10-K: Annual report pursuant to Section 13 and 15(d)
Published on May 16, 2005
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One)
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[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended February
28, 2005
OR
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[
]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ____________ to
____________
Commission
File Number 001-08495
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CONSTELLATION
BRANDS, INC.
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||||
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(Exact
name of registrant as specified in its charter)
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Delaware
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16-0716709
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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|||
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370
Woodcliff Drive, Suite 300, Fairport, New
York 14450
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(Address
of principal executive offices)
(Zip
Code)
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Registrant’s
telephone number, including area code (585)
218-3600
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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|
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Class
A Common Stock (par value $.01 per share)
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New
York Stock Exchange
|
|
|
Class
B Common Stock (par value $.01 per share)
|
New
York Stock Exchange
|
|
|
Depositary
Shares Each Representing 1/40 of a
Share
of 5.75%
Series A Mandatory
Convertible
Preferred Stock (par value $.01
per
share)
|
New
York Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act:
None
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) have been subject to such filing requirements for
the past 90 days. Yes X
No
__
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes X No
__
The
aggregate market value of the voting common equity held by non-affiliates of the
Registrant, based upon the closing sales prices of the Registrant’s Class A and
Class B Common Stock as reported on the New York Stock Exchange as of the last
business day of the Registrant’s most recently completed second fiscal quarter
was $3,518,293,554. The Registrant has no non-voting common equity.
The
number of shares outstanding with respect to each of the classes of common stock
of Constellation Brands, Inc., as of April 30, 2005, giving
effect to the common stock splits which were distributed in the form of stock
dividends on May 13,
2005, to
stockholders of record on April 29, 2005, is set forth
below:
|
Class
|
Number
of Shares Outstanding
|
|
|
Class
A Common Stock, par value $.01 per share
|
195,916,340
|
|
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Class
B Common Stock, par value $.01 per share
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23,951,260
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DOCUMENTS
INCORPORATED BY REFERENCE
The
proxy statement of Constellation Brands, Inc. to be issued for the Annual
Meeting of Stockholders which is expected to be held July 28, 2005 is
incorporated by reference in Part III to the extent described
therein.
===========================================================================
This
Annual Report on Form 10-K contains forward-looking statements. In connection
therewith, please see the cautionary statements and risk factors contained in
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations - Cautionary Information Regarding Forward-Looking Statements” and
elsewhere in this Report which identify important factors which could cause
actual results to differ materially from any such forward-looking
statements.
PART
I
Item
1. Business
Introduction
Unless
the context otherwise requires, the term “Company” refers to Constellation
Brands, Inc. and its subsidiaries, and all references to “net sales” refer to
gross sales less promotions, returns and allowances, and excise taxes to conform
with the Company’s method of classification. All references to “Fiscal 2005”,
“Fiscal 2004” and “Fiscal 2003” shall refer to the Company’s fiscal year ended
the last day of February of the indicated year. All references to “Fiscal 2006”
shall refer to the Company’s fiscal year ending February 28,
2006.
Market
positions and industry
data discussed in this Annual Report on Form 10-K are as of calendar 2004 and
have been obtained or
derived from
industry and government publications and Company estimates. The industry and
government publications include: Adams Liquor Handbook; Adams Wine Handbook;
Adams Beer Handbook; Adams Handbook Advance; The U.S. Wine Market: Impact
Databank Review and Forecast; The U.S. Beer Market: Impact Databank Review and
Forecast; The U.S. Spirits Market: Impact Databank Review and Forecast;
International Wine and Spirit Record; Euromonitor; Australian Bureau of
Statistics; NABCA; ACNielsen; IRI; Beer
Marketer’s Insights; The Beer Institute; and DISCUS. The
Company has not independently verified the data from the industry and government
publications. Unless otherwise noted, all references to market positions are
based on unit volume.
The
Company is a leading international producer and marketer of beverage alcohol
brands with a broad portfolio across the wine, imported beer and spirits
categories. The Company has the largest wine business in the world and is the
largest multi-category supplier of beverage alcohol in the United States; a
leading producer and exporter of wine from Australia and New Zealand; and both a
major producer and independent drinks wholesaler in the United Kingdom. The
Company’s strong market positions increase its purchasing power and make the
Company a supplier of choice to its customers.
With its
broad product portfolio, the Company believes it is distinctly positioned to
satisfy an array of consumer preferences across all beverage alcohol categories
and price points. Many of the Company’s products are recognized leaders in their
respective categories.
The
Company is a Delaware corporation incorporated on December 4, 1972, as the
successor to a business founded in 1945. The
Company has approximately 7,700 employees
located throughout the world and the corporate headquarters are located in
Fairport, New York.
The
Company has grown through a combination of internal growth and acquisitions. The
Company’s internal growth has been driven by leveraging the Company’s existing
portfolio of leading brands, developing new products, new packaging and line
extensions, and focusing on the faster growing sectors of the beverage alcohol
industry.
The
Company has successfully integrated a number of major acquisitions that have
broadened its portfolio and increased its market share, net sales, operating
income and cash flow. Through these acquisitions, the Company has become more
competitive by: diversifying its portfolio; developing
strong market positions in the wine, imported beer and spirits
categories;
strengthening its relationships with wholesalers and
retailers;
expanding its distribution and enhancing its production capabilities; and
acquiring additional management, operational, marketing, and research and
development expertise.
In
December 2004, the Company acquired The Robert Mondavi Corporation (“Robert
Mondavi”), a leading premium wine producer based in Napa, California. Robert
Mondavi produces, markets and sells premium, super-premium and fine California
wines under the Woodbridge by Robert Mondavi, Robert Mondavi Private Selection
and Robert Mondavi Winery brand names. Woodbridge and Robert Mondavi Private
Selection are the leading premium and super-premium wine brands, respectively,
in the United States.
The
acquisition of Robert Mondavi supports the Company’s strategy of strengthening
the breadth of its portfolio across price segments to capitalize on the overall
growth in the premium, super-premium and fine wine categories. The Company
believes that the acquired Robert Mondavi brand
names have strong brand recognition globally. The vast majority of Robert
Mondavi’s sales are generated in the United States. The Company intends to
leverage the Robert Mondavi brands in the United States through its selling,
marketing and distribution infrastructure. The Company also intends to further
expand distribution for the Robert Mondavi brands in Europe through its
Constellation Europe infrastructure beginning in the first half of fiscal
2006.
In
December 2004, the Company purchased a 40 percent interest in Ruffino S.r.l.
(“Ruffino”), the well-known Italian fine wine company, and in February 2005, the
Constellation Wines segment began distributing Ruffino’s products in the United
States. Also in December 2004, the Company became a 50 percent owner in a joint
venture with jstar Brands called Planet 10 Spirits. The objective of Planet 10
Spirits is to create and market premium spirit brands in the United States. The
first product from this joint venture is Effen Vodka, a luxury brand imported
from Holland.
In April
2003, the Company completed the acquisition of BRL Hardy Limited, now known as
Hardy Wine Company Limited (“Hardy”), Australia’s largest producer of wine,
which enhanced the Company’s overall growth prospects and gave the Company an
immediate presence in the Australian domestic and export markets. 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 that produces, markets and sells a portfolio of premium
wine in the United States, including a range of Australian imports. The
acquisition of Hardy along with the remaining interest in PWP is referred to
together as the “Hardy Acquisition.” Among the well-known brands acquired in the
Hardy Acquisition are Banrock Station, Hardys Nottage Hill, Hardys Stamp and VR,
Eileen Hardy, Sir James, Omni, Nobilo, Leasingham and Houghton.
For more
information about these transactions, see
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7 of this Annual Report on Form 10-K.
Common
Stock Splits
During
April 2005, the Board of Directors of the Company approved two-for-one stock
splits of the Company’s Class A Common Stock and Class B Common Stock, which
were distributed in the form of stock dividends on May 13, 2005, to
stockholders of record on April 29, 2005. Pursuant to the terms of the stock
dividends, each holder of Class A Common Stock received one additional share of
Class A stock for each share of Class A stock held, and each holder of Class B
Common Stock received one additional share of Class B stock for each share of
Class B stock held. Share and
per share amounts have been retroactively restated to give effect to these
common stock splits.
Business
Segments
The
Company’s internal organization structure consists 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 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 business
segments, described more fully below, reflect how the Company’s operations are
being managed, how operating performance within the Company is being evaluated
by senior management and the structure of its internal financial
reporting.
Information
regarding net sales, operating income and total assets of each of the Company’s
business segments and information regarding geographic areas is set forth in
Note 21 to the
Company’s consolidated financial statements located in Item 8 of this Annual
Report on Form 10-K.
Constellation
Wines
Constellation
Wines is the leading producer and marketer of wine in the world. It sells a
large number of wine brands across all categories - table wine, dessert wine and
sparkling wine - and across all price points - popular, premium, super-premium
and fine wine. The portfolio of super-premium and fine wines is supported by
vineyard holdings in the United States, Australia, New Zealand and Chile. As the
largest producer and marketer of wine in the world, Constellation Wines has
leading market positions in several countries. It is a
leading producer and marketer of wine in the United States and Australia, and
the largest marketer of wine in the United Kingdom. In
addition, Constellation Wines exports its wine products to other major wine
consuming markets of the world.
In the
United States, Constellation Wines sells 19 of the
top-selling 100 wine
brands and has one of the largest fine wine portfolios. In the United Kingdom,
it has seven of the
top-selling 20 table wine brands to the off-premise market, four of the
top-selling 10 table wine brands in the on-premise market and the best selling
brand of fortified British wine. In Australia, it has wine brands across all
price points and varieties, including a comprehensive range of premium wine
brands, and is the largest producer of cask (box) wines.
Constellation
Wines’ leading wine brands include Robert Mondavi Winery, Simi, Franciscan
Oakville Estate, Estancia, Ravenswood, Blackstone, Robert Mondavi Private
Selection, Ruffino, Alice White, Nobilo, Hardys, Woodbridge by Robert Mondavi,
Vendange, Arbor Mist, Almaden, Stowells and Paul
Masson.
Constellation
Wines is also the leading independent beverage wholesaler to the on-premise
trade in the United Kingdom and has more than 20,000
on-premise accounts. The wholesaling business is wine led, but also involves the
distribution of branded distilled spirits, cider, beer, RTDs and soft drinks.
These products include Constellation Wines’ branded wine, cider and water
products, and products produced by other major drinks companies.
Constellation
Wines is also the second largest producer and marketer of cider in the United
Kingdom, with leading cider brands Blackthorn and Gaymer’s Olde English, and
produces and markets Strathmore, the leading bottled water brand in the United
Kingdom on-premise market.
In
conjunction with its wine production, Constellation Wines produces and sells
bulk wine and other related products and services.
Constellation
Beers and Spirits
Constellation
Beers and Spirits imports and markets a diversified line of beer and produces,
bottles, imports and markets a diversified line of distilled spirits. It is the
largest marketer of imported beer in 25 primarily western U.S. states, where it
has exclusive rights to distribute the Mexican brands in its portfolio.
Constellation Beers and Spirits has exclusive rights to the entire United States
for its non-Mexican beer brands. It distributes six of the top 20 imported
beer brands in the United States: Corona Extra, Modelo Especial, Corona Light,
Pacifico, Negra Modelo and St. Pauli Girl. Corona Extra is the best selling
imported beer in the United States and the sixth best
selling beer overall in the United States. The segment also imports the Tsingtao
beer brand from China.
Constellation
Beers and Spirits is the third largest producer and marketer of distilled
spirits in the United States. Substantially all of the segment’s distilled
spirits unit volume consists of products marketed in the value and mid-premium
priced category. Principal distilled spirits brands include Black Velvet,
Barton, Sköl, Fleischmann’s, Canadian LTD, Montezuma, Ten High, Chi-Chi’s
prepared cocktails, Mr. Boston, Inver House and Monte Alban. The
segment is continuing efforts to increase its premium spirits offerings, with
brands that include Black Velvet Reserve, the 99 Schnapps family, Ridgemont
Reserve 1792 and Effen Vodka.
Constellation
Beers and Spirits also sells bulk distilled spirits and other related products
and services.
Corporate
Operations and Other
The
Corporate Operations and Other segment includes traditional corporate-related
items including
executive management, corporate development, corporate finance, human resources,
internal audit, investor relations, legal and public relations.
Marketing
and Distribution
The
Company employs full-time, in-house marketing, sales and customer service
organizations within its segments to maintain a high degree of focus on each of
its product categories. The organizations use a range of marketing strategies
and tactics to build brand equity and increase sales, including market research,
consumer and trade advertising, price promotions, point-of-sale materials, event
sponsorship, on-premise
promotions and public relations. Where opportunities exist, particularly with
national accounts, the Company leverages its sales and marketing skills across
the organization and categories.
In North
America, the Company’s products are primarily distributed by more than 850
wholesale distributors as well as state and provincial alcoholic beverage
control agencies. As is the case with all other beverage alcohol companies,
products sold through state or provincial alcoholic beverage control agencies
are subject to obtaining and maintaining listings to sell the Company’s products
in that agency’s state or province. State and provincial governments can affect
prices paid by consumers of the Company’s products. This is possible either
through the imposition of taxes or, in states and provinces in which the
government acts as the distributor of the Company’s products through an
alcoholic beverage control agency, by directly setting retail prices for the
Company’s products.
In the
U.K. the Company’s products are distributed either directly to retailers or
through wholesalers and importers. The Company’s U.K. wholesaling business sells
and distributes the Company’s branded products and those of other major drinks
companies to on-premise locations through a network of depots located throughout
the United Kingdom. In Australasia and other markets, the Company’s products are
primarily distributed either directly to retailers or through wholesalers and
importers. In Australasia, the distribution channels are dominated by a small
number of industry leaders.
Trademarks
and Distribution Agreements
Trademarks
are an important aspect of the Company’s business. The Company sells its
products under a number of trademarks, which the Company owns or uses under
license. Throughout its segments, the Company also has various licenses and
distribution agreements for the sale, or the production and sale of its products
and products of third parties. These licenses and distribution agreements have
varying terms and durations. Agreements include, among others, a long-term
license agreement with Hiram Walker & Sons, Inc., which expires in 2116, for
the Ten High, Crystal Palace, Northern Light, Lauder’s and Imperial Spirits
brands, and a long-term license agreement with Chi-Chi’s, Inc., which expires in
2117, for the production, marketing and sale of beverage products, alcoholic and
non-alcoholic, utilizing the Chi-Chi’s brand name.
All of
the Company’s imported beer products are marketed and sold pursuant to exclusive
distribution agreements with the suppliers of these products. These agreements
have terms that vary and prohibit the Company from importing other beer from
other producers from the same country. The Company’s agreement to distribute
Corona Extra and other Mexican beer brands exclusively throughout 25 primarily
western U.S. states expires in December 2006 and, subject to compliance with
certain performance criteria, continued retention of certain Company personnel
and other terms under the agreement, will be automatically renewed for
additional terms of five years. Changes in control of the Company or of its
subsidiaries involved in importing the Mexican beer brands, changes in the
position of the Chief Executive Officer of Barton Beers, Ltd., including by
death or disability, or the termination of the President of Barton Incorporated,
may be a basis for the supplier, unless it consents to such changes, to
terminate the agreement. The supplier’s consent to such changes may not be
unreasonably withheld. Prior to their expiration, all of the Company’s imported
beer distribution agreements may be terminated if the Company fails to meet
certain performance criteria. The Company believes it is currently in compliance
with its material imported beer distribution agreements. From time to time, the
Company has failed, and may in the future fail, to satisfy certain performance
criteria in its distribution agreements. Although there can be no assurance that
the Company’s material beer distribution agreements will be renewed, given the
Company’s long-term relationships with its suppliers, the Company expects that
such agreements will be renewed prior to their expiration and does not believe
that these agreements will be terminated.
Competition
The
beverage alcohol industry is highly competitive. The Company competes on the
basis of quality, price, brand recognition and distribution strength. The
Company’s beverage alcohol products compete with other alcoholic and
nonalcoholic beverages for consumer purchases, as well as shelf space in retail
stores, restaurant presence and wholesaler attention. The Company competes with
numerous multinational producers and distributors of beverage alcohol products,
some of which may have greater resources than the Company.
Constellation
Wines’ principal wine competitors include: E & J Gallo Winery, The Wine
Group, Beringer Blass (Foster’s Group), and Kendall-Jackson in the United
States; Southcorp Wines, Orlando Wyndham (Pernod Ricard), and Beringer Blass
(Foster’s Group) in Australia; and Southcorp Wines, Diageo, E & J Gallo
Winery, and Pernod Ricard in the United Kingdom. Its wholesale business competes
with major brewers who also have wholesale operations, in particular, Scottish
Courage, Molson
Coors, InBev
and Carlsberg UK, and other independent national and regional wholesalers.
Constellation Wines’ principal cider competitor is Scottish
Courage.
Constellation
Beers and Spirits’ principal competitors include: Heineken USA, Molson
Coors, Labatt
USA (InBev) and Guinness Import Company (Diageo) in the imported beer category
as well as domestic producers such as Anheuser-Busch, Molson
Coors and
SABMiller; and Diageo, Bacardi, Allied Domecq, Fortune Brands, Brown-Forman,
Pernod
Ricard and
Heaven Hill Distilleries in the distilled spirits category.
Production
In the
United States, the Company operates 19 wineries
where wine is produced from many varieties of grapes grown principally in the
Napa, Sonoma, Monterey and San Joaquin regions of California. In Australia, the
Company operates 10 wineries
where wine is produced from many varieties of grapes grown in most of the major
viticultural regions. Grapes are crushed at most of the Company’s wineries and
stored as wine until packaged for sale under the Company’s brand names or sold
in bulk. In the United States, the Company’s inventories of wine are usually at
their highest levels in September
through November during
and after
the crush of each year’s grape harvest, and are reduced prior to the subsequent
year’s crush. Similarly, in Australia, the Company’s inventories of wine are
usually at their highest levels in March
through May
during
and after
the crush of each year’s grape harvest, and are reduced prior to the subsequent
year’s crush. The Company also operates one winery in Chile and three wineries
in New Zealand.
The
Company has seven facilities for the production and bottling of its distilled
spirits products. The bourbon whiskeys and domestic blended whiskeys marketed by
the Company are primarily produced and aged by the Company at its distillery in
Bardstown, Kentucky. The Company’s primary distilled spirits bottling facility
in the United States is in Owensboro, Kentucky. The majority of the Company’s
Canadian whisky requirements are produced and aged at its Canadian distilleries
in Lethbridge, Alberta, and Valleyfield, Quebec. The Company’s requirements of
Scotch whisky, tequila, mezcal and the neutral grain spirits it uses in the
production of gin, vodka and other spirits products, are primarily purchased
from various suppliers.
The
Company operates three facilities in the United Kingdom that produce, bottle and
package wine, cider and water. To produce Stowells, wine is imported in bulk
from various countries and packaged at the Company’s facility at Bristol,
England. The Bristol facility also produces fortified British wine and wine
style drinks. All cider production takes place at the Company’s facility at
Shepton Mallet, England. The Strathmore brand of bottled water is sourced and
bottled in Forfar, Scotland.
Sources
and Availability of Production Materials
The
principal components in the production of the Company’s branded beverage alcohol
products are agricultural products, such as grapes and grain, and packaging
materials (primarily glass).
Most of
the Company’s annual grape requirements are satisfied by purchases from each
year’s harvest which normally begins in August and runs through October in the
United States and begins in February and runs through May in Australia. The
Company believes that it has adequate sources of grape supplies to meet its
sales expectations. However, in the event that demand for certain wine products
exceed expectations, the Company would seek to source the extra requirements
from the bulk wine markets, but could experience shortages.
The
Company receives grapes from approximately 1,200 independent growers in the
United States and 1,400 growers in Australia. The Company enters into written
purchase agreements with a majority of these growers and pricing generally
varies year-to-year based on then-current market prices. In Australia,
approximately 700 of the 1,400 growers belong to a grape growers’ cooperative.
The Company purchases the majority of its Australian grape requirements from
this cooperative under a long-term arrangement. In the United Kingdom, the
Company produces wine from materials purchased either on a contract basis or on
the open market.
At
February 28, 2005, the Company owned or leased approximately 23,300 acres of
land and vineyards, either fully bearing or under development, in California
(U.S.), New York (U.S.), Australia, Chile and New Zealand. Subsequent to
February 28, 2005, the Company has sold approximately 3,350 acres of
land and vineyards that were acquired as part of the Robert Mondavi acquisition.
The total remaining acreage supplies only a small percentage of the Company’s
overall total wine needs. However, most of this acreage is used to supply a
large portion of the grapes used for the production of the Company’s
super-premium and fine wines. The Company continues to consider the purchase or
lease of additional vineyards, and additional land for vineyard plantings, to
supplement its grape supply.
The
distilled spirits manufactured by the Company require various agricultural
products, neutral grain spirits and bulk spirits. The Company fulfills its
requirements through purchases from various sources by contractual arrangement
and through purchases on the open market. The Company believes that adequate
supplies of the aforementioned products are available at the present
time.
In the
United Kingdom, the Company sources apples for cider production primarily
through long-term supply arrangements with owners of apple orchards. The Company
believes there are adequate supplies of apples at this particular
time.
The
Company utilizes glass and polyethylene terephthalate (“PET”) bottles and other
materials such as caps, corks, capsules, labels, wine bags and cardboard cartons
in the bottling and packaging of its products. Glass bottle costs are one of the
largest components of the Company’s cost of product sold. In the United States
and Australia, the glass bottle industry is highly concentrated with only a
small number of producers. The Company has traditionally obtained, and continues
to obtain, its glass requirements from a limited number of producers. Currently,
substantially all of the Company’s glass container requirements for its United
States operations are supplied by one producer and most of the Company’s glass
container requirements for its Australian operations are supplied by another
producer. The Company has not experienced difficulty in satisfying its
requirements with respect to any of the foregoing and considers its sources of
supply to be adequate. However, the inability of any of the Company’s glass
bottle suppliers to satisfy the Company’s requirements could adversely affect
the Company’s operations.
Government
Regulation
The
Company is subject to a range of regulations in the countries in which it
operates. Where it produces products, the Company is subject to environmental
laws and regulations and may be required to obtain permits and licenses to
operate its facilities. Where it markets and sells products, it may be subject
to laws and regulations on trademark and brand registration, packaging and
labeling, distribution methods and relationships, pricing and price changes,
sales promotions, advertising and public relations. The Company is also subject
to rules and regulations relating to changes in officers or directors, ownership
or control.
The
Company believes it is in compliance in all material respects with all
applicable governmental laws and regulations in the countries in which it
operates. The Company also believes that the cost of administration and
compliance with, and liability under, such laws and regulations does not have,
and is not expected to have, a material adverse impact on its financial
condition, results of operations or cash flows.
Seasonality
The
beverage alcohol industry is subject to seasonality in each major category. As a
result, in response to wholesaler and retailer demand which precedes consumer
purchases, the Company’s wine and spirits sales are typically highest during the
third quarter of its fiscal year, primarily due to seasonal holiday buying, and
its imported beer sales are typically highest during the first and second
quarters of the Company’s fiscal year, which correspond to the Spring and Summer
periods in the United States.
Employees
As of the
end of April 2005, the Company had approximately 7,700 full-time employees
throughout the world. Approximately 3,400 full-time employees were in the
United States and approximately 4,300 full-time employees were outside of
the United States, in countries including Australia, the United Kingdom, Canada
and New Zealand. Additional workers may be employed by the Company during the
peak and grape crushing seasons. The Company considers its employee relations
generally to be good.
Company
Information
The
Company’s internet address is http://www.cbrands.com. The Company’s filings with
the Securities and Exchange Commission (“SEC”), including its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports, filed or furnished pursuant to Section 13(a) or 15
(d) of the Securities Exchange Act of 1934, are accessible free of charge at
http://www.cbrands.com as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the SEC.
