost of $0.1 million
associated with the acquisition of Robert Mondavi, partially offset by a $4.8
million realized gain on a prior asset sale. Acquisition-related
integration costs, restructuring and related charges and unusual costs of $121.1
million for Nine Months 2007 represent restructuring and related charges of
$26.1 million associated primarily with the Fiscal 2007 Wine Plan and Fiscal
2006 Plan; the flow through of inventory step-up of $24.4 million associated
primarily with the Company’s acquisition of Vincor; acquisition-related
integration costs of $17.6 million associated primarily with the Vincor Plan;
other charges of $14.7 million associated with the Fiscal 2007 Wine Plan and
Fiscal 2006 Plan included within selling, general and administrative expenses;
loss on the sale of the branded bottled water business of $13.4 million;
financing costs of $11.8 million related to the Company’s new senior credit
facility entered into in connection with the Vincor acquisition; foreign
currency losses of $5.4 million on foreign denominated intercompany loan
balances associated with the Vincor acquisition; the flow through of adverse
grape cost of $3.0 million associated with the acquisition of Robert Mondavi;
and accelerated depreciation and the write-down of certain inventory of
$4.2 million and $0.5 million, respectively, associated primarily with the
Fiscal 2006 Plan and Fiscal 2007 Wine Plan.
Equity
in Earnings of Equity Method
Investees
The
Company’s equity in earnings of
equity method investees increased to $230.1 million in Nine Months 2008 from
$10.7 million in Nine Months 2007. This increase is primarily due to
the January 2, 2007, consummation of the Crown Imports beer joint venture and
the reporting of the results of operations of that joint venture since that
date
under the equity method of accounting of $213.9 million.
Gain
on Change in Fair Value of
Derivative Instrument
In
April 2006, the Company entered into
a foreign currency forward contract in connection with the acquisition of Vincor
to fix the U.S. dollar cost of the acquisition and the payment of certain
outstanding indebtedness. For Nine Months 2007, the Company recorded
a gain of $55.1 million in connection with this derivative
instrument. Under Statement of Financial Accounting Standards No.
133, “Accounting for Derivative Instruments and Hedging Activities,” as amended,
a transaction that involves a business combination is not eligible for hedge
accounting treatment. As such, the gain was recognized separately on
the Company’s Consolidated Statements of Income.
Interest
Expense,
Net
Interest
expense, net of interest
income of $3.1 million and $4.0 million, for Nine Months 2008 and Nine Months
2007, respectively, increased to $248.8 million for Nine Months 2008 from $194.3
million for Nine Months 2007, an increase of $54.5 million, or
28%. The increase resulted primarily from higher average borrowings
in Nine Months 2008 as a result of the funding of the acquisition of Vincor
and
the Svedka Acquisition, and the $500.0 million of share
repurchases.
Provision for Income Taxes
The
Company’s effective tax rate
decreased slightly to 39.3% for Nine Months 2008 from 39.4% for Nine Months
2007. The slight decrease in the Company’s effective tax rate for
Nine Months 2008 is primarily due to reductions in deferred income tax
liabilities as a result of legislative changes in various state and foreign
jurisdictions offset by the recognition of a nondeductible pretax loss in
connection with the Company’s contribution of its U.K. wholesale business and
increases to existing tax contingencies and related interest.
Net Income
As
a result of the above factors, net
income decreased to $221.5
million for Nine Months 2008 from $261.7 million for Nine Months
2007, a
decrease of $40.2 million, or (15%).
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 United States, the annual grape crush normally
begins in August and runs through October. In Australia, the annual
grape crush normally begins in February and runs through May. The
Company generally begins taking delivery of grapes at the beginning of the
crush
season with payments for such grapes beginning to come due one month
later. The Company’s short-term borrowings to support such purchases
generally reach their highest levels one to two months after the crush season
has ended. Historically, the Company has used cash flow from
operating activities to repay its short-term borrowings and fund capital
expenditures. The Company will continue to use its short-term
borrowings to support its working capital requirements. The Company
believes that cash provided by 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.
Nine
Months 2008 Cash
Flows
Operating
Activities
Net
cash provided by operating
activities for Nine Months 2008 was $252.3 million, which resulted
primarily from $221.5
million of net income, plus $183.9 million of net non-cash
items charged to the Consolidated Statement of Income, $48.7 million increase in
accounts
payable and $46.9 million
increase in accrued excise taxes, partially offset by increases of $200.2 million and $58.5 million
in accounts receivable and inventories, respectively, and $55.5 million of other
items.
The
net non-cash items consisted
primarily of depreciation of property, plant and equipment, deferred tax
provision and stock-based compensation expense. The increase in
accounts payable and inventories is primarily due to seasonality in connection
with the completion of the U.S. annual grape harvest. The increase
in accrued excise taxes is primarily due to the timing of the excise tax
payment associated with a seasonal increase in U.K. net sales as net sales
are significantly higher in November as compared to February. The increase in accounts
receivable is primarily due to seasonality as January and February are typically
the Company’s lowest selling months. The other items consist
primarily of $52.5 million
of non-cash gains on foreign currency denominated intercompany balances,
which
are offset in the income statement by losses on derivative instruments designed
to economically hedge such foreign currency risks.
Investing
Activities
Net
cash used in investing activities
for Nine Months 2008 was $277.4 million, which resulted primarily from the
use
of $385.4 million for the Svedka Acquisition, net of cash acquired, and $79.5 million of capital
expenditures, partially offset by $185.6 million of net proceeds from the
formation of the U.K. wholesale joint venture.
