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 May 31, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 001-08495
CONSTELLATION BRANDS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 16-0716709
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 WILLOWBROOK OFFICE PARK, FAIRPORT, NEW YORK 14450
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(Address of principal executive offices) (Zip Code)
(585) 218-3600
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(Registrant's telephone number, including area code)
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(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
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
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The number of shares outstanding with respect to each of the classes of common
stock of Constellation Brands, Inc., as of June 30, 2003, is set forth
below:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Class A Common Stock, Par Value $.01 Per Share 82,866,947
Class B Common Stock, Par Value $.01 Per Share 12,070,730
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
May 31, February 28,
2003 2003
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ASSETS
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CURRENT ASSETS:
Cash and cash investments $ 46,008 $ 13,810
Accounts receivable, net 566,348 399,095
Inventories, net 1,329,108 819,912
Prepaid expenses and other 108,773 97,284
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Total current assets 2,050,237 1,330,101
PROPERTY, PLANT AND EQUIPMENT, net 981,116 602,469
GOODWILL 1,382,889 722,223
INTANGIBLE ASSETS, net 838,919 382,428
OTHER ASSETS 105,795 159,109
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Total assets $ 5,358,956 $ 3,196,330
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 16,262 $ 2,623
Current maturities of long-term debt 468,575 71,264
Accounts payable 279,877 171,073
Accrued excise taxes 43,812 36,421
Other accrued expenses and liabilities 411,665 303,827
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Total current liabilities 1,220,191 585,208
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LONG-TERM DEBT, less current maturities 2,293,548 1,191,631
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DEFERRED INCOME TAXES 253,467 145,239
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OTHER LIABILITIES 152,088 99,268
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STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, none at May 31, 2003,
and February 28, 2003 - -
Class A Common Stock, $.01 par value-
Authorized, 275,000,000 shares;
Issued, 85,428,198 shares at
May 31, 2003, and 81,435,135
shares at February 28, 2003 854 814
Class B Convertible Common Stock,
$.01 par value-
Authorized, 30,000,000 shares;
Issued, 14,573,670 shares at
May 31, 2003, and 14,578,490
shares at February 28, 2003 146 146
Additional paid-in capital 556,712 469,724
Retained earnings 834,714 795,525
Accumulated other comprehensive income (loss) 79,178 (59,257)
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1,471,604 1,206,952
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Less-Treasury stock-
Class A Common Stock, 2,749,384
shares at May 31, 2003,
and February 28, 2003, at cost (29,610) (29,610)
Class B Convertible Common Stock,
2,502,900 shares at May 31, 2003,
and February 28, 2003, at cost (2,207) (2,207)
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(31,817) (31,817)
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Less-Unearned compensation-restricted
stock awards (125) (151)
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Total stockholders' equity 1,439,662 1,174,984
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Total liabilities and stockholders' equity $ 5,358,956 $ 3,196,330
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The accompanying notes are an integral part of these statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For the Three Months Ended May 31,
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2003 2002
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(unaudited) (unaudited)
GROSS SALES $ 989,067 $ 860,463
Less - Excise taxes (217,438) (210,070)
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Net sales 771,629 650,393
COST OF PRODUCT SOLD (563,717) (473,667)
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Gross profit 207,912 176,726
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (106,629) (90,761)
RESTRUCTURING CHARGES (2,316) -
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Operating income 98,967 85,965
GAIN ON CHANGE IN FAIR VALUE OF
DERIVATIVE INSTRUMENTS 1,181 -
EQUITY IN EARNINGS OF JOINT VENTURES 328 2,739
INTEREST EXPENSE, net (39,243) (27,141)
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Income before income taxes 61,233 61,563
PROVISION FOR INCOME TAXES (22,044) (24,194)
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NET INCOME $ 39,189 $ 37,369
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SHARE DATA:
Earnings per common share:
Basic $ 0.42 $ 0.42
============ ============
Diluted $ 0.41 $ 0.40
============ ============
Weighted average common shares outstanding:
Basic 92,880 88,845
Diluted 95,661 92,353
The accompanying notes are an integral part of these statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months Ended May 31,
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2003 2002
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(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39,189 $ 37,369
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation of property, plant and equipment 17,828 14,384
Amortization of intangible and other assets 5,966 1,465
Deferred tax provision 4,650 1,354
Loss on extinguishment of debt 800 -
Stock-based compensation expense 158 25
Amortization of discount on long-term debt 20 14
(Gain) loss on sale of assets (2,003) 916
Gain on change in fair value of derivative instruments (1,181) -
Equity in earnings of joint ventures (328) (2,739)
Change in operating assets and liabilities,
net of effects from purchases of businesses:
Accounts receivable, net (39,765) (32,522)
Inventories, net (15,169) 8,993
Prepaid expenses and other current assets 15,571 (3,512)
Accounts payable (28,400) (174)
Accrued excise taxes 5,461 (14,452)
Other accrued expenses and liabilities (9,494) 33,725
Other assets and liabilities, net 334 (2,495)
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Total adjustments (45,552) 4,982
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Net cash (used in) provided by operating activities (6,363) 42,351
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (1,067,694) -
Purchases of property, plant and equipment (18,091) (12,342)
Payment of accrued earn-out amount (978) (804)
Proceeds from sale of assets 4,896 633
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Net cash used in investing activities (1,081,867) (12,513)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,600,000 -
Net proceeds from (repayments of) notes payable 15,735 (22,560)
Exercise of employee stock options 7,571 8,816
Principal payments of long-term debt (492,701) (18,957)
Payment of issuance costs of long-term debt (32,547) (4)
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Net cash provided by (used in) financing activities 1,098,058 (32,705)
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Effect of exchange rate changes on cash and cash investments 22,370 470
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NET INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 32,198 (2,397)
CASH AND CASH INVESTMENTS, beginning of period 13,810 8,961
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CASH AND CASH INVESTMENTS, end of period $ 46,008 $ 6,564
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired $ 1,893,029 $ -
Liabilities assumed (736,244) -
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Net assets acquired 1,156,785 -
Less - stock issuance (77,243) -
Less - direct acquisition costs previously paid or accrued (10,343) -
Less - cash acquired (1,505) -
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Net cash paid for purchases of businesses $ 1,067,694 $ -
============ ============
The accompanying notes are an integral part of these statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2003
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, 2003. Results of operations for interim periods are not
necessarily indicative of annual results.
Certain February 28, 2003, and May 31, 2002, balances have been
reclassified to conform to current year presentation.
2) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:
Effective March 1, 2003, the Company adopted Statement of Financial
Accounting Standards No. 143 ("SFAS No. 143"), "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. The adoption of SFAS No. 143 did not have a
material impact on the Company's financial statements.
Effective March 1, 2003, the Company completed its adoption of Statement of
Financial Accounting Standards No. 145 ("SFAS No. 145"), "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds Statement of Financial Accounting Standards
No. 4 ("SFAS No. 4"), "Reporting Gains and Losses from Extinguishment of Debt,"
Statement of Financial Accounting Standards No. 44, "Accounting for Intangible
Assets of Motor Carriers," and Statement of Financial Accounting Standards No.
64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." In
addition, SFAS No. 145 amends Statement of Financial Accounting Standards No.
13, "Accounting for Leases," to eliminate an inconsistency between required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. Lastly, SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
adoption of the provisions rescinding SFAS No. 4 will result in a
reclassification of the extraordinary loss related to the extinguishment of debt
recorded in the fourth quarter of Fiscal 2002 ($1.6 million, net of income
taxes), by increasing selling, general and administrative expenses ($2.6
million) and decreasing the provision for income taxes ($1.0 million). The
adoption of the remaining provisions of SFAS No. 145 did not have a material
impact on the Company's financial statements.
Effective March 1, 2003, the Company completed its adoption of Statement of
Financial Accounting Standards No. 148 ("SFAS No. 148"), "Accounting for
Stock-Based Compensation-Transition and Disclosure." SFAS No. 148 amends
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 to require prominent disclosure about
the effects on reported net income of an entity's accounting policy decisions
with respect to stock-based employee compensation. Lastly, SFAS No. 148 amends
Accounting Principles Board Opinion No. 28 ("APB Opinion No. 28"), "Interim
Financial Reporting," to require disclosure about those effects in interim
financial information. Accordingly, the following table illustrates the effect
on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation.
For the Three Months
Ended May 31,
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2003 2002
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(in thousands, except per share data)
Net income, as reported $ 39,189 $ 37,369
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (2,360) (3,362)
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Pro forma net income $ 36,829 $ 34,007
========= =========
Earnings per common share:
Basic-as reported $ 0.42 $ 0.42
Basic-pro forma $ 0.40 $ 0.38
Diluted-as reported $ 0.41 $ 0.40
Diluted-pro forma $ 0.38 $ 0.37
3) ACQUISITIONS:
On March 27, 2003, the Company acquired control of BRL Hardy Limited, now
known as Hardy Wine Company Limited ("Hardy"), and on April 9, 2003, the Company
completed its acquisition of all of Hardy's outstanding capital stock. As a
result of the acquisition of Hardy, the Company also acquired the remaining 50%
ownership of Pacific Wine Partners LLC ("PWP"), the joint venture the Company
established with Hardy in July 2001 (collectively, the "Hardy Acquisition").
Hardy is Australia's largest wine producer with interests in wineries and
vineyards in most of Australia's major wine regions as well as New Zealand,
France and the United States. In addition, Hardy has significant marketing and
sales operations in the United Kingdom. This acquisition supports the Company's
strategy of driving long-term growth and positions the Company to capitalize on
the growth opportunities in "new world" wine markets.
Total consideration paid in cash and Class A Common Stock to the Hardy
shareholders was $1,137.4 million. Additionally, the Company recorded direct
acquisition costs of $20.0 million. The acquisition date for accounting purposes
is March 27, 2003. The Company has recorded a $1.6 million reduction in the
purchase price to reflect imputed interest between the accounting acquisition
date and the final payment of consideration. This charge is included as interest
expense in the Consolidated Statement of Income for the three months ended May
31, 2003. The cash portion of the purchase price paid to the Hardy shareholders
and optionholders ($1,060.2 million) was financed with $660.2 million of
borrowings under the Company's 2003 Credit Agreement (as defined in Note 10) and
$400.0 million of borrowings under the Company's Bridge Agreement (as defined in
Note 10). Additionally, the Company issued 3,288,913 shares of the Company's
Class A Common Stock, which were valued at $77.2 million based on the simple
average of the closing market price of the Company's Class A Common Stock
beginning two days before and ending two days after April 4, 2003, the day the
Hardy shareholders elected the form of consideration they wished to receive. The
purchase price was based primarily on a discounted cash flow analysis that
contemplated, among other things, the value of a broader geographic distribution
in strategic international markets and a presence in the important Australian
winemaking regions.