Alternatively, such reports may be accessed at the internet address of the SEC,
which is http://www.sec.gov. Also, the public may read and copy any materials
that the Company files with the SEC at the SEC’s Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The
Company has adopted a Chief Executive Officer and Senior Financial Executive
Code of Ethics that specifically applies to its chief executive officer, its
principal financial officer, and controller. This Chief Executive Officer and
Senior Financial Executive Code of Ethics meets the requirements as set forth in
the Securities Exchange Act of 1934, Item 406 of Regulation S-K. The Company has
posted on its internet website a copy of the Chief Executive Officer and Senior
Financial Officer Code of Ethics. It is accessible at
http://www.cbrands.com/CBI/investors.htm.
The
Company also has adopted a Code of Business Ethics and Conduct that applies to
all employees, directors and officers, including each person who is subject to
the Chief Executive Officer and Senior Financial Executive Code of Ethics. The
Code of Business Ethics and Conduct is also available on the Company’s internet
website, together with its Global Code of Responsible Practices for Beverage
Alcohol Advertising and Marketing, its Board of Directors Corporate Governance
Guidelines and the Charters of the Board’s Audit Committee, Human Resources
Committee (which serves as the Board’s compensation committee) and Corporate
Governance Committee (which serves as the Board’s nominating committee). These
materials are accessible at http://www.cbrands.com/CBI/investors.htm.
Additionally, amendments to, and waivers granted to the Company’s directors and
executive officers under the Company’s codes of ethics, if any, will be posted
in this area of the Company’s website. A copy of the Code of Business Ethics and
Conduct, Global Code of Responsible Practices for Beverage Alcohol Advertising
and Marketing, Chief Executive Officer and Senior Financial Executive Code of
Ethics, and/or the Board of Directors Corporate Governance Guidelines and
committee charters are available in print to any shareholder who requests it.
Shareholders should direct such requests in writing to Investor Relations
Department, Constellation Brands, Inc., 370 Woodcliff Drive, Suite 300,
Fairport, New York 14450 or by telephoning the Company’s Investor Center at
1-888-922-2150.
The
foregoing information regarding the Company’s website and its content is for
your convenience only. The content of the Company’s website is not deemed to be
incorporated by reference in this report or filed with the SEC.
|
Item
2.
|
Properties
|
Through
its business segments, the Company operates wineries, distilling plants,
bottling plants, and cider and water producing facilities, most of which include
warehousing and distribution facilities on the premises. The Company also
operates separate distribution centers under the Constellation Wines segment’s
wholesaling business. In addition to the Company’s properties described below,
certain of the Company’s businesses maintain office space for sales and similar
activities and offsite warehouse and distribution facilities in a variety of
geographic locations.
The
Company believes that its facilities, taken as a whole, are in good condition
and working order and have adequate capacity to meet its needs for the
foreseeable future.
The
following discussion details the properties associated with the Company’s three
business segments.
Constellation
Wines
Through
the Constellation Wines segment, the Company maintains facilities in the United
States, Australia, New Zealand, the United Kingdom, Chile and the Republic of
Ireland. These facilities include wineries, bottling plants, cider and water
producing facilities, warehousing and distribution facilities, distribution
centers and office facilities. The segment maintains owned and/or leased
division offices in Canandaigua, New York; St. Helena, California; Gonzales,
California; Reynella, South Australia; Bristol, England and Guildford,
England.
United
States
In the
United States, the Company through its Constellation Wines segment operates two
wineries in New York, located in Canandaigua and Naples; 14 wineries in
California, located in Acampo, Gonzales, Healdsburg, Kenwood, Oakville, Soledad,
Rutherford, Ukiah, two in Lodi, two in Madera and two in Sonoma; two wineries in
Washington, located in Woodinville and Sunnyside; and one winery in Caldwell,
Idaho. All of these wineries are owned, except for the wineries in Caldwell
(Idaho) and Woodinville (Washington), which are leased. The Constellation Wines
segment considers its principal wineries in the United States to be the Mission
Bell winery in Madera (California), the Canandaigua winery in Canandaigua (New
York), the Ravenswood wineries in Sonoma (California), the Franciscan Vineyards
winery in Rutherford (California), the Woodbridge Winery in Acampo (California),
the Turner Road Vintners Winery in Lodi (California), the Robert Mondavi Winery
in Oakville (California)] and the Blackstone Winery in Gonzales (California).
The Mission Bell winery crushes grapes, produces, bottles and distributes wine
and produces specialty concentrates and Mega Colors for sale. The Canandaigua
winery crushes grapes and produces, bottles and distributes wine. The other
principal wineries crush grapes, vinify, cellar and bottle wine. The Woodbridge
Winery and the Robert Mondavi Winery were acquired by the Company in Fiscal 2005
through its acquisition of Robert Mondavi. Two additional wineries acquired
through that acquisition were sold in March 2005. These are the Arrowood
Vineyards & Winery located in Sonoma County, California and the Byron
Vineyard & Winery located in Santa Barbara County, California.
Through
the Constellation Wines segment, as of February 28, 2005, the Company owned or
leased approximately 13,920 acres of vineyards, either fully bearing or under
development, in California and New York to supply a portion of the grapes used
in the production of wine. As a result of dispositions occurring since the end
of the Company’s fiscal year, the Company has either sold or no longer leases
approximately 3,350 of these acres.
Australasia
Through
the Constellation Wines segment, the Company owns and operates 10
Australian wineries, five of which are in South Australia, two in Western
Australia and the other three in New South Wales, Australian Capital Territory
and Tasmania. Additionally, through this segment the Company also
owns three wineries in New Zealand. All but one of these Australasian
wineries crush grapes, vinify and cellar wine. Five include bottling and/or
packaging operations. The facility in Reynella, South Australia bottles a
significant portion of the wine produced in Australia, produces all Australian
sparkling wines and cellars wines. The Company considers the segment’s principal
facilities in Australasia to be the Berri Estates winery located in Glossop and
the bottling facility located in Reynella, both in South Australia.
Through
the Constellation Wines segment, the Company owns or has interests in
approximately 6,390 plantable acres of vineyards in South Australia, the
Australian Capital Territory, Western Australia, Victoria, and Tasmania, and
approximately 2,000 acres of vineyards, either fully bearing or under
development, in New Zealand.
Europe
Through
the Constellation Wines segment, in the United Kingdom the Company owns and
operates two facilities in England, located in Bristol and Shepton Mallet and
one facility in Scotland, located in Forfar. The Bristol facility is considered
a principal facility and produces, bottles and packages wine; the Shepton Mallet
facility produces, bottles and packages cider; and the Forfar facility produces,
bottles and packages water products. The Constellation Wines segment also owned
another facility in Taunton, England, whose operations had
previously been consolidated into the Shepton Mallet
facility. The Taunton facility was sold in Fiscal
2005.
Through
this segment, the Company operates a National Distribution Centre, located at a
leased facility in Severnside, England, together with two leased satellite
facilities within the same region, to distribute the Company’s products
that are produced at the Bristol and Shepton Mallet facilities as well as
products imported from other wine suppliers. To support its wholesaling
business, the Company operates 11 distribution centers located throughout the
United Kingdom, 10 of which are leased. These 11 distribution centers are used
to distribute products produced by the Company, as well as by third
parties.
Additionally,
through the Constellation Wines segment, the Company leases warehouse and office
facilities in Dublin in support of the Company’s business of marketing and
distributing alcoholic beverages in the Republic of Ireland.
Chile
Through
the Constellation Wines segment, the Company also operates, through a majority
owned subsidiary, a winery in the Casablanca Valley, Chile, that crushes grapes
and vinifies, cellars and bottles wine. Through this segment, the Company also
owns or leases approximately 1,010 acres of vineyards, either fully bearing or
under development, in Chile for the production of wine.
Constellation
Beers and Spirits
Through
the Constellation Beers and Spirits segment, the Company maintains leased
division offices in Chicago, Illinois. On behalf of the segment’s imported beer
business, the Company contracts with five providers of warehouse space and
services in eight locations throughout the United States.
Through
this segment, the Company owns and operates four distilling plants, two in the
United States and two in Canada. The two distilling plants in the United States
are located in Bardstown, Kentucky and Albany, Georgia. The two distilling
plants in Canada are located in Valleyfield, Quebec and Lethbridge, Alberta. The
Company considers this segment’s principal distilling plants to be the
facilities located in Bardstown (Kentucky), Valleyfield (Quebec) and Lethbridge
(Alberta). The Bardstown facility distills, bottles and warehouses distilled
spirits products for the Company and, on a contractual basis, for other industry
members. The two Canadian facilities distill, bottle and store Canadian whisky
for the segment, and distill and/or bottle and store Canadian whisky, vodka,
rum, gin and liqueurs for third parties.
In the
United States, the Company through its Constellation Beers and Spirits segment
also operates three bottling plants, located in Atlanta, Georgia; Owensboro,
Kentucky and Carson, California. The facilities located in Atlanta (Georgia) and
Owensboro (Kentucky) are owned, while the facility in Carson (California) is
operated and leased through an arrangement involving a management contract.
The Company considers this segment’s bottling plant located in Owensboro to be
one of the segment’s principal facilities. The Owensboro facility bottles and
warehouses distilled spirits products for the segment and is also utilized for
contract bottling.
Corporate
Operations and Other
The
Company’s corporate headquarters are located in leased offices in Fairport, New
York.
|
Item
3.
|
Legal
Proceedings
|
In
the course of their business, the Company and its subsidiaries are subject to
litigation from time to time. Although the amount of any liability with respect
to such litigation cannot be determined, in the opinion of management such
liability will not have a material adverse effect on the
Company’s financial condition, results of operations or cash flows.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Not
Applicable.
Executive
Officers of the Company
Information
with respect to the current executive officers of the Company is as
follows:
|
NAME
|
AGE
|
OFFICE
OR POSITION HELD
|
|
Richard
Sands
|
54
|
Chairman
of the Board and Chief Executive Officer
|
|
Robert
Sands
|
46
|
President
and Chief Operating Officer
|
|
Alexander
L. Berk
|
55
|
Chief
Executive Officer, Constellation Beers and Spirits, and
President and Chief Executive Officer, Barton
Incorporated
|
|
F.
Paul Hetterich
|
42
|
Executive
Vice President, Business Development and Corporate
Strategy
|
|
Stephen
B. Millar
|
61
|
Chief
Executive Officer, Constellation Wines
|
|
Thomas
J. Mullin
|
53
|
Executive
Vice President and General Counsel
|
|
Thomas
S. Summer
|
51
|
Executive
Vice President and Chief Financial Officer
|
|
W.
Keith Wilson
|
54
|
Executive
Vice President and Chief Human Resources
Officer
|
Richard
Sands, Ph.D., is the Chairman of the Board and Chief Executive Officer of the
Company. He has been employed by the Company in various capacities since 1979.
He was elected Chief Executive Officer in October 1993 and has served as a
director since 1982. In September 1999, Mr. Sands was elected Chairman of the
Board. He served as Executive Vice President from 1982 to May 1986, as President
from May 1986 to December 2002 and as Chief Operating Officer from May 1986 to
October 1993. He is the brother of Robert Sands.
Robert
Sands is President and Chief Operating Officer of the Company. He was appointed
to these positions in December 2002 and has served as a director since January
1990. Mr. Sands also served as Group President from April 2000 through December
2002, as Chief Executive Officer, International from December 1998 through April
2000, as Executive Vice President from October 1993 through April 2000, as
General Counsel from June 1986 through May 2000, and as Vice President from June
1990 through October 1993. He is the brother of Richard Sands.
Alexander
L. Berk is the Chief Executive Officer of Constellation Beers and Spirits and
the President and Chief Executive Officer of Barton Incorporated. Since 1990 and
prior to becoming Chief Executive Officer of Barton Incorporated in March 1998,
Mr. Berk was President and Chief Operating Officer of Barton Incorporated and
from 1988 to 1990, he was the President and Chief Executive Officer of Schenley
Industries. Mr. Berk has been in the beverage alcohol industry for most of his
career, serving in various positions.
F.
Paul Hetterich has been the Company’s Executive Vice President, Business
Development and Corporate Strategy since June 2003. From April 2001 to June
2003, Mr. Hetterich served as the Company’s Senior Vice President, Corporate
Development. Prior to that, Mr. Hetterich held several increasingly senior
positions in the Company’s marketing and business development groups. Mr.
Hetterich has been with the Company since 1986.
Stephen
B. Millar is the Chief Executive Officer of Constellation Wines and has held
this position since the closing of the Hardy Acquisition. Prior to the Company’s
acquisition of Hardy, Mr. Millar was Hardy’s Managing Director and had held this
position since 1991. Mr. Millar currently serves in leadership roles in a number
of industry organizations. He is an Executive Council Member and Chairman of the
Audit Committee of the Winemakers’ Federation of Australia. He also serves as
the President of the Australian Wine and Brandy Producers’ Association, as the
Deputy Chairman of the International Trade Advisory Committee and the Australian
Wine Export Council and as a Council Member of the South Australian Wine
Industry Council.
Thomas
J. Mullin joined the Company as Executive Vice President and General Counsel in
May 2000. Prior to joining the Company, Mr. Mullin served as President and Chief
Executive Officer of TD Waterhouse Bank, NA, a national banking association,
since February 2000, of CT USA, F.S.B. since September 1998, and of CT USA, Inc.
since March 1997. He also served as Executive Vice President, Business
Development and Corporate Strategy of C.T. Financial Services, Inc. from March
1997 through February 2000. From 1985 through 1997, Mr. Mullin served as Vice
Chairman and Senior Executive Vice President of First Federal Savings and Loan
Association of Rochester, New York and from 1982 through 1985, he was a partner
in the law firm of Phillips, Lytle, Hitchcock, Blaine & Huber.
Thomas
S. Summer joined the Company in April l997 as Senior Vice President and Chief
Financial Officer and in April 2000 was elected Executive Vice President. From
November 1991 to April 1997, Mr. Summer served as Vice President, Treasurer of
Cardinal Health, Inc., a large national health care services company, where he
was responsible for directing financing strategies and treasury matters. Prior
to that, from November 1987 to November 1991, Mr. Summer held several positions
in corporate finance and international treasury with PepsiCo, Inc.
W.
Keith Wilson joined the Company in January 2002 as Senior Vice President, Human
Resources, and in September 2002, he was elected Chief Human Resources Officer
and in April 2003 he was elected Executive Vice President. From 1999 to 2001,
Mr. Wilson served as Senior Vice President, Global Human Resources of Xerox
Engineering Systems, a subsidiary of Xerox Corporation, that engineers,
manufactures and sells hi-tech reprographics equipment and software worldwide.
From 1990 to 1999, he served in various senior human resource positions with the
banking, marketing and real estate and relocation businesses of Prudential Life
Insurance of America, an insurance company that also provides other financial
products.
Executive
officers of the Company are generally chosen or elected to their positions
annually and hold office until the earlier of their removal or resignation or
until their successors are chosen and qualified.
PART
II
Item
5. Market
for the Registrant’s Common Equity and Related Stockholder
Matters
The
Company’s Class A Common Stock (the “Class A Stock”) and Class B Common Stock
(the “Class B Stock”) trade on the New York Stock ExchangeÒ (“NYSE”)
under the symbols STZ and STZ.B, respectively. The following tables set forth
for the periods indicated the high and low sales prices of the Class A Stock and
the Class B Stock as reported on the NYSE, adjusted to give retroactive effect
to the May 13, 2005, two-for-one stock splits.
CLASS
A STOCK
|
1st
Quarter
|
2nd
Quarter
|
3rd
Quarter
|
4th
Quarter
|
|
|
Fiscal
2004
High
Low
|
$
13.83
$
10.95
|
$
15.90
$
13.31
|
$
17.33
$
14.35
|
$
17.96
$
14.65
|
|
Fiscal
2005
High
Low
|
$
18.13
$
15.45
|
$
19.97
$
17.70
|
$
22.59
$
18.01
|
$
28.67
$
22.33
|
CLASS
B STOCK
|
1st
Quarter
|
2nd
Quarter
|
3rd
Quarter
|
4th
Quarter
|
|
|
Fiscal
2004
High
Low
|
$
13.83
$
11.38
|
$
15.98
$
13.68
|
$
17.13
$
14.50
|
$
17.93
$
15.13
|
|
Fiscal
2005
High
Low
|
$
18.03
$
15.37
|
$
19.82
$
18.08
|
$
22.68
$
18.15
|
$
28.64
$
22.70
|
At April 30, 2005, the number of holders of record of Class A Stock and Class B
Stock of the Company were 1,007 and 226, respectively.
With
respect to its common stock, the Company’s policy is to retain all of its
earnings to finance the development and expansion of its business, and the
Company has not paid any cash dividends on its common stock since its initial
public offering in 1973. In addition, under the terms of the Company’s senior
credit facility, the Company is currently constrained from paying cash dividends
on its common stock. Also, the indentures for the Company’s outstanding senior
notes and senior subordinated notes may restrict the payment of cash dividends
on its common stock under certain circumstances. Any indentures for debt
securities issued in the future and any credit agreements entered into in the
future may also restrict or prohibit the payment of cash dividends on common
stock. During April 2005, the Company’s Board of Directors approved two-for-one
stock splits of the Company’s Class A Stock and Class B Stock, which were
distributed in the form of stock dividends on May 13, 2005, to
stockholders of record on April 29, 2005. Share and per share amounts have been
retroactively restated to give effect to these common stock splits.
Item
6. Selected
Financial Data
|
For
the Years Ended
|
||||||||||||||||
|
February
28,
2005
|
|
February
29,
2004
|
|
February
28,
2003
|
|
February
28,
2002
|
|
February
28,
2001
|
||||||||
(in
thousands, except per share data) |
||||||||||||||||
Sales |
$
|
5,139,863
|
$
|
4,469,270
|
$
|
3,583,082
|
$
|
3,420,213
|
$
|
2,983,629
|
||||||
|
Less-excise
taxes
|
(1,052,225
|
)
|
(916,841
|
)
|
(851,470
|
)
|
(813,455
|
)
|
(757,609
|
)
|
||||||
Net
sales
|
4,087,638
|
3,552,429
|
2,731,612
|
2,606,758
|
2,226,020
|
|||||||||||
|
Cost
of product sold
|
(2,947,049
|
)
|
(2,576,641
|
)
|
(1,970,897
|
)
|
(1,911,598
|
)
|
(1,647,081
|
)
|
||||||
Gross
profit
|
1,140,589
|
975,788
|
760,715
|
695,160
|
578,939
|
|||||||||||
|
Selling,
general and
administrative
expenses(1)
|
(555,694
|
)
|
(457,277
|
)
|
(350,993
|
)
|
(355,269
|
)
|
(308,071
|
)
|
||||||
|
Acquisition-related
integration
costs(2)
|
(9,421
|
)
|
-
|
-
|
-
|
-
|
||||||||||
|
Restructuring
and
related
charges(3)
|
(7,578
|
)
|
(31,154
|
)
|
(4,764
|
)
|
-
|
-
|
||||||||
Operating
income
|
567,896
|
487,357
|
404,958
|
339,891
|
270,868
|
|||||||||||
|
Gain
on change in fair value of
derivative
instruments
|
-
|
1,181
|
23,129
|
-
|
-
|
|||||||||||
|
Equity
in earnings of equity
method
investees
|
1,753
|
542
|
12,236
|
1,667
|
-
|
|||||||||||
|
Interest
expense, net
|
(137,675
|
)
|
(144,683
|
)
|
(105,387
|
)
|
(114,189
|
)
|
(108,631
|
)
|
||||||
Income
before income taxes
|
431,974
|
344,397
|
334,936
|
227,369
|
162,237
|
|||||||||||
|
Provision
for income taxes(1)
|
(155,510
|
)
|
(123,983
|
)
|
(131,630
|
)
|
(90,948
|
)
|
(64,895
|
)
|
||||||
Net
income |
276,464
|
220,414
|
203,306
|
136,421
|
97,342
|
|||||||||||
|
Dividends
on preferred stock
|
(9,804
|
)
|
(5,746
|
)
|
-
|
-
|
-
|
|||||||||
|
Income
available to common
stockholders
|
$
|
266,660
|
$
|
214,668
|
$
|
203,306
|
$
|
136,421
|
$
|
97,342
|
||||||
Earnings
per common share: |
||||||||||||||||
|
Basic
- Class A Common
Stock(4)
|
$
|
1.25
|
$
|
1.08
|
$
|
1.15
|
$
|
0.81
|
$
|
0.67
|
||||||
|
Basic
- Class B Common
Stock(4)
|
$
|
1.14
|
$
|
0.98
|
$
|
1.04
|
$
|
0.73
|
$
|
0.61
|
||||||
|
Diluted
|
$
|
1.19
|
$
|
1.03
|
$
|
1.10
|
$
|
0.78
|
$
|
0.65
|
||||||
|
Supplemental
data restated for effect of SFAS No. 142:
|
||||||||||||||||
|
Adjusted
operating income
|
$
|
567,896
|
$
|
487,357
|
$
|
404,958
|
$
|
369,780
|
$
|
290,372
|
||||||
|
Adjusted
net income
|
$
|
276,464
|
$
|
220,414
|
$
|
203,306
|
$
|
155,367
|
$
|
111,635
|
||||||
|
Adjusted
income available
to
common stockholders
|
$
|
266,660
|
$
|
214,668
|
$
|
203,306
|
$
|
155,367
|
$
|
111,635
|
||||||
|
Adjusted
earnings per common share:
|
||||||||||||||||
|
Basic
- Class A Common
Stock(4)
|
$
|
1.25
|
$
|
1.08
|
$
|
1.15
|
$
|
0.92
|
$
|
0.77
|
||||||
|
Basic
- Class B Common
Stock(4)
|
$
|
1.14
|
$
|
0.98
|
$
|
1.04
|
$
|
0.84
|
$
|
0.70
|
||||||
|
Diluted
|
$
|
1.19
|
$
|
1.03
|
$
|
1.10
|
$
|
0.88
|
$
|
0.75
|
||||||
|
Total
assets
|
$
|
7,804,172
|
$
|
5,558,673
|
$
|
3,196,330
|
$
|
3,069,385
|
$
|
2,512,169
|
||||||
|
Long-term
debt, including
current
maturities
|
$
|
3,272,801
|
$
|
2,046,098
|
$
|
1,262,895
|
$
|
1,374,792
|
$
|
1,361,613
|
||||||
|
(1)
|
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.” Accordingly, the adoption of the provisions
rescinding Statement of Financial Accounting Standards No. 4 (“SFAS No.
4”), “Reporting Gains and Losses from Extinguishment of Debt,” resulted 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).
|
|
(2)
|
For
a detailed discussion of acquisition-related integration costs for the
year ended February 28, 2005, see Management’s Discussion and Analysis of
Financial Condition and Results of Operations under Item 7 of this Annual
Report on Form 10-K under the caption “Fiscal 2005 Compared to Fiscal 2004
- Acquisition-Related Integration Charges.”
|
|
(3)
|
For
a detailed discussion of restructuring and related charges for the years
ended February 28, 2005, February 29, 2004, and February 28, 2003, see
Management’s Discussion and Analysis of Financial Condition and Results of
Operations under Item 7 of this Annual Report on Form 10-K under the
captions “Fiscal 2005 Compared to Fiscal 2004 - Restructuring and Related
Charges” and “Fiscal 2004 Compared to Fiscal 2003 - Restructuring and
Related Charges,” respectively.
|
|
(4)
|
Effective
June 1, 2004, the Company adopted EITF Issue No. 03-6 (“EITF No. 03-6”),
“Participating Securities and the Two-Class Method under FASB Statement
No. 128.” EITF No. 03-6 clarifies what is meant by a “participating
security,” provides guidance on applying the two-class method for
computing earnings per share, and required affected companies to
retroactively restate earnings per share amounts for all periods
presented. Under EITF No. 03-6, the Company’s Class B Convertible Common
Stock is considered a participating security requiring the use of the
two-class method for the computation of earnings per common share - basic,
rather than the if-converted method as previously used. Accordingly,
earnings per common share - basic reflects the application of EITF No.