Financing
Activities
Net
cash provided by financing
activities for Nine Months 2008 was $15.9 million resulting primarily
from proceeds from issuance of long-term debt of $716.1 million, partially offset
by purchases of treasury stock of $500.0 million and principal payments of
long-term debt of $168.6
million.
Share
Repurchases
During
February 2006, the Company’s
Board of Directors replenished a June 1998 Board of Directors authorization
to
repurchase up to $100.0 million of the Company’s Class A Common Stock and Class
B Common Stock. During Nine Months 2007, the Company repurchased
3,894,978 shares of Class A Common Stock at an aggregate cost of $100.0 million,
or at an average cost of $25.67 per share. The Company used revolver
borrowings under the June 2006 Credit Agreement to pay the purchase price for
these shares. During February 2007, 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 Common Stock. During Nine Months 2008, the
Company repurchased 21,332,468 shares of Class A Common Stock pursuant to this
authorization at an aggregate cost of $500.0 million, or an average cost of
$23.44 per share, through a combination of open market transactions and an
accelerated share repurchase (“ASR”) transaction that was announced in May
2007. The repurchased shares include 933,206 shares of Class A Common
Stock that were received by the Company in July 2007 in connection with the
early termination of the calculation period for the ASR transaction by the
counterparty to the ASR transaction. The Company used revolver
borrowings under the 2006 Credit Agreement to pay the purchase price for the
repurchased shares. The repurchased shares have become treasury
shares.
Debt
Total
debt outstanding as of November
30, 2007, amounted to $4,703.8 million, an increase
of
$518.3 million from
February 28, 2007. The ratio of total debt to total capitalization
increased to 57.2% as of
November 30, 2007, from 55.1% as of February 28, 2007.
Senior
Credit
Facility
2006
Credit Agreement
In
connection with the acquisition of
Vincor, on June 5, 2006, 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 entered into a new credit
agreement (the “June 2006 Credit Agreement”). On February 23, 2007,
and on November 19, 2007, the June 2006 Credit Agreement was amended
(collectively, the “2007 Amendments”). The June 2006 Credit Agreement
together with the 2007 Amendments is referred to as the “2006 Credit
Agreement”. The 2006 Credit Agreement provides for aggregate credit
facilities of $3.9 billion, consisting of a $1.2 billion tranche A term loan
facility due in June 2011, a $1.8 billion tranche B term loan facility due
in
June 2013, and a $900 million revolving credit facility (including a
sub-facility for letters of credit of up to $200 million) which terminates
in
June 2011. Proceeds of the June 2006 Credit Agreement were used to
pay off the Company’s obligations under its prior senior credit facility, to
fund the acquisition of Vincor and to repay certain indebtedness of
Vincor. The Company uses its revolving credit facility under the 2006
Credit Agreement for general corporate purposes, including working capital,
on
an as needed basis.
As
of November 30, 2007, the required
principal repayments of the tranche A term loan and the tranche B term loan
for
the remaining three months of fiscal 2008 and for each of the five succeeding
fiscal years are as follows:
|
|
Tranche
A
Term
Loan
|
|
|
Tranche
B
Term
Loan
|
|
|
Total
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
2008
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
2009
|
|
|
210.0 |
|
|
|
2.0 |
|
|
|
212.0 |
|
2010
|
|
|
270.0 |
|
|
|
4.0 |
|
|
|
274.0 |
|
2011
|
|
|
300.0 |
|
|
|
4.0 |
|
|
|
304.0 |
|
2012
|
|
|
150.0 |
|
|
|
4.0 |
|
|
|
154.0 |
|
2013
|
|
|
- |
|
|
|
1,426.0 |
|
|
|
1,426.0 |
|
|
|
$ |
930.0 |
|
|
$ |
1,440.0 |
|
|
$ |
2,370.0 |
|
The
rate of interest on borrowings
under the 2006 Credit Agreement is a function of LIBOR plus a margin, the
federal funds rate plus a margin, or the prime rate plus a
margin. The margin is fixed with respect to the tranche B term loan
facility and is adjustable based upon the Company’s debt ratio (as defined in
the 2006 Credit Agreement) with respect to the tranche A term loan facility
and
the revolving credit facility. As of November 30, 2007, the LIBOR
margin for the revolving credit facility and the tranche A term loan facility
is
1.25%, while the LIBOR margin on the tranche B term loan facility is
1.50%.
The
February 23, 2007, amendment
amended the June 2006 Credit Agreement to, among other things,
(i) increase the revolving credit facility from $500.0 million to
$900.0 million, which increased the aggregate credit facilities from $3.5
billion to $3.9 billion; (ii) increase the aggregate amount of cash
payments the Company is permitted to make in respect or on account of its
capital stock; (iii) remove certain limitations on the incurrence of
senior unsecured indebtedness and the application of proceeds thereof;
(iv) increase the maximum permitted total “Debt Ratio” and decrease
the required minimum “Interest Coverage Ratio”; and (v) eliminate the
“Senior Debt Ratio” covenant and the “Fixed Charges Ratio”
covenant. The November 19, 2007, amendment clarified certain
provisions governing the incurrence of senior unsecured indebtedness and the
application of proceeds thereof under the June 2006 Credit Agreement, as
previously amended.
The
Company’s obligations are
guaranteed by certain of its U.S. subsidiaries. These obligations are
also secured by a pledge of (i) 100% of the ownership interests in
certain of the Company’s U.S. subsidiaries and (ii) 65% of the voting
capital stock of certain of the Company’s foreign subsidiaries.