The results of operations of Hardy and PWP are reported in the
Constellation Wines segment and have been included in the Consolidated
Statements of Income since the accounting acquisition date.
The following table summarizes the estimated fair values of the Hardy
Acquisition assets acquired and liabilities assumed at the date of acquisition.
The Company is in the process of obtaining third-party valuations of certain
assets; thus, the allocation of the purchase price is subject to refinement.
Estimated fair values at March 27, 2003, are as follows:
Current assets $ 574,083
Property, plant and equipment 317,435
Other assets 289
Trademarks 396,571
Goodwill 602,282
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Total assets acquired 1,890,660
Current liabilities 317,116
Long-term liabilities 417,771
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Total liabilities assumed 734,887
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Net assets acquired $ 1,155,773
===========
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 pro forma results of
operations of the Company for the three months ended May 31, 2003, and May 31,
2002, respectively. The unaudited pro forma results of operations give effect to
the Hardy Acquisition as if it occurred on March 1, 2002. The unaudited pro
forma results of operations are presented after giving effect to certain
adjustments for depreciation, amortization of deferred financing costs, interest
expense on the acquisition financing and related income tax effects. The
unaudited pro forma results of operations are based upon currently available
information and upon certain assumptions that the Company believes are
reasonable under the circumstances. The unaudited pro forma results of
operations for the three months ended May 31, 2002, do not reflect total
nonrecurring charges of $29.9 million ($0.22 per share on a diluted basis)
related to transaction costs, primarily for the payment of stock options, which
were incurred by Hardy 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 transaction 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 Three Months
Ended May 31,
------------------------
2003 2002
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(in thousands, except per share data)
Net sales $ 805,381 $ 773,074
Income before income taxes $ 63,079 $ 61,817
Net income $ 39,236 $ 38,106
Earnings per common share:
Basic $ 0.42 $ 0.41
========== ==========
Diluted $ 0.40 $ 0.40
========== ==========
Weighted average common shares outstanding:
Basic 94,274 92,134
Diluted 97,055 95,642
4) INVENTORIES:
Inventories are stated at the lower of cost (computed in accordance with
the first-in, first-out method) or market. Elements of cost include materials,
labor and overhead and consist of the following:
May 31, February 28,
2003 2003
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(in thousands)
Raw materials and supplies $ 197,195 $ 26,472
In-process inventories 705,548 534,073
Finished case goods 426,365 259,367
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$ 1,329,108 $ 819,912
=========== ============
5) PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
May 31, February 28,
2003 2003
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(in thousands)
Land and land improvements $ 155,025 $ 84,758
Vineyards 80,938 37,394
Buildings and improvements 275,812 173,943
Machinery and equipment 706,009 551,271
Motor vehicles 14,415 5,468
Construction in progress 50,357 32,839
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1,282,556 885,673
Less - Accumulated depreciation (301,440) (283,204)
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$ 981,116 $ 602,469
=========== ============
6) GOODWILL:
The changes in the carrying amount of goodwill for the three months ended
May 31, 2003, are as follows:
Constellation
Constellation Beers and
Wines Spirits Consolidated
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(in thousands)
Balance, February 28, 2003 $ 590,263 $ 131,960 $ 722,223
Purchase accounting allocations 603,176 - 603,176
Foreign currency translation
adjustments 55,997 1,017 57,014
Purchase price earn-out 476 - 476
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Balance, May 31, 2003 $ 1,249,912 $ 132,977 $ 1,382,889
============ ============= ============
7) INTANGIBLE ASSETS:
The major components of intangible assets are:
May 31, 2003 February 28, 2003
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Gross Net Gross Net
Carrying Carrying Carrying Carrying
Amount Amount Amount Amount
--------- ---------- --------- ----------
(in thousands)
Amortizable intangible assets:
Distribution agreements $ 10,158 $ 4,052 $ 10,158 $ 4,434
Other 4,184 514 3,978 345
--------- ---------- --------- ----------
Total $ 14,342 4,566 $ 14,136 4,779
========= =========
Nonamortizable intangible assets:
Trademarks 813,868 357,166
Distributor and agency
relationships 20,458 20,458
Other 27 25
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Total 834,353 377,649
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Total intangible assets $ 838,919 $ 382,428
========== ==========
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 $0.4 million and $0.6 million for
the three months ended May 31, 2003, and May 31, 2002, respectively. Estimated
amortization expense for each of the five succeeding fiscal years is as follows:
(in thousands)
2004 $ 1,694
2005 $ 1,502
2006 $ 1,424
2007 $ 365
2008 $ -
8) OTHER ASSETS:
The major components of other assets are as follows:
May 31, February 28,
2003 2003
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(in thousands)
Deferred financing costs $ 55,550 $ 28,555
Derivative assets 23,340 -
Investment in joint ventures 5,459 123,064
Other 33,150 18,418
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117,499 170,037
Less - Accumulated amortization (11,704) (10,928)
-------- ------------
$105,795 $ 159,109
======== ============
Deferred financing costs as of May 31, 2003, include $8.1 million of fees
associated with the Bridge Loans (see Note 10). These costs are being amortized
over the five-month period these loans are estimated to be outstanding.
Amortization expense for other assets was included in selling, general and
administrative expenses and was $5.5 million and $0.9 million for the three
months ended May 31, 2003, and May 31, 2002, respectively.
9) OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as
follows:
May 31, February 28,
2003 2003
---------- ------------
(in thousands)
Advertising and promotions $ 75,945 $ 63,155
Income taxes payable 71,111 58,347
Interest 34,478 22,019
Salaries and commissions 26,747 35,769
Adverse grape contracts 13,883 10,244
Other 189,501 114,293
---------- ------------
$ 411,665 $ 303,827
========== ============
10) BORROWINGS:
SENIOR CREDIT FACILITY -
In connection with the Hardy Acquisition, on January 16, 2003, the Company,
the U.S. subsidiaries of the Company (excluding certain inactive subsidiaries)
and Canandaigua Limited, JPMorgan Chase Bank, as a lender and administrative
agent (the "Administrative Agent"), and certain other lenders (such other
lenders, together with the Administrative Agent, are collectively referred to
herein as the "Lenders") entered into a new credit agreement, which was
subsequently amended and restated on March 19, 2003 (the "2003 Credit
Agreement"). The 2003 Credit Agreement provides for aggregate credit facilities
of $1.6 billion consisting of a $400.0 million Tranche A Term Loan facility due
in February 2008, an $800.0 million Tranche B Term Loan facility due in November
2008 and a $400.0 million Revolving Credit facility (including an Australian
Dollar revolving sub-facility of up to A$10.0 million and a sub-facility for
letters of credit of up to $40.0 million) which expires on the fifth anniversary
of the first date on which the Lenders' obligation to make loans under the 2003
Credit Agreement commences. Proceeds of the 2003 Credit Agreement were used to
pay off the Company's obligations under its prior senior credit facility, to
fund a portion of the cash required to pay the former Hardy shareholders and to
pay indebtedness outstanding under certain of Hardy's credit facilities. The
Company intends to use the remaining availability under the 2003 Credit
Agreement to fund its working capital needs on an ongoing basis.
The Tranche A Term Loan facility and the Tranche B Term Loan facility were
fully drawn at closing. The required annual repayments of the Tranche A Term
Loan facility is $40.0 million in fiscal 2004 and increases by $20.0 million
each year through fiscal 2008. The required annual repayments of the Tranche B
Term Loan, which is backend loaded, is $10.0 million in fiscal 2004 and
increases to $400.0 million in fiscal 2009.
The rate of interest payable, at the Company's option, 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 adjustable based upon the Company's Debt Ratio (as
defined in the 2003 Credit Agreement) and, with respect to LIBOR borrowings,
ranges between 1.75% and 2.75%. The initial LIBOR margin for the Revolving
Credit facility and the Tranche A Term Loan facility is 2.25%, while the initial
LIBOR margin on the Tranche B Term Loan facility is 2.75%.
The Company's obligations are guaranteed by the U.S. subsidiaries of the
Company (excluding certain inactive subsidiaries), Canandaigua Limited, CBI
Australia Holdings Pty Limited, Constellation Australia Pty Limited and
Constellation International Holdings Limited and the Company has pledged
collateral of (i) 100% of the capital stock of all of the Company's U.S.
subsidiaries and (ii) 65% of the voting capital stock of Canandaigua Limited,
Matthew Clark plc, Hardy, Constellation Australia Pty Limited and certain other
foreign subsidiaries of the Company. In addition, under certain circumstances,
the Company and the Guarantors are required to pledge certain of their assets
consisting of, among other things, inventory, accounts receivable and trademarks
to secure the obligations under the 2003 Credit Agreement.
The Company and its subsidiaries are subject to customary lending covenants
including those restricting additional liens, the incurrence of additional
indebtedness (including guarantees of indebtedness), the sale of assets, the
payment of dividends, transactions with affiliates and the making of certain
investments, in each case subject to baskets, exceptions and thresholds. Hardy
guarantees debt of a joint venture in the maximum amount of $3.5 million as of
May 31, 2003, which is permitted under the 2003 Credit Agreement. The primary
financial covenants require the maintenance of a debt coverage ratio, a senior
debt coverage ratio, a fixed charges ratio and an interest coverage ratio.
BRIDGE FACILITY -
On January 16, 2003, the Company, U.S. subsidiaries of the Company
(excluding certain inactive subsidiaries) and Canandaigua Limited, JPMorgan
Chase Bank, as a lender and Administrative Agent, and certain other lenders
(such other lenders, together with the Administrative Agent, are collectively
referred to herein as the "Bridge Lenders") entered into a bridge loan agreement
which was amended and restated as of March 26, 2003, containing commitments of
the Bridge Lenders to make bridge loans (the "Bridge Loans") of up to, in the
aggregate, $450.0 million (the "Bridge Agreement"). On April 9, 2003, the
Company used $400.0 million of the Bridge Loans to fund a portion of the cash
required to pay the former Hardy shareholders. The Bridge Loans are due on the
first anniversary of the date of the funding of the Bridge Loans ("Bridge Loan
Maturity Date"). The rate of interest payable on the Bridge Loans is equal to
LIBOR plus a margin. The initial margin on the Bridge Loans is 3.75%.
If the Bridge Loans are not repaid on the Bridge Loan Maturity Date, the
Bridge Lenders have committed to make certain term loans in an amount
corresponding to the then-outstanding amount of the Bridge Loans ("Term Loans").
The Term Loans are due on the seventh anniversary of the date on which the
Bridge Loans are funded ("Term Loan Maturity Date"). The rate of interest
payable on the Term Loans is equal to LIBOR plus a margin. The rate of interest
payable on any of the Bridge Loans or the Term Loans is capped at 11.50% ("Rate
Cap"). If the Bridge Loans are not repaid on the date that is three months after
the date of funding, then the margin will increase on a quarterly basis
thereafter until the rate of interest payable reaches the Rate Cap.