03-6 and has been computed using the two-class method for all periods
presented.
|
For the
years ended February 28, 2005, and February 29, 2004, see Management’s
Discussion and Analysis of Financial Condition and Results of Operations under
Item 7 of this Annual Report on Form 10-K and the Consolidated Financial
Statements and notes thereto under Item 8 of this Annual Report on Form
10-K.
During
April 2005, the Board of Directors of the Company approved two-for-one
stock splits of the Company’s Class A Common Stock and Class B Common
Stock, which were distributed in the form of stock dividends on May 13,
2005, to stockholders of record on April 29, 2005. Share and per share amounts
have been retroactively restated to give effect to these common stock
splits.
Effective
March 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets.” SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes Accounting Principles Board Opinion No. 17,
“Intangible Assets.” Under SFAS No. 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed at least annually for
impairment. Intangible assets that are not deemed to have an indefinite life
will continue to be amortized over their useful lives and are subject to review
for impairment. Upon adoption of SFAS No. 142, the Company determined that
certain of its intangible assets met the criteria to be considered indefinite
lived and, accordingly, ceased their amortization effective March 1, 2002. These
intangible assets consisted principally of trademarks. The Company’s trademarks
relate to well established brands owned by the Company which were previously
amortized over 40 years. Intangible assets determined to have a finite life,
primarily distribution agreements, continue to be amortized over their estimated
useful lives which were not modified as a result of adopting SFAS No. 142. The
supplemental data section above presents operating income, income before
extraordinary item, net income and earnings per share information for the
comparative periods as if the nonamortization provisions of SFAS No. 142 had
been applied as of March 1, 2000.
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The
Company is a leading international producer and marketer of beverage alcohol
brands with a broad portfolio across the wine, imported beer and spirits
categories. The Company has the largest wine business in the world and is the
largest multi-category supplier of beverage alcohol in the United States; a
leading producer and exporter of wine from Australia and New Zealand; and both a
major producer and independent drinks wholesaler in the United
Kingdom.
The
Company 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.
Amounts included in the Corporate Operations and Other segment consist of
general corporate administration and finance expenses. These amounts include
costs of executive management, corporate development, corporate finance, human
resources, internal audit, investor relations, legal and public relations. Any
costs incurred at the corporate office that are applicable to the segments are
allocated to the appropriate segment. The amounts included in the Corporate
Operations and Other segment are general costs that are applicable to the
consolidated group and are therefore not allocated to the other reportable
segments. All costs reported within the Corporate Operations and Other segment
are not included in the chief operating decision maker’s evaluation of the
operating income performance of the other operating segments. The business
segments reflect how the Company’s operations are being managed, how operating
performance within the Company is being evaluated by senior management and the
structure of its internal financial reporting. In addition, the Company excludes
acquisition-related integration costs, restructuring and related charges and net
unusual costs that affect comparability from its definition of operating income
for segment purposes.
The
Company’s business strategy is to remain focused across the beverage alcohol
industry by offering a broad range of products in each of the Company’s three
major categories: wine, imported beer and spirits. The Company intends to keep
its portfolio positioned for superior top-line growth while maximizing the
profitability of its brands. In addition, the Company seeks to increase its
relative importance to key customers in major markets by increasing its share of
their overall purchasing, which is increasingly important in a consolidating
industry. The Company’s strategy of breadth across categories and geographies is
designed to deliver long-term profitable growth. This strategy allows the
Company more investment choices, provides flexibility to address changing market
conditions and creates stronger routes-to-market.
Marketing,
sales and distribution of the Company’s products, particularly the Constellation
Wines segment’s products, are managed on a geographic basis in order to fully
leverage leading market positions within each geographic market. Market dynamics
and consumer trends vary significantly across the Company’s three core
geographic markets - the U.S., Europe (primarily the U.K.) and Australasia
(Australia/New Zealand). Within the U.S. market, the Company offers a wide range
of beverage alcohol products across the Constellation Wines segment and the
Constellation Beers and Spirits segment. In Europe, the Company leverages its
position as the largest wine supplier in the U.K. In addition, the Company
leverages its U.K. wholesale business as a strategic route-to-market for its
imported wine portfolio and as a key supplier of a full range of beverage
alcohol products to large national accounts. Within Australasia, where consumer
trends favor domestic wine products, the Company leverages its position as one
of the largest wine producers in Australia.
The
Company remains committed to its long-term financial model of growing sales
(both through acquisitions and organically), expanding margins and increasing
cash flow to achieve superior earnings per share growth and improve return on
invested capital.
The
environment for the Company’s products is fairly competitive in each of the
Company’s key geographic markets, due, in part, to industry and retail
consolidation. Competition in the U.S. beers and spirits markets is normally
intense, with domestic beer producers increasing brand spending in an effort to
gain market share.
Additionally,
the supply of certain raw materials, particularly grapes, as well as consumer
demand, can affect the overall competitive environment. Two years of lighter
than expected California grape harvests, combined with a reduction in wine grape
acreage in California, has brought the U.S. grape supply more into balance with
demand. This has led to an overall firming of the pricing of wine grape
varietals from California. In Australia, two years of record grape harvests have
contributed to an oversupply of certain red grape varietals, which has led to an
overall reduction in grape costs for these varietals and greater pricing
competition in the domestic market.
In Fiscal
2005 (as defined below), the Company’s net sales increased 15.1% over Fiscal
2004 (as defined below) primarily from increases in branded wine net sales, the
inclusion of $84.5 million of net sales of products acquired in the Robert
Mondavi acquisition, increases in U.K. wholesale net sales and imported beer net
sales, the inclusion of an additional one month of net sales of products
acquired in the Hardy Acquisition (as defined below) and a favorable foreign
currency impact. Operating income increased 16.5% over the comparable prior year
period primarily due to a reduction in acquisition-related integration costs,
restructuring and related charges and net unusual costs (see below under Fiscal
2005 compared to Fiscal 2004 Operating Income discussion), partially offset by
increased selling and advertising expenses, as the Company continues to invest
behind the imported beer portfolio and certain wine brands to drive growth and
broader distribution, and increased Corporate general and administrative
expenses. Lastly, as a result of the above factors and lower interest expense
for Fiscal 2005, net income increased 25.4% over the comparable prior year
period.
The
following discussion and analysis summarizes the significant factors affecting
(i) consolidated results of operations of the Company for the year ended
February 28, 2005 (“Fiscal 2005”), compared to the year ended February 29, 2004
(“Fiscal 2004”), and Fiscal 2004 compared to the year ended February 28, 2003
(“Fiscal 2003”), and (ii) financial liquidity and capital resources for Fiscal
2005. This discussion and analysis also identifies certain acquisition-related
integration costs, restructuring and related charges and net unusual costs
expected to affect consolidated results of operations of the Company for the
year ending February 28, 2006 (“Fiscal 2006”). This discussion and analysis
should be read in conjunction with the Company’s consolidated financial
statements and notes thereto included herein.
Common
Stock Splits
On April
7, 2005, the Board of Directors of the Company approved two-for-one stock splits
of the Company’s Class A Common Stock and Class B Common Stock, which were
distributed in the form of stock dividends on May 13, 2005, to stockholders of
record on April 29, 2005. Share and per share amounts have been
retroactively restated to give effect to these common stock splits.
Acquisitions
in Fiscal 2005 and Fiscal 2004 and Equity Method
Investment
Acquisition
of Robert Mondavi
On
December 22, 2004, the Company acquired all of the outstanding capital stock of
The Robert Mondavi Corporation (“Robert Mondavi”), a leading premium wine
producer based in Napa, California. In connection with the production of its
products, Robert Mondavi owns, operates and has an interest in certain wineries
and controls certain vineyards. Robert Mondavi produces, markets and sells
premium, super premium and fine California wines under the
Woodbridge by Robert Mondavi, Robert Mondavi Private Selection and Robert
Mondavi Winery brand names. Woodbridge and Robert Mondavi Private Selection are
the leading premium and super-premium wine brands, respectively, in the United
States.
The
acquisition of Robert Mondavi supports the Company’s strategy of strengthening
the breadth of its portfolio across price segments to capitalize on the overall
growth in the premium, super-premium and fine wine categories. The Company
believes that the acquired Robert Mondavi brand
names have strong brand recognition globally. The vast majority of Robert
Mondavi’s sales are generated in the United States. The Company intends to
leverage the Robert Mondavi brands in the United States through its selling,
marketing and distribution infrastructure. The Company also intends to further
expand distribution for the Robert Mondavi brands in Europe through its
Constellation Europe infrastructure beginning in the first half of fiscal
2006.
The
Company and Robert Mondavi have complementary businesses that share a common
growth orientation and operating philosophy. The Robert Mondavi acquisition
provides the Company with a greater presence in the fine wine sector within the
United States and the ability to capitalize on the broader geographic
distribution in strategic international markets. The Robert Mondavi acquisition
supports the Company’s strategy of growth and breadth across categories and
geographies, and strengthens its competitive position in its core
markets. In
particular, the Company believes there are growth opportunities for premium,
super-premium and fine wines in the United Kingdom, United States and other wine
markets. Total
consideration paid in cash to the Robert Mondavi shareholders was $1,030.7
million. Additionally, the Company expects to incur direct acquisition costs of
$11.2 million. The purchase price was financed with borrowings under the
Company’s 2004 Credit Agreement (as defined below). In accordance with the
purchase method of accounting, the acquired net assets are recorded at fair
value at the date of acquisition. The purchase price was based primarily on the
estimated future operating results of Robert Mondavi, including the factors
described above, as well as an estimated benefit from operating cost
synergies.
The
results of operations of the Robert Mondavi business are reported in the
Constellation Wines segment and are included in the consolidated results of
operations of the Company from the date of acquisition. The acquisition of
Robert Mondavi 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. In particular, the Company expects its future results of operations
to be significantly impacted by, among other things, the flow through of
anticipated inventory step-up and adverse grape cost, acquisition-related
integration costs, restructuring and related charges, and interest expense
associated with the 2004 Credit Agreement (as defined below). Adverse grape cost
represents the amount of historical inventory cost on Robert Mondavi’s balance
sheet that exceeds the Company’s estimated ongoing grape cost and is primarily
due to the purchase of grapes by Robert Mondavi prior to the acquisition date at
above-market prices as required under the terms of their existing grape purchase
contracts.
In
connection with the Robert Mondavi acquisition and Robert Mondavi’s previously
disclosed intention to sell certain of its winery properties and related assets,
and other vineyard properties, the Company has classified
certain assets
as
held for
sale as of February 28, 2005. The Company expects to sell these assets in
Fiscal 2006 for
net proceeds of approximately $150 million to $175 million. As of April 30,
2005, the Company has received net proceeds of $127.9 million. No gain or loss
has been or is expected to be recognized upon the sale of these
assets.
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. The acquisition of Hardy along with the remaining
interest in PWP is referred to together as the “Hardy Acquisition.” Through this
acquisition, the Company acquired one of Australia’s largest wine producers with
interests in wineries and vineyards in most of Australia’s major wine regions as
well as New Zealand and the United States. 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 $17.4 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 Fiscal 2004. 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 then
existing credit agreement and $400.0 million of borrowings under the Company’s
then existing bridge loan agreement. Additionally, the Company
issued 6,577,826 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 Company and Hardy
have complementary businesses that share a common growth orientation and
operating philosophy. The Hardy Acquisition supports the Company’s strategy of
growth and breadth across categories and geographies, and strengthens its
competitive position in its core markets. The purchase price and resulting
goodwill were primarily based on the growth opportunities of the brand portfolio
of Hardy. In particular, the Company believes there are growth opportunities for
Australian wines in the United Kingdom, United States and other wine markets.
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.
The
results of operations of Hardy and PWP have been reported in the Company’s
Constellation Wines segment since March 27, 2003. Accordingly, the Company’s
results of operations for Fiscal 2005 include the results of operations of Hardy
and PWP for the entire period, whereas the results of operations for Fiscal 2004
only include the results of operations of Hardy and PWP from March 27, 2003, to
the end of Fiscal 2004.
Investment
in Ruffino
On
December 3, 2004, the Company purchased a 40 percent interest in Ruffino S.r.l.
(“Ruffino”), the well-known Italian fine wine company, for a preliminary
purchase price of $86.1 million. The purchase price is subject to final closing
adjustments which the Company does not expect to be material. As of February 1,
2005, the Constellation Wines segment began distributing Ruffino’s products in
the United States. The Company accounts for the investment under the equity
method; accordingly, the results of operations of Ruffino from December 3,
2004, are included in the equity in earnings of equity method investees
line in the Company’s Consolidated Statements of Income.
Results
of Operations
Fiscal
2005 Compared to Fiscal 2004
Net
Sales
The
following table sets forth the net sales (in thousands of dollars) by operating
segment of the Company for Fiscal 2005 and Fiscal 2004.
|
Fiscal
2005 Compared to Fiscal 2004
|
||||||||||
|
Net
Sales
|
||||||||||
|
2005
|
2004
|
%
Increase(Decrease)
|
||||||||
Constellation
Wines: |
||||||||||
Branded
wine
|
$
|
1,830,808
|
$
|
1,549,750
|
18.1
|
%
|
||||
|
Wholesale
and other
|
1,020,600
|
846,306
|
20.6
|
%
|
||||||
|
Constellation
Wines net sales
|
$
|
2,851,408
|
$
|
2,396,056
|
19.0
|
%
|
||||
Constellation
Beers and Spirits: |
||||||||||
Imported
beers
|
$
|
922,947
|
$
|
862,637
|
7.0
|
%
|
||||
|
Spirits
|
313,283
|
284,551
|
10.1
|
%
|
||||||
|
Constellation
Beers and Spirits net sales
|
$
|
1,236,230
|
$
|
1,147,188
|
7.8
|
%
|
||||
|
Corporate
Operations and Other
|
$
|
-
|
$
|
-
|
N/A
|
|||||
|
Unusual
gain
|
$
|
-
|
$
|
9,185
|
(100.0
|
)%
|
||||
|
Consolidated
Net Sales
|
$
|
4,087,638
|
$
|
3,552,429
|
15.1
|
%
|
||||
Net sales
for Fiscal 2005 increased to $4,087.6 million from $3,552.4 million for Fiscal
2004, an increase of $535.2 million, or 15.1%. This increase resulted primarily
from an increase in branded wine net sales of $217.8 million (on a constant
currency basis), including $84.2 million of net sales of branded wines acquired
in the Robert Mondavi acquisition and $45.7 million of net sales of branded
wines acquired in the Hardy Acquisition; an increase in U.K. wholesale net sales
of $84.1 million (on a constant currency basis); and an increase in imported
beer net sales of $60.3 million. In addition, net sales benefited from a
favorable foreign currency impact of $155.5 million.
Constellation
Wines
Net sales
for Constellation Wines increased to $2,851.4 million for Fiscal 2005 from
$2,396.1 million in Fiscal 2004, an increase of $455.4 million, or 19.0%.
Branded wine net sales increased $281.1 million. This increase resulted from
increased branded wine net sales in the U.S., Europe and Australasia of $217.8
million (on a constant currency basis), including $84.2 million of net sales of
branded wines acquired in the Robert Mondavi acquisition and an additional one
month of net sales of $45.7 million of branded wines acquired in the Hardy
Acquisition, completed in March 2003, and a favorable foreign currency impact of
$63.3 million. The increases in branded wine net sales in the U.S., Europe and
Australasia are primarily due to volume growth as the Company continues to
benefit from increased distribution and greater consumer demand for premium
wines. Wholesale and other net sales increased $174.3 million primarily due to
growth in the U.K. wholesale business of $84.1 million (on a constant currency
basis) and a favorable foreign currency impact of $92.2 million. The net sales
increase in the U.K. wholesale business on a local currency basis is primarily
due to the addition of new national accounts in the first quarter of fiscal 2005
and increased sales in existing accounts during Fiscal 2005.
Constellation
Beers and Spirits
Net sales
for Constellation Beers and Spirits increased to $1,236.2 million for Fiscal
2005 from $1,147.2 million for Fiscal 2004, an increase of $89.0 million, or
7.8%. This increase resulted from a $60.3 million increase in imported beer net
sales and an increase in spirits net sales of $28.7 million. The growth in
imported beer sales is primarily due to a price increase on the Company’s
Mexican beer portfolio, which was introduced in January 2004. The growth in
spirits net sales is attributable to increases in both the Company’s contract
production net sales as well as volume growth in branded net sales.
Gross
Profit
The
Company’s gross profit increased to $1,140.6 million for Fiscal 2005 from $975.8
million for Fiscal 2004, an increase of $164.8 million, or 16.9%. The
Constellation Wines segment’s gross profit increased $122.6 million primarily
due to the additional two months of sales of products acquired in the Robert
Mondavi acquisition, volume growth in the U.S. branded wine net sales and a
favorable foreign currency impact. The Constellation Beers and Spirits segment’s
gross profit increased $30.6 million primarily due to the increase in imported
beer net sales and volume growth in the segment’s spirits portfolio. In
addition, net unusual costs, which consist of certain costs that are excluded by
management in their evaluation of the results of each operating segment, were
lower by $11.6 million in Fiscal 2005 versus Fiscal 2004. This decrease resulted
from a $16.8 million write-down of commodity concentrate inventory in Fiscal
2004 in connection with the Company’s decision to exit the commodity concentrate
product line in the U.S. (see additional discussion under “Restructuring and
Related Charges” below) and reduced flow through of inventory step-up associated
with the Hardy and Robert Mondavi acquisitions of $16.0 million, partially
offset by the relief from certain excise tax, duty and other costs incurred in
prior years of $11.5 million, which was recognized in the fourth quarter of
fiscal 2004, and the flow through of adverse grape cost associated with the
Robert Mondavi acquisition of $9.8 million in Fiscal 2005. Gross profit as a
percent of net sales increased to 27.9% for Fiscal 2005 from 27.5% for Fiscal
2004 primarily due to the lower net unusual costs.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased to $555.7 million for Fiscal 2005
from $457.3 million for Fiscal 2004, an increase of $98.4 million, or 21.5%. The
Constellation Wines segment’s selling, general and administrative expenses
increased $64.7 million primarily due to increased selling and advertising
expenses as the Company continues to invest behind specific wine brands to drive
broader distribution and additional selling, general and administrative expenses
from the addition of the Robert Mondavi business. The Constellation Beers and
Spirits segment’s selling, general and administrative expenses increased $7.1
million primarily due to increased imported beer and spirits selling expenses to
support the growth across this segment’s businesses. The Corporate Operations
and Other segment’s selling, general and administrative expenses increased $13.7
million primarily due to increased general and administrative expenses to
support the Company’s growth and costs associated with higher professional
services fees, including costs incurred in connection with compliance activities
associated with the Sarbanes-Oxley Act of 2002. Lastly, there was an increase of
$12.9 million of net unusual costs which consist of certain items that are
excluded by management in their evaluation of the results of each operating
segment. This increase includes $31.7 million of financing costs recorded in
Fiscal 2005 related to (i) the Company’s redemption of its Senior Subordinated
Notes (as defined below) and (ii) the Company’s new senior credit facility
entered into in connection with the Robert Mondavi acquisition as compared to
$11.6 million of financing costs recorded in Fiscal 2004 in connection with the
Hardy Acquisition. Partially offsetting the $20.1 million increase in financing
costs were net gains recorded in Fiscal 2005 on the sales of non-strategic
assets and the receipt of a payment associated with the termination of a
previously announced potential fine wine joint venture. Selling, general and
administrative expenses as a percent of net sales increased to 13.6% for Fiscal
2005 as compared to 12.9% for Fiscal 2004 primarily due to the growth in the
Corporate Operations and Other segment’s general and administrative expenses and
the increased net unusual costs described above.
Restructuring
and Related Charges
The
Company recorded $7.6 million of restructuring and related charges for Fiscal
2005 associated with the restructuring plans of the Constellation Wines segment.
Restructuring and related charges resulted from (i) the further realignment of
business operations as previously announced in Fiscal 2004, (ii) the
Company’s decision in Fiscal 2004 to exit the commodity concentrate product
line in the U.S. (collectively, the “Fiscal 2004 Plan”), and (iii) the Company’s
decision to restructure and integrate the operations of Robert Mondavi (the
“Robert Mondavi Plan”). The Company is in the process of refining the Robert
Mondavi Plan which will be finalized during Fiscal 2006. Restructuring and
related charges included $3.8 million of employee termination benefit costs (net
of reversal of prior accruals of $0.2 million), $1.5 million of contract
termination costs, $1.0 million of facility consolidation and relocation costs,
and other related charges of $1.3 million. The Company recorded $31.2 million of
restructuring and related charges for Fiscal 2004 associated with the Fiscal
2004 Plan. In total, the Company recorded $48.0 million of costs for Fiscal 2004
allocated between cost of product sold and restructuring and related charges
associated with the Fiscal 2004 Plan.
For
Fiscal 2006, the Company expects to incur total restructuring and related
charges of $4.9 million associated with the restructuring plans of the
Constellation Wines segment. These charges are expected to consist of $1.7
million related to the further realignment of business operations in the
Constellation Wines segment and $3.2 million
related to the Robert Mondavi Plan.
Acquisition-Related
Integration Costs
The
Company recorded $9.4 million of acquisition-related integration costs for
Fiscal 2005 associated with the Robert Mondavi Plan. Acquisition-related
integration costs included $4.9 million of employee related costs and $4.5
million of facilities and other one-time costs. The Company expects to incur $14
million of acquisition-related integration costs for Fiscal 2006. These charges
are expected to consist of $5 million of employee related costs and $9 million
of facilities and other one-time costs.
Operating
Income
The
following table sets forth the operating income (loss) (in thousands of dollars)
by operating segment of the Company for Fiscal 2005 and Fiscal
2004.
|
Fiscal
2005 Compared to Fiscal 2004
|
|
|||||||||
|
|
|
Operating
Income (Loss)
|
|
|||||||
|
|
|
2005
|
|
2004
|
|
%
Increase/
(Decrease)
|
||||
Constellation Wines |
$
|
406,562
|
$
|
348,132
|
16.8
|
%
|
||||
Constellation Beers and Spirits |
276,109
|
252,533
|
9.3
|
%
|
||||||
|
Corporate Operations and Other
|
(55,980
|
)
|
(41,717
|
)
|
34.2
|
%
|
||||
Total
Reportable Segments |
626,691
|
558,948
|
12.1
|
%
|
||||||
|
Acquisition-Related
Integration Costs,
Restructuring
and Related Charges
and
Net Unusual Costs
|
(58,795
|
)
|
(71,591
|
)
|
(17.9
|
)%
|
||||
|
Consolidated Operating Income
|
$
|
567,896
|
$
|
487,357
|
16.5
|
%
|
||||
As a
result of the factors discussed above, consolidated operating income increased
to $567.9 million for Fiscal 2005 from $487.4 million for Fiscal 2004, an
increase of $80.5 million, or 16.5%. Acquisition-related integration costs,
restructuring and related charges and net unusual costs of $58.8 million for
Fiscal 2005 consist of certain costs that are excluded by management in their
evaluation of the results of each operating segment. These costs represent
financing costs associated with the redemption of the Company’s Senior
Subordinated Notes and the Company’s new senior credit facility entered into in
connection with the Robert Mondavi acquisition of $31.7 million, adverse grape
cost and acquisition-related integration costs associated with the Company’s
acquisition of Robert Mondavi of $9.8 million and $9.4 million, respectively,
restructuring and related charges of $7.6 million in the wine segment associated
with the Company’s realignment of its business operations and the Robert Mondavi
acquisition, and the flow through of inventory step-up associated with the Hardy
and Robert Mondavi acquisitions of $6.4 million, partially offset by a net gain
on the sale of non-strategic assets of $3.1 million and a gain related to the
receipt of a payment associated with the termination of a previously announced
potential fine wine joint venture of $3.0 million. Acquisition-related
integration costs, restructuring and related charges and net unusual costs of
$71.6 million for Fiscal 2004 represent the flow through of inventory
step-up and
the amortization of deferred financing costs associated with the Hardy
Acquisition of $22.5 million and $11.6 million, respectively, and costs
associated with exiting the commodity concentrate product line and the Company’s
realignment of its business operations in the wine segment, including the
write-down of commodity concentrate inventory of $16.8 million and restructuring
and related charges of $31.1 million, partially offset by the relief from
certain excise taxes, duty and other costs incurred in prior years of $10.4
million.