The
Company and its subsidiaries are
also subject to covenants that are contained in the 2006 Credit Agreement,
including those restricting the incurrence of additional indebtedness (including
guarantees of indebtedness), additional liens, mergers and consolidations,
disposition or acquisition of property, the payment of dividends, transactions
with affiliates and the making of certain investments, in each case subject
to
numerous conditions, exceptions and thresholds. The financial
covenants are limited to maximum total debt coverage
ratios and minimum interest coverage ratios.
As
of November 30, 2007, under the 2006
Credit Agreement, the Company had outstanding tranche A term loans of $930.0
million bearing an interest rate of 6.4%, tranche B term loans of $1,440.0
million bearing an interest rate of 6.6%, revolving loans of $16.5 million
bearing an interest rate of 5.3%, outstanding letters of credit of $35.2
million, and $848.3 million in revolving loans available to be
drawn.
As
of December 31, 2007, under the 2006
Credit Agreement, the Company had outstanding tranche A term loans of $930.0
million bearing an interest rate of 6.5%, tranche B term loans of $1,440.0
million bearing an interest rate of 6.6%, revolving loans of $358.0 million
bearing an interest rate of 6.2%, outstanding letters of credit of $35.4
million, and $506.6 million in revolving loans available to be
drawn. As of December 31, 2007, the increase in the outstanding
revolving loan balance since November 30, 2007, is due primarily to the
additional borrowings under the senior credit facility to finance a portion
of
the BWE purchase price.
As
of November 30, 2007, the Company
had outstanding interest rate swap agreements which fixed LIBOR interest rates
on $1.2 billion of the Company’s floating LIBOR rate debt at an average rate of
4.1% through fiscal 2010. For Nine Months 2008 and Nine Months 2007,
the Company reclassified $5.8 million, net of tax effect of $3.8 million, and
$4.1 million, net of tax effect of $2.7 million, respectively, from AOCI to
the
interest expense, net line in the Company’s Consolidated Statements of
Income. For Third Quarter 2008 and Third Quarter 2007, the Company
reclassified $2.2 million, net of tax effect of $1.4 million, and $1.8 million,
net of tax effect of $1.2 million, respectively, from AOCI to the interest
expense, net line in the Company’s Consolidated Statements of
Income. This non-cash operating activity is included on the other,
net line in the Company’s Consolidated Statements of Cash Flows.
Senior
Notes
As
of November 30, 2007, the Company
had outstanding £1.0 million ($2.1 million) aggregate principal amount of 8 1/2%
Series B Senior Notes due November 2009 (the “Sterling Series B Senior
Notes”). In addition, as of November 30, 2007, the Company had
outstanding £154.0 million ($316.7 million, net of $0.2 million unamortized
discount) aggregate principal amount of 8 1/2% Series C Senior Notes due
November 2009 (the “Sterling Series C Senior Notes”). The Sterling
Series B Senior Notes and Sterling Series C Senior Notes are currently
redeemable, in whole or in part, at the option of the Company.
In
addition, as of November 30, 2007,
the Company had outstanding $200.0 million aggregate principal amount of 8%
Senior Notes due February 2008 (the “February 2001 Senior
Notes”). The February 2001 Senior Notes are currently redeemable, in
whole or in part, at the option of the Company.
Also,
as of November 30, 2007, the
Company had outstanding $693.8 million (net of $6.2 million
unamortized discount) aggregate
principal amount of 7 1/4% Senior Notes due September 2016 (the “August
2006 Senior Notes”). The August 2006 Senior Notes are redeemable, in
whole or in part, at the option of the Company at any time at a redemption
price
equal to 100% of the outstanding principal amount and a make whole payment
based
on the present value of the future payments at the applicable Treasury Rate
plus
50 basis points.
On
May 14, 2007, the Company
issued $700.0 million aggregate principal amount of 7 1/4% Senior Notes due
May
2017 (the “May 2007 Senior Notes”). The net proceeds of the offering
($693.9 million) were used to reduce a corresponding amount of borrowings
under
the revolving portion of the Company’s 2006 Credit
Agreement. Interest on the May 2007 Senior Notes is payable
semiannually on May 15 and November 15 of each year, beginning November 15,
2007. The May 2007 Senior Notes are redeemable, in whole or in part,
at the option of the Company at any time at a redemption price equal to 100%
of
the outstanding principal amount, plus accrued and unpaid interest to the
redemption date, plus a make whole payment based on the present value of
the
future payments at the applicable Treasury Rate plus 50 basis
points. The May 2007 Senior Notes are senior unsecured obligations
and rank equally in right of payment to all existing and future senior unsecured
indebtedness of the Company. Certain of the Company’s significant
U.S. operating subsidiaries guarantee the May 2007 Senior Notes, on a senior
unsecured basis. As of November 30, 2007, the Company had outstanding
$700.0 million aggregate principal amount of May 2007 Senior
Notes. In December 2007, the Company initiated an offer
to holders of its May 2007 Senior Notes to exchange such
notes with new senior notes that have terms that are substantially
identical in all material respects to the May 2007 Senior Notes, except that
the
new senior notes will be registered under the Securities Act of 1933, as
amended. The offer to exchange is currently set to expire on January
10, 2008.
On
December 5, 2007, the Company issued
$500.0 million aggregate principal amount of 8 3/8% Senior Notes due December
2014 at an issuance price of $496.7 million (net of $3.3 million unamortized
discount, with an effective interest rate of 8.5%) (the “December 2007 Senior
Notes”). The net proceeds of the offering ($493.0 million) were used
to fund a portion of the purchase price of BWE. Interest on the December
2007 Senior Notes is payable semiannually on June 15 and December 15 of each
year, beginning June 15, 2008. The December 2007 Senior Notes are
redeemable, in whole or in part, at the option of the Company at any time at
a
redemption price equal to 100% of the outstanding principal amount, plus a
make
whole payment based on the present value of the remaining scheduled payments
of
principal and interest on the notes at a discount rate equal to the Treasury
Rate plus 50 basis points. The December 2007 Senior Notes are senior
unsecured obligations and rank equally in right of payment to all existing
and future senior unsecured indebtedness of the Company. Certain
of the Company’s significant operating subsidiaries guarantee the December 2007
Senior Notes, on a senior unsecured basis.