The Lenders have the right to exchange on or after the Bridge Loan Maturity
Date all or a portion of their respective Bridge Loans or Term Loans for notes
("Exchange Notes") that will be issued pursuant to an indenture to be entered
into among the Company, as issuer, certain subsidiaries of the Company, as
guarantors, and an indenture trustee on behalf of the holders of the Exchange
Notes. The Exchange Notes indenture will be in a form to be agreed between the
Company and the Administrative Agent and will contain terms and a final maturity
date that are substantially consistent with the terms and the maturity date of
the Term Loans. The Exchange Notes will bear interest at a fixed rate as
determined by the exchanging holder that will not exceed the Rate Cap.
The Guarantors have guaranteed the Company's obligations under the Bridge
Agreement.
The Company and the Guarantors have made certain representations and
warranties in the Bridge Agreement which are substantially the same as the
representations and warranties in the 2003 Credit Agreement. The Bridge
Agreement also contains covenants and events of default that are similar to the
covenants and events of default in the indentures pursuant to which the Company
issued its senior notes and senior subordinated notes.
As of May 31, 2003, under the 2003 Credit Agreement, the Company had
outstanding Tranche A term loans of $400.0 million bearing a weighted average
interest rate of 3.6%, Tranche B term loans of $800.0 million bearing a weighted
average interest rate of 4.1%, $15.0 million of revolving loans bearing a
weighted average interest rate of 3.1%, undrawn revolving letters of credit of
$15.1 million, and $369.9 million in revolving loans available to be drawn.
Also, as of May 31, 2003, under the Bridge Agreement, the Company had
outstanding $400.0 million of Bridge Loans bearing a weighted average interest
rate of 5.1%. As the Company intends to repay the Bridge Loans at or prior to
the Bridge Loan Maturity Date, these Bridge Loans are classified as current
liabilities on the Consolidated Balance Sheet.
11) OTHER LIABILITIES:
The major components of other liabilities are as follows:
May 31, February 28,
2003 2003
--------- ------------
(in thousands)
Adverse grape contracts $ 69,140 $ 22,550
Accrued pension liability 38,026 36,351
Other 44,922 40,367
--------- ------------
$ 152,088 $ 99,268
========= ============
12) EARNINGS PER COMMON SHARE:
Basic earnings per common share exclude the effect of common stock
equivalents and are computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period
for Class A Common Stock and Class B Convertible Common Stock. Diluted earnings
per common share reflect the potential dilution that could result if securities
or other contracts to issue common stock were exercised or converted into common
stock. Diluted earnings per common share assume the exercise of stock options
using the treasury stock method.
The computation of basic and diluted earnings per common share is as
follows:
For the Three Months
Ended May 31,
---------------------
2003 2002
--------- ---------
(in thousands, except per share data)
Income applicable to common shares $ 39,189 $ 37,369
========= =========
Weighted average common shares outstanding - basic 92,880 88,845
Stock options 2,781 3,508
--------- ---------
Weighted average common shares outstanding - diluted 95,661 92,353
========= =========
Earnings per common share - basic $ 0.42 $ 0.42
========= =========
Earnings per common share - diluted $ 0.41 $ 0.40
========= =========
Stock options to purchase 0.9 million shares of Class A Common Stock at a
weighted average price per share of $27.39 were outstanding during the three
months ended May 31, 2003, 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. There were no anti-dilutive options outstanding during the three months
ended May 31, 2002.
13) COMPREHENSIVE INCOME:
Comprehensive income consists of net income, foreign currency translation
adjustments, net unrealized gains or losses on derivative instruments and
minimum pension liability adjustments. The reconciliation of net income to
comprehensive income is as follows:
For the Three Months
Ended May 31,
-----------------------
2003 2002
---------- ----------
(in thousands)
Net income $ 39,189 $ 37,369
Other comprehensive income, net of tax:
Foreign currency translation adjustments 127,771 7,688
Cash flow hedges:
Net derivative gains, net of tax effect
of $7,021 12,482 -
Reclassification adjustments, net of tax effect
of $10 - (16)
---------- ----------
Net cash flow hedges 12,482 (16)
Minimum pension liability adjustment, net of tax
effect of $1,022 and $260, respectively (1,818) (390)
---------- ----------
Total comprehensive income $ 177,624 $ 44,651
========== ==========
Accumulated other comprehensive income (loss), net of tax effects, includes
the following components:
Foreign Net Minimum Accumulated
Currency Unrealized Pension Other
Translation Gains on Liability Comprehensive
Adjustments Derivatives Adjustment Income (Loss)
------------ ----------- ---------- -------------
(in thousands)
Balance, February 28, 2003 $ (16,722) $ - $ (42,535) $ (59,257)
Current period change 127,771 12,482 (1,818) 138,435
------------ ----------- ---------- -------------
Balance, May 31, 2003 $ 111,049 $ 12,482 $ (44,353) $ 79,178
============ =========== ========== =============
Hardy utilized derivative instruments to a more extensive degree than did
the Company prior to the Hardy Acquisition. These derivative instruments are
obtained to reduce the risk of foreign currency exchange rate fluctuation
resulting from the sale of product denominated in various foreign currencies.
These instruments have been qualified and are being accounted for as cash flow
hedges in accordance with the Company's pre-existing accounting policies.
14) CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
The following information sets forth the condensed consolidating balance
sheets of the Company as of May 31, 2003, and February 28, 2003, and the
condensed consolidating statements of income and cash flows for the three months
ended May 31, 2003, and May 31, 2002, 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
Matthew Clark and Hardy and their subsidiaries, which are included in the
Constellation Wines segment ("Subsidiary Nonguarantors"). The Subsidiary
Guarantors are wholly owned and the guarantees are full, unconditional, joint
and several obligations of each of the Subsidiary Guarantors. Separate financial
statements for the Subsidiary Guarantors of the Company are not presented
because the Company has determined that such financial statements would not be
material to investors. The accounting policies of the parent company, the
Subsidiary Guarantors and the Subsidiary Nonguarantors are the same as those
described for the Company in the Summary of Significant Accounting Policies in
Note 1 to the Company's consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended February 28,
2003, 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 Subsidiary Subsidiary
Company Guarantors Nonguarantors Eliminations Consolidated
----------- ----------- ------------- ------------ ------------
(in thousands)
Condensed Consolidating Balance Sheet
- -------------------------------------
at May 31, 2003
- ---------------
Current assets:
Cash and cash investments $ 16,333 $ 1,785 $ 27,890 $ - $ 46,008
Accounts receivable, net 96,317 149,364 320,667 - 566,348
Inventories, net 18,409 651,591 659,252 (144) 1,329,108
Prepaid expenses and other
current assets 7,838 59,196 41,739 - 108,773
Intercompany (payable) receivable 633,408 1,088,492 (1,721,900) - -
----------- ----------- ------------- ------------ ------------
Total current assets 772,305 1,950,428 (672,352) (144) 2,050,237
Property, plant and equipment, net 47,920 355,229 577,967 - 981,116
Investments in subsidiaries 2,884,672 709,790 - (3,594,462) -
Goodwill 71,172 504,511 807,206 - 1,382,889
Intangible assets, net 10,893 303,386 524,640 - 838,919
Other assets 576,841 (640,762) 169,716 - 105,795
----------- ----------- ------------- ------------ ------------
Total assets $ 4,363,803 $ 3,182,582 $ 1,407,177 $ (3,594,606) $ 5,358,956
=========== =========== ============= ============ ============
Current liabilities:
Notes payable to banks $ 15,000 $ - $ 1,262 $ - $ 16,262
Current maturities of long-term debt 450,056 3,719 14,800 - 468,575
Accounts payable 25,024 17,998 236,855 - 279,877
Accrued excise taxes 6,315 18,835 18,662 - 43,812
Other accrued expenses and liabilities 133,179 88,396 190,090 - 411,665
----------- ----------- ------------- ------------ ------------
Total current liabilities 629,574 128,948 461,669 - 1,220,191
Long-term debt, less current maturities 2,253,313 9,588 30,647 - 2,293,548
Deferred income taxes 50,440 79,655 123,372 - 253,467
Other liabilities 7,652 28,552 115,884 - 152,088
Stockholders' equity:
Class A and Class B common stock 1,000 6,434 64,867 (71,301) 1,000
Additional paid-in capital 556,712 2,049,513 436,466 (2,485,979) 556,712
Retained earnings 834,859 828,725 208,456 (1,037,326) 834,714
Accumulated other comprehensive
income (loss) 62,195 51,167 (34,184) - 79,178
Treasury stock and other (31,942) - - - (31,942)
----------- ----------- ------------- ------------ ------------
Total stockholders' equity 1,442,824 2,935,839 675,605 (3,594,606) 1,439,662
----------- ----------- ------------- ------------ ------------
Total liabilities and
stockholders' equity $ 4,363,803 $ 3,182,582 $ 1,407,177 $ (3,594,606) $ 5,358,956
=========== =========== ============= ============ ============
Condensed Consolidating Balance Sheet
- -------------------------------------
at February 28, 2003
- --------------------
Current assets:
Cash and cash investments $ 1,426 $ 1,248 $ 11,136 $ - $ 13,810
Accounts receivable, net 120,554 141,156 137,385 - 399,095
Inventories, net 20,378 654,945 144,664 (75) 819,912
Prepaid expenses and other
current assets 31,452 52,411 13,421 - 97,284
Intercompany (payable) receivable (177,332) 136,002 41,330 - -
------------ ----------- ------------- ------------ ------------
Total current assets (3,522) 985,762 347,936 (75) 1,330,101
Property, plant and equipment, net 46,379 358,180 197,910 - 602,469
Investments in subsidiaries 2,590,889 601,156 - (3,192,045) -
Goodwill 51,172 495,636 175,415 - 722,223
Intangible assets, net 10,918 315,952 55,558 - 382,428
Other assets 31,599 126,375 1,135 - 159,109
------------ ----------- ------------- ------------ ------------
Total assets $ 2,727,435 $ 2,883,061 $ 777,954 $ (3,192,120) $ 3,196,330
============ =========== ============= ============ ============
Current liabilities:
Notes payable to banks $ 2,000 $ - $ 623 $ - $ 2,623
Current maturities of long-term debt 67,137 3,470 657 - 71,264
Accounts payable 37,567 58,843 74,663 - 171,073
Accrued excise taxes 7,447 15,711 13,263 - 36,421
Other accrued expenses and liabilities 138,963 46,664 118,200 - 303,827
------------ ----------- ------------- ------------ ------------
Total current liabilities 253,114 124,688 207,406 - 585,208