Interest
Expense, Net
Interest
expense, net of interest income of $2.3 million and $3.6 million for Fiscal 2005
and Fiscal 2004, respectively, decreased to $137.7 million for Fiscal 2005 from
$144.7 million for Fiscal 2004, a decrease of $7.0 million, or (4.8%). The
decrease resulted from lower average borrowing rates in Fiscal 2005 as well as
lower average borrowings. The reduction in average borrowing rates was
attributed in part to the replacement of $200.0 million of higher fixed rate
subordinated note debt with lower variable rate revolver debt. The reduction in
average borrowings resulted from the use of proceeds from the Company’s equity
offerings in July 2003 to pay down debt incurred to partially finance the Hardy
Acquisition combined with on-going principal payments on long-term debt,
partially offset by additional borrowings in the fourth quarter of fiscal 2005
to finance the Robert Mondavi acquisition.
Provision
for Income Taxes
The
Company’s effective tax rate remained the same at 36.0% for Fiscal 2005 and
Fiscal 2004.
Net
Income
As a
result of the above factors, net income increased to $276.5 million
for Fiscal 2005 from $220.4 million for Fiscal 2004, an increase of
$56.1 million,
or 25.4%.
Fiscal
2004 Compared to Fiscal 2003
Net
Sales
The
following table sets forth the net sales (in thousands of dollars) by operating
segment of the Company for Fiscal 2004 and Fiscal 2003.
|
Fiscal
2004 Compared to Fiscal 2003
|
||||||||||
|
|
Net
Sales
|
|||||||||
|
|
2004
|
2003
|
%
Increase
|
|||||||
Constellation
Wines: |
||||||||||
Branded
wines
|
$
|
1,549,750
|
$
|
983,505
|
57.6
|
%
|
||||
|
Wholesale
and other
|
846,306
|
689,794
|
22.7
|
%
|
||||||
|
Constellation
Wines net sales
|
$
|
2,396,056
|
$
|
1,673,299
|
43.2
|
%
|
||||
Constellation
Beers and Spirits: |
||||||||||
Imported
beers
|
$
|
862,637
|
$
|
776,006
|
11.2
|
%
|
||||
|
Spirits
|
284,551
|
282,307
|
0.8
|
%
|
||||||
|
Constellation
Beers and Spirits net sales
|
$
|
1,147,188
|
$
|
1,058,313
|
8.4
|
%
|
||||
|
Corporate
Operations and Other
|
$
|
-
|
$
|
-
|
N/A
|
|||||
|
Unusual
gain
|
$
|
9,185
|
$
|
-
|
N/A
|
|||||
|
Consolidated
Net Sales
|
$
|
3,552,429
|
$
|
2,731,612
|
30.0
|
%
|
||||
Net sales
for Fiscal 2004 increased to $3,552.4 million from $2,731.6 million for Fiscal
2003, an increase of $820.8 million, or 30.0%. This
increase resulted primarily from the inclusion of $571.4 million of net sales of
products acquired in the Hardy Acquisition as well as increases in imported beer
sales of $86.6 million and U.K. wholesale sales of $61.1 million (on a constant
currency basis). In addition, net sales benefited from a favorable foreign
currency impact of $74.6 million.
Constellation
Wines
Net sales
for the Constellation Wines segment for Fiscal 2004 increased to $2,396.1
million
from $1,673.3 million
for Fiscal 2003, an increase of $722.8
million,
or 43.2%. Branded
wine net sales increased $566.2 million, primarily due to the addition of $548.4
million of net sales of branded wine acquired in the Hardy Acquisition.
Wholesale and other net sales increased $156.5 million primarily due to a
favorable foreign currency impact of $63.1 million, growth in the U.K. wholesale
business of $61.1 million (on a constant currency basis), and the addition of
$23.0 million of net sales of bulk wine acquired in the Hardy Acquisition. The
net sales increase in the U.K. Wholesale business on a local currency basis is
primarily due to the addition of new accounts and increased average delivery
sizes as the Company’s national accounts business continues to
grow.
Constellation
Beers and Spirits
Net sales
for the Constellation Beers and Spirits segment for Fiscal 2004 increased to
$1,147.2 million from $1,058.3 million for Fiscal 2003, an increase of $88.9
million, or 8.4%. This increase resulted primarily from volume gains on the
Company’s imported beer portfolio, which increased $86.6 million. Spirits net
sales remained relatively flat as increased branded spirits sales were offset by
lower bulk whisky and contract production sales.
Gross
Profit
The
Company’s gross profit increased to $975.8 million for Fiscal 2004 from $760.7
million for Fiscal 2003, an increase of $215.1 million, or 28.3%. The
Constellation Wines segment’s gross profit increased $200.4 million primarily
due to gross profit on the sales of branded wine acquired in the Hardy
Acquisition. The Constellation Beers and Spirits segment’s gross profit
increased $42.5 million primarily due to the volume growth in the segment’s
imported beer portfolio. These increases were partially offset by $27.8 million
of net unusual costs which consist of certain items that are excluded by
management in their evaluation of the results of each operating segment. These
net costs represent the flow through of inventory step-up associated with the
Hardy Acquisition of $22.5 million and the write-down of concentrate inventory
recorded in connection with the Company’s decision to exit the commodity
concentrate product line of $16.8 million (see additional discussion under
“Restructuring and Related Charges” below), partially offset by the relief from
certain excise tax, duty and other costs incurred in prior years of $11.5
million, which was recognized in the fourth quarter of fiscal 2004. Gross profit
as a percent of net sales decreased slightly to 27.5% for Fiscal 2004 from 27.8%
for Fiscal 2003 as an increase in gross profit margin from sales of higher
margin wine brands acquired in the Hardy Acquisition was more than offset by the
net unusual costs discussed above and a decrease in gross profit margin on the
Constellation Wines’ U.K. wholesale business.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses increased to $457.3 million for Fiscal 2004
from $351.0 million for Fiscal 2003, an increase of $106.3 million, or 30.3%.
The Constellation Wines segment’s selling, general and administrative expenses
increased $76.8 million primarily due to $67.7 million of selling, general and
administrative expenses from the addition of the Hardy and PWP businesses. The
Constellation Beers and Spirits segment’s selling, general and administrative
expenses increased $7.9 million due to increased imported beer and spirits
advertising and selling expenses to support the growth across this segment’s
businesses, partially offset by foreign currency gains. The Corporate Operations
and Other segment’s general and administrative expenses increased $8.9 million
primarily due to additional deferred financing costs associated with the
Company’s new bank credit facility and increased general and administrative
expenses to support the Company’s growth. In addition, there was a $12.7 million
increase in selling, general and administrative expenses related to net unusual
costs which consist of certain items that are excluded by management in their
evaluation of the results of each operating segment. These costs consist
primarily of the additional amortized deferred financing costs associated with
the bridge financing in connection with the Hardy Acquisition of $11.6 million.
Selling, general and administrative expenses as a percent of net sales increased
slightly to 12.9% for Fiscal 2004 as compared to 12.8% for Fiscal 2003 due
primarily to the net unusual costs and the increased general and administrative
expenses within the Corporate Operations and Other segment as discussed
above.
Restructuring
and Related Charges
The
Company recorded $31.2 million of restructuring and related charges for Fiscal
2004 associated with the restructuring plan of the Constellation Wines segment.
Restructuring and related charges resulted from (i) $10.0 million related to the
realignment of business operations and (ii) $21.2 million related to exiting the
commodity concentrate product line in the U.S. and selling its winery located in
Escalon, California. In total, the Company recorded $38.0 million of costs
associated with exiting the commodity concentrate product line and selling its
Escalon facility allocated between cost of product sold ($16.8 million) and
restructuring and related charges ($21.2 million).
The
Company recorded $4.8 million of restructuring and related charges for Fiscal
2003 associated with an asset impairment charge in connection with two of
Constellation Wines segment’s production facilities.
Operating
Income
The
following table sets forth the operating income (loss) (in thousands of dollars)
by operating segment of the Company for Fiscal 2004 and Fiscal
2003.
|
Fiscal
2004 Compared to Fiscal 2003
|
|
|||||||||
|
|
|
Operating
Income (Loss)
|
|
|||||||
|
|
|
2004
|
|
2003
|
|
%
Increase
|
||||
Constellation
Wines |
$
|
348,132
|
$
|
224,556
|
55.0
|
%
|
||||
Constellation
Beers and Spirits |
252,533
|
217,963
|
15.9
|
%
|
||||||
|
Corporate
Operations and Other
|
(41,717
|
)
|
(32,797
|
)
|
27.2
|
%
|
||||
Total
Reportable Segments
|
558,948
|
409,722
|
36.4
|
%
|
||||||
|
Acquisition-Related
Integration Costs
Restructuring
and Related Charges
and
Net Unusual Costs
|
(71,591
|
)
|
(4,764
|
)
|
1402.7
|
%
|
||||
|
Consolidated
Operating Income
|
$
|
487,357
|
$
|
404,958
|
20.3
|
%
|
||||
As a
result of the factors discussed above, consolidated operating income increased
to $487.4
million for Fiscal 2004 from $405.0 million for Fiscal 2003, an increase of
$82.4 million, or 20.3%. Acquisition-related integration costs, restructuring
and related charges and net unusual costs of $71.6 million and $4.8 million for
Fiscal 2004 and Fiscal 2003, respectively, consist of certain costs that are
excluded by management in their evaluation of the results of each operating
segment. Fiscal 2004 costs represent the flow through of inventory step-up and
the amortization of deferred financing costs associated with the Hardy
Acquisition of $22.5 million and $11.6 million, respectively, and costs
associated with exiting the commodity concentrate product line and the Company’s
realignment of its business operations in the wine segment, including the
write-down of concentrate inventory of $16.8 million and restructuring and
related charges of $31.2 million, partially offset by the relief from certain
excise taxes, duty and other costs incurred in prior years of $10.4 million.
Fiscal 2003 costs represent restructuring and related charges associated with
the Company’s realignment of its business operations in the wine
segment.
Gain
on Change in Fair Value of Derivative Instruments
The
Company entered into a foreign currency collar contract in February 2003 in
connection with the Hardy Acquisition to lock in a range for the cost of the
acquisition in U.S. dollars. As of February 28, 2003, this derivative instrument
had a fair value of $23.1 million. Under SFAS No. 133, a transaction that
involves a business combination is not eligible for hedge accounting treatment.
As such, the derivative was recorded on the balance sheet at its fair value with
the change in the fair value recognized separately on the Company’s Consolidated
Statements of Income. During the first quarter of fiscal 2004, the gain on
change in fair value of the derivative instrument of $1.2 million was recognized
separately on the Company’s Consolidated Statement of Income.
Equity
in Earnings of Equity Method Investees
The
Company’s equity in earnings of equity method investees decreased to $0.5
million in Fiscal 2004 from $12.2 million in Fiscal 2003 due to the acquisition
of the remaining 50% ownership of PWP in March 2003 resulting in consolidation
of PWP’s results of operations since the date of acquisition.
Interest
Expense, Net
Interest
expense, net of interest income of $3.6 million and $0.8 million for Fiscal 2004
and Fiscal 2003, respectively, increased to $144.7 million for Fiscal 2004 from
$105.4 million for Fiscal 2003, an increase of $39.3 million, or 37.3%.
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 Fiscal 2004 declined to 36.0% from 39.3% for
Fiscal 2003 as a result of the Hardy Acquisition, which significantly increased
the allocation of income to jurisdictions with lower income tax
rates.
Net
Income
As a
result of the above factors, net income increased to $220.4 million for Fiscal
2004 from $203.3 million for Fiscal 2003, an increase of $17.1 million, or
8.4%.
Financial
Liquidity and Capital Resources
General
The
Company’s principal use of cash in its operating activities is for purchasing
and carrying inventories and carrying seasonal accounts receivable. The
Company’s primary source of liquidity has historically been cash flow from
operations, except during annual grape harvests when the Company has relied on
short-term borrowings. In the United States, the annual grape crush normally
begins in August and runs through October. In Australia, the annual grape crush
normally begins in February and runs through May. The Company generally begins
taking delivery of grapes at the beginning of the crush season with payments for
such grapes beginning to come due one month later. The Company’s short-term
borrowings to support such purchases generally reach their highest levels one to
two months after the crush season has ended. Historically, the Company has used
cash flow from operating activities to repay its short-term borrowings and fund
capital expenditures. The Company will continue to use its short-term borrowings
to support its working capital requirements. The Company believes that cash
provided by operating activities and its financing activities, primarily
short-term borrowings, will provide adequate resources to satisfy its working
capital, scheduled principal and interest payments on debt, preferred stock
dividend payment requirements, and anticipated capital expenditure requirements
for both its short-term and long-term capital needs. The Company also has in
place an effective shelf registration statement covering the potential sale of
up to $750.0 million of debt securities, preferred stock, Class A Common Stock
or any combination thereof. As of May 16, 2005,
the entire $750.0 million of capacity was available under the shelf registration
statement.
Fiscal
2005 Cash Flows
Operating
Activities
Net cash
provided by operating activities for Fiscal 2005 was $320.7 million, which
resulted from $276.5 million of net income, plus $176.0 million of net noncash
items charged to the Consolidated Statement of Income, less $131.7 million
representing the net change in the Company’s operating assets and liabilities.
The net noncash items consisted primarily of depreciation of property, plant and
equipment, deferred tax provision and the noncash portion of loss on
extinguishment of debt. The net change in operating assets and liabilities
resulted primarily from increases in accounts receivable and inventories. The
increases in accounts receivable and inventories are primarily as a result of
the Company’s growth in Fiscal 2005.
Investing
Activities
Net cash
used in investing activities for Fiscal 2005 was $1,222.9 million, which
resulted primarily from net cash paid of $1,052.5 million for purchases of
businesses and $119.7 million of capital expenditures.
Financing
Activities
Net cash
provided by financing activities for Fiscal 2005 was $884.2 million resulting
primarily from proceeds from issuance of long-term debt of $2,400.0 million,
partially offset by principal payments of long-term debt of $1,488.7
million.
Fiscal
2004 Cash Flows
Operating
Activities
Net cash
provided by operating activities for Fiscal 2004 was $340.3 million, which
resulted from $220.4 million of net income, plus $137.9 million of net noncash
items charged to the Consolidated Statement of Income, less $18.0 million
representing the net change in the Company’s operating assets and liabilities.
The net non-cash items consisted primarily of depreciation of property, plant
and equipment, deferred tax provision and amortization of intangible and other
assets. The net change in operating assets and liabilities resulted primarily
from an increase in accounts receivable and a decrease in accounts payable,
partially offset by a decrease in inventories and an increase in accrued
advertising and promotion.
Investing
Activities
Net cash
used in investing activities for Fiscal 2004 was $1,158.5 million, which
resulted primarily from net cash paid of $1,069.5 million for the purchases of
businesses and $105.1 million of capital expenditures.
Financing
Activities
Net cash
provided by financing activities for Fiscal 2004 was $745.2 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, plus net
proceeds from the 2003 Equity Offerings (as defined below) of $426.1 million.
This amount was partially offset by principal payments of long-term debt of
$1,282.3 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 May 16,
2005, the Company had purchased a total of 8,150,688 shares of Class A Common
Stock at an aggregate cost of $44.9 million, or at an average cost of $5.51 per
share. Of this total amount, no shares were repurchased during Fiscal 2005,
Fiscal 2004 or Fiscal 2003.
Debt
Total
debt outstanding as of February 28, 2005, amounted to $3,289.3 million,
an increase of $1,241.4
million
from February 29, 2004. The ratio of total debt to total capitalization
increased to 54.2% as of
February 28, 2005, from 46.3% as of February 29, 2004, primarily as a result of
the additional borrowings in the fourth quarter of fiscal 2005 to finance the
acquisition of Robert Mondavi.
Senior
Credit Facility
2004
Credit Agreement
In
connection with the acquisition of Robert Mondavi, on December 22, 2004, the
Company and its U.S. subsidiaries (excluding certain inactive subsidiaries),
together with certain of its subsidiaries organized in foreign jurisdictions,
JPMorgan Chase Bank, N.A. as a lender and administrative agent, and certain
other agents, lenders, and financial institutions entered into a new credit
agreement (the “2004 Credit Agreement”). The 2004 Credit Agreement provides for
aggregate credit facilities of $2.9 billion, consisting of a $600.0 million
tranche A term loan facility due in November 2010, a $1.8 billion tranche B term
loan facility due in November 2011, and a $500.0 million revolving credit
facility (including a sub-facility for letters of credit of up to $60.0 million)
which terminates in December 2010. Proceeds of the 2004 Credit Agreement were
used to pay off the Company’s obligations under its prior senior credit
facility, to fund the cash consideration payable in connection with its
acquisition of Robert Mondavi, and to pay certain obligations of Robert Mondavi,
including indebtedness outstanding under its bank facility and unsecured notes
of $355.4 million. The Company uses the remaining availability under the 2004
Credit Agreement to fund its working capital needs on an as needed
basis. In
connection with entering into the 2004 Credit Agreement, the Company recorded a
charge of $21.4 million in selling, general and administrative expenses for the
write-off of bank fees related to the repayment of the Company’s prior senior
credit facility in the fourth quarter of fiscal 2005.
The
tranche A term loan facility and the tranche B term loan facility were fully
drawn on December 22, 2004. As of February 28, 2005, the required principal
repayments of the tranche A term loan and the tranche B term loan are as
follows:
|
Tranche
A
Term
Loan
|
|
Tranche
B
Term
Loan
|
|
Total
|
||||||
(in
thousands) |
||||||||||
2006 |
$
|
60,000
|
$
|
-
|
$
|
60,000
|
||||
2007 |
67,500
|
17,168
|
84,668
|
|||||||
2008 |
97,500
|
17,168
|
114,668
|
|||||||
2009 |
120,000
|
17,168
|
137,168
|
|||||||
2010 |
127,500
|
17,168
|
144,668
|
|||||||
|
Thereafter
|
112,500
|
1,626,828
|
1,739,328
|
|||||||
$
|
585,000
|
$
|
1,695,500
|
$
|
2,280,500
|
|||||
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
2004 Credit Agreement) and, with respect to LIBOR borrowings, ranges between
1.00% and 1.75%. As of February 28, 2005, the LIBOR margin for the revolving
credit facility and the tranche A term loan facility is 1.50%, while the LIBOR
margin on the tranche B term loan facility is 1.75%.
The
Company’s obligations are guaranteed by its U.S. subsidiaries (excluding certain
inactive subsidiaries) and by certain of its foreign subsidiaries. These
obligations are also secured by a pledge of (i) 100% of the ownership interests
in most of the Company’s U.S. subsidiaries and (ii) 65% of the voting capital
stock of certain of the Company’s foreign subsidiaries.
The
Company and its subsidiaries are also subject to 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, the disposition and
acquisition of property and the making of certain investments, in each case
subject to numerous baskets, exceptions and thresholds. The financial covenants
are limited to maximum total debt and senior debt coverage ratios and minimum
fixed charges and interest coverage ratios. As of February 28, 2005, the Company
is in compliance with all of its covenants under its 2004 Credit
Agreement.
As of
February 28, 2005, under the 2004 Credit Agreement, the Company had outstanding
tranche A term loans of $585.0 million bearing a weighted average interest rate
of 4.3%, tranche B term loans of $1,695.5 billion bearing a weighted average
interest rate of 4.4%, revolving loans of $14.0 million bearing a weighted
average interest rate of 3.8%, undrawn revolving letters of credit of $36.7
million, and $449.3 million in revolving loans available to be
drawn.
As of
February 28, 2005, the Company had outstanding five year interest rate swap
agreements to minimize interest rate volatility. The swap agreements fix LIBOR
interest rates on $1,200.0 million of the Company’s floating LIBOR rate debt at
an average rate of 4.1% over the five-year term. Subsequent to February 28,
2005, the Company monetized the value of the interest rate swaps by replacing
them with new swaps which extended the hedged period through fiscal 2010. The
Company received $30.3 million in proceeds from the unwinding of the original
swaps. This amount will be reclassified from Accumulated Other Comprehensive
Income ratably into earnings in the same period in which the original
hedged item is recorded in the Consolidated Statement of Income. The
effective interest rate remains the same under the new swap structure at
4.1%.
Foreign
Subsidiary Facilities
The
Company has additional credit arrangements available totaling $176.0 million as
of February 28, 2005. These arrangements support the financing needs of
certain of the Company’s foreign subsidiary operations. Interest rates and other
terms of these borrowings vary from country to country, depending on local
market conditions. As of February 28, 2005, amounts outstanding under the
subsidiary credit arrangements were $34.0 million.
Senior
Notes
As of
February 28, 2005, 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
February 28, 2005, the Company had outstanding £1.0 million ($1.9 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 February 28, 2005,
the Company had outstanding £154.0 million ($295.4 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 February 28, 2005, 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
On March
4, 1999, the Company issued $200.0 million aggregate principal amount of 8 1/2%
Senior Subordinated Notes due March 2009 (“Senior Subordinated Notes”). The
Senior Subordinated Notes were redeemable at the option of the Company, in whole
or in part, at any time on or after March 1, 2004. On February 10, 2004, the
Company issued a Notice of Redemption for its Senior Subordinated Notes. On
March 11, 2004, the Senior Subordinated Notes were redeemed with proceeds from
the revolving credit facility under the Company’s then existing senior credit
facility at 104.25% of par plus accrued interest. During Fiscal 2005, in
connection with this redemption, the Company recorded a charge of $10.3 million
in selling, general and administrative expenses for the call premium and the
remaining unamortized financing fees associated with the original issuance of
the Senior Subordinated Notes.
As of
February 28, 2005, 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.