Senior
Subordinated Notes
As
of November 30, 2007, the Company
had outstanding $250.0 million aggregate principal amount of 8 1/8% Senior
Subordinated Notes due January 2012 (the “January 2002 Senior Subordinated
Notes”). The January 2002 Senior Subordinated Notes are currently
redeemable, in whole or in part, at the option of the Company.
Subsidiary
Credit
Facilities
The
Company has additional credit
arrangements totaling $464.4 million as of November 30, 2007. These
arrangements primarily support the financing needs of the Company’s domestic and
foreign subsidiary operations. Interest rates and other terms of
these borrowings vary from country to country, depending on local market
conditions. As of November 30, 2007, amounts outstanding under these
arrangements were $155.1 million.
Accounting
Pronouncements Not Yet Adopted
In
September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair
Value Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value under generally accepted accounting
principles, and expands disclosures about fair value
measurements. SFAS No. 157 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 the asset or liability. The Company
is required to adopt SFAS No. 157 for fiscal years and interim periods beginning
March 1, 2008. The Company is currently assessing the financial
impact of SFAS No. 157 on its consolidated financial statements.
In
September 2006, the FASB issued
Statement of Financial Accounting Standards No. 158 (“SFAS No. 158”),
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87, 88, 106, and
132(R).” SFAS No. 158 requires companies to recognize the overfunded
or underfunded status of a defined benefit postretirement plan (other than
a
multiemployer plan) as an asset or liability in its balance sheet and to
recognize changes in that funded status in the year in which the changes occur
through comprehensive income. The Company adopted this provision of
SFAS No. 158 and provided the required disclosures as of February 28,
2007. SFAS No. 158 also requires companies to measure the funded
status of a plan as of the date of the company’s fiscal year-end (with limited
exceptions), which provision the Company is required to adopt as of February
28,
2009. The Company does not expect the adoption of the remaining
provision of SFAS No. 158 to have a material impact on its consolidated
financial statements.
In
February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159 (“SFAS
No. 159”), “The Fair Value Option
for Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115.” SFAS
No. 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. Most of the provisions in SFAS No. 159 are
elective; however, the amendment to Statement of Financial Accounting Standards
No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”,applies
to all entities with
available-for-sale and trading securities. The fair value option established
by
SFAS No. 159 allows companies to choose to measure eligible items at fair value
at specified election dates. The Company will report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each
subsequent reporting date. The fair value option: (i) may
be applied instrument by instrument,
with a few exceptions, such as investments otherwise accounted for by the equity
method; (ii) is
irrevocable (unless a new election
date occurs); and (iii)
is applied only to entire instruments
and not to portions of instruments. The Company is required to adopt
SFAS No. 159 for fiscal years beginning March 1, 2009. The Company does not
expect the adoption of SFAS No. 159 to have a material
impact on its
consolidated financial
statements.
In
December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141 (revised 2007) (“SFAS No.
141(R)”), “Business Combinations.” SFAS No. 141(R), among other
things, establishes principles and requirements for how the acquirer in a
business combination (i) recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired business, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The Company is required to adopt
SFAS No. 141(R) for all business combinations for which the acquisition date
is
on or after March 1, 2009. Earlier adoption is
prohibited.
In
December 2007, the FASB issued
Statement of Financial Accounting Standards No. 160 (“SFAS No. 160”),
“Noncontrolling Interests in Consolidated Financial Statements – An Amendment of
ARB No. 51.” SFAS No. 160 amends Accounting Research Bulletin No. 51
(“ARB No. 51”), “Consolidated Financial Statements,” to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for
the
deconsolidation of a subsidiary. This statement also amends certain
of ARB No. 51’s consolidation procedures for consistency with the requirements
of SFAS No. 141(R). In addition, SFAS No. 160 also includes expanded
disclosure requirements regarding the interests of the parent and its
noncontrolling interest. The Company is required to adopt SFAS No.
160 for fiscal years beginning March 1, 2009. Earlier adoption
is prohibited. The Company is currently assessing the
financial impact of SFAS No. 160 on its consolidated financial
statements.
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, that
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 facts included in this Quarterly Report on Form
10-Q, including without limitation statements under Part I - Item 2
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” regarding (i) the Company’s business strategy, future financial
position, prospects, plans and objectives of management, (ii) the expected
impact upon the Company’s net sales and diluted earnings per share resulting
from the decision to reduce distributor inventory wine levels in the U.S.,
(iii)
the Company’s expected restructuring and related charges, inventory write-downs,
accelerated depreciation, acquisition-related integration costs, and other
related charges, and (iv) information regarding expected actions of third
parties 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, the
forward-looking statements of the Company contained in this Quarterly Report
on
Form 10-Q are also subject to the risk and uncertainty that (i) the
impact upon net sales and diluted earnings per share resulting from the decision
to reduce distributor wine inventory levels will vary from current expectations
due to the actual levels of distributor wine inventory level reductions and
(ii)
the Company’s restructuring and related charges, inventory
write-downs, accelerated depreciation, acquisition-related integration
costs, and other related charges may exceed current expectations due to, among
other reasons, variations in anticipated headcount reductions, inventory to
be written down, or contract terminations or greater than anticipated
implementation costs. 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, 2007.