Long-term debt, less current maturities 1,171,694 10,810 9,127 - 1,191,631
Deferred income taxes 48,475 79,656 17,108 - 145,239
Other liabilities 8,718 29,446 61,104 - 99,268
Stockholders' equity:
Class A and Class B common stock 960 6,434 64,867 (71,301) 960
Additional paid-in capital 469,724 1,221,076 436,466 (1,657,542) 469,724
Retained earnings 795,600 1,363,379 99,823 (1,463,277) 795,525
Accumulated other comprehensive
income (loss) 11,118 47,572 (117,947) - (59,257)
Treasury stock and other (31,968) - - - (31,968)
------------ ----------- ------------- ------------ ------------
Total stockholders' equity 1,245,434 2,638,461 483,209 (3,192,120) 1,174,984
------------ ----------- ------------- ------------ ------------
Total liabilities and
stockholders' equity $ 2,727,435 $ 2,883,061 $ 777,954 $ (3,192,120) $ 3,196,330
============ =========== ============= ============ ============
Condensed Consolidating Statement of
- ------------------------------------
Income for the Three Months Ended
- ---------------------------------
May 31, 2003
- ------------
Gross sales $ 172,326 $ 497,302 $ 410,098 $ (90,659) $ 989,067
Less - excise taxes (29,853) (105,280) (82,305) - (217,438)
------------ ----------- ------------- ------------ ------------
Net sales 142,473 392,022 327,793 (90,659) 771,629
Cost of product sold (118,553) (272,615) (263,400) 90,851 (563,717)
------------ ----------- ------------- ------------ ------------
Gross profit 23,920 119,407 64,393 192 207,912
Selling, general and administrative
expenses (28,901) (42,685) (35,043) - (106,629)
Restructuring charges - (1,991) (325) - (2,316)
------------ ----------- ------------- ------------ ------------
Operating income (4,981) 74,731 29,025 192 98,967
Gain on change in fair value of
derivative instruments 1,181 - - - 1,181
Equity in earnings of
subsidiary/joint venture 46,189 12,858 2,206 (60,925) 328
Interest expense, net (1,564) (25,129) (12,550) - (39,243)
------------ ----------- ------------- ------------ ------------
Income before income taxes 40,825 62,460 18,681 (60,733) 61,233
Provision for income taxes 50 (16,271) (5,823) - (22,044)
------------ ----------- ------------- ------------ ------------
Net income $ 40,875 $ 46,189 $ 12,858 $ (60,733) $ 39,189
============ =========== ============= ============ ============
Condensed Consolidating Statement of Income
- -------------------------------------------
for the Three Months Ended May 31, 2002
- ---------------------------------------
Gross sales $ 175,739 $ 471,808 $ 273,411 $ (61,947) $ 859,011
Less - excise taxes (32,732) (105,383) (71,955) - (210,070)
------------ ----------- ------------- ------------ ------------
Net sales 143,007 366,425 201,456 (61,947) 648,941
Cost of product sold (112,982) (257,633) (164,942) 61,890 (473,667)
------------ ----------- ------------- ------------ ------------
Gross profit 30,025 108,792 36,514 (57) 175,274
Selling, general and administrative
expenses (23,376) (41,458) (24,475) - (89,309)
------------ ----------- ------------- ------------ ------------
Operating income 6,649 67,334 12,039 (57) 85,965
Equity in earnings of
subsidiary/joint venture 32,144 10,351 - (39,756) 2,739
Interest expense, net 2,053 (28,574) (620) - (27,141)
------------ ----------- ------------- ------------ ------------
Income before income taxes 40,846 49,111 11,419 (39,813) 61,563
Provision for income taxes (3,420) (16,967) (3,807) - (24,194)
------------ ----------- ------------- ------------ ------------
Net income $ 37,426 $ 32,144 $ 7,612 $ (39,813) $ 37,369
============ =========== ============= ============ ============
Condensed Consolidating Statement of Cash Flows
- -----------------------------------------------
for the Three Months Ended May 31, 2003
- ---------------------------------------
Net cash provided by operating activities $ (1,551,951) $(1,934,690) $ (389,102) $ - $ (6,363)
Cash flows from investing activities:
Purchase of business, net of cash 67,574 (1,744,985) 610,717 - (1,067,694)
Purchases of property, plant and
equipment (3,288) (5,268) (9,535) - (18,091)
Payment of accrued earn-out amount - (978) - - (978)
Proceeds from sale of assets - - 4,896 - 4,896
------------ ----------- ------------- ------------ ------------
Net cash used in investing activities 63,286 (1,751,231) 606,078 - (1,081,867)
------------ ----------- ------------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt, net of discount 1,600,000 - - - 1,600,000
Net proceeds of notes payable 13,000 - 2,735 - 15,735
Exercise of employee stock options 7,571 - - - 7,571
Principal payments of long-term debt (145,363) (840) (346,498) - (492,701)
Payment of issuance costs of
long-term debt (32,547) - - - (32,547)
Other - (211,400) 211,400 - -
------------ ----------- ------------- ------------ ------------
Net cash used in financing activities 1,442,661 212,240 (132,363) - 1,098,058
------------ ----------- ------------- ------------ ------------
Effect of exchange rate changes on
cash and cash investments 60,911 29,318 (67,859) - 22,370
------------ ----------- ------------- ------------ ------------
Net increase (decrease) in cash
and cash investments 14,907 537 16,754 - 32,198
Cash and cash investments, beginning
of period 1,426 1,248 11,136 - 13,810
------------ ----------- ------------- ------------ ------------
Cash and cash investments, end of
period $ 16,333 $ 1,785 $ 27,890 $ - $ 46,008
============ =========== ============= ============ ============
Condensed Consolidating Statement of Cash Flows
- -----------------------------------------------
for the Three Months Ended May 31, 2002
- ---------------------------------------
Net cash provided by (used in)
operating activities $ 25,951 $ 18,151 $ (1,751) $ - $ 42,351
Cash flows from investing activities:
Purchases of property, plant and
equipment (1,409) (7,245) (3,688) - (12,342)
Other - (404) 233 - (171)
------------ ----------- ------------- ------------ ------------
Net cash used in investing activities (1,409) (7,649) (3,455) - (12,513)
------------ ----------- ------------- ------------ ------------
Cash flows from financing activities:
Net repayments of notes payable (22,500) - (60) - (22,560)
Principal payments of long-term debt (17,989) (733) (235) - (18,957)
Payment of issuance costs of
long-term debt (4) - - - (4)
Exercise of employee stock options 8,816 - - - 8,816
------------ ----------- ------------- ------------ ------------
Net cash used in financing activities (31,677) (733) (295) - (32,705)
------------ ----------- ------------- ------------ ------------
Effect of exchange rate changes on
cash and cash investments 6,297 (6,150) 323 - 470
------------ ----------- ------------- ------------ ------------
Net (decrease) increase in cash
and cash investments (838) 3,619 (5,178) - (2,397)
Cash and cash investments, beginning
of period 838 2,084 6,039 - 8,961
------------ ----------- ------------- ------------ ------------
Cash and cash investments, end of
period $ - $ 5,703 $ 861 $ - $ 6,564
============ =========== ============= ============ ============
15) BUSINESS SEGMENT INFORMATION:
As a result of the Hardy Acquisition, the Company has changed the structure
of its internal organization to consist of two business divisions, Constellation
Wines and Constellation Beers and Spirits. Separate division chief executives
report directly to the Company's chief operating officer. Consequently, the
Company now reports its operating results in three segments: Constellation Wines
(branded wine, and U.K. wholesale and other), Constellation Beers and Spirits
(imported beers and distilled spirits) and Corporate Operations and Other
(primarily corporate related items and other). The new business segments reflect
how the Company's operations are now being managed, how operating performance
within the Company is now being evaluated by senior management and the structure
of its internal financial reporting. In addition, the Company changed its
definition of operating income for segment purposes to exclude restructuring
charges and unusual costs that affect comparability. Accordingly, the financial
information for the three months ended May 31, 2002, has been restated to
conform to the new segment presentation. For the three months ended May 31,
2003, restructuring and unusual costs consist of the flow through of inventory
step-up and financing costs associated with the Hardy Acquisition of $5.5
million and $4.1 million, respectively, and restructuring charges of $2.3
million. 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, 2003, and include the
recently adopted accounting pronouncements described in Note 2 herein.
Segment information is as follows:
For the Three Months
Ended May 31,
----------------------------
2003 2002
------------ ------------
(in thousands)
Constellation Wines:
- -------------------
Net sales:
Branded wine $ 310,010 $ 214,011
Wholesale and other 184,150 164,477
------------ ------------
Net sales $ 494,160 $ 378,488
Segment operating income $ 61,023 $ 38,838
Equity in earnings of joint ventures $ 328 $ 2,739
Long-lived assets $ 885,832 $ 493,461
Investment in joint ventures $ 5,459 $ 113,259
Total assets $ 4,755,830 $ 2,338,080
Capital expenditures $ 14,728 $ 10,260
Depreciation and amortization $ 15,550 $ 12,239
Constellation Beers and Spirits:
- -------------------------------
Net sales:
Imported beers $ 207,264 $ 199,706
Spirits 70,205 72,199
------------ ------------
Net sales $ 277,469 $ 271,905
Segment operating income $ 59,883 $ 54,421
Long-lived assets $ 81,564 $ 78,727
Total assets $ 754,543 $ 727,608
Capital expenditures $ 1,783 $ 1,908
Depreciation and amortization $ 2,560 $ 2,572
Corporate Operations and Other:
- ------------------------------
Net sales $ - $ -
Segment operating loss $ (10,071) $ (7,294)
Long-lived assets $ 13,720 $ 8,023
Total assets $ (151,417) $ 30,746
Capital expenditures $ 1,580 $ 174
Depreciation and amortization $ 5,684 $ 1,038
Restructuring and Unusual Costs:
- -------------------------------
Operating loss $ (11,868) $ -
Consolidated:
- ------------
Net sales $ 771,629 $ 650,393
Operating income $ 98,967 $ 85,965
Equity in earnings of joint ventures $ 328 $ 2,739
Long-lived assets $ 981,116 $ 580,211
Investment in joint ventures $ 5,459 $ 113,259
Total assets $ 5,358,956 $ 3,096,434
Capital expenditures $ 18,091 $ 12,342
Depreciation and amortization $ 23,794 $ 15,849
16) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED:
In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 00-21 ("EITF No. 00-21"), "Revenue Arrangements with
Multiple Deliverables." EITF No. 00-21 addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities. EITF No. 00-21 also addresses how arrangement
consideration should be measured and allocated to the separate units of
accounting in the arrangement. The Company is required to adopt EITF No. 00-21
for all revenue arrangements entered into beginning August 1, 2003. The Company
is currently assessing the financial impact of EITF No. 00-21 on its financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN No. 46"),
"Consolidation of Variable Interest Entities - an interpretation of ARB No. 51."