Contractual
Obligations and Commitments
The
following table sets forth information about the Company’s long-term contractual
obligations outstanding at February 28, 2005. It brings together data for easy
reference from the consolidated balance sheet and from individual notes to the
Company’s consolidated financial statements. See Notes 9, 11, 12, 13 and 14 to
the Company’s consolidated financial statements located in Item 8 of this Annual
Report on Form 10-K for detailed discussion of items noted in the following
table.
|
PAYMENTS
DUE BY PERIOD
|
|
|||||||||||||||
|
|
|
Total
|
|
Less
than
1
year
|
|
1-3
years
|
|
3-5
years
|
|
After
5
years
|
||||||
(in
thousands) |
||||||||||||||||
Contractual
obligations |
||||||||||||||||
Notes
payable to banks |
$
|
16,475
|
$
|
16,475
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
|
Long-term
debt (excluding
unamortized
discount)
|
3,273,258
|
68,094
|
619,746
|
594,249
|
1,991,169
|
|||||||||||
Operating
leases |
408,221
|
52,952
|
91,094
|
63,060
|
201,115 |
|||||||||||
Other
long term liabilities |
358,316
|
88,410
|
111,926
|
59,367
|
98,613
|
|||||||||||
|
Unconditional
purchase
obligations(1)
|
2,755,098
|
470,788
|
731,604
|
501,588
|
1,051,118
|
|||||||||||
|
Total
contractual
obligations
|
$
|
6,811,368
|
$
|
696,719
|
$
|
1,554,370
|
$
|
1,218,264
|
$
|
3,342,015
|
||||||
|
(1)
|
Total
unconditional purchase obligations consist of $27.2 million
for contracts to purchase various spirits over the next eight fiscal
years, $2,499.7 million for contracts to purchase grapes over the next ten
fiscal years, $132.1 million for contracts to purchase bulk wine over the
next seven fiscal years, $80.0 million for processing contracts over the
next ten fiscal years, and $16.0 million for sweetener purchase contracts
over the next two fiscal years. See Note 14 to the Company’s consolidated
financial statements located in Item 8 of this Annual Report on Form 10-K
for a detailed discussion of these items.
|
Equity
Offerings
During
July 2003, the Company completed a public offering of 19,600,000 shares of its
Class A Common Stock resulting in net proceeds to the Company, after deducting
underwriting discounts and expenses, of $261.2 million. In addition, the Company
also completed a public offering of 170,500 shares of its 5.75% Series A
Mandatory Convertible Preferred Stock (“Preferred Stock”) resulting in net
proceeds to the Company, after deducting underwriting discounts and expenses, of
$164.9 million. The Class A Common Stock offering and the Preferred Stock
offering are referred to together as the “2003 Equity Offerings.” The majority
of the net proceeds from the 2003 Equity Offerings were used to repay the
Company’s then existing bridge loans that were incurred to partially finance the
Hardy Acquisition. The remaining proceeds were used to repay term loan
borrowings under the Company’s then existing senior credit
facility.
Capital
Expenditures
During
Fiscal 2005, the Company incurred $119.7 million for capital expenditures. The
Company plans to spend approximately $140 million for capital expenditures in
Fiscal 2006. In addition, the Company continues to consider the purchase, lease
and development of vineyards and may incur additional expenditures for vineyards
if opportunities become available. See “Business - Sources and Availability of
Raw Materials” under Item 1 of this Annual Report on Form 10-K. Management
reviews the capital expenditure program periodically and modifies it as required
to meet current business needs.
Effects
of Inflation and Changing Prices
The
Company’s results of operations and financial condition have not been
significantly affected by inflation and changing prices. The Company has been
able, subject to normal competitive conditions, to pass along rising costs
through increased selling prices. There can be no assurances, however, that the
Company will continue to be able to pass along rising costs through increased
selling prices.
Critical
Accounting Policies
The
Company’s significant accounting policies are more fully described in Note 1 to
the Company’s consolidated financial statements located in Item 8 of this Annual
Report on Form 10-K. However, certain of the Company’s accounting policies are
particularly important to the portrayal of the Company’s financial position and
results of operations and require the application of significant judgment by the
Company’s management; as a result they are subject to an inherent degree of
uncertainty. In applying those policies, the Company’s management uses its
judgment to determine the appropriate assumptions to be used in the
determination of certain estimates. Those estimates are based on the Company’s
historical experience, the Company’s observance of trends in the industry,
information provided by the Company’s customers and information available from
other outside sources, as appropriate. On an ongoing basis, the Company reviews
its estimates to ensure that they appropriately reflect changes in the Company’s
business. The Company’s critical accounting policies include:
| · |
Accounting
for promotional activities. Sales
reflect reductions attributable to consideration given to customers in
various customer incentive programs, including pricing discounts on single
transactions, volume discounts, promotional and advertising allowances,
coupons, and rebates. Certain customer incentive programs require
management to estimate the cost of those programs. The accrued liability
for these programs is determined through analysis of programs offered,
historical trends, expectations regarding customer and consumer
participation, sales and payment trends, and experience with payment
patterns associated with similar programs that had been previously
offered. If assumptions included in the Company’s estimates were to change
or market conditions were to change, then material incremental reductions
to revenue could be required, which would have a material adverse impact
on the Company’s financial statements. Promotional costs were $390.9
million, $336.4 million and $231.6 million for Fiscal 2005, Fiscal 2004
and Fiscal 2003, respectively.
|
| · |
Inventory
valuation.
Inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out method. The Company assesses the
valuation of its inventories and reduces the carrying value of those
inventories that are obsolete or in excess of the Company’s forecasted
usage to their estimated net realizable value. The Company estimates the
net realizable value of such inventories based on analyses and assumptions
including, but not limited to, historical usage, future demand and market
requirements. Reductions to the carrying value of inventories are recorded
in cost of goods sold. If the future demand for the Company’s products is
less favorable than the Company’s forecasts, then the value of the
inventories may be required to be reduced, which could result in material
additional expense to the Company and have a material adverse impact on
the Company’s financial statements.
|
| · |
Accounting
for business combinations.
The acquisition of businesses is an important element of the Company’s
strategy. Under the purchase method, the Company is required to record the
net assets acquired at the estimated fair value at the date of
acquisition. The determination of the fair value of the assets acquired
and liabilities assumed requires the Company to make estimates and
assumptions that affect the Company’s financial statements. For example,
the Company’s acquisitions typically result in goodwill and other
intangible assets; the value and estimated life of those assets may affect
the amount of future period amortization expense for intangible assets
with finite lives as well as possible impairment charges that may be
incurred.
|
| · |
Impairment
of goodwill and intangible assets with indefinite lives.
Intangible assets with indefinite lives consist primarily of trademarks as
well as agency relationships. The Company is required to analyze its
goodwill and other intangible assets with indefinite lives for impairment
on an annual basis as well as when events and circumstances indicate that
an impairment may have occurred. Certain factors that may occur and
indicate that an impairment exists include, but are not limited to,
operating results that are lower than expected and adverse industry or
market economic trends. The impairment testing requires management to
estimate the fair value of the assets or reporting unit and record an
impairment loss for the excess of the carrying value over the fair value.
The estimate of fair value of the assets is generally determined on the
basis of discounted future cash flows. The estimate of fair value of the
reporting unit is generally determined on the basis of discounted future
cash flows supplemented by the market approach. In estimating the fair
value, management must make assumptions and projections regarding such
items as future cash flows, future revenues, future earnings and other
factors. The assumptions used in the estimate of fair value are generally
consistent with the past performance of each reporting unit and other
intangible assets and are also consistent with the projections and
assumptions that are used in current operating plans. Such assumptions are
subject to change as a result of changing economic and competitive
conditions. If these estimates or their related assumptions change in the
future, the Company may be required to record an impairment loss for these
assets. The recording of any resulting impairment loss could have a
material adverse impact on the Company’s financial
statements.
|
Accounting
Pronouncements Not Yet Adopted
In
November 2004, the FASB issued Statement of Financial Accounting Standards No.
151 (“SFAS No. 151”), “Inventory Costs - an amendment of ARB No. 43, Chapter 4.”
SFAS No. 151 amends the guidance in Accounting Research Bulletin No. 43 (“ARB
No. 43”), “Restatement and Revision of Accounting Research Bulletins,” Chapter
4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). SFAS
No. 151 requires that those items be recognized as current period charges. In
addition, SFAS No. 151 requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production
facilities. The Company is required to adopt SFAS No. 151 for fiscal years
beginning March 1, 2006. The Company is currently assessing the financial impact
of SFAS No. 151 on its consolidated financial statements.
In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004) (“SFAS No. 123(R)”), “Share-Based Payment.” SFAS No. 123(R)
replaces Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”),
“Accounting for Stock-Based Compensation,” and supersedes Accounting Principles
Board Opinion No. 25 (“APB Opinion No. 25”), “Accounting for Stock Issued to
Employees.” SFAS No. 123(R) requires the cost resulting from all share-based
payment transactions be recognized in the financial statements. In addition,
SFAS No. 123(R) establishes fair value as the measurement objective in
accounting for share-based payment arrangements and requires all entities to
apply a grant date fair-value-based measurement method in accounting for
share-based payment transactions. SFAS No. 123(R) also amends Statement of
Financial Accounting Standards No. 95 (“SFAS No. 95”), “Statement of Cash
Flows,” to require that excess tax benefits be reported as a financing cash
inflow rather than as a reduction of taxes paid. SFAS No. 123(R) applies to all
awards granted, modified, repurchased, or cancelled after the required effective
date (see below). In addition, SFAS No. 123(R) requires entities that used the
fair-value-based method for either recognition or disclosure under SFAS No. 123
to apply SFAS No. 123(R) using a modified version of prospective application.
This application requires compensation cost to be recognized on or after the
required effective date for the portion of outstanding awards for which the
requisite service has not yet been rendered based on the grant date fair value
of those awards as calculated under SFAS No. 123 for either recognition or pro
forma disclosures. For periods before the required effective date, those
entities may elect to apply a modified version of retrospective application
under which financial statements for prior periods are adjusted on a basis
consistent with the pro forma disclosures required for those periods by SFAS No.
123. In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 ("SAB
No. 107"), "Share Based Payment", to express the views of the staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and to provide the staff's views regarding he valuation of share-based payment
arrangements for public companies. The Company is required to adopt SFAS No.
123(R) for interim periods beginning March 1, 2006. The Company is currently
assessing the financial impact of SFAS No. 123(R) on its consolidated financial
statements and will take into consideration the additional guidance
provided by SAB No. 107 in connection with the Company's adoption of SFAS
No. 123(R).
In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
153 (“SFAS No. 153”), “Exchanges of Nonmonetary Assets - an amendment of APB
Opinion No. 29.” SFAS No. 153 amends Accounting Principles Board Opinion
No. 29 (“APB No. 29”), “Accounting for Nonmonetary Transactions,” to eliminate
the exception from fair value measurement for nonmonetary exchanges of similar
productive assets and replace it with a general exception from fair value
measurement for exchanges that do not have commercial substance. SFAS No. 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. The Company is required to adopt SFAS No. 153 for fiscal years
beginning March 1, 2006. The Company is currently assessing the financial impact
of SFAS No. 153 on its consolidated financial statements.
On
October 22, 2004, the American Jobs Creation Act (“AJCA”) was signed into law.
The AJCA includes a special one-time 85 percent dividends received deduction for
certain foreign earnings that are repatriated. In December 2004, the FASB issued
FASB Staff Position No. FAS 109-2 (“FSP FAS 109-2”), “Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American
Jobs Creation Act of 2004.” FSP FAS 109-2 provides accounting and disclosure
guidance for this repatriation provision. Although
FSP FAS 109-2 is effective immediately, the Company is currently assessing the
impact of guidance issued by the Treasury Department and the Internal Revenue
Service on May 10, 2005, as well as the relevance of additional guidance
expected to be issued. The Company expects to complete its evaluation of the
effects of the repatriation provision within a reasonable period of time
following the publication of the additional guidance.
In March
2005, the FASB issued FASB Interpretation No. 47 (“FIN No. 47”), “Accounting for
Conditional Asset Retirement Obligations - an interpretation of FASB Statement
No. 143.” FIN No. 47 clarifies the term conditional asset retirement obligation
as used in FASB Statement No. 143, “Accounting for Asset Retirement
Obligations.” A conditional asset retirement obligation is an unconditional
legal obligation to perform an asset retirement activity in which the timing
and/or method of settlement are conditional on a future event that may or may
not be within the control of the entity. Therefore, an entity is required to
recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated. FIN
No. 47 is effective for the Company no later than the end of the year ending
February 28, 2006. The Company is currently assessing the financial impact of
FIN No. 47 on its consolidated financial statements.
CAUTIONARY
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K 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 Annual Report on Form 10-K,
including the statements under Item 1 “Business” and Item 7 “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
regarding the Company’s business strategy, future financial position, prospects,
plans and objectives of management, as well as information concerning expected
actions of third parties are forward-looking statements. When used in this
Annual Report on Form 10-K, the words “anticipate,” “intend,” “expect,” and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this Annual Report on
Form 10-K. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Although the Company believes that the expectations
reflected in the forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. In addition to the
risks and uncertainties of ordinary business operations, important factors that
could cause actual results to differ materially from those set forth in, or
implied, by the Company’s forward-looking statements contained in this Annual
Report on Form 10-K are as follows:
The
Company’s indebtedness could have a material adverse effect on its financial
health.
The
Company has incurred substantial indebtedness to finance its acquisitions and
may incur substantial additional indebtedness in the future to finance further
acquisitions or for other purposes. The Company’s ability to satisfy its debt
obligations outstanding from time to time will depend upon the Company’s future
operating performance, which is subject to prevailing economic conditions,
levels of interest rates and financial, business and other factors, many of
which are beyond the Company’s control. Therefore, there can be no assurance
that the Company’s cash flow from operations will be sufficient to meet all of
its debt service requirements and to fund its capital expenditure
requirements.
The
Company’s current and future debt service obligations and covenants could have
important consequences. These consequences include, or may include, the
following:
|
§
|
the
Company’s ability to obtain financing for future working capital needs or
acquisitions or other purposes may be
limited;
|
|
§
|
a
significant portion of the Company’s cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness and
dividends on its Series A mandatory convertible preferred stock, thereby
reducing funds available for operations, expansion or
distributions;
|
|
§
|
the
Company’s ability to conduct its business could be limited by restrictive
covenants; and
|
|
§
|
the
Company may be more vulnerable to adverse economic conditions than less
leveraged competitors and, thus, may be limited in its ability to
withstand competitive pressures.
|
The
restrictive covenants and provisions in the Company’s senior credit facility and
its indentures under which its debt securities have been issued include, among
others, those restricting additional liens, additional borrowing, the sale of
assets, changes of control, the payment of dividends, transactions with
affiliates, the making of investments and certain other fundamental changes. The
senior credit facility also contains restrictions on acquisitions and certain
financial ratio tests including a debt coverage ratio, a senior debt coverage
ratio, a fixed charges ratio and an interest coverage ratio. These restrictions
could limit the Company’s ability to conduct business. A failure to comply with
the obligations contained in the senior credit facility, its existing indentures
or other loan agreements, or indentures or loan agreements entered into in the
future could result in an event of default under such agreements, which could
require the Company to immediately repay the related debt and also debt under
other agreements that may contain cross-acceleration or cross-default
provisions.
The
Company’s acquisition and joint venture strategies may not be
successful.
The
Company has made a number of acquisitions, including the recent acquisitions of
Robert Mondavi and Hardy, and anticipates that it may, from time to time,
acquire additional businesses, assets or securities of companies that the
Company believes would provide a strategic fit with its business. In addition,
the Company has entered into joint ventures and may enter into additional joint
ventures. Acquired businesses will need to be integrated with the Company’s
existing operations. There can be no assurance that the Company will effectively
assimilate the business or product offerings of acquired companies into its
business or product offerings. Acquisitions are also accompanied by risks such
as potential exposure to unknown liabilities of acquired companies and the
possible loss of key employees and customers of the acquired business.
Acquisitions are subject to risks associated with the difficulty and expense of
integrating the operations and personnel of the acquired companies, the
potential disruption to the Company’s business and the diversion of management
time and attention. The Company shares control of its joint ventures and,
therefore, there is the risk that the Company’s joint venture partners may at
any time have economic, business or legal interests or goals that are
inconsistent with those of the Company or the joint venture. There is also risk
that the Company’s joint venture partners may be unable to meet their economic
or other obligations and that the Company may be required to fulfill those
obligations alone. The Company’s failure or the failure of an entity in which
the Company has a joint venture interest to adequately manage the risks
associated with any acquisitions or joint ventures could have a material adverse
effect on the Company’s financial condition or results of operations. There can
be no assurance that any of the Company’s acquisitions or joint ventures will be
profitable.
Competition
could have a material adverse effect on the Company’s
business.
The
Company is in a highly competitive industry and the dollar amount and unit
volume of its sales could be negatively affected by its inability to maintain or
increase prices, changes in geographic or product mix, a general decline in
beverage alcohol consumption or the decision of the Company’s wholesale
customers, retailers or consumers to purchase competitive products instead of
the Company’s products. Wholesaler, retailer and consumer purchasing decisions
are influenced by, among other things, the perceived absolute or relative
overall value of the Company’s products, including their quality or pricing,
compared to competitive products. Unit volume and dollar sales could also be
affected by pricing, purchasing, financing, operational, advertising or
promotional decisions made by wholesalers, state and provincial agencies, and
retailers which could affect their supply of, or consumer demand for, the
Company’s products. The Company could also experience higher than expected
selling, general and administrative expenses if the Company finds it necessary
to increase the number of its personnel or its advertising or promotional
expenditures to maintain its competitive position or for other
reasons.
An
increase in excise taxes or government regulations could have a material adverse
effect on the Company’s business.
In the
United States, the United Kingdom, Australia and other countries in which the
Company operates, the Company is subject to imposition of excise and other taxes
on beverage alcohol products in varying amounts which have been subject to
change. Significant increases in excise or other taxes on beverage alcohol
products could materially and adversely affect the Company’s financial condition
or results of operations. Recently, many states have considered proposals to
increase, and some of these states have increased, state alcohol excise taxes.
In addition, the beverage alcohol products industry is subject to extensive
regulation by federal, state, local and foreign governmental agencies concerning
such matters as licensing, trade and pricing practices, permitted and required
labeling, advertising and relations with wholesalers and retailers. Certain
federal and state regulations also require warning labels and signage. New or
revised regulations or increased licensing fees, requirements or taxes could
also have a material adverse effect on the Company’s financial condition or
results of operations.
The
Company relies on the performance of wholesale distributors, major retailers and
chains for the success of its business.
In the
United States, the Company sells its products principally to wholesalers for
resale to retail outlets including grocery stores, package liquor stores, club
and discount stores and restaurants. In the United Kingdom and Australia, the
Company sells its products principally to wholesalers and directly to major
retailers and chains. The replacement or poor performance of the Company’s major
wholesalers, retailers or chains, or the Company’s inability to collect accounts
receivable from the Company’s major wholesalers, retailers or chains could
materially and adversely affect the Company’s results of operations and
financial condition. Distribution channels for beverage alcohol products have
been consolidating in recent years. In addition, wholesalers and retailers of
the Company’s products offer products which compete directly with the Company’s
products for retail shelf space and consumer purchases. Accordingly, there is a
risk that wholesalers or retailers may give higher priority to products of the
Company’s competitors. In the future, the Company’s wholesalers and retailers
may not continue to purchase the Company’s products or provide the Company’s
products with adequate levels of promotional support.
The
Company’s business could be adversely affected by a decline in the consumption
of products the Company sells.
Although
since 1995 there have been modest increases in consumption of beverage alcohol
in most of the Company’s product categories, there have been periods in the past
in which there were substantial declines in the overall per capita consumption
of beverage alcohol products in the United States and other markets in which the
Company participates. A limited or general decline in consumption in one or more
of the Company’s product categories could occur in the future due to a variety
of factors, including:
|
§
|
a
general decline in economic conditions;
|
|
§
|
increased
concern about the health consequences of consuming beverage alcohol
products and about drinking and driving;
|
|
§
|
a
trend toward a healthier diet including lighter, lower calorie beverages
such as diet soft drinks, juices and water
products;
|
|
§
|
the
increased activity of anti-alcohol consumer groups;
and
|
|
§
|
increased
federal, state or foreign excise or other taxes on beverage alcohol
products.
|
The
Company generally purchases raw materials under short-term supply contracts, and
the Company is subject to substantial price fluctuations for grapes and
grape-related materials, and the Company has a limited group of suppliers of
glass bottles.
The
Company’s business is heavily dependent upon raw materials, such as grapes,
grape juice concentrate, grains, alcohol and packaging materials from
third-party suppliers. The Company could experience raw material supply,
production or shipment difficulties that could adversely affect the Company’s
ability to supply goods to its customers. The Company is also directly affected
by increases in the costs of raw materials. In the past, the Company has
experienced dramatic increases in the cost of grapes. Although the Company
believes it has adequate sources of grape supplies, in the event demand for
certain wine products exceed expectations, the Company could experience
shortages.
The wine
industry swings between cycles of grape oversupply and undersupply. In a severe
oversupply environment, the ability of wine producers, including the Company, to
raise prices is limited, and, in certain situations, the competitive enviroment
may put pressure on producers to lower prices. Further, although there may be
enhanced opportunities to purchae grapes at lower costs, a producer’s
selling and promotional expenses associated with the sale of its wine products
can rise in such an environment.
One of
the Company’s largest components of cost of goods sold is that of glass bottles,
which, in the United States and Australia, have only a small number of
producers. Currently, substantially all of the Company’s glass container
requirements for its United States operations are supplied by one producer and
most of the Company’s glass container requirements for its Australian operations
are supplied by another producer. The inability of any of the Company’s glass
bottle suppliers to satisfy its requirements could adversely affect the
Company’s business.
The
Company’s operations subject it to risks relating to currency rate fluctuations,
interest rate fluctuations and geopolitical uncertainty which could have a
material adverse effect on the Company’s business.
The
Company has operations in different countries throughout the world and,
therefore, is subject to risks associated with currency fluctuations. Subsequent
to the Hardy Acquisition, the Company’s exposure to foreign currency risk
increased significantly as a result of having additional international
operations in Australia, New Zealand and the United Kingdom. The Company is also
exposed to risks associated with interest rate fluctuations. The Company manages
its exposure to foreign currency and interest rate risks utilizing derivative
instruments and other means to reduce those risks. The Company, however, could
experience changes in its ability to hedge against or manage fluctuations in
foreign currency exchange rates or interest rates and, accordingly, there can be
no assurance that the Company will be successful in reducing those risks. The
Company could also be affected by nationalizations or unstable governments or
legal systems or intergovernmental disputes. These currency, economic and
political uncertainties may have a material adverse effect on the Company’s
results of operations, especially to the extent these matters, or the decisions,
policies or economic strength of the Company’s suppliers, affect the Company’s
global operations.
The
Company has a material amount of goodwill, and if the Company is required to
write-down goodwill, it would reduce the Company’s net income, which in turn
could have a material adverse effect on the Company’s results of
operations.
As of
February 28, 2005, goodwill represented $2,182.7 million, or 28.0% of the
Company’s total assets. Goodwill is the amount by which the costs of an
acquisition accounted for using the purchase method exceeds the fair value of
the net assets acquired. The Company adopted the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (“SFAS”) No. 142,
“Goodwill and Other Intangible Assets,” in its entirety, on March 1, 2002. Under
SFAS No. 142, goodwill is no longer amortized, but instead is subject to a
periodic impairment evaluation based on the fair value of the reporting unit.
Reductions in the Company’s net income caused by the write-down of goodwill
could materially and adversely affect the Company’s results of
operations.
The
termination or non-renewal of the Company’s imported beer distribution
agreements could have a material adverse effect on the Company’s
business.
All of
the Company’s imported beer products are marketed and sold pursuant to exclusive
distribution agreements with the suppliers of these products and are subject to
renewal from time to time. The Company’s agreement to distribute Corona Extra
and its other Mexican beer brands in 25 primarily western U.S. states expires in
December 2006 and, subject to compliance with certain performance criteria,
continued retention of certain personnel and other terms of the agreement, will
be automatically renewed for additional terms of five years. Changes in control
of the Company or its subsidiaries involved in importing the Mexican beer
brands, or changes in the chief executive officer of such subsidiaries, may be a
basis for the supplier, unless it consents to such changes, to terminate the
agreement. The supplier’s consent to such changes may not be unreasonably
withheld. Prior to their expiration, all of the Company’s imported beer
distribution agreements may be terminated if the Company fails to meet certain
performance criteria. The Company believes that it is currently in compliance
with all of its material imported beer distribution agreements. From time to
time the Company has failed, and may in the future fail, to satisfy certain
performance criteria in the Company’s distribution agreements. It is possible
that the Company’s beer distribution agreements may not be renewed or may be
terminated prior to expiration.
Class
action or other litigation relating to alcohol abuse or the misuse of alcohol
could adversely affect the Company’s business.