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 exchange 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 forward contracts are
or may be used to hedge existing foreign currency denominated assets and
liabilities, forecasted foreign currency denominated sales both to third parties
as well as intercompany sales, intercompany principal and interest payments,
and
in connection with acquisitions or joint venture investments outside the
U.S. As of November 30, 2007, the Company had exposures to foreign
currency risk primarily related to the Australian dollar, euro, New Zealand
dollar, British pound sterling, Canadian dollar and Mexican peso.
As
of November 30, 2007, and November
30, 2006, the Company had outstanding foreign exchange derivative instruments
with a notional value of $2,474.4 million and $2,302.1 million, respectively. Approximately
98.5% of the Company’s total exposures were hedged as of November 30,
2007. Using a sensitivity analysis based on estimated fair value of
open contracts using forward rates, if the contract base currency had been
10%
weaker as of November 30, 2007, and November 30, 2006, the fair value of open
foreign exchange contracts would have been decreased by $171.3 million and
$177.3 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 $2,147.9 million and $1,564.2 million
as
of November 30, 2007, and November 30, 2006, respectively. A
hypothetical 1% increase from prevailing interest rates as of November 30,
2007,
and November 30, 2006, would have resulted in a decrease in fair value of fixed
interest rate long-term debt by $98.2 million and $72.2 million,
respectively.
As
of November 30, 2007,
and November 30, 2006,
the Company had outstanding interest
rate swap agreements to minimize interest rate volatility. The swap
agreements fix LIBOR interest rates on $1,200.0 million of the Company’s
floating LIBOR rate debt at an average
rate of 4.1% through fiscal
2010. A
hypothetical 1% increase from
prevailing interest rates as of November 30, 2007, and November 30, 2006,
would have increased the fair value of the interest rate swaps by $29.0 million
and $39.3 million, respectively.
In
addition to the $2,147.9
million and $1,564.2 million estimated fair value of fixed rate debt outstanding
as of November 30, 2007,
and November 30, 2006,
respectively, the Company also had
variable rate debt outstanding (primarily LIBOR based) as of November 30,
2007, and November 30, 2006, of $2,471.7 million and $2,842.3 million,
respectively. Using a sensitivity analysis based on a hypothetical 1%
increase in prevailing interest rates over a 12-month period, the
approximate increase in cash required for interest as of November 30, 2007,
and
November 30, 2006, is $24.7 million and $28.4 million,
respectively.
Item
4. Controls
and
Procedures
Disclosure
Controls and
Procedures
The
Company’s Chief Executive Officer
and its Chief Financial Officer have concluded, based on their evaluation as
of
the end of the period covered by this report, that the Company’s “disclosure
controls and procedures” (as defined in the Securities Exchange Act of 1934
Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required
to be disclosed in the reports that the Company files or submits under the
Securities Exchange Act of 1934 (i) is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and (ii) is accumulated and communicated to the
Company’s management, including its Chief Executive Officer and its Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Internal
Control Over
Financial Reporting
In
connection with the foregoing
evaluation by the Company’s Chief Executive Officer and its Chief Financial
Officer, no changes were identified in the Company’s “internal control over
financial reporting” (as defined in the Securities Exchange Act of 1934 Rules
13a-15(f) and 15d-15(f)) that occurred during the Company’s fiscal quarter ended
November 30, 2007 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
PART
II - OTHER
INFORMATION
Item
1. Legal
Proceedings
Western
Wines Limited (“Western Wines”),
an entity that the Company acquired in June 2006 as part of its acquisition
of
Vincor International Inc., is a party to a proceeding in the Crown Court in
the
United Kingdom based on claims made by the Environment Agency in the United
Kingdom that Western Wines failed to comply with certain U.K. recovery and
recycling regulations in each of the three years 2003, 2004 and 2005
inclusive. The Environment Agency has asserted that if Western Wines
had complied with its obligations it would have paid the Environment Agency
assessments totaling £187,545 with respect to the three year
period. The Environment Agency initiated the proceeding in
Magistrates’ Court in Telford through
the issuance of a Summons dated
August 21, 2007 and served upon Western Wines on or after September 21,
2007. Following a hearing on October 22, 2007, the proceeding was
referred by the Magistrates’ Court to the Crown Court, which is scheduled to
hear the matter on January 22, 2008. Western Wines is not disputing
that the violation occurred or its responsibility for the
violation. The Company does not expect the amount that Western Wines
will be obligated to pay to be material to the Company and has made an
appropriate reservation on its books with respect to its anticipated
obligations.
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 62
of
this report. The Index to Exhibits
is incorporated herein by reference.
SIGNATURES
Pursuant
to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
CONSTELLATION
BRANDS,
INC.
|
|
|
|
Dated: January
9,
2008
|
By:
|
/s/
Thomas F.
Howe
|
|
|
Thomas
F. Howe, Senior Vice
President, Controller
|
|
|
|
Dated: January
9,
2008
|
By:
|
/s/
Robert
Ryder
|
|
|
Robert
Ryder, Executive Vice
President and Chief Financial Officer (principal financial officer
and
principal accounting
officer)
|
INDEX
TO EXHIBITS
|
Exhibit
No.
|
|
2.1
|
|
Agreement
and Plan of Merger,
dated as of November 3, 2004, by and among Constellation Brands,
Inc., a
Delaware corporation, RMD Acquisition Corp., a California corporation
and
a wholly-owned subsidiary of Constellation Brands, Inc., and The
Robert
Mondavi Corporation, a California corporation (filed as Exhibit 2.6
to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2004 and incorporated herein by
reference).
|
2.2
|
|
Support
Agreement, dated as of
November 3, 2004, by and among Constellation Brands, Inc., a Delaware
corporation and certain shareholders of The Robert Mondavi Corporation
(filed as Exhibit 2.7 to the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2004 and incorporated herein
by
reference).
|
2.3
|
|
Arrangement
Agreement dated April
2, 2006 by and among Constellation Brands, Inc., Constellation Canada
Holdings Limited, and Vincor International Inc. (filed as Exhibit
99.1 to
the Company’s Current Report on Form 8-K dated April 2, 2006 and
incorporated herein by reference).
|
2.4
|
|
Amending
Agreement, dated as of April 21, 2006 by and among Constellation
Brands,
Inc., Constellation Canada Holdings Limited, and Vincor International
Inc.