FIN No. 46 requires all variable interest entities to be consolidated by the
primary beneficiary. The primary beneficiary is the entity that holds the
majority of the beneficial interests in the variable interest entity. In
addition, the interpretation expands disclosure requirements for both variable
interest entities that are consolidated as well as variable interest entities
from which the entity is the holder of a significant amount of the beneficial
interests, but not the majority. The Company is required to adopt FIN No. 46 in
its entirety beginning September 1, 2003. The Company is currently assessing the
financial impact of FIN No. 46 on its financial statements.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 ("SFAS No. 149"), "Amendment of Statement 133 on Derivative Instruments
and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, and
hedging relationships designated after June 30, 2003, except for those
provisions of SFAS No. 149 which relate to SFAS No. 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003.
For these issues, the provisions that are currently in effect should continue to
be applied in accordance with their respective effective dates. In addition,
certain provisions of SFAS No. 149, which relate to forward purchases or sales
of when-issued securities or other securities that do not yet exist, should be
applied to both existing contracts and new contracts entered into after June 30,
2003. The Company is currently assessing the financial impact of SFAS No. 149
on its financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 ("SFAS No. 150"), "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify a financial instrument that is within the scope
of SFAS No. 150 as a liability. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective for the Company beginning September 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 150 on its financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
INTRODUCTION
- ------------
The Company is a leading international producer and marketer of beverage
alcohol in North America, Europe and Australia with a broad portfolio of brands
across the wine, imported beer and distilled spirits categories. The Company
has the largest wine business in the world and is the largest multi-category
supplier of beverage alcohol brands in the United States. In the United
Kingdom, the Company is the largest marketer of wine, the second largest
producer and marketer of cider and a leading independent drinks wholesaler. The
Company is the leading producer of wine in Australia and the second largest
producer of wine in New Zealand.
Through February 28, 2003, the Company reported its operating results in
five segments: Popular and Premium Wine (branded popular and premium wine and
brandy, and other, primarily grape juice concentrate and bulk wine); Imported
Beer and Spirits (primarily imported beer and distilled spirits); U.K. Brands
and Wholesale (branded wine, cider, and bottled water, and wholesale wine,
distilled spirits, cider, beer, RTDs and soft drinks); Fine Wine (primarily
branded super-premium and ultra-premium wine); and Corporate Operations and
Other (primarily corporate related items). As a result of the Hardy Acquisition
(as defined below), the Company has changed the structure of its internal
organization to consist of two business divisions, Constellation Wines and
Constellation Beers and Spirits. Separate division chief executives report
directly to the Company's chief operating officer. Consequently, the Company now
reports its operating results in three segments: Constellation Wines (branded
wine, and U.K. wholesale and other), Constellation Beers and Spirits (imported
beer and distilled spirits) and Corporate Operations and Other. The new business
segments reflect how the Company's operations are now being managed, how
operating performance within the Company is now being evaluated by senior
management and the structure of its internal financial reporting. In addition,
the Company changed its definition of operating income for segment purposes to
exclude restructuring charges and unusual costs that affect comparability.
Accordingly, the financial information for First Quarter 2003 (as defined below)
has been restated to conform to the new segment presentation.
The following discussion and analysis summarizes the significant factors
affecting (i) consolidated results of operations of the Company for the three
months ended May 31, 2003 ("First Quarter 2004"), compared to the three months
ended May 31, 2002 ("First Quarter 2003"), and (ii) financial liquidity and
capital resources for First Quarter 2004. 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, 2003 ("Fiscal 2003").
ACQUISITION OF HARDY
On March 27, 2003, the Company acquired control of BRL Hardy Limited, now
known as Hardy Wine Company Limited ("Hardy"), and on April 9, 2003, the Company
completed its acquisition of all of Hardy's outstanding capital stock. As a
result of the acquisition of Hardy, the Company also acquired the remaining 50%
ownership of Pacific Wine Partners LLC ("PWP"), the joint venture the Company
established with Hardy in July 2001 (collectively, the "Hardy Acquisition").
Hardy is Australia's largest wine producer with interests in wineries and
vineyards in most of Australia's major wine regions as well as New Zealand,
France and the United States. In addition, Hardy has significant marketing and
sales operations in the United Kingdom. This acquisition supports the Company's
strategy of driving long-term growth and positions the Company to capitalize on
the growth opportunities in "new world" wine markets. Hardy has a comprehensive
portfolio of wine products across all price points with a strong focus on
premium wine production. Hardy's wines are distributed worldwide through a
network of marketing and sales operations, with the majority of sales generated
in Australia, the United Kingdom and the United States.
Total consideration paid in cash and Class A Common Stock to the Hardy
shareholders was $1,137.4 million. Additionally, the Company recorded direct
acquisition costs of $20.0 million. The acquisition date for accounting purposes
is March 27, 2003. The Company has recorded a $1.6 million reduction in the
purchase price to reflect imputed interest between the accounting acquisition
date and the final payment of consideration. This charge is included as interest
expense in the Consolidated Statement of Income for the three months ended May
31, 2003. The cash portion of the purchase price paid to the Hardy shareholders
and optionholders ($1,060.2 million) was financed with $660.2 million of
borrowings under the Company's 2003 Credit Agreement (as defined below) and
$400.0 million of borrowings under the Company's Bridge Agreement (as defined
below). Additionally, the Company issued 3,288,913 shares of the Company's Class
A Common Stock, which were valued at $77.2 million based on the simple average
of the closing market price of the Company's Class A Common Stock beginning two
days before and ending two days after April 4, 2003, the day the Hardy
shareholders elected the form of consideration they wished to receive. The
purchase price was based primarily on a discounted cash flow analysis that
contemplated, among other things, the value of a broader geographic distribution
in strategic international markets and a presence in the important Australian
winemaking regions.
The results of operations of Hardy and PWP have been reported in the
Company's Constellation Wines segment as of March 27, 2003. The Hardy
Acquisition is significant and the Company expects it to have a material impact
on the Company's future results of operations, financial position and cash
flows.
RESULTS OF OPERATIONS
- ---------------------
FIRST QUARTER 2004 COMPARED TO FIRST QUARTER 2003
NET SALES
The following table sets forth the net sales (in thousands of dollars) by
operating segment of the Company for First Quarter 2004 and First Quarter 2003.
First Quarter 2004 Compared to First Quarter 2003
-------------------------------------------------
Net Sales
---------
% Increase
2004 2003 (Decrease)
----------- --------- ----------
Constellation Wines:
Branded wine $ 310,010 $ 214,011 44.9 %
Wholesale and other 184,150 164,477 12.0 %
----------- ---------
Constellation Wines net sales $ 494,160 $ 378,488 30.6 %
----------- ---------
Constellation Beers and Spirits:
Imported beers $ 207,264 $ 199,706 3.8 %
Spirits 70,205 72,199 (2.8)%
----------- ---------
Constellation Beers and Spirits net sales $ 277,469 $ 271,905 2.0 %
----------- ---------
Corporate Operations and Other $ - $ - N/A
----------- ---------
Consolidated Net Sales $ 771,629 $ 650,393 18.6 %
=========== =========
Net sales for First Quarter 2004 increased to $771.6 million from $650.4
million for First Quarter 2003, an increase of $121.2 million, or 18.6%. This
increase resulted primarily from the inclusion of $101.9 million of net sales of
products acquired in the Hardy Acquisition. In addition, net sales increased due
to increases in U.K. wholesale sales, imported beer sales and a favorable
foreign currency impact of $18.2 million.
Constellation Wines
-------------------
Net sales for Constellation Wines increased to $494.2 million for First
Quarter 2004 from $378.5 million in First Quarter 2003, an increase of $115.7
million, or 30.6%. This increase was primarily due to the addition of $98.5
million of sales of branded wine acquired in the Hardy Acquisition and also
included a positive impact on branded wine sales of $3.0 million from foreign
exchange partially offset by a decrease in the Company's base (non Hardy) sales.
Wholesale and other net sales increased $19.7 million due to a favorable foreign
currency impact of $15.2 million, partially offset by lower cider sales. The
Company continues to face a challenging wine environment due to competitive
discounting driven in part by excess grape supplies. The Company does not
believe this is a long-term issue. The Company has taken a strategy of
preserving the long-term brand equity of its portfolio and investing its
marketing dollars in the higher growth sectors of the wine business.
Constellation Beers and Spirits
-------------------------------
Net sales for Beers and Spirits increased to $277.5 million for First
Quarter 2004 from $271.9 million for First Quarter 2003, an increase of $5.6
million, or 2.0%. This increase resulted primarily from both volume gains and
higher average prices of beer , which increased $7.6 million, or 3.8%, partially
offset by spirits sales which were down $2.0 million, or (2.8%), on flat volume.
The higher average beer prices resulted from a price increase on the Company's
Mexican portfolio, which took effect in First Quarter 2003. The decline in
spirits sales was due primarily to sales mix towards lower average priced
brands.
GROSS PROFIT
The Company's gross profit increased to $207.9 million for First Quarter
2004 from $176.7 million for First Quarter 2003, an increase of $31.2 million,
or 17.6%. The dollar increase in gross profit resulted primarily from sales from
the Hardy Acquisition of $26.8 million (net of $5.5 million of pass through of
stepped - up inventory costs), higher average beer sales and lower average
spirits costs, partially offset by higher average beer costs. Gross profit as a
percent of net sales decreased to 26.9% for First Quarter 2004 from 27.2% for
First Quarter 2003 primarily due to the Hardy Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $106.6 million
for First Quarter 2004 from $90.8 million for First Quarter 2003, an increase of
$15.9 million, or 17.5%. This increase resulted primarily from $11.4 million in
selling, general and administrative expenses related to the brands acquired in
the Hardy Acquisition. In addition, $4.1 million of amortized deferred financing
costs associated with non-continuing financing in connection with the Hardy
Acquisition were included in the Corporate Operations and Other segment. These
costs were primarily related to the bridge loan agreement. Selling, general and
administrative expenses as a percent of net sales decreased to 13.8% for First
Quarter 2004 as compared to 14.0% for First Quarter 2003 due primarily to the
Hardy Acquisition which had a lower percentage of selling, general and
administrative expenses than the Company's base businesses.
RESTRUCTURING CHARGES
Restructuring charges resulted from the realignment of business operations
in the Company's wine segment, as previously announced in the Company's fourth
quarter of fiscal 2003. The Company recorded a restructuring charge of $2.3
million in First Quarter 2004 and expects to incur additional charges of
approximately $5.0 million for the previously announced actions over the
remainder of fiscal 2004.
In June 2003, the Company made a decision to exit the commodity concentrate
product line located in Madera, California. The commodity concentrate product
line is facing declining sales and profits and is not part of the Company's core
business, beverage alcohol. The Company will continue to produce and sell
value-added, proprietary concentrate products such as MegaColors.