There has
been increased public attention directed at the beverage alcohol industry, which
the Company believes is due to concern over problems related to alcohol abuse,
including drinking and driving, underage drinking and health consequences from
the misuse of alcohol. Several beverage alcohol producers have been sued in
several courts regarding alleged advertising practices relating to underage
consumers. If there are adverse developments in these or similar lawsuits or
there is a significant decline in the social acceptability of beverage alcohol
products that results from these lawsuits, the Company’s business could be
materially adversely affected.
The
Company depends upon its trademarks and proprietary rights, and any failure to
protect its intellectual property rights or any claims that the Company is
infringing upon the rights of others may adversely affect the
Company's competitive position.
The
Company’s ability to protect its current and future brands and products and to
defend its intellectual property rights is essential to the Company’s future
success. The Company has been granted numerous trademark registrations covering
its brands and products and has filed, and expects to continue to file,
trademark applications seeking to protect newly-developed brands and products.
The Company cannot be sure that trademark registrations will be issued with
respect to any of its trademark applications. There is also a risk
that trademark registrations may not be timely renewed or that the
Company's competitors will challenge, invalidate or circumvent any existing
or future trademarks issued to, or licensed by, the Company.
Contamination
or other circumstances could harm the integrity or customer support for the
Company’s brands and adversely affect the sales of those
products.
The
success of the Company’s brands depends upon the positive image that consumers
have of those brands, and contamination, whether arising accidentally, or
through deliberate third-party action, or other events that harm the integrity
or consumer support for those brands, could adversely affect their sales.
Contaminants in raw materials purchased from third parties and used in the
production of the Company’s wine and spirits products or defects in the
distillation or fermentation process could lead to low beverage quality as well
as illness among, or injury to, consumers of the Company’s products and may
result in reduced sales of the affected brand or all of the Company’s brands.
Also, to the extent that third parties sell products which are either
counterfeit versions of the Company’s brands or brands that look like the
Company’s brands, consumers of the Company’s brands could confuse the Company’s
products with products that they consider inferior. This could cause them to
refrain from purchasing the Company’s brands in the future and in turn could
impair brand equity and adversely affect the Company’s sales and
operations.
__________________________
Item
7A. Quantitative
and Qualitative Disclosures About Market Risk
The
Company, as a result of its global operating and financing activities, is
exposed to market risk associated with changes in foreign currency exchange
rates and interest rates. To manage the volatility relating to these risks, the
Company periodically purchases and/or sells derivative instruments including
foreign currency exchange contracts and interest rate swap agreements. The
Company uses derivative instruments solely to reduce the financial impact of
these risks and does not use derivative instruments for trading
purposes.
Foreign
currency forward contracts and foreign currency options are used to hedge
existing foreign currency denominated assets and liabilities, forecasted foreign
currency denominated sales both to third parties as well as intercompany sales,
and intercompany principal and interest payments. As of February 28, 2005, the
Company had exposures to foreign currency risk primarily related to the
Australian dollar, euro, New Zealand dollar, British pound sterling, Canadian
dollar and Mexican peso.
As of
February 28, 2005, and February 29, 2004, the Company had outstanding foreign
exchange derivative instruments with a notional value of $601.6 million and
$735.8 million,
respectively. Approximately 63% of the Company’s total exposures were hedged as
of February 28, 2005. Using a sensitivity analysis based on estimated fair value
of open contracts using forward rates, if the
contract
base currency had been
10% weaker as of February 28, 2005, and February 29, 2004, the fair value of
open foreign exchange contracts would have been decreased by $65.2
million and $72.4 million,
respectively. Losses or gains from the revaluation or settlement of the related
underlying positions would substantially offset such gains or losses on the
derivative instruments.
The fair
value of fixed rate debt is subject to interest rate risk, credit risk and
foreign currency risk. The estimated fair value of the Company’s total fixed
rate debt, including current maturities, was $1,088.1 million
and $1,321.8
million as of February 28, 2005, and February 29, 2004, respectively. A
hypothetical 1% increase from prevailing interest rates as of February 28, 2005,
and February 29, 2004, would have resulted in a decrease in fair value of fixed
interest rate long-term debt by $37.0
million and
$52.9
million,
respectively.
As of
February 28, 2005, the Company had outstanding five-year interest rate swap
agreements to minimize interest rate volatility. The swap agreements fix LIBOR
interest rates on $1,200.0 million of the Company’s floating LIBOR rate debt at
an average rate of 4.1% over the five-year term. A hypothetical 1% increase from
prevailing interest rates as of February 28, 2005 would have increased the fair
value of the interest rate swaps by $53.1 million. As of February 29, 2004,
the
Company had no interest rate swap agreements outstanding.
In
addition to the $1,088.1 million
and $1,321.8
million estimated fair value of fixed rate debt outstanding as of February 28,
2005, and February 29, 2004, respectively, the Company also had variable rate
debt outstanding (primarily LIBOR based) as of February 28, 2005, and February
29, 2004, of $2,302.7 million and $861.8 million, respectively. Using a
sensitivity analysis based on a hypothetical 1% increase in prevailing interest
rates over a 12-month period, the approximate increase in cash required for
interest as of February 28, 2005 and February 29, 2004 is $23.0 million and $7.4
million, respectively.
Item
8. Financial
Statements and Supplementary Data
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY
28, 2005
The
following information is presented in this Annual Report on Form
10-K:
Page
Report of
Independent Registered Public Accounting Firm - KPMG
LLP....................
45
Report of
Independent Registered Public Accounting Firm - KPMG
LLP....................
46
Management’s
Annual Report on Internal Control Over Financial
Reporting................. 48
Consolidated
Balance Sheets - February 28, 2005, and February 29,
2004................. 49
Consolidated
Statements of Income for the years ended February 28, 2005,
February
29, 2004, and February 28,
2003....................................................
50
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended
February
28, 2005, February 29, 2004, and February 28,
2003..................... 51
Consolidated
Statements of Cash Flows for the years ended February 28, 2005,
February
29, 2004, and February 28,
2003....................................................
52
Notes to
Consolidated Financial
Statements................................................................
53
Selected
Quarterly Financial Information
(unaudited)...................................................
99
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Constellation
Brands, Inc.:
We have
audited the accompanying consolidated balance sheets of Constellation Brands,
Inc. and subsidiaries as of February 28, 2005 and February 29, 2004, and the
related consolidated statements of income, changes in stockholders’ equity, and
cash flows for each of the years in the three-year period ended February 28,
2005. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Constellation Brands, Inc.
and subsidiaries as of February 28, 2005 and February 29, 2004, and the results
of their operations and their cash flows for each of the years in the three-year
period ended February 28, 2005, in conformity with U.S. generally accepted
accounting principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Constellation Brands,
Inc.’s internal control over financial reporting as of February 28, 2005, based
on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated May 16, 2005 expressed an unqualified opinion on management’s
assessment of, and the effective operation of, internal control over financial
reporting.
/s/ KPMG
LLP
Rochester,
New York
May 16,
2005
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Constellation
Brands, Inc.:
We have
audited management’s assessment, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting, that Constellation
Brands, Inc. maintained effective internal control over financial reporting as
of February 28, 2005, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Constellation Brands, Inc.’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management’s
assessment and an opinion on the effectiveness of the Company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, management’s assessment that Constellation Brands, Inc. maintained
effective internal control over financial reporting as of February 28, 2005, is
fairly stated, in all material respects, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion,
Constellation Brands, Inc. maintained, in all material respects, effective
internal control over financial reporting as of February 28, 2005, based on
criteria
established in Internal Control—Integrated Framework issued by the Committee
of
Sponsoring Organizations of the Treadway Commission (COSO).
Constellation
Brands, Inc. acquired The Robert Mondavi Corporation on December 22, 2004, and
management excluded from its assessment of the effectiveness of Constellation
Brands, Inc.’s internal control over financial reporting as of
February 28, 2005, The Robert Mondavi Corporation’s internal
control over financial reporting associated with assets,
net sales and income before income taxes
comprising
23.6%, 2.1% and 0.6% of the consolidated total assets, net sales and income
before income taxes of the Company as of and for the year ended February 28,
2005. Our audit of internal control over financial reporting of Constellation
Brands, Inc. also excluded an evaluation of the internal control over financial
reporting of The Robert Mondavi Corporation.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of
Constellation Brands, Inc. and subsidiaries as of February 28, 2005 and February
29, 2004, and the related consolidated statements of income, changes in
stockholders’ equity, and cash flows for each of the years in the three-year
period ended February 28, 2005, and our report dated May 16, 2005 expressed an
unqualified opinion on those consolidated financial statements.
/s/ KPMG
LLP
Rochester,
New York
May 16,
2005
Management’s
Annual Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining an adequate system of internal
control over financial reporting of the Company. This system is designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of
America.
The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Further, because of changes in conditions, effectiveness of
internal controls over financial reporting may vary over time. Our system
contains self-monitoring mechanisms, and actions are taken to correct
deficiencies as they are identified.
Management
conducted an evaluation of the effectiveness of the system of internal control
over financial reporting based on the framework in Internal
Control - Integrated Framework issued by
the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.
Based on this evaluation, management concluded that the Company’s system of
internal control over financial reporting was effective as of February 28, 2005.
This evaluation excluded the internal control over financial reporting of The
Robert Mondavi Corporation (“Robert Mondavi”), which the Company acquired on
December 22, 2004. Management did not have adequate time to gather sufficient
evidence about the design and operating effectiveness of internal control over
financial reporting for Robert Mondavi from the date of acquisition through
February 28, 2005; therefore, Management was not able to perform an evaluation
with respect to the effectiveness of internal control over financial reporting
for Robert Mondavi. As of February 28, 2005, the assets, net sales, and income
before income taxes of Robert Mondavi comprised 23.6%, 2.1%, and 0.6% of the
consolidated total assets, net sales, and income before income taxes of the
Company.
Management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting has been audited by KPMG LLP, an independent registered public
accounting firm, as stated in their report which is included
herein.
|
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
|
|||||||
|
CONSOLIDATED
BALANCE SHEETS
|
|||||||
|
(in
thousands, except share and per share data)
|
|||||||
|
February
28,
|
February
29,
|
||||||
|
2005
|
2004
|
||||||
|
ASSETS
|
|||||||
CURRENT
ASSETS: |
|||||||
Cash
and cash investments |
$ |
17,635 |
$ |
37,136 |
|||
Accounts
receivable, net |
849,642
|
635,910
|
|||||
Inventories
|
1,607,735
|
1,261,378
|
|||||
|
Prepaid
expenses and other
|
259,023
|
137,047
|
|||||
Total
current assets |
2,734,035
|
2,071,471
|
|||||
PROPERTY,
PLANT AND EQUIPMENT, net |
1,596,367
|
1,097,362
|
|||||
GOODWILL
|
2,182,669
|
1,540,637
|
|||||
INTANGIBLE
ASSETS, net |
945,650
|
744,978
|
|||||
|
OTHER
ASSETS, net
|
345,451
|
104,225
|
|||||
|
Total
assets
|
$ |
7,804,172
|
$ |
5,558,673
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
CURRENT
LIABILITIES: |
|||||||
Notes
payable to banks |
$ |
16,475 |
$ |
1,792 |
|||
Current
maturities of long-term debt |
68,094
|
267,245
|
|||||
Accounts
payable |
345,254
|
270,291
|
|||||
Accrued
excise taxes |
74,356
|
48,465
|
|||||
|
Other
accrued expenses and liabilities
|
633,908
|
442,009
|
|||||
|
Total
current liabilities
|
1,138,087
|
1,029,802
|
|||||
|
LONG-TERM
DEBT, less current maturities
|
3,204,707
|
1,778,853
|
|||||
|
DEFERRED
INCOME TAXES
|
389,886
|
187,410
|
|||||
|
OTHER
LIABILITIES
|
291,579
|
184,989
|
|||||
COMMITMENTS
AND CONTINGENCIES (NOTE 15) |
|||||||
STOCKHOLDERS'
EQUITY: |
|||||||
|
Preferred
Stock, $.01 par value-
Authorized, 1,000,000 shares;
Issued, 170,500 shares at February 28, 2005, and
February 29, 2004 (Aggregate liquidation preference
of $172,951 at February 28, 2005)
|
2
|
2
|
|||||
|
Class
A Common Stock, $.01 par value-
Authorized, 275,000,000 shares;
Issued, 199,885,616 shares at February 28, 2005,
and 194,300,438 shares at February 29, 2004
|
1,999
|
1,943
|
|||||
|
Class
B Convertible Common Stock, $.01 par value-
Authorized, 30,000,000 shares;
Issued, 28,966,060 shares at February 28, 2005,
and 29,129,260 shares at February 29, 2004
|
289
|
291
|
|||||
Additional
paid-in capital |
1,097,177
|
1,022,931
|
|||||
Retained
earnings |
1,276,853
|
1,010,193
|
|||||
|
Accumulated
other comprehensive income
|
431,843
|
372,302
|
|||||
|
2,808,163
|
2,407,662
|
||||||
Less-Treasury
stock- |
|||||||
|
Class
A Common Stock, 4,823,650 shares at
February 28, 2005, and 5,167,216 shares at
February 29, 2004, at cost
|
(25,984 |
) |
(27,786 |
) |
|||
|
Class
B Convertible Common Stock, 5,005,800 shares
at February 28, 2005, and February 29, 2004, at cost
|
(2,207
|
)
|
(2,207
|
)
|
|||
|
(28,191
|
)
|
(29,993
|
)
|
||||
|
Less-Unearned
compensation-restricted stock awards
|
(59
|
)
|
(50
|
)
|
|||
|
Total
stockholders' equity
|
2,779,913
|
2,377,619
|
|||||
|
Total
liabilities and stockholders' equity
|
$ |
7,804,172
|
$ |
5,558,673
|
|||
|
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 Years Ended
|
||||||||||
|
February
28,
|
February
29,
|
February
28,
|
||||||||
|
2005
|
2004
|
2003
|
||||||||
SALES
|
$ |
5,139,863
|
$ |
4,469,270
|
$ |
3,583,082
|
||||
|
Less
- Excise taxes
|
(1,052,225
|
)
|
(916,841
|
)
|
(851,470
|
)
|
||||
Net
sales |
4,087,638
|
3,552,429
|
2,731,612
|
|||||||
|
COST
OF PRODUCT SOLD
|
(2,947,049
|
)
|
(2,576,641
|
)
|
(1,970,897
|
)
|
||||
Gross
profit |
1,140,589
|
975,788
|
760,715
|
|||||||
|
SELLING,
GENERAL AND ADMINISTRATIVE
EXPENSES
|
(555,694
|
) |
(457,277
|
) |
(350,993
|
) |
||||
ACQUISITION-RELATED
INTEGRATION COSTS |
(9,421
|
) |
-
|
-
|
||||||
|
RESTRUCTURING
AND RELATED CHARGES
|
(7,578
|
)
|
(31,154
|
)
|
(4,764
|
)
|
||||
Operating
income |
567,896
|
487,357
|
404,958
|
|||||||
|
GAIN
ON CHANGE IN FAIR VALUE OF
DERIVATIVE INSTRUMENTS
|
-
|
1,181
|
23,129
|
|||||||
|
EQUITY
IN EARNINGS OF EQUITY
METHOD INVESTEES
|
1,753
|
542
|
12,236
|
|||||||
|
INTEREST
EXPENSE, net
|
(137,675
|
)
|
(144,683
|
)
|
(105,387
|
)
|
||||
Income
before income taxes |
431,974
|
344,397
|
334,936
|
|||||||
|
PROVISION
FOR INCOME TAXES
|
(155,510
|
)
|
(123,983
|
)
|
(131,630
|
)
|
||||
NET
INCOME |
276,464
|
220,414
|
203,306
|
|||||||
|
Dividends
on preferred stock
|
(9,804
|
)
|
(5,746
|
)
|
-
|
|||||
|
INCOME
AVAILABLE TO COMMON
STOCKHOLDERS
|
$ |
266,660
|
$ |
214,668
|
$ |
203,306
|
||||
SHARE
DATA: |
||||||||||
Earnings
per common share: |
||||||||||
|
Basic
- Class A Common Stock
|
$ |
1.25
|
$ |
1.08
|
$ |
1.15
|
||||
|
Basic
- Class B Common Stock
|
$ |
1.14
|
$ |
0.98
|
$ |
1.04
|
||||
|
Diluted
|
$ |
1.19
|
$ |
1.03
|
$ |
1.10
|
||||
Weighted
average common shares outstanding: |
||||||||||
Basic
- Class A Common Stock |
191,489
|
177,267
|
155,533
|
|||||||
Basic
- Class B Common Stock |
24,043
|
24,137
|
24,179
|
|||||||
Diluted
|
233,060
|
213,897
|
185,493
|
|||||||
|
The
accompanying notes are an integral part of these statements.
|
||||||||||
|
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||
|
(in
thousands, except share data)
|
||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||
|
Additional
|
Other
|
|||||||||||||||||||||||||||
|
Preferred
|
Common
Stock
|
Paid-in
|
Retained
|
Comprehensive
|
Treasury
|
Unearned
|
||||||||||||||||||||||
|
Stock
|
Class
A
|
Class
B
|
Capital
|
Earnings
|
(Loss)
Income
|
Stock
|
Compensation
|
Total
|
||||||||||||||||||||
BALANCE,
February 28, 2002 |
$ |
- |
$ |
1,586 |
$ |
292 |
$ |
430,277 |
$ |
592,219 |
$ |
(35,222 |
) |
$ |
(33,366 |
) |
$ |
(50 |
) |
$ |
955,736 |
|||||||
Comprehensive
income: |
||||||||||||||||||||||||||||
Net
income for Fiscal 2003 |
-
|
-
|
-
|
-
|
203,306
|
-
|
-
|
-
|
203,306
|
|||||||||||||||||||
Other
comprehensive (loss) income, net of tax: |
||||||||||||||||||||||||||||
Foreign
currency translation adjustments |
-
|
-
|
-
|
-
|
-
|
18,521
|
-
|
-
|
18,521
|
|||||||||||||||||||
|
Reclassification
adjustments for net derivative
gains, net of tax effect of $13
|
-
|
-
|
-
|
-
|
-
|
(21 |
) |
-
|
-
|
(21 |
) |
|||||||||||||||||
|
Minimum
pension liability adjustment, net of tax
effect of $18,681
|
-
|
-
|
-
|
-
|
-
|
(42,535
|
)
|
-
|
-
|
(42,535
|
)
|
|||||||||||||||||
|
Other
comprehensive loss, net of tax
|
(24,035
|
)
|
||||||||||||||||||||||||||
Comprehensive
income |
179,271
|
|||||||||||||||||||||||||||
|
Conversion
of 59,800 Class B Convertible Common
shares to Class A Common shares
|
-
|
1
|
(1 |
) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Exercise
of 4,192,122 Class A stock options |
-
|
42
|
-
|
28,127
|
-
|
-
|
-
|
-
|
28,169
|
|||||||||||||||||||
Employee
stock purchases of 278,124 treasury shares |
-
|
-
|
-
|
1,410
|
-
|
-
|
1,475
|
-
|
2,885
|
|||||||||||||||||||
Issuance
of 14,160 restricted Class A Common shares |
-
|
-
|
-
|
127
|
-
|
-
|
74
|
(201 |
) |
-
|
||||||||||||||||||
Amortization
of unearned restricted stock compensation |
-
|
-
|
-
|
-
|
-
|
-
|
-
|
100
|
100
|
|||||||||||||||||||
Tax
benefit on Class A stock options exercised |
-
|
-
|
-
|
8,440
|
-
|
-
|
-
|
-
|
8,440
|
|||||||||||||||||||
Tax
benefit on disposition of employee stock purchases |
-
|
-
|
-
|
74
|
-
|
-
|
-
|
-
|
74
|
|||||||||||||||||||
|
Other
|
-
|
-
|
-
|
309
|
-
|
-
|
-
|
-
|
309
|
|||||||||||||||||||
BALANCE,
February 28, 2003 |
-
|
1,629
|
291
|
468,764
|
795,525
|
(59,257 |
) |
(31,817 |
) |
(151 |
) |
1,174,984
|
||||||||||||||||
Comprehensive
income: |
||||||||||||||||||||||||||||
Net
income for Fiscal 2004 |
-
|
-
|
-
|
-
|
220,414
|
-
|
-
|
-
|
220,414
|
|||||||||||||||||||
Other
comprehensive income (loss), net of tax: |
||||||||||||||||||||||||||||
|
Foreign
currency translation adjustments, net of tax
effect of $6,254
|
-
|
-
|
-
|
-
|
-
|
410,694
|
-
|
-
|
410,694
|
|||||||||||||||||||
Unrealized
gain (loss) on cash flow hedges: |
||||||||||||||||||||||||||||
Net
derivative gains, net of tax effect of $15,714 |
-
|
-
|
-
|
-
|
-
|
38,199
|
-
|
-
|
38,199
|
|||||||||||||||||||
|
Reclassification
adjustments, net of tax effect of $507
|
-
|
-
|
-
|
-
|
-
|
(1,250
|
)
|
-
|
-
|
(1,250
|
)
|
|||||||||||||||||
|
Net
gain recognized in other comprehensive income
|
36,949
|
|||||||||||||||||||||||||||
|
Unrealized
loss on marketable equity securities, net
of tax effect of $185
|
-
|
-
|
-
|
-
|
-
|
(432 |
) |
-
|
-
|
(432 |
) |
|||||||||||||||||
|
Minimum
pension liability adjustment, net of tax
effect of $6,888
|
-
|
-
|
-
|
-
|
-
|
(15,652
|
)
|
-
|
-
|
(15,652
|
)
|
|||||||||||||||||
|
Other
comprehensive income, net of tax
|
431,559
|
|||||||||||||||||||||||||||
Comprehensive
income |
651,973
|
|||||||||||||||||||||||||||
|
Conversion
of 27,720 Class B Convertible Common
shares to Class A Common shares
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
Exercise
of 5,224,622 Class A stock options |
-
|
52
|
-
|
36,183
|
-
|
-
|
-
|
-
|
36,235
|
|||||||||||||||||||
Employee
stock purchases of 331,552 treasury shares |
-
|
-
|
-
|
1,658
|
-
|
-
|
1,824
|
-
|
3,482
|
|||||||||||||||||||
Issuance
of 19,600,000 Class A Common Shares |
-
|
196
|
-
|
261,020
|
-
|
-
|
-
|
-
|
261,216
|
|||||||||||||||||||
Issuance
of 170,500 Preferred Shares |
2
|
-
|
-
|
164,868
|
-
|
-
|
-
|
-
|
164,870
|
|||||||||||||||||||
Dividend
on Preferred Shares |
-
|
-
|
-
|
-
|
(5,746 |
) |
-
|
-
|
-
|
(5,746 |
) |
|||||||||||||||||
|
Issuance
of 6,577,826 Class A Common Shares
in connection with Hardy Acquisition
|
-
|
66
|
-
|
77,177
|
-
|
-
|
-
|
-
|
77,243
|
|||||||||||||||||||
Amortization
of unearned restricted stock compensation |
-
|
-
|
-
|
-
|
-
|
-
|
-
|
101
|
101
|
|||||||||||||||||||
Tax
benefit on Class A stock options exercised |
-
|
-
|
-
|
13,029
|
-
|
-
|
-
|
-
|
13,029
|
|||||||||||||||||||
Tax
benefit on disposition of employee stock purchases |
-
|
-
|
-
|
82
|
-
|
-
|
-
|
-
|
82
|
|||||||||||||||||||
|
Other
|
-
|
-
|
-
|
150
|
-
|
-
|
-
|
-
|
150
|
|||||||||||||||||||
BALANCE,
February 29, 2004 |
2
|
1,943
|
291
|
1,022,931
|
1,010,193
|
372,302
|
(29,993 |
) |
(50 |
) |
2,377,619
|
|||||||||||||||||
Comprehensive
income: |
||||||||||||||||||||||||||||
Net
income for Fiscal 2005 |
-
|
-
|
-
|
-
|
276,464
|
-
|
-
|
-
|
276,464
|
|||||||||||||||||||
Other
comprehensive income (loss), net of tax: |
||||||||||||||||||||||||||||
|
Foreign
currency translation adjustments, net of tax
effect of $11,312
|
-
|
-
|
-
|
-
|
-
|
79,977
|
-
|
-
|
79,977
|
|||||||||||||||||||
Unrealized
gain (loss) on cash flow hedges: |
||||||||||||||||||||||||||||
Net
derivative gains, net of tax effect of $2,749 |
-
|
-
|
-
|
-
|
-
|
2,150
|
-
|
-
|
2,150
|
|||||||||||||||||||
|
Reclassification
adjustments, net of tax effect of $575
|
-
|
-
|
-
|
-
|
-
|
(1,783
|
)
|
-
|
-
|
(1,783
|
)
|
|||||||||||||||||
|
Net
gain recognized in other comprehensive income
|
367
|
|||||||||||||||||||||||||||
Unrealized
gain (loss) on marketable equity securities: |
||||||||||||||||||||||||||||
|
Unrealized loss
on marketable equity securities, net
of tax effect of $18
|
-
|
-
|
-
|
-
|
-
|
(42 |
) | -
|
-
|
(42 |
) | |||||||||||||||||
|
Reclassification
adjustments, net of tax effect of $203
|
-
|
-
|
-
|
-
|
-
|
(474
|
)
|
-
|
-
|
(472
|
)
|
|||||||||||||||||
|
Net
gain recognized in other comprehensive income
|
432
|
|||||||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax
effect of $8,641
|
-
|
-
|
-
|
-
|
-
|
(21,235
|
)
|
-
|
-
|
(21,235
|
)
|
|||||||||||||||||
|
Other
comprehensive income, net of tax
|
59,541
|
|||||||||||||||||||||||||||
Comprehensive
income |
336,005
|
|||||||||||||||||||||||||||
|
Conversion
of 163,200 Class B Convertible Common
shares to Class A Common shares
|
-
|
2
|
(2 |
) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
Exercise
of 5,421,978 Class A stock options |
-
|
54
|
-
|
48,345
|
-
|
-
|
-
|
-
|
48,399
|
|||||||||||||||||||
Employee
stock purchases of 348,270 treasury shares |
-
|
-
|
-
|
2,728
|
-
|
-
|
1,962
|
-
|
4,690
|
|||||||||||||||||||
Dividend
on Preferred Shares |
-
|
-
|
-
|
-
|
(9,804 |
) |
-
|
-
|
-
|
(9,804 |
) |
|||||||||||||||||
Issuance
of 5,330 restricted Class A Common shares |
-
|
-
|
-
|
71
|
-
|
-
|
30
|
(101 |
) |
-
|
||||||||||||||||||
Amortization
of unearned restricted stock compensation |
-
|
-
|
-
|
-
|
-
|
-
|
-
|
92
|
92
|
|||||||||||||||||||
Tax
benefit on Class A stock options exercised |
-
|
-
|
-
|
22,963
|
-
|
-
|
-
|
-
|
22,963
|
|||||||||||||||||||
Tax
benefit on disposition of employee stock purchases |
-
|
-
|
-
|
122
|
-
|
-
|
-
|
-
|
122
|
|||||||||||||||||||
|
Other
|
-
|
-
|
-
|
17
|
-
|
-
|
(190
|
)
|
-
|
(173
|
)
|
|||||||||||||||||
|
BALANCE,
February 28, 2005
|
$ |
2
|
$ |
1,999
|
$ |
289
|
$ |
1,097,177
|
$ |
1,276,853
|
$ |
431,843
|
$ |
(28,191
|
)
|
$ |
(59
|
)
|
$ |
2,779,913
|
||||||||
|
The
accompanying notes are an integral part of these
statements.