(filed as Exhibit 2.4 to
the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May
31, 2006 and incorporated herein by reference).
|
2.5
|
|
Agreement
to Establish Joint Venture, dated July 17, 2006, between Barton
Beers, Ltd. and Diblo, S.A. de C.V. (filed as Exhibit 2.1 to the
Company’s
Current Report on Form 8-K dated July 17, 2006, filed July 18, 2006
and
incorporated herein by reference). +
|
2.6
|
|
Amendment
No. 1, dated as of January 2, 2007 to the Agreement to Establish
Joint
Venture, dated July 17, 2006, between Barton Beers, Ltd.
and Diblo, S.A. de C.V. (filed as Exhibit 2.1 to the Company’s
Current Report on Form 8-K dated January 2, 2007, filed January 3,
2007
and incorporated herein by reference). +
|
2.7
|
|
Barton
Contribution Agreement, dated July 17, 2006, among Barton Beers,
Ltd.,
Diblo, S.A. de C.V. and Company (a Delaware limited liability company
to
be formed) (filed as Exhibit 2.2 to the Company’s Current Report on Form
8-K dated July 17, 2006, filed July 18, 2006 and incorporated herein
by
reference).+
|
2.8
|
|
Stock
Purchase Agreement dated as of November 9, 2007 by and between Beam
Global
Spirits & Wine, Inc. and Constellation Brands, Inc. (filed as Exhibit
2.1 to the Company’s Current Report on Form 8-K dated November 13, 2007,
filed November 14, 2007 and incorporated herein by
reference).
|
2.9
|
|
Assignment
and Assumption Agreement made as of November 29, 2007 between
Constellation Brands, Inc. and Constellation Wines U.S., Inc. relating
to
that certain Stock Purchase Agreement dated as of November 9, 2007
by and
between Beam Global Spirits & Wine, Inc. and Constellation Brands,
Inc. (filed herewith).
|
3.1
|
|
Restated
Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the
Company’s Current Report on Form 8-K dated December 6, 2007, filed
December 12, 2007 and incorporated herein by reference).
|
3.2
|
|
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,
dated as of February
25, 1999, among the Company, as issuer, certain principal subsidiaries,
as
Guarantors, and BNY Midwest Trust Company (successor Trustee to Harris
Trust and Savings Bank), as Trustee (filed as Exhibit 99.1 to the
Company’s Current Report on Form 8-K dated February 25, 1999 and
incorporated herein by reference). #
|
4.2
|
|
Supplemental
Indenture No. 3,
dated as of August 6, 1999, by and among the Company, Canandaigua
B.V.,
Barton Canada, Ltd., Simi Winery, Inc., Franciscan Vineyards, Inc.,
Allberry, Inc., M.J. Lewis Corp., Cloud Peak Corporation, Mt. Veeder
Corporation, SCV-EPI Vineyards, Inc., and BNY Midwest Trust Company
(successor Trustee to Harris Trust and Savings Bank), as Trustee
(filed as
Exhibit 4.20 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1999 and incorporated herein by reference).
#
|
4.3
|
|
Supplemental
Indenture No. 4, with
respect to 8 1/2% Senior Notes due 2009, dated as of May 15, 2000,
by and
among the Company, as Issuer, certain principal subsidiaries, as
Guarantors, and BNY Midwest Trust Company (successor Trustee to Harris
Trust and Savings Bank), as Trustee (filed as Exhibit 4.17 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February
29, 2000 and incorporated herein by reference). #
|
4.4
|
|
Supplemental
Indenture No. 5,
dated as of September 14, 2000, by and among the Company, as Issuer,
certain principal subsidiaries, as Guarantors, and BNY Midwest Trust
Company (successor Trustee to The Bank of New York), as Trustee (filed
as
Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2000 and incorporated herein by reference).
#
|
4.5
|
|
Supplemental
Indenture No. 6,
dated as of August 21, 2001, among the Company, Ravenswood Winery,
Inc.
and BNY Midwest Trust Company (successor trustee to Harris Trust
and
Savings Bank and The Bank of New York, as applicable), as Trustee
(filed
as Exhibit 4.6 to the Company’s Registration Statement on Form S-3
(Pre-effective Amendment No. 1) (Registration No. 333-63480) and
incorporated herein by
reference).
|
4.6
|
|
Supplemental
Indenture No. 7,
dated as of January 23, 2002, by and among the Company, as Issuer,
certain
principal 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 January 17, 2002 and incorporated herein by reference).