Related to exiting commodity concentrate, the Company will sell its Escalon
facility, located in Escalon, California, and move all remaining production and
storage from Escalon to Madera and other locations. By exiting commodity
concentrate, the Company will free up capacity at its winery in Madera and
forego further investment in its Escalon facility. The Company believes these
steps will simplify its wine operations and will result in a better use of its
capital.
The total restructuring charge for exiting the commodity concentrate
product line and closing the Escalon facility is expected to be $56 million and
is expected to be incurred over the next six quarters, beginning with an
estimated $40 million in the second quarter of fiscal 2004. Of the total
restructuring charges, approximately $25 million relate to inventory charges
which will be included in cost of product sold. The remaining charges result
from renegotiating existing grape contracts associated with commodity
concentrate and the Escalon facility, asset write-offs and severance-related
costs. More than half of the charges are non-cash charges.
OPERATING INCOME
The following table sets forth the operating income/(loss) (in thousands of
dollars) by operating segment of the Company for First Quarter 2004 and First
Quarter 2003.
First Quarter 2004 Compared to First Quarter 2003
-------------------------------------------------
Operating Income (Loss)
-------------------------------------------------
2004 2003 % Increase
--------- --------- ----------
Constellation Wines $ 61,023 $ 38,838 57.1 %
Constellation Beers and Spirits 59,883 54,421 10.0 %
Corporate Operations and Other (10,071) (7,294) 38.1 %
--------- ---------
Total Reportable Segments 110,835 85,965 28.9 %
Restructuring and Unusual Costs (11,868) - N/A
--------- ---------
Consolidated Operating Income $ 98,967 $ 85,965 15.1 %
========= =========
Restructuring and unusual costs of $11.9 million for First Quarter 2004
included restructuring and certain unusual 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 and the amortization of deferred
financing costs associated with the Hardy Acquisition of $5.5 million and $4.1
million, respectively, and restructuring charges of $2.3 million. As a result of
these costs and the above factors, consolidated operating income increased to
$99.0 million for First Quarter 2004 from $86.0 million for First Quarter 2003,
an increase of $13.0 million, or 15.1%.
INTEREST EXPENSE, NET
Net interest expense increased to $39.2 million for First Quarter 2004 from
$27.1 million for First Quarter 2003, an increase of $12.1 million, or 44.6%.
The increase resulted from higher average borrowings due to the financing of the
Hardy Acquisition, partially offset by a lower average borrowing rate, and $1.7
million of imputed interest expense related to the Hardy Acquisition.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for First Quarter 2004 was 36.0% as
compared to 39.3% for First Quarter 2003 as a result of the Hardy Acquisition,
which significantly increases the allocation of income to jurisdictions with
lower income tax rates.
NET INCOME
As a result of the above factors, net income increased to $39.2 million for
First Quarter 2004 from $37.4 million for First Quarter 2003, an increase of
$1.8 million, or 4.9%.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
- -----------------------------------------
GENERAL
The Company's principal use of cash in its operating activities is for
purchasing and carrying inventories. The Company's primary source of liquidity
has historically been cash flow from operations, except during the annual Fall
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 March and runs
through May. The Company generally begins purchasing 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. 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, liquidity and anticipated capital expenditure requirements for
both its short-term and long-term capital needs.
FIRST QUARTER 2004 CASH FLOWS
OPERATING ACTIVITIES
Net cash used in operating activities for First Quarter 2004 was $6.4
million, which resulted from $65.1 million in net income adjusted for non-cash
items, less $71.5 million representing the net change in the Company's operating
assets and liabilities. The net change in operating assets and liabilities
resulted primarily from a seasonal increase in accounts receivable and a
decrease in accounts payable.
INVESTING ACTIVITIES
Net cash used in investing activities for First Quarter 2004 was $1,081.9
million, which resulted primarily from net cash paid of $1,067.7 million for the
purchases of businesses and $18.1 million of capital expenditures.
FINANCING ACTIVITIES
Net cash provided by financing activities for First Quarter 2004 was
$1,098.1 million resulting primarily from proceeds of $1,600.0 million from
issuance of long-term debt, including $1,060.2 million of long-term debt
incurred to acquire Hardy. This amount was partially offset by principal
payments of long-term debt of $492.7 million.
During June 1998, the Company's Board of Directors authorized the
repurchase of up to $100.0 million of its Class A Common Stock and Class B
Common Stock. The repurchase of shares of common stock will be accomplished,
from time to time, in management's discretion and depending upon market
conditions, through open market or privately negotiated transactions. The
Company may finance such repurchases through cash generated from operations or
through the senior credit facility. The repurchased shares will become treasury
shares. As of July 15, 2003, the Company had purchased 4,075,344 shares of
Class A Common Stock at an aggregate cost of $44.9 million, or at an average
cost of $11.01 per share. No shares were repurchased during First Quarter 2004.
DEBT
Total debt outstanding as of May 31, 2003, amounted to $2,778.4 million, an
increase of $1,512.9 million from February 28, 2003. The ratio of total debt to
total capitalization increased to 65.9% as of May 31, 2003, from 51.9% as of
February 28, 2003.
SENIOR CREDIT FACILITY
2003 Credit Agreement
---------------------
In connection with the Hardy Acquisition, on January 16, 2003, the Company,
the U.S. subsidiaries of the Company (excluding certain inactive subsidiaries)
and Canandaigua Limited, JPMorgan Chase Bank, as a lender and
administrative agent (the "Administrative Agent"), and certain other lenders
(such other lenders, together with the Administrative Agent, are collectively
referred to herein as the "Lenders") entered into a new credit agreement, which
was subsequently amended and restated on March 19, 2003 (the "2003 Credit
Agreement"). The 2003 Credit Agreement provides for aggregate credit facilities
of $1.6 billion consisting of a $400.0 million Tranche A Term Loan facility due
in February 2008, an $800.0 million Tranche B Term Loan facility due in November
2008 and a $400.0 million Revolving Credit facility (including an Australian
Dollar revolving sub-facility of up to A$10.0 million and a sub-facility for
letters of credit of up to $40.0 million) which expires on the fifth anniversary
of the first date on which the Lenders' obligation to make loans under the 2003
Credit Agreement commences. Proceeds of the 2003 Credit Agreement were used to
pay off the Company's obligations under its prior senior credit facility, to
fund a portion of the cash required to pay the former Hardy shareholders and to
pay indebtedness outstanding under certain Hardy's credit facilities. The
Company intends to use the remaining availability under the 2003 Credit
Agreement to fund its working capital needs on an ongoing basis.
The Tranche A Term Loan facility and the Tranche B Term Loan facility were
fully drawn at closing. The required annual repayments of the Tranche A Term
Loan facility is $40.0 million in fiscal 2004 and increases by $20.0 million
each year through fiscal 2008. The required annual repayments of the Tranche B
Term Loan, which is backend loaded, is $10.0 million in fiscal 2004 and
increases to $400.0 million in fiscal 2009.
The rate of interest payable, at the Company's option, 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 adjustable based upon the Company's Debt Ratio (as
defined in the 2003 Credit Agreement) and, with respect to LIBOR borrowings,
ranges between 1.75% and 2.75%. The initial LIBOR margin for the Revolving
Credit facility and the Tranche A Term Loan facility is 2.25%, while the initial
LIBOR margin on the Tranche B Term Loan facility is 2.75%.
The Company's obligations are guaranteed by the U.S. subsidiaries of the
Company (excluding certain inactive subsidiaries) Canandaigua Limited, CBI
Australia Holdings Pty Limited, Constellation Australia Pty Limited and
Constellation International Holdings Limited ("Guarantors"), and the Company has
pledged collateral of (i) 100% of the capital stock of all of the Company's U.S.
subsidiaries and (ii) 65% of the voting capital stock of Canandaigua Limited,
Matthew Clark plc, Hardy, Constellation Australia Pty Limited and certain other
foreign subsidiaries of the Company. In addition, under certain circumstances,
the Company and the Guarantors are required to pledge certain of their assets
consisting of, among other things, inventory, accounts receivable and trademarks
to secure the obligations under the 2003 Credit Agreement.
The Company and its subsidiaries are subject to customary lending covenants
including those restricting additional liens, the incurrence of additional
indebtedness (including guarantees of indebtedness), the sale of assets, the
payment of dividends, transactions with affiliates and the making of certain
investments, in each case subject to baskets, exceptions and thresholds. Hardy
guarantees debt of a joint venture in the maximum amount of $3.5 million as of
May 31, 2003, which is permitted under the 2003 Credit Agreement. The primary
financial covenants require the maintenance of a debt coverage ratio, a senior
debt coverage ratio, a fixed charges ratio and an interest coverage ratio.
Bridge Agreement
----------------
On January 16, 2003, the Company, the U.S. subsidiaries of the Company
(excluding certain inactive subsidiaries) and Canandaigua Limited, JPMorgan
Chase Bank, as a lender and Administrative Agent, and certain other lenders
(such other lenders, together with the Administrative Agent, are collectively
referred to herein as the "Bridge Lenders") entered into a bridge loan agreement
which was amended and restated as of March 26, 2003, containing commitments of
the Bridge Lenders to make bridge loans (the "Bridge Loans") of up to, in the
aggregate, $450.0 million (the "Bridge Agreement"). On April 9, 2003, the
Company used $400.0 million of the Bridge Loans to fund a portion of the cash
required to pay the former Hardy shareholders. The Bridge Loans are due on the
first anniversary of the date of the funding of the Bridge Loans ("Bridge Loan
Maturity Date"). The rate of interest payable on the Bridge Loans is equal to
LIBOR plus a margin. The initial margin on the Bridge Loans is 3.75%.
If the Bridge Loans are not repaid on the Bridge Loan Maturity Date, the
Bridge Lenders have committed to make certain term loans in an amount
corresponding to the then-outstanding amount of the Bridge Loans ("Term Loans").
The Term Loans are due on the seventh anniversary of the date on which the
Bridge Loans are funded ("Term Loan Maturity Date"). The rate of interest
payable on the Term Loans is equal to LIBOR plus a margin. The rate of interest
payable on any of the Bridge Loans or the Term Loans is capped at 11.50% ("Rate
Cap"). If the Bridge Loans are not repaid on the date that is three months after
the date of funding, then the margin will increase on a quarterly basis
thereafter until the rate of interest payable reaches the Rate Cap.
The Lenders have the right to exchange on or after the Bridge Loan Maturity
Date all or a portion of their respective Bridge Loans or Term Loans for notes
("Exchange Notes") that will be issued pursuant to an indenture to be entered
into among the Company, as issuer, certain subsidiaries of the Company, as
guarantors, and an indenture trustee on behalf of the holders of the Exchange
Notes. The Exchange Notes indenture will be in a form to be agreed between the
Company and the Administrative Agent and will contain terms and a final maturity
date that are substantially consistent with the terms and the maturity date of
the Term Loans. The Exchange Notes will bear interest at a fixed rate as
determined by the exchanging holder that will not exceed the Rate Cap.