|
||||||||||||||||||||||||||||
|
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
|
||||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||
|
(in
thousands)
|
||||||||||
|
For
the Years Ended
|
||||||||||
|
February
28,
|
February
29,
|
February
28,
|
||||||||
|
2005
|
2004
|
2003
|
||||||||
|
|
|
|||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES: |
||||||||||
Net
income |
$ |
276,464 |
$ |
220,414 |
$ |
203,306 |
||||
|
Adjustments
to reconcile net income to net cash provided by
operating activities:
|
||||||||||
Depreciation
of property, plant and equipment |
93,139
|
80,079
|
54,147
|
|||||||
Deferred
tax provision |
48,274
|
31,398
|
21,050
|
|||||||
Noncash
portion of loss on extinguishment of debt |
23,181
|
800
|
-
|
|||||||
Amortization
of intangible and other assets |
10,516
|
21,875
|
5,942
|
|||||||
Loss
on disposal of assets and asset impairment charges |
2,442
|
5,127
|
7,263
|
|||||||
Stock-based
compensation expense |
109
|
233
|
100
|
|||||||
Amortization
of discount on long-term debt |
72
|
93
|
60
|
|||||||
Equity
in earnings of equity method investees |
(1,753 |
) |
(542 |
) |
(12,236 |
) |
||||
Gain
on change in fair value of derivative instruments |
-
|
(1,181 |
) |
(23,129 |
) |
|||||
|
Change
in operating assets and liabilities, net of effects
from purchases of businesses:
|
||||||||||
Accounts
receivable, net |
(100,280 |
) |
(63,036 |
) |
6,164
|
|||||
Inventories
|
(74,466 |
) |
96,051
|
(40,676 |
) |
|||||
Prepaid
expenses and other current assets |
(8,100 |
) |
2,192
|
(11,612 |
) |
|||||
Accounts
payable |
11,388
|
(61,647 |
) |
10,135
|
||||||
Accrued
excise taxes |
25,405
|
7,658
|
(25,029 |
) |
||||||
Other
accrued expenses and liabilities |
11,607
|
11,417
|
42,882
|
|||||||
|
Other,
net
|
2,702
|
(10,624
|
)
|
(2,314
|
)
|
|||||
|
Total
adjustments
|
44,236
|
119,893
|
32,747
|
|||||||
|
Net
cash provided by operating activities
|
320,700
|
340,307
|
236,053
|
|||||||
CASH
FLOWS FROM INVESTING ACTIVITIES: |
||||||||||
Purchases
of businesses, net of cash acquired |
(1,052,471 |
) |
(1,069,470 |
) |
-
|
|||||
Purchases
of property, plant and equipment |
(119,664 |
) |
(105,094 |
) |
(71,575 |
) |
||||
Investment
in equity method investee |
(86,121 |
) |
-
|
-
|
||||||
Payment
of accrued earn-out amount |
(2,618 |
) |
(2,035 |
) |
(1,674 |
) |
||||
Proceeds
from sale of marketable equity securities |
14,359
|
849
|
-
|
|||||||
Proceeds
from sale of assets |
13,771
|
13,449
|
1,288
|
|||||||
Proceeds
from sale of equity method investment |
9,884
|
-
|
-
|
|||||||
|
Proceeds
from sale of business
|
-
|
3,814
|
-
|
|||||||
|
Net
cash used in investing activities
|
(1,222,860
|
)
|
(1,158,487
|
)
|
(71,961
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES: |
||||||||||
Proceeds
from issuance of long-term debt |
2,400,000
|
1,600,000
|
10,000
|
|||||||
Exercise
of employee stock options |
48,241
|
36,017
|
28,706
|
|||||||
Proceeds
from employee stock purchases |
4,690
|
3,481
|
2,885
|
|||||||
Principal
payments of long-term debt |
(1,488,686 |
) |
(1,282,274 |
) |
(151,134 |
) |
||||
Net
repayment of notes payable |
(45,858 |
) |
(1,113 |
) |
(51,921 |
) |
||||
Payment
of issuance costs of long-term debt |
(24,403 |
) |
(33,748 |
) |
(20 |
) |
||||
Payment
of preferred stock dividends |
(9,804 |
) |
(3,295 |
) |
-
|
|||||
|
Proceeds
from equity offerings, net of fees
|
-
|
426,086
|
-
|
|||||||
|
Net
cash provided by (used in) financing activities
|
884,180
|
745,154
|
(161,484
|
)
|
||||||
|
Effect
of exchange rate changes on cash and cash investments
|
(1,521
|
)
|
96,352
|
2,241
|
||||||
NET
(DECREASE) INCREASE IN CASH AND CASH INVESTMENTS |
(19,501 |
) |
23,326
|
4,849
|
||||||
|
CASH
AND CASH INVESTMENTS, beginning of year
|
37,136
|
13,810
|
8,961
|
|||||||
|
CASH
AND CASH INVESTMENTS, end of year
|
$ |
17,635
|
$ |
37,136
|
$ |
13,810
|
||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
||||||||||
Cash
paid during the year for: |
||||||||||
|
Interest
|
$ |
124,899
|
$ |
137,359
|
$ |
103,161
|
||||
|
Income
taxes
|
$ |
83,675
|
$ |
76,990
|
$ |
67,187
|
||||
|
SUPPLEMENTAL
DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
|
||||||||||
Fair
value of assets acquired, including cash acquired |
$ |
1,938,035 |
$ |
1,776,064 |
$ |
- |
||||
|
Liabilities
assumed
|
(878,134
|
)
|
(621,578
|
)
|
-
|
|||||
Net
assets acquired |
1,059,901
|
1,154,486
|
-
|
|||||||
Less
- stock issuance |
-
|
(77,243 |
) |
-
|
||||||
Less
- direct acquisition costs accrued or previously paid |
(985 |
) |
(5,939 |
) |
-
|
|||||
|
Less
- cash acquired
|
(6,445
|
)
|
(1,834
|
)
|
-
|
|||||
|
Net
cash paid for purchases of businesses
|
$ |
1,052,471
|
$ |
1,069,470
|
$ |
-
|
||||
|
The
accompanying notes are an integral part of these statements.
|
||||||||||
CONSTELLATION
BRANDS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY
28, 2005
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description
of business -
Constellation
Brands, Inc. and its subsidiaries (the “Company”) operate primarily in the
beverage alcohol industry. The Company is a leading international producer and
marketer of beverage alcohol brands with a broad portfolio across the wine,
imported beer and spirits categories. The Company has the largest wine business
in the world and is a leading multi-category supplier of beverage alcohol in the
United States (“U.S.”); a leading producer and exporter of wine from Australia
and New Zealand; and both a major producer and independent drinks wholesaler in
the United Kingdom (“U.K.”). In North America, the Company distributes its
products through wholesale
distributors. In Australia, the Company distributes its products directly to
off-premise accounts, such as major retail chains, on-premise accounts, such as
hotels and restaurants, and large wholesalers. In the
U.K., the Company distributes its products directly to off-premise accounts,
such as major retail chains, and to other wholesalers. Through the Company’s
U.K. wholesale business, the Company distributes its branded products and those
of other major drinks companies to on-premise accounts: pubs, clubs, hotels and
restaurants.
Principles
of consolidation -
The
consolidated financial statements of the Company include the accounts of
Constellation Brands, Inc. and all of its subsidiaries. All intercompany
accounts and transactions have been eliminated.
Management’s
use of estimates -
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue
recognition -
Sales are
recognized when title passes to the customer, which is generally when the
product is shipped. Amounts billed to customers for shipping and handling are
classified as sales. Sales reflect reductions attributable to consideration
given to customers in various customer incentive programs, including pricing
discounts on single transactions, volume discounts, promotional and advertising
allowances, coupons, and rebates.
Cost
of product sold -
The types
of costs included in cost of product sold are raw materials, packaging
materials, manufacturing costs, plant administrative support and overheads, and
freight and warehouse costs (including distribution network costs). Distribution
network costs include inbound freight charges and outbound shipping and handling
costs, purchasing and receiving costs, inspection costs, warehousing and
internal transfer costs.
Selling,
general and administrative expenses -
The types
of costs included in selling, general and administrative expenses consist
predominately of advertising and non-manufacturing administrative and overhead
costs. Distribution network costs are not included in the Company’s selling,
general and administrative expenses, but are included in cost of product sold as
described above. The Company expenses advertising costs as incurred, shown or
distributed. Prepaid advertising costs at February 28, 2005, and February 29,
2004, were not material. Advertising expense for the years ended February 28,
2005, February 29, 2004, and February 28, 2003, was $129.9 million, $116.1
million and $89.6 million, respectively.
Foreign currency
translation -
The
“functional currency” for translating the accounts of the Company’s operations
outside the U.S. is the local currency. The translation from the applicable
foreign currencies to U.S. dollars is performed for balance sheet accounts using
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using a weighted average exchange rate during the period. The resulting
translation adjustments are recorded as a component of Accumulated Other
Comprehensive Income (Loss) (“AOCI”). Gains or losses resulting from foreign
currency denominated transactions are included in selling, general and
administrative expenses in the Company’s Consolidated Statements of Income. The
Company engages in foreign currency denominated transactions with customers,
suppliers and non-U.S. subsidiaries. Aggregate foreign currency transaction
gains were $5.3 million and $16.6 million for the years ended February 28, 2005,
and February 29, 2004, respectively. Aggregate foreign currency transaction
gains were not material for the year ended February 28, 2003.
Cash
investments -
Cash
investments consist of highly liquid investments with an original maturity when
purchased of three months or less and are stated at cost, which approximates
market value. The amounts at February 28, 2005, and February 29, 2004, are not
significant.
Allowance
for doubtful accounts -
The
Company records an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
majority of the accounts receivable balance is generated from sales to
independent distributors with whom the Company has a predetermined collection
date arranged through electronic funds transfer. The allowance for doubtful
accounts was $16.3 million and $16.2 million as of February 28, 2005, and
February 29, 2004, respectively.
Fair
value of financial instruments -
To meet
the reporting requirements of Statement of Financial Accounting Standards No.
107, “Disclosures about Fair Value of Financial Instruments,” the Company
calculates the fair value of financial instruments using quoted market prices
whenever available. When quoted market prices are not available, the Company
uses standard pricing models for various types of financial instruments (such as
forwards, options, swaps, etc.) which take into account the present value of
estimated future cash flows.
The
carrying amount and estimated fair value of the Company’s financial instruments
are summarized as follows:
|
February
28, 2005
|
|
February
29, 2004
|
|
||||||||||
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|||||
(in
thousands) |
|||||||||||||
Assets: |
|||||||||||||
Cash
and cash investments |
$
|
17,635
|
$
|
17,635
|
$
|
37,136
|
$
|
37,136
|
|||||
Accounts
receivable |
$
|
849,642
|
$
|
849,642
|
$
|
635,910
|
$
|
635,910
|
|||||
|
Investment
in marketable
equity
securities
|
$
|
-
|
$
|
-
|
$
|
14,819
|
$
|
14,819
|
|||||
Currency
forward contracts |
$
|
45,606
|
$
|
45,606
|
$
|
69,993
|
$
|
69,993
|
|||||
Interest
rate swap contracts |
$
|
14,684
|
$
|
14,684
|
$
|
-
|
$
|
-
|
|||||
Liabilities: |
|||||||||||||
Notes
payable to banks |
$
|
16,475
|
$
|
16,475
|
$
|
1,792
|
$
|
1,792
|
|||||
Accounts
payable |
$
|
345,254
|
$
|
345,254
|
$
|
270,291
|
$
|
270,291
|
|||||
|
Long-term
debt, including
current
portion
|
$
|
3,272,801
|
$
|
3,374,337
|
$
|
2,046,098
|
$
|
2,181,782
|
|||||
Currency
forward contracts |
$
|
2,061
|
$
|
2,061
|
$
|
1,839
|
$
|
1,839
|
|||||
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments:
Cash
and cash investments, accounts receivable and accounts payable: The
carrying amounts approximate fair value due to the short maturity of these
instruments.
Investment
in marketable equity securities: The
fair value is estimated based on quoted market prices.
Currency
forward contracts: The fair
value is estimated based on quoted market prices.
Interest
rate swap contracts: The fair
value is estimated based on quoted market prices.
Notes
payable to banks: These
instruments are variable interest rate bearing notes for which the carrying
value approximates the fair value.
Long-term
debt: The
senior credit facility is subject to variable interest rates which are
frequently reset; accordingly, the carrying value of this debt approximates its
fair value. The fair value of the remaining long-term debt, which is all fixed
rate, is estimated by discounting cash flows using interest rates currently
available for debt with similar terms and maturities.
Derivative instruments -
As a
multinational company, the Company is exposed to market risk from changes in
foreign currency exchange rates and interest rates that could affect the
Company’s results of operations and financial condition. The amount of
volatility realized will vary based upon the effectiveness and level of
derivative instruments outstanding during a particular period of time, as well
as the currency and interest rate market movements during that same
period.
The
Company enters into derivative instruments, including interest rate swaps,
foreign currency forwards, and/or purchased foreign currency options to manage
interest rate and foreign currency risks. In accordance with Statement of
Financial Accounting Standards No. 133 (“SFAS No. 133”), “Accounting for
Derivative Instruments and Hedging Activities”, as amended, the Company
recognizes all derivatives as either assets or liabilities on the balance sheet
and measures those instruments at fair value. The fair values of the Company’s
derivative instruments change with fluctuations in interest rates and/or
currency rates and are expected to offset changes in the values of the
underlying exposures. The Company’s derivative instruments are held solely to
hedge economic exposures. The Company follows strict policies to manage interest
rate and foreign currency risks, including prohibitions on derivative
market-making or other speculative activities. As of February 28, 2005, and
February 29, 2004,
the
Company had foreign exchange contracts outstanding with a notional value of
$601.6 million and $735.8 million, respectively. As of February
28, 2005, the Company had interest rate swap agreements outstanding with a
notional value of $1,200.0 million. The
Company did not have any interest rate swap agreements outstanding as of
February 29, 2004. Subsequent to February 28, 2005, the Company monetized the
value of the interest rate swaps by replacing them with new swaps which extended
the hedged period through fiscal 2010. The Company received $30.3 million
in proceeds from the unwinding of the original swaps. This amount will be
reclassified from AOCI ratably into earnings in the same period in which the
original hedged item is recorded in the Consolidated Statement of Income. The
effective interest rate remains the same under the new swap structure at
4.1%.
To
qualify for hedge accounting under SFAS No. 133, the details of the hedging
relationship must be formally documented at inception of the arrangement,
including the risk management objective, hedging strategy, hedged item, specific
risk that is being hedged, the derivative instrument, how effectiveness is being
assessed and how ineffectiveness will be measured. The derivative must be highly
effective in offsetting either changes in the fair value or cash flows, as
appropriate, of the risk being hedged. Effectiveness is evaluated on a
retrospective and prospective basis based on quantitative measures.
Certain of the Company’s derivative instruments do not qualify for SFAS No. 133
hedge accounting treatment; for others, the Company chooses not to maintain the
required documentation to apply hedge accounting treatment. The Company’s
derivative policy permits the use of non-SFAS No. 133 hedging when the hedging
instrument is settled within the fiscal quarter or offsets a recognized balance
sheet exposure. Under these circumstances, the mark to fair value is reported
currently through earnings. Furthermore, when it is determined that a derivative
is not, or has ceased to be, highly effective as a hedge, the Company
discontinues hedge accounting prospectively. The Company discontinues hedge
accounting prospectively when (1) the derivative is no longer highly effective
in offsetting changes in the cash flows of a hedged item; (2) the derivative
expires or is sold, terminated, or exercised; (3) it is no longer probable that
the forecasted transaction will occur; or (4) management determines that
designating the derivative as a hedging instrument is no longer
appropriate.
Cash
flow hedges:
The
Company is exposed to fluctuations in foreign currency cash flows in connection
with sales to third parties, intercompany sales, available for sale securities
and intercompany loans and interest payments. Forward and option contracts are
used to hedge some of these risks. Effectiveness is assessed based on changes in
forward rates. Derivatives used to manage cash flow exposures generally mature
within 36 months or less, with a maximum maturity of five years.
The
Company records the fair value of its foreign exchange contracts qualifying for
cash flow hedge accounting treatment in its consolidated balance sheet with the
related gain or loss on those contracts deferred in stockholders’ equity (as a
component of AOCI). These deferred gains or losses are recognized in the
Company’s Consolidated Statement of Income in the same period in which the
underlying hedged items are recognized, and on the same line item as the
underlying hedged items. However, to the extent that any derivative instrument
is not considered to be perfectly effective in offsetting the change in the
value of the hedged item, the amount related to the ineffective portion of this
derivative instrument is immediately recognized in the Company’s Consolidated
Statement of Income.
The
Company expects $14.3 million of net gains to be reclassified from AOCI to
earnings within the next 12 months. The amount of hedge ineffectiveness
associated with the Company’s designated cash flow hedge instruments recognized
in the Company’s Consolidated Statements of Income during the years ended
February 28, 2005, February 29, 2004, and February 28, 2003, was immaterial. All
components of the Company’s derivative instruments’ gains or losses are included
in the assessment of hedge effectiveness. In addition, the amount of net gains
reclassified into earnings as a result of the discontinuance of cash flow hedge
accounting due to the probability that the original forecasted transaction would
not occur by the end of the originally specified time period was immaterial for
the years ended February 28, 2005, February 29, 2004, and February 28,
2003.
Fair
value hedges:
Fair
value hedges are hedges that offset the risk of changes in the fair values of
recorded assets and liabilities, and firm commitments. The Company records
changes in fair value of derivative instruments which are designated and deemed
effective as fair value hedges, in earnings offset by the corresponding changes
in the fair value of the hedged items.
The
Company is exposed to fluctuations in the value of foreign currency denominated
receivables and payables, foreign currency investments, primarily consisting of
loans to subsidiaries, and cash flows related primarily to repatriation of those
loans/investments. Forward contracts, generally less than 12 months in duration,
are used to hedge some of these risks. Effectiveness is assessed based on
changes in forward rates. Gains and losses on the derivative instruments used to
hedge the foreign exchange volatility associated with foreign currency dominated
receivables and payables is recorded within selling, general and administrative
expenses.
The
amount of hedge ineffectiveness associated with the Company’s designated fair
value hedge instruments recognized in the Company’s Consolidated Statements of
Income during the years ended February 28, 2005, February 29, 2004, and February
28, 2003, was immaterial. All components of the Company’s derivative
instruments’ gains or losses are included in the assessment of hedge
effectiveness. There were no gains or losses recognized in earnings resulting
from a hedged firm commitment no longer qualifying as a fair value
hedge.
Net
investment hedges:
Net
investment hedges are hedges that use derivative instruments or non-derivative
instruments to hedge the foreign currency exposure of a net investment in a
foreign operation. The Company manages currency exposures resulting from its net
investments in foreign subsidiaries principally with debt denominated in the
related foreign currency. Gains and losses on these instruments are recorded as
foreign currency translation adjustment in AOCI. Currently, the Company has
designated the Sterling Senior Notes and the Sterling Series C Senior Notes (as
defined in Note 9) totaling £155.0 million aggregate principal amount as a hedge
against the net investment in the Company’s U.K. subsidiary. For the years ended
February 28, 2005, February 29, 2004, and February 28, 2003, net losses of $8.1
million, $45.9 million and $24.0 million, respectively, are included in foreign
currency translation adjustments within AOCI.
Counterparty
credit risk:
Counterparty
risk relates to losses the Company could incur if a counterparty defaults on a
derivative contract. The Company manages exposure to counterparty credit risk by
requiring specified minimum credit standards and diversification of
counterparties. The Company enters into master agreements with our
counterparties that allow netting of certain exposures in order to manage this
risk. All of the Company’s counterpart exposures are with counterparts that have
investment grade ratings. The Company has procedures to monitor the credit
exposure for both mark to market and future potential exposures.