#
|
4.7
|
|
Supplemental
Indenture No. 9,
dated as of July 8, 2004, by and among the Company, BRL Hardy Investments
(USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners LLC, Nobilo
Holdings, and BNY Midwest Trust Company, as Trustee (filed as Exhibit
4.10
to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2004 and incorporated herein by
reference).
|
4.8
|
|
Supplemental
Indenture No. 10,
dated as of September 13, 2004, by and among the Company, Constellation
Trading, Inc., and BNY Midwest Trust Company, as Trustee (filed as
Exhibit
4.11 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2004 and incorporated herein by
reference).
|
4.9
|
|
Supplemental
Indenture No. 11, dated as of December 22, 2004, by and among the
Company,
The Robert Mondavi Corporation, R.M.E. Inc., Robert Mondavi Winery,
Robert
Mondavi Investments, Robert Mondavi Affiliates d/b/a Vichon Winery
and
Robert Mondavi Properties, Inc., and BNY Midwest Trust Company, as
Trustee
(filed as Exhibit 4.12 to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2004 and incorporated herein by
reference).
|
4.10
|
|
Supplemental
Indenture No. 12, dated as of August 11, 2006, by and among the Company,
Constellation Leasing, LLC, and BNY Midwest Trust Company, as Trustee
(filed as Exhibit 4.12 to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 2006 and incorporated herein by reference).
|
4.11
|
|
Supplemental
Indenture No. 13, 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 4.11 to
the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended November
30,
2006 and incorporated herein by reference).
|
4.12
|
|
Supplemental
Indenture No. 15, 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 4.12 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31,
2007
and incorporated herein by reference).
|
4.13
|
|
Indenture,
with respect to 8 1/2%
Senior Notes due 2009, dated as of November 17, 1999, among the Company,
as Issuer, certain principal subsidiaries, as Guarantors, and BNY
Midwest
Trust Company (successor to Harris Trust and Savings Bank), as Trustee
(filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-4
(Registration No. 333-94369) and incorporated herein by
reference).
|
4.14
|
|
Supplemental
Indenture No. 1,
dated as of August 21, 2001, among the Company, Ravenswood Winery,
Inc.
and BNY Midwest Trust Company (successor to Harris Trust and Savings
Bank), as Trustee (filed as Exhibit 4.4 to the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 2001 and incorporated
herein by reference). #
|
4.15
|
|
Supplemental
Indenture No. 3,
dated as of July 8, 2004, by and among the Company, BRL Hardy Investments
(USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners LLC, Nobilo
Holdings, and BNY Midwest Trust Company, as Trustee (filed as Exhibit
4.15
to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2004 and incorporated herein by
reference).
|
4.16
|
|
Supplemental
Indenture No. 4,
dated as of September 13, 2004, by and among the Company, Constellation
Trading, Inc., and BNY Midwest Trust Company, as Trustee (filed as
Exhibit
4.16 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2004 and incorporated herein by
reference).
|
4.17
|
|
Supplemental
Indenture No. 5, dated as of December 22, 2004, by and among the
Company,
The Robert Mondavi Corporation, R.M.E. Inc., Robert Mondavi Winery,
Robert
Mondavi Investments, Robert Mondavi Affiliates d/b/a Vichon Winery
and
Robert Mondavi Properties, Inc., and BNY Midwest Trust Company, as
Trustee
(filed as Exhibit 4.18 to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2004 and incorporated herein by
reference).
|
4.18
|
|
Supplemental
Indenture No. 6, dated as of August 11, 2006, by and among the Company,
Constellation Leasing, LLC, and BNY Midwest Trust Company, as Trustee
(filed as Exhibit 4.19 to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 2006 and incorporated herein by reference).
|
4.19
|
|
Supplemental
Indenture No. 7, 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 4.18 to
the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended November
30,
2006 and incorporated herein by reference).
|
4.20
|
|
Supplemental
Indenture No. 9, 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 4.20 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31,
2007
and incorporated herein by
reference).
|
4.21
|
|
Indenture,
with respect to 8%
Senior Notes due 2008, dated as of February 21, 2001, by and among
the
Company, as Issuer, certain principal subsidiaries, as Guarantors
and BNY
Midwest Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s
Registration Statement filed on Form S-4 (Registration No. 333-60720)
and
incorporated herein by reference).
|
4.22
|
|
Supplemental
Indenture No. 1,
dated as of August 21, 2001, among the Company, Ravenswood Winery,
Inc.
and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.7 to
the
Company’s Pre-effective Amendment No. 1 to its Registration Statement on
Form S-3 (Registration No. 333-63480) and incorporated herein by
reference).
|
4.23
|
|
Supplemental
Indenture No. 3,
dated as of July 8, 2004, by and among the Company, BRL Hardy Investments
(USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners LLC, Nobilo
Holdings, and BNY Midwest Trust Company, as Trustee (filed as Exhibit
4.20
to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2004 and incorporated herein by
reference).
|
4.24
|
|
Supplemental
Indenture No. 4,
dated as of September 13, 2004, by and among the Company, Constellation
Trading, Inc., and BNY Midwest Trust Company, as Trustee (filed as
Exhibit
4.21 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2004 and incorporated herein by
reference).
|
4.25
|
|
Supplemental
Indenture No. 5, dated as of December 22, 2004, by and among the
Company,
The Robert Mondavi Corporation, R.M.E. Inc., Robert Mondavi Winery,
Robert
Mondavi Investments, Robert Mondavi Affiliates d/b/a Vichon Winery
and
Robert Mondavi Properties, Inc., and BNY Midwest Trust Company, as
Trustee
(filed as Exhibit 4.24 to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2004 and incorporated herein by
reference).
|
4.26
|
|
Supplemental
Indenture No. 6, dated as of August 11, 2006, by and among the Company,
Constellation Leasing, LLC, and BNY Midwest Trust Company, as Trustee
(filed as Exhibit
4.26
to the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended August 31, 2006 and incorporated
herein by
reference).
|
4.27
|
|
Supplemental
Indenture No. 7, 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 4.25 to
the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended November
30,
2006 and incorporated herein by reference).