The Guarantors have guaranteed the Company's obligations under the Bridge
Agreement.
The Company and the Guarantors have made certain representations and
warranties in the Bridge Agreement which are substantially the same as the
representations and warranties in the 2003 Credit Agreement. The Bridge
Agreement also contains covenants and events of default that are similar to the
covenants and events of default in the indentures pursuant to which the Company
issued its senior notes and senior subordinated notes.
As of May 31, 2003, under the 2003 Credit Agreement, the Company had
outstanding Tranche A term loans of $400.0 million bearing a weighted average
interest rate of 3.6%, Tranche B term loans of $800.0 million bearing a weighted
average interest rate of 4.1%, $15.0 million of revolving loans bearing a
weighted average interest rate of 3.1%, undrawn revolving letters of credit of
$15.1 million, and $369.9 million in revolving loans available to be drawn.
Also, as of May 31, 2003, under the Bridge Agreement, the Company had
outstanding $400.0 million of Bridge Loans bearing a weighted average interest
rate of 5.1%. As the Company intends to repay the Bridge Loans at or prior to
the Bridge Loan Maturity Date, these Bridge Loans are classified as current
liabilities on the Consolidated Balance Sheet.
SENIOR NOTES
As of May 31, 2003, the Company had outstanding $200.0 million aggregate
principal amount of 8 5/8% Senior Notes due August 2006 (the "Senior Notes").
The Senior Notes are currently redeemable, in whole or in part, at the option of
the Company.
As of May 31, 2003, the Company had outstanding (pound) 1.0 million ($1.6
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 May 31, 2003,
the Company had outstanding (pound) 154.0 million ($251.5 million, net of $0.5
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.
Also, as of May 31, 2003, 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.
SENIOR SUBORDINATED NOTES
As of May 31, 2003, the Company had outstanding $200.0 million aggregate
principal amount of 8 1/2% Senior Subordinated Notes due March 2009 (the "Senior
Subordinated Notes"). The Senior Subordinated Notes are redeemable at the
option of the Company, in whole or in part, at any time on or after March 1,
2004.
Also, as of May 31, 2003, 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 redeemable at the option of the Company, in whole or in
part, at any time on or after January 15, 2007. The Company may also redeem up
to 35% of the January 2002 Senior Subordinated Notes using the proceeds of
certain equity offerings completed before January 15, 2005.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In November 2002, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 00-21 ("EITF No. 00-21"), "Revenue Arrangements with
Multiple Deliverables." EITF No. 00-21 addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities. EITF No. 00-21 also addresses how arrangement
consideration should be measured and allocated to the separate units of
accounting in the arrangement. The Company is required to adopt EITF No. 00-21
for all revenue arrangements entered into beginning August 1, 2003. The Company
is currently assessing the financial impact of EITF No. 00-21 on its financial
statements.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN No. 46"),
"Consolidation of Variable Interest Entities - an interpretation of ARB No. 51."
FIN No. 46 requires all variable interest entities to be consolidated by the
primary beneficiary. The primary beneficiary is the entity that holds the
majority of the beneficial interests in the variable interest entity. In
addition, the interpretation expands disclosure requirements for both variable
interest entities that are consolidated as well as variable interest entities
from which the entity is the holder of a significant amount of the beneficial
interests, but not the majority. The Company is required to adopt FIN No. 46 in
its entirety beginning September 1, 2003. The Company is currently assessing
the financial impact of FIN No. 46 on its financial statements.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 ("SFAS No. 149"), "Amendment of Statement 133 on Derivative Instruments
and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting
and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, and
hedging relationships designated after June 30, 2003, except for those
provisions of SFAS No. 149 which relate to SFAS No. 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003.
For these issues, the provisions that are currently in effect should continue to
be applied in accordance with their respective effective dates. In addition,
certain provisions of SFAS No. 149, which relate to forward purchases or sales
of when-issued securities or other securities that do not yet exist, should be
applied to both existing contracts and new contracts entered into after June 30,
2003. The Company is currently assessing the financial impact of SFAS No. 149
on its financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 ("SFAS No. 150"), "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify a financial instrument that is within the scope
of SFAS No. 150 as a liability. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective for the Company beginning September 1, 2003. The Company is currently
assessing the financial impact of SFAS No. 150 on its 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 statements regarding the Company's future
financial position and prospects, are forward-looking statements. 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. In addition to the risks and uncertainties of ordinary
business operations, the forward-looking statements of the Company contained in
this Form 10-Q are also subject to the following risks and uncertainties: the
successful integration of the Hardy business into that of the Company; final
management determinations and independent appraisals vary materially from
current management estimates and preliminary independent appraisals of the fair
value of the assets acquired and the liabilities assumed in the Hardy
acquisition; the Company achieving certain sales projections and meeting certain
cost targets; wholesalers and retailers may give higher priority to products of
the Company's competitors; raw material supply, production or shipment
difficulties could adversely affect the Company's ability to supply its
customers; increased competitive activities in the form of pricing, advertising
and promotions could adversely impact consumer demand for the Company's products
and/or result in higher than expected selling, general and administrative
expenses; a general decline in alcohol consumption; increases in excise and
other taxes on beverage alcohol products; and changes in foreign exchange rates.
For additional information about risks and uncertainties that could adversely
affect the Company's forward-looking statements, please refer to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
In connection with the Hardy Acquisition, the Company entered into the 2003
Credit Agreement and the Bridge Agreement. As a result, a hypothetical 1%
increase from prevailing interest rates at May 31, 2003, and February 28, 2003,
would result in an approximate increase in cash required for interest on
variable interest rate debt during fiscal 2004 and the next five fiscal years as
follows:
May 31, February 28,
2003 2003
------------- ------------
2004 $10.0 million $1.1 million
2005 $11.5 million $0.3 million
2006 $10.4 million $ -
2007 $8.9 million $ -
2008 $7.0 million $ -
2009 $4.0 million $ -
ITEM 4. CONTROLS AND PROCEDURES
- ------- -----------------------
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days prior to the filing date of
this report, that the Company's disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) 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 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
foregoing evaluation.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- ------- ------------------------------------------
Unregistered Sales of Equity Securities During First Quarter 2004
- -----------------------------------------------------------------
On January 17, 2003, the Company entered into an agreement to acquire all
of the outstanding shares of BRL Hardy Limited (now known as Hardy Wine Company
Limited ("Hardy")), an Australian corporation.
Pursuant to the agreement, on April 9, 2003, the acquisition was
implemented by all of the outstanding shares of Hardy being acquired by a wholly
owned subsidiary of the Company in exchange for which the holders of Hardy
shares received aggregate cash consideration of A$1.74 billion and, to holders
of Hardy shares (or to a depositary issuing to such holders depositary interests
representing the Company's Class A Common Stock, par value $0.01 per share)
electing to receive all or a portion of their consideration in stock or such
depositary interests, 3,288,913 shares of the Company's Class A Common Stock.
The shares of the Company's Class A Common Stock were sold to Hardy
shareholders in reliance on the exemption from registration requirements of the
Securities Act of 1933, as amended, provided in Section 3(a)(10) thereof, based
upon the final approval of the share scheme by the Supreme Court of South
Australia on March 27, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) The following Exhibits are furnished as part of this Form 10-Q:
Exhibit Number Description
- -------------- -----------
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1 Implementation Deed dated 17 January 2003 between Constellation Brands,
Inc. and BRL Hardy Limited.
2.2 Transaction Compensation Agreement dated 17 January 2003 between
Constellation Brands, Inc. and BRL Hardy Limited.
2.3 No Solicitation Agreement dated 13 January 2003 between Constellation
Brands, Inc. and BRL Hardy Limited.
2.4 Backstop Fee Agreement dated 13 January 2003 between Constellation
Brands, Inc. and BRL Hardy Limited.
2.5 Letter Agreement dated 6 February 2003 between Constellation Brands,
Inc. and BRL Hardy Limited.
(3) ARTICLES OF INCORORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
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.
4.2 Supplemental Indenture No. 1, with respect to 8 1/2% Senior
Subordinated Notes due 2009, dated as of February 25, 1999, 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.
4.3 Supplemental Indenture No. 2, with respect to 8 5/8% Senior Notes due
2006, dated as of August 4, 1999, 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.
4.4 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.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
4.9 Supplemental Indenture No. 8, dated as of March 27, 2003, by and among
the Company, CBI Australia Holdings Pty Limited (ACN 103 359 299),
Constellation Australia Pty Limited (ACN 103 362 232) and BNY Midwest
Trust Company, as Trustee.
4.10 Credit Agreement, dated as of October 6, 1999, between the Company,
certain principal subsidiaries, and certain banks for which JPMorgan
Chase Bank (formerly known as The Chase Manhattan Bank) acts as
Administrative Agent, The Bank of Nova Scotia acts as syndication
Agent, and Credit Suisse First Boston and Citicorp USA, Inc. act as
Co-Documentation Agents.
4.11 Amendment No. 1 to Credit Agreement, dated as of February 13, 2001,
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks.
4.12 Amendment No. 2 to the Credit Agreement, dated as of May 16, 2001
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks.
4.13 Amendment No. 3 to the Credit Agreement, dated as of September 7, 2001
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks.
4.14 Amendment No. 4 to the Credit Agreement, dated as of January 15, 2002
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks.
4.15 Guarantee Assumption Agreement, dated as of July 2, 2001, by
Ravenswood Winery, Inc., in favor of JPMorgan Chase Bank (formerly known
as The Chase Manhattan Bank), as administrative agent, pursuant to the
Credit Agreement dated as of October 6, 1999, as amended.
4.16 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.
4.17 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.
4.18 Supplemental Indenture No. 2, dated as of March 27, 2003, among the
Company, CBI Australia Holdings Pty Limited (ACN 103 359 299),
Constellation Australia Pty Limited (ACN 103 362 232) and BNY Midwest
Trust Company (successor to Harris Trust and Savings Bank), as Trustee.
4.19 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.
4.20 Supplemental Indenture No. 1, dated as of August 21, 2001, among the
Company, Ravenswood Winery, Inc. and BNY Midwest Trust Company, as
Trustee.
4.21 Supplemental Indenture No. 2, dated as of March 27, 2003, among the
Company, CBI Australia Holdings Pty Limited (ACN 103 359 299),
Constellation Australia Pty Limited (ACN 103 362 232) and BNY Midwest
Trust Company, as Trustee.
4.22 Amended and Restated Credit Agreement, dated as of March 19, 2003,
among the Company and certain of its subsidiaries, the lenders named
therein, JPMorgan Chase Bank, as Administrative Agent, and JPMorgan
Europe Limited, as London Agent.
4.23 Amended and Restated Bridge Loan Agreement, dated as of January 16,
2003 and amended and restated as of March 26, 2003, among the Company
and certain of its subsidiaries, the lenders named therein, and JPMorgan
Chase Bank, as Administrative Agent.
(10) MATERIAL CONTRACTS.
10.1 Amended and Restated Credit Agreement, dated as of March 19, 2003,
among the Company and certain of its subsidiaries, the lenders named
therein, JPMorgan Chase Bank, as Administrative Agent, and JPMorgan
Europe Limited, as London Agent.
10.2 Amended and Restated Bridge Loan Agreement, dated as of January 16,
2003 and amended and restated as of March 26, 2003, among the Company
and certain of its subsidiaries, the lenders named therein, and JPMorgan
Chase Bank, as Administrative Agent.
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
11.1 Computation of per share earnings.
(99) ADDITIONAL EXHIBITS.
99.1 Certification of Chief Executive Officer pursuant to Section 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
99.2 Certification of Chief Financial Officer pursuant to Section 18 U.S.C.
1350, (Section 906 of the Sarbanes-Oxley Act of 2002).
(b) The following Reports on Form 8-K were filed with the Securities
and Exchange Commission during the quarter ended May 31, 2003:
(i) Form 8-K dated March 11, 2003 and filed as of March 11,
2003. This Form 8-K reported information under Item 9. *
(ii) Form 8-K dated March 17, 2003 and filed as of March 17,
2003. This Form 8-K reported information under Items 7 and
9. *
(iii) Form 8-K dated March 20, 2003 and filed as of March 20,
2003. This Form 8-K reported information under Item 9. *
(iv) Form 8-K dated March 25, 2003 and filed as of March 26,
2003. This Form 8-K reported information under Item 9. *
(v) Form 8-K dated March 27, 2003 and filed as of March 27,
2003. This Form 8-K reported information under Item 9. *
(vi) Form 8-K dated March 27, 2003 and filed as of April 9, 2003.
This Form 8-K reported information under Items 2 and 7.
(vii) Form 8-K dated April 6, 2003 and filed as of April 7, 2003.
This Form 8-K reported information under Item 9. *
(viii) Form 8-K dated April 9, 2003 and filed as of April 9,
2003. This Form 8-K reported information under Items 7 and
9, and included (i) the Company's Condensed Consolidated
Balance Sheets as of February 28, 2003 and February 28,
2002; (ii) the Company's Consolidated Statements of Income
on a Reported Basis for the three months ended February 28,
2003 and February 28, 2002; (iii) the Company's Consolidated
Statements of Income on a Reported Basis for the years ended
February 28, 2003 and February 28, 2002; (iv) the Company's
Supplemental Consolidated Statements of Income on a
Comparable Basis for the three months ended February 28,
2003 and February 28, 2002; (v) the Company's Supplemental
Consolidated Statements of Income on a Comparable Basis for
the years ended February 28, 2003 amd February 28, 2002;
(vi) the Company's Supplemental Financial Data Pacific Wine
Partners Joint Venture for the three months ended February
28, 2003 and February 28, 2002; (vii) the Company's
Reconciliation of Reported and Comparable Financial
Information for the three months ended February 28, 2003 and
February 28, 2002, and the years ended February 28, 2003 and
February 28, 2002; and (viii) tables reconciling certain
reported information to certain comparable information. *
* Designates Form 8-K was furnished rather than filed.
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: July 15, 2003 By:/s/ Thomas F. Howe
--------------------------------------
Thomas F. Howe, Senior Vice President,
Controller
Dated: July 15, 2003 By:/s/ Thomas S. Summer
--------------------------------------
Thomas S. Summer, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
CERTIFICATIONS
I, Richard Sands, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Constellation Brands,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: July 15, 2003
/s/ Richard Sands
- -------------------------------------
Richard Sands
Chairman of the Board and
Chief Executive Officer
I, Thomas S. Summer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Constellation Brands,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: July 15, 2003
/s/ Thomas S. Summer
- ----------------------------------
Thomas S. Summer
Executive Vice President and Chief
Financial Officer
INDEX TO EXHIBITS
(2) PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION.
2.1 Implementation Deed dated 17 January 2003 between Constellation Brands,
Inc. and BRL Hardy Limited (filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated January 21, 2003 and incorporated
herein by reference).
2.2 Transaction Compensation Agreement dated 17 January 2003 between
Constellation Brands, Inc. and BRL Hardy Limited (filed as Exhibit 99.2
to the Company's Current Report on Form 8-K dated January 21, 2003 and
incorporated herein by reference).
2.3 No Solicitation Agreement dated 13 January 2003 between Constellation
Brands, Inc. and BRL Hardy Limited (filed as Exhibit 99.3 to the
Company's Current Report on Form 8-K dated January 21, 2003 and
incorporated herein by reference).
2.4 Backstop Fee Agreement dated 13 January 2003 between Constellation
Brands, Inc. and BRL Hardy Limited (filed as Exhibit 99.4 to the
Company's Current Report on Form 8-K dated January 21, 2003 and
incorporated herein by reference).
2.5 Letter Agreement dated 6 February 2003 between Constellation Brands,
Inc. and BRL Hardy Limited (filed as Exhibit 2.5 to the Company's
Current Report on Form 8-K dated March 27, 2003 and incorporated herein
by reference).
(3) ARTICLES OF INCORPORATION AND BY-LAWS.
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2002 and incorporated herein by reference).
3.2 By-Laws of the Company (filed as Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 2002 and
incorporated herein by reference).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
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. 1, with respect to 8 1/2% Senior
Subordinated Notes due 2009, dated as of February 25, 1999, 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 99.2 to the Company's
Current Report on Form 8-K dated February 25, 1999 and incorporated
herein by reference).
4.3 Supplemental Indenture No. 2, with respect to 8 5/8% Senior Notes due
2006, dated as of August 4, 1999, 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 4.1 to the Company's Current Report on Form 8-K dated
July 28, 1999 and incorporated herein by reference).
4.4 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).
4.5 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).
4.6 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).
4.7 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).
4.8 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).
4.9 Supplemental Indenture No. 8, dated as of March 27, 2003, by and among
the Company, CBI Australia Holdings Pty Limited (ACN 103 359 299),
Constellation Australia Pty Limited (ACN 103 362 232) and BNY Midwest
Trust Company, as Trustee (filed as Exhibit 4.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2003 and
incorporated herein by reference).
4.10 Credit Agreement, dated as of October 6, 1999, between the Company,
certain principal subsidiaries, and certain banks for which JPMorgan
Chase Bank (formerly known as The Chase Manhattan Bank) acts as
Administrative Agent, The Bank of Nova Scotia acts as Syndication
Agent, and Credit Suisse First Boston and Citicorp USA, Inc. act as
Co-Documentation Agents (filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30, 1999 and
incorporated herein by reference).
4.11 Amendment No. 1 to Credit Agreement, dated as of February 13, 2001,
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks (filed as Exhibit 4.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2001 and
incorporated herein by reference).
4.12 Amendment No. 2 to the Credit Agreement, dated as of May 16, 2001
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks (filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended May 31, 2001 and
incorporated herein by reference).
4.13 Amendment No. 3 to the Credit Agreement, dated as of September 7, 2001
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks (filed as Exhibit 4.7 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 2001 and
incorporated herein by reference).
4.14 Amendment No. 4 to the Credit Agreement, dated as of January 15, 2002
between the Company, certain principal subsidiaries, and JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as administrative
agent for certain banks (filed as Exhibit 4.14 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2002 and
incorporated herein by reference).
4.15 Guarantee Assumption Agreement, dated as of July 2, 2001, by
Ravenswood Winery, Inc., in favor of JPMorgan Chase Bank (formerly known
as The Chase Manhattan Bank), as administrative agent, pursuant to the
Credit Agreement dated as of October 6, 1999, as amended (filed as
Exhibit 4.6 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 2001 and incorporated herein by
reference).
4.16 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).
4.17 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).
4.18 Supplemental Indenture No. 2, dated as of March 27, 2003, among the
Company, CBI Australia Holdings Pty Limited (ACN 103 359 299),
Constellation Australia Pty Limited (ACN 103 362 232) and BNY Midwest
Trust Company (successor to Harris Trust and Savings Bank), as Trustee
(filed as Exhibit 4.18 to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 2003 and incorporated herein by
reference).
4.19 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).
4.20 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).
4.21 Supplemental Indenture No. 2, dated as of March 27, 2003, among the
Company, CBI Australia Holdings Pty Limited (ACN 103 359 299),
Constellation Australia Pty Limited (ACN 103 362 232) and BNY Midwest
Trust Company, as Trustee (filed as Exhibit 4.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 28, 2003 and
incorporated herein by reference).
4.22 Amended and Restated Credit Agreement, dated as of March 19, 2003,
among the Company and certain of its subsidiaries, the lenders named
therein, JPMorgan Chase Bank, as Administrative Agent, and JPMorgan
Europe Limited, as London Agent (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K dated March 27, 2003 and incorporated herein
by reference).
4.23 Amended and Restated Bridge Loan Agreement, dated as of January 16,
2003 and amended and restated as of March 26, 2003, among the Company
and certain of its subsidiaries, the lenders named therein, and JPMorgan
Chase Bank, as Administrative Agent (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated March 27, 2003 and
incorporated herein by reference).
(10) MATERIAL CONTRACTS.
10.1 Amended and Restated Credit Agreement, dated as of March 19, 2003,
among the Company and certain of its subsidiaries, the lenders named
therein, JPMorgan Chase Bank, as Administrative Agent, and JPMorgan
Europe Limited, as London Agent (filed as Exhibit 4.1 to the Company's
Current Report on Form 8-K dated March 27, 2003 and incorporated herein
by reference).
10.2 Amended and Restated Bridge Loan Agreement, dated as of January 16,
2003 and amended and restated as of March 26, 2003, among the Company
and certain of its subsidiaries, the lenders named therein, and JPMorgan
Chase Bank, as Administrative Agent (filed as Exhibit 4.2 to the
Company's Current Report on Form 8-K dated March 27, 2003 and
incorporated herein by reference).
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
11.1 Computation of per share earnings (filed herewith).
(15) LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION.
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
Not applicable.
(19) REPORT FURNISHED TO SECURITY HOLDERS.
Not applicable.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
(24) POWER OF ATTORNEY.
Not applicable.
(99) ADDITIONAL EXHIBITS.
99.1 Certification of Chief Executive Officer pursuant to Section 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).
99.2 Certification of Chief Financial Officer pursuant to Section 18 U.S.C.
1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).