|
4.28
|
|
Supplemental
Indenture No. 9, 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 4.28 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31,
2007
and incorporated herein by
reference).
|
4.29
|
|
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).
|
4.30
|
|
Supplemental
Indenture No. 1, dated as of August 15, 2006, among the Company,
as
Issuer, certain subsidiaries, as Guarantors, and BNY Midwest Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report
on Form 8-K dated August 15, 2006, filed August 18, 2006 and incorporated
herein by reference).
|
4.31
|
|
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).
|
4.32
|
|
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).
|
4.33
|
|
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).
|
4.34
|
|
Indenture,
with respect to 7 1/4% 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).
|
4.35
|
|
Registration
Rights Agreement, with respect to 7 1/4% Senior Notes due May 2017,
dated
May 14, 2007, among the Company, certain subsidiaries, as Guarantors,
and
Banc of America Securities LLC and Citigroup Global Markets Inc.,
as
Initial Purchasers (filed as Exhibit 4.2 to the Company’s Current Report
on Form 8-K dated May 9, 2007, filed May 14, 2007 and incorporated
herein
by reference).
|
4.36
|
|
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 4.1 to the Company’s
Current Report on Form 8-K, dated June 5, 2006, filed June 9, 2006
and
incorporated herein by reference).
|
4.37
|
|
Amendment
No. 1, dated as of February 23, 2007, to the Credit Agreement, dated
as of
June 5, 2006, among Constellation, the Subsidiary Guarantors referred
to
on the signature pages to such Amendment No. 1, and JPMorgan Chase
Bank,
N.A., in its capacity as Administrative Agent (filed as Exhibit
99.1 to the
Company’s Current Report on Form 8-K, dated and filed February 23, 2007,
and incorporated herein by reference).
|
4.38
|
|
Amendment
No. 2, dated as of November 19, 2007, to the Credit Agreement, dated
as of
June 5, 2006, among Constellation, the Subsidiary Guarantors referred
to
on the signature pages to such Amendment No. 2, and JPMorgan Chase
Bank,
N.A., in its capacity as Administrative Agent (filed as Exhibit
4.1 to the
Company’s Current Report on Form 8-K, dated and filed November 20, 2007,
and incorporated herein by reference).
|
4.39
|
|
Guarantee
Assumption Agreement, dated as of August 11, 2006, by Constellation
Leasing, LLC, in favor of JPMorgan Chase Bank, N.A., as Administrative
Agent, pursuant to the Credit Agreement dated as of June 5, 2006
(as
modified and supplemented and in effect from time to time) (filed
as
Exhibit 4.29 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2006 and incorporated herein by
reference).
|
4.40
|
|
Guarantee
Assumption Agreement, dated as of November 30, 2006, by Vincor
International Partnership, Vincor International II, LLC, Vincor Holdings,
Inc., R.H. Phillips, Inc., The Hogue Cellars, Ltd., and Vincor Finance,
LLC in favor of JPMorgan Chase Bank, N.A., as Administrative Agent,
pursuant to the Credit Agreement dated as of June 5, 2006 (as modified
and
supplemented and in effect from time to time) (filed as Exhibit 4.31
to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2006 and incorporated herein by reference).
|
4.41
|
|
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).
|
10.1
|
|
Description
of Compensation
Arrangements for Non-Management Directors (filed as Exhibit 99.1
to the
Company’s Current Report on Form 8-K dated October 2, 2007, filed
October 4, 2007 and incorporated herein by reference).*
|
10.2
|
|
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).
|
10.3
|
|
Constellation
Brands, Inc.
Long-Term Stock Incentive Plan, amended and restated as of December
6,
2007 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K
dated December 6, 2007, filed December 12, 2007 and incorporated
herein by reference).*
|
10.4
|
|
Form
of Stock Option Amendment
pursuant to the Company’s Long-Term Stock Incentive Plan (filed as Exhibit
99.2 to the Company’s Current Report on Form 8-K dated December 6,
2007, filed December 12, 2007 and incorporated herein by reference).*
|
10.5
|
|
Form
of Terms and Conditions
Memorandum for Employees with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan
(grants before July 26, 2007) (filed as Exhibit 99.3 to the Company’s
Current Report on Form 8-K dated December 6, 2007, filed December
12, 2007 and incorporated herein by reference).*
|
10.6
|
|
Form
of Terms and Conditions
Memorandum for Employees with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan
(grants on or after July 26, 2007) (filed as Exhibit 99.4 to the
Company’s
Current Report on Form 8-K dated December 6, 2007, filed December
12, 2007 and incorporated herein by reference).*
|
10.7
|
|
Form
of Terms and Conditions
Memorandum for Directors with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan
(filed as Exhibit 99.5 to the Company’s Current Report on Form 8-K
dated December 6, 2007, filed December 12, 2007 and incorporated
herein by reference).*
|
31.1
|
|
Certificate
of Chief Executive
Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended (filed herewith).
|
31.2
|
|
Certificate
of Chief Financial
Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended (filed herewith).
|
32.1
|
|
Certification
of Chief Executive
Officer pursuant to Section 18 U.S.C. 1350 (filed
herewith).
|
32.2
|
|
Certification
of Chief Financial
Officer pursuant to Section 18 U.S.C. 1350 (filed
herewith).
|
*
Designates management contract or compensatory plan or arrangement.
|
#
Company’s Commission File No. 001-08495. For filings prior to
October 4, 1999, use Commission File No. 000-07570.
|
|
+
This Exhibit has been filed separately with the Commission pursuant
to an
application for confidential treatment. The confidential portions
of this
Exhibit have been omitted and are marked by an asterisk.
|
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.