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 are classified as follows:
|
February
28,
2005
|
|
February
29,
2004
|
|||||
(in
thousands)
|
|||||||
Raw
materials and supplies |
$
|
71,562
|
$
|
49,633
|
|||
In-process
inventories |
957,567
|
803,200
|
|||||
|
Finished
case goods
|
578,606
|
408,545
|
|||||
$
|
1,607,735
|
$
|
1,261,378
|
||||
A
substantial portion of barreled whiskey and brandy will not be sold within one
year because of the duration of the aging process. All barreled whiskey and
brandy are classified as in-process inventories and are included in current
assets, in accordance with industry practice. Bulk wine inventories are also
included as in-process inventories within current assets, in accordance with the
general practices of the wine industry, although a portion of such inventories
may be aged for periods greater than one year. Warehousing, insurance, ad
valorem taxes and other carrying charges applicable to barreled whiskey and
brandy held for aging are included in inventory costs.
The
Company assesses the valuation of its inventories and reduces the carrying value
of those inventories that are obsolete or in excess of the Company’s forecasted
usage to their estimated net realizable value. The Company estimates the net
realizable value of such inventories based on analyses and assumptions
including, but not limited to, historical usage, future demand and market
requirements. Reductions to the carrying value of inventories are recorded in
cost of goods sold. If the future demand for the Company’s products is less
favorable than the Company’s forecasts, then the value of the inventories may be
required to be reduced, which would result in additional expense to the Company
and affect its results of operations.
Property,
plant and equipment -
Property,
plant and equipment is stated at cost. Major additions and betterments are
charged to property accounts, while maintenance and repairs are charged to
operations as incurred. The cost of properties sold or otherwise disposed of and
the related accumulated depreciation are eliminated from the accounts at the
time of disposal and resulting gains and losses are included as a component of
operating income.
Depreciation
- -
Depreciation
is computed primarily using the straight-line method over the following
estimated useful lives:
|
Depreciable
Life in Years
|
||||
Land
improvements |
15
to 32
|
|||
Vineyards |
26
|
|||
Buildings
and improvements |
10
to 44
|
|||
Machinery
and equipment |
3
to 35
|
|||
Motor
vehicles |
3
to 7
|
|||
Goodwill
and other intangible assets -
Effective
March 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets.” SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes Accounting Principles Board Opinion No. 17,
“Intangible Assets.” Under SFAS No. 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed at least annually for
impairment. Additionally, in the year of adoption, a transitional impairment
test is also required. The Company uses December 31 as its annual impairment
test measurement date. Intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives and are
also subject to review for impairment. Upon adoption of SFAS No. 142, the
Company determined that certain of its intangible assets met the criteria to be
considered indefinite lived and, accordingly, ceased their amortization
effective March 1, 2002. These intangible assets consisted principally of
trademarks. The Company’s trademarks relate to well established brands owned by
the Company which were previously amortized over 40 years. Intangible assets
determined to have a finite life, primarily distribution agreements, continue to
be amortized over their estimated useful lives which did not require
modification as a result of adopting SFAS No. 142. Nonamortizable intangible
assets are tested for impairment in accordance with the provisions of SFAS No.
142 and amortizable intangible assets are tested for impairment in accordance
with the provisions of SFAS No. 144 (as defined below). Note 6
provides a summary of intangible assets segregated between amortizable and
nonamortizable amounts. No instances of impairment were noted on the Company’s
goodwill and other intangible assets for the years ended February 28, 2005,
February 29, 2004, and February 28, 2003.
Other
assets -
Other
assets include the following: (i) deferred financing costs which are stated at
cost, net of accumulated amortization, and are amortized on an effective
interest basis over the term of the related debt; (ii) derivative assets which
are stated at fair value (see discussion above); (iii) investments in marketable
securities which are stated at fair value (see Note 7); and (iv) investments in
equity method investees which are carried under the equity method of accounting
(see Note 7).
Long-lived
assets impairment -
In
accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No.
144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” the
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted cash
flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds its fair value.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell and are no longer depreciated.
Pursuant
to this policy and in connection with the restructuring plan of the
Constellation Wines segment (see Note 19), the Company recorded losses of $2.1
million on the disposal of certain property, plant and equipment during the year
ended February 29, 2004. These losses are included in restructuring and related
charges on the Company’s Consolidated Statements of Income as they are part of
the restructuring plan.
During
the year ended February 28, 2003, the Company recorded an asset impairment
charge of $4.8 million in connection with two of the production facilities
disposed of during the year ended February 29, 2004, under the Constellation
Wines segment’s restructuring plan. One of the facilities, which was held and
used prior to its sale in the fourth quarter of fiscal 2004, was written down to
its appraised value and comprised most of the impairment charge. The other
facility, which was held for sale during the year ended February 29, 2004, was
written down to a value based on the Company’s estimate of salvage value. These
assets were sold in the second quarter of fiscal 2004. This impairment charge is
included in restructuring and related charges on the Company’s Consolidated
Statements of Income since it is part of the realignment of its business
operations. The impaired assets consist primarily of buildings, machinery and
equipment located at the two production facilities. The charge resulted from the
determination that the assets’ undiscounted future cash flows were less than
their carrying values.
Income
taxes -
The
Company uses the asset and liability method of accounting for income taxes. This
method accounts for deferred income taxes by applying statutory rates in effect
at the balance sheet date to the difference between the financial reporting and
tax bases of assets and liabilities.
Environmental
- -
Environmental
expenditures that relate to current operations or to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are expensed. Liabilities for environmental risks or
components thereof are recorded when environmental assessments and/or remedial
efforts are probable, and the cost can be reasonably estimated. Generally, the
timing of these accruals coincides with the completion of a feasibility study or
the Company’s commitment to a formal plan of action. Liabilities for
environmental costs were not material at February 28, 2005, and February 29,
2004.
Earnings
per common share -
Effective
June 1, 2004, the Company adopted EITF Issue No. 03-6 (“EITF No. 03-6”),
“Participating Securities and the Two-Class Method under FASB Statement No.
128.” EITF No. 03-6 clarifies what is meant by a “participating security,”
provides guidance on applying the two-class method for computing earnings per
share, and requires affected companies to retroactively restate earnings per
share amounts for all periods presented.
The
Company has two classes of common stock: Class A Common Stock and Class B
Convertible Common Stock. With respect to dividend rights, the Class A Common
Stock is entitled to cash dividends of at least ten percent higher than those
declared and paid on the Class B Convertible Common Stock. Therefore, under EITF
No. 03-6, the Class B Convertible Common Stock is considered a participating
security requiring the use of the two-class method for the computation of net
income per share - basic, rather than the if-converted method as previously
used. In addition, the shares of Class B Convertible Common Stock are considered
to be participating convertible securities since the shares of Class B
Convertible Common Stock are convertible into shares of Class A Common Stock on
a one-to-one basis at any time at the option of the holder. The two-class
computation method for each period reflects the amount of allocated
undistributed earnings per share computed using the participation percentage
which reflects the minimum dividend rights of each class of stock. Earnings per
share - basic reflects the application of EITF No. 03-6 and has been computed
using the two-class method for all periods presented. Earnings per share -
diluted continues to be computed using the if-converted method (see Note
16).
Basic
earnings per common share excludes the effect of common stock equivalents and is
computed using the two-class computation method. Diluted earnings per common
share reflects 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 assumes the exercise of stock options using
the treasury stock method and the conversion of Class B Convertible Common Stock
and Preferred Stock (as defined in Note 15) using the “if converted”
method.
Common
stock splits -
During
April 2005, the Board of Directors approved two-for-one stock splits of the
Company’s Class A Common Stock and Class B Convertible Common Stock, which will
be distributed in the form of stock dividends on May 13, 2005, to stockholders
of record on April 29, 2005. Share and per share amounts have been retroactively
restated to give effect to the common stock splits.
Stock-based
employee compensation plans
- -
As of
February 28, 2005, the Company has four stock-based employee compensation plans,
which are described more fully in Note 15. The Company applies the intrinsic
value method described in Accounting Principles Board Opinion No. 25 (“APB No.
25”), “Accounting for Stock Issued to Employees,” and related interpretations in
accounting for these plans. In accordance with APB No. 25, the compensation cost
for stock options is recognized in income based on the excess, if any, of the
quoted market price of the stock at the grant date of the award or other
measurement date over the amount an employee must pay to acquire the stock. The
Company utilizes the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based
Compensation,” as amended. (See Note 22 for additional discussion regarding
Statement of Financial Accounting Standards No. 123 (revised 2004) (“SFAS No.
123(R)”), “Share-Based Payment,” which will become effective for the Company
beginning March 1, 2006.). Options granted under the Company’s stock option
plans have an exercise price equal to the market value of the underlying common
stock on the date of grant; therefore, no incremental compensation expense has
been recognized for grants made to employees under the Company’s stock option
plans. 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 Years Ended
|
|
|||||||||
|
|
|
February
28,
2005
|
|
February
29,
2004
|
|
February
28,
2003
|
||||
(in
thousands, except per share data) |
||||||||||
Net
income, as reported |
$
|
276,464
|
$
|
220,414
|
$
|
203,306
|
||||
|
Add:
Stock-based employee
compensation
expense included in
reported
net income, net of related
tax
effects
|
69
|
160
|
248
|
|||||||
|
Deduct:
Total stock-based employee
compensation
expense determined
under
fair value based method for
all
awards, net of related tax effects
|
(33,461
|
)
|
(16,582
|
)
|
(13,695
|
)
|
||||
|
Pro
forma net income
|
$
|
243,072
|
$
|
203,992
|
$
|
189,859
|
||||
Earnings
per common share - basic: |
||||||||||
|
Class
A Common Stock, as reported
|
$
|
1.25
|
$
|
1.08
|
$
|
1.15
|
||||
|
Class
B Convertible Common Stock,
as
reported
|
$
|
1.14
|
$
|
0.98
|
$
|
1.04
|
||||
|
Class
A Common Stock, pro forma
|
$
|
1.09
|
$
|
1.00
|
$
|
1.07
|
||||
|
Class
B Convertible Common Stock,
pro
forma
|
$
|
0.99
|
$
|
0.90
|
$
|
0.97
|
||||
|
Earnings
per common share - diluted,
as
reported
|
$
|
1.19
|
$
|
1.03
|
$
|
1.10
|
||||
|
Earnings
per common share - diluted,
pro
forma
|
$
|
1.04
|
$
|
0.95
|
$
|
1.02
|
||||
2. RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS:
In
December 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 (revised December 2003) (“FIN No. 46(R)”), “Consolidation
of Variable Interest Entities—an interpretation of ARB No. 51”. FIN No. 46(R)
supersedes FASB Interpretation No. 46 (“FIN No. 46”), “Consolidation of Variable
Interest Entities”. FIN No. 46(R) retains many of the basic concepts introduced
in FIN No. 46; however, it also introduces a new scope exception for certain
types of entities that qualify as a business as defined in FIN No. 46(R) and
revises the method of calculating expected losses and residual returns for
determination of primary beneficiaries, including new guidance for assessing
variable interests. The adoption of FIN No. 46(R) did not have a material impact
on the Company’s consolidated financial statements.
As
discussed in Note 1, effective June 1, 2004, the Company adopted EITF No. 03-6,
which provides guidance on applying the two-class method for computing earnings
per share, and requires affected companies to retroactively restate earnings per
share amounts for all periods presented (see Note 16).
In
December 2003, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 132 (revised 2003) (“SFAS No.
132(R)”), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits—an amendment of FASB Statements No. 87, 88, and 106.” SFAS No. 132(R)
supersedes Statement of Financial Accounting Standards No. 132 (“SFAS No. 132”),
by revising employers’ disclosures about pension plans and other postretirement
benefit plans. SFAS No. 132(R) requires additional disclosures to those in SFAS
No. 132 regarding the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement
plans. SFAS No. 132(R) also amends Accounting Principles Board Opinion No. 28
(“APB Opinion No. 28”), “Interim Financial Reporting,” to require additional
disclosures for interim periods. The Company had adopted certain of the annual
disclosure provisions of SFAS No. 132(R), primarily those related to its U.S.
postretirement plan, for the year ended February 29, 2004. In addition, the
Company had adopted the interim disclosure provisions of SFAS No. 132(R) for its
interim reporting during the year ended February 28, 2005. The Company has
completed its adoption of the remaining annual disclosure provisions, primarily
those related to its foreign plans, for the year ended February 28,
2005.
3. ACQUISITIONS:
Acquisition
of Robert Mondavi -
On
December 22, 2004, the Company acquired all of the outstanding capital stock of
The Robert Mondavi Corporation (“Robert Mondavi”), a leading premium wine
producer based in Napa, California. In connection with the production of its
products, Robert Mondavi owns, operates and has an interest in certain wineries
and controls certain vineyards. Robert Mondavi produces, markets and sells
premium, super premium and fine California wines under the Woodbridge
by Robert Mondavi, Robert Mondavi Private Selection and Robert Mondavi Winery
brand names.
Woodbridge
and Robert Mondavi Private Selection are the leading premium and super-premium
wine brands by volume, respectively, in the United States.
The
acquisition of Robert Mondavi supports the Company’s strategy of strengthening
the breadth of its portfolio across price segments to capitalize on the overall
growth in the premium, super-premium and fine wine categories. The Company
believes that the acquired Robert Mondavi brand
names have strong brand recognition globally. The vast majority of Robert
Mondavi’s sales are generated in the United States. The Company intends to
leverage the Robert Mondavi brands in the United States through its selling,
marketing and distribution infrastructure. The Company also intends to further
expand distribution for the Robert Mondavi brands in Europe through its
Constellation Europe infrastructure.
The
Company and Robert Mondavi have complementary businesses that share a common
growth orientation and operating philosophy. The Robert Mondavi acquisition
provides the Company with a greater presence in the fine wine sector within the
United States and the ability to capitalize on the broader geographic
distribution in strategic international markets. The Robert Mondavi acquisition
supports the Company’s strategy of growth and breadth across categories and
geographies, and strengthens its competitive position in its core markets. In
particular, the Company believes there are growth opportunities for premium,
super-premium and fine wines in the United Kingdom, United States and other wine
markets. Total consideration paid in cash to the Robert Mondavi shareholders was
$1,030.7 million. Additionally, the Company expects to incur direct acquisition
costs of $11.2 million. The purchase price was financed with borrowings under
the Company’s 2004 Credit Agreement (as defined in Note 9). In accordance with
the purchase method of accounting, the acquired net assets are recorded at fair
value at the date of acquisition. The purchase price was based primarily on
the
estimated future operating results of Robert Mondavi, including the factors
described above, as well as an estimated benefit from operating cost
synergies.
The
results of operations of the Robert Mondavi business are reported in the
Constellation Wines segment and have been included in the Consolidated Statement
of Income since the acquisition date.
The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed in the Robert Mondavi acquisition at the date of
acquisition. The Company is in the process of obtaining third-party valuations
of certain assets and liabilities, and refining its restructuring plan which is
under development and will be finalized during the Company’s year ending
February 28, 2006 (see Note 19). Accordingly, the allocation of the purchase
price is subject to refinement. Estimated fair values at December 22, 2004, are
as follows:
(in
thousands) |
||||
Current
assets |
$
|
494,788
|
||
Property,
plant and equipment |
452,902
|
|||
Other
assets |
178,823
|
|||
Trademarks |
186,000
|
|||
|
Goodwill
|
590,459
|
|||
Total
assets acquired
|
1,902,972
|
|||
Current
liabilities |
309,051
|
|||
|
Long-term
liabilities
|
552,060
|
|||
|
Total
liabilities acquired
|
861,111
|
|||
|
Net
assets acquired
|
$
|
1,041,861
|
||
The
trademarks are not subject to amortization. None of the goodwill is expected to
be deductible for tax purposes.
In
connection with the Robert Mondavi acquisition and Robert Mondavi’s previously
disclosed intention to sell certain of its winery properties and related assets,
and other vineyard properties, the Company has classified
certain assets
as
held for
sale as of February 28, 2005. The Company expects to sell these assets
during
the year ended February 28,
2006, for net
proceeds of approximately $150 million to $175 million. No gain or loss is
expected to be recognized upon the sale of these assets.
Hardy
Acquisition -
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. The acquisition of Hardy along with the remaining
interest in PWP is referred to together as the “Hardy Acquisition.” Through this
acquisition, the Company acquired one of Australia’s largest wine producers with
interests in wineries and vineyards in most of Australia’s major wine regions as
well as New Zealand and the United States and Hardy’s marketing and sales
operations in the United Kingdom.
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 $17.2 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 year ended February 29, 2004.
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 then existing credit agreement and $400.0 million of
borrowings under the Company’s then existing bridge loan agreement.
Additionally, the Company issued 6,577,826 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 Company and Hardy have complementary businesses that
share a common growth orientation and operating philosophy. The Hardy
Acquisition supports the Company’s strategy of growth and breadth across
categories and geographies, and strengthens its competitive position in its core
markets. The purchase price and resulting goodwill were primarily based on the
growth opportunities of the brand portfolio of Hardy. In particular, the Company
believes there are growth opportunities for Australian wines in the United
Kingdom, United States and other wine markets. 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.
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 fair values of the assets acquired and
liabilities assumed in the Hardy Acquisition at March 27, 2003, as adjusted for
the final appraisal:
(in
thousands) |
||||
Current
assets |
$
|
557,128
|
||
Property,
plant and equipment |
332,125
|
|||
Other
assets |
30,135
|
|||
Trademarks |
263,120
|
|||
|
Goodwill
|
613,608
|
|||
Total
assets acquired
|
1,796,116
|
|||
Current
liabilities |
311,138
|
|||
|
Long-term
liabilities
|
331,954
|
|||
|
Total
liabilities acquired
|
643,092
|
|||
|
Net
assets acquired
|
$
|
1,153,024
|
||
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 years ended February 28, 2005, and February
29, 2004, respectively. The unaudited pro forma results of operations for the
years ended February 28, 2005, and February 29, 2004, give effect to the Robert
Mondavi acquisition as if it occurred on March 1, 2003. The unaudited pro forma
results of operations for the year ended February 29, 2004, do not give effect
to the Hardy Acquisition as if it occurred on March 1, 2003, as it is not
significant. 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, interest expense
associated with adverse grape contracts, and related income tax effects. The
unaudited pro forma results of operations are based upon currently available
information and certain assumptions that the Company believes are reasonable
under the circumstances. The unaudited pro forma results of operations for the
year ended February 29, 2004, do not reflect total pretax nonrecurring charges
of $21.9 million ($0.07 per share on a diluted basis) related to transaction
costs, primarily for the acceleration of vesting of stock options, legal fees
and investment banker fees, all of which were incurred by Robert Mondavi prior
to the acquisition. The unaudited pro forma results of operations do not purport
to present what the Company’s results of operations would actually have been if
the aforementioned transactions had in fact occurred on such date or at the
beginning of the period indicated, nor do they project the Company’s financial
position or results of operations at any future date or for any future
period.
|
For
the Years Ended
|
|||||||
|
|
February
28,
2005
|
February
29,
2004
|
|||||
(in
thousands, except per share data) |
|||||||
Net
sales |
$
|
4,479,603
|
$
|
4,017,436
|
|||
Income
before income taxes |
$
|
384,787
|
$
|
375,179
|
|||
Net
income |
$
|
247,872
|
$
|
239,864
|
|||
Income
available to common stockholders |
$
|
238,068
|
$
|
234,118
|
|||
Earnings
per common share - basic: |
|||||||
|
Class
A Common Stock
|
$
|
1.12
|
$
|
1.18
|
|||
|
Class
B Common Stock
|
$
|
1.01
|
$
|
1.07
|
|||
|
Earnings
per common share - diluted
|
$
|
1.06
|
$
|
1.12
|
|||
Weighted
average common shares outstanding - basic: |
|||||||
Class
A Common Stock
|
191,489
|
177,267
|
|||||
Class
B Common Stock
|
24,043
|
24,137
|
|||||
Weighted
average common shares outstanding - diluted: |
233,060
|
213,897
|
|||||
4. PROPERTY,
PLANT AND EQUIPMENT:
The major
components of property, plant and equipment are as follows:
|
February
28,
2005
|
|
February
29,
2004
|
|||||
(in
thousands)
|
|||||||
Land
and land improvements |
$
|
317,835
|
$
|
159,695
|
|||
Vineyards |
227,111
|
118,793
|
|||||
Buildings
and improvements |
367,544
|
287,326
|
|||||
Machinery
and equipment |
1,029,297
|
809,942
|
|||||
Motor
vehicles |
19,351
|
13,714
|
|||||
|
Construction
in progress
|
63,776
|
59,663
|
|||||
|
2,024,914
|
1,449,133
|
||||||
|
Less
- Accumulated depreciation
|
(428,547
|
)
|
(351,771
|
)
|
|||
$
|
1,596,367
|
$
|
1,097,362
|
||||
5. GOODWILL:
The
changes in the carrying amount of goodwill for the year ended February 28, 2005,
are as follows:
|
Constellation
Wines
|
Constellation
Beers
and
Spirits
|
Consolidated
|
||||||||
(in
thousands) |
||||||||||
Balance,
February 29, 2004 |
$
|
1,407,350
|
$
|
133,287
|
$
|
1,540,637
|
||||
Purchase
accounting allocations |
594,960
|
17,073
|
612,033
|
|||||||
|
Foreign
currency translation
adjustments
|
26,007
|
1,065
|
27,072
|
|||||||
|
Purchase
price earn-out
|
2,927
|
-
|
2,927
|
|||||||
|
Balance,
February 28, 2005
|
$
|
2,031,244
|
$
|
151,425
|
$
|
2,182,669
|
||||
The
Constellation Wines purchase accounting allocations of goodwill totaling $595.0
million consist of $590.5 million of goodwill resulting from the Robert Mondavi
acquisition and $6.9 million of goodwill resulting from the acquisition of the
remaining 50% of an immaterial joint venture, partially offset by final purchase
accounting allocations associated with the Hardy Acquisition. The Constellation
Beers and Spirits purchase accounting allocations of goodwill totaling $17.1
million consist of goodwill resulting from the consolidation of a newly formed
joint venture entity in accordance with the provisions of FIN No. 46(R) (see
Note 2).
6. INTANGIBLE
ASSETS:
The major
components of intangible assets are:
|
February
28, 2005
|
February
29, 2004
|
||||||||||||
|
|
Gross
Carrying
Amount
|
Net
Carrying
Amount
|
Gross
Carrying
Amount
|
Net
Carrying
Amount
|
|||||||||
(in
thousands) |
|||||||||||||
Amortizable
intangible assets: |
|||||||||||||
Distributor
relationships
|
$
|
3,700
|
$
|
3,679
|
$
|
-
|
$
|
-
|
|||||
Distribution
agreements
|
12,884
|
1,666
|
12,883
|
4,455
|
|||||||||
|
Other
|
5,230
|
1,229
|
4,021
|
64
|
|||||||||
|
Total
|
$
|
21,814
|
6,574
|
$
|
16,904
|
4,519
|
|||||||
Nonamortizable
intangible assets: |
|||||||||||||
Trademarks
|
920,664
|
722,047
|
|||||||||||
|
Agency
relationships
|
18,412
|
18,412
|
|||||||||||
|
Total
|
939,076
|
740,459
|
|||||||||||
|
Total
intangible assets
|
$
|
945,650
|
$
|
744,978
|
|||||||||
The
difference between the gross carrying amount and net carrying amount for each
item presented is attributable to accumulated amortization. Amortization expense
for intangible assets was $2.8
million,
$2.6 million, and $2.2 million for the years ended February 28, 2005, February
29, 2004 and February 28, 2003, respectively. Estimated amortization expense for
each of the five succeeding fiscal years and thereafter is as
follows:
(in
thousands) |
||||
2006 |
$
|
1,683
|
||
2007 |
$
|
705
|
||
2008 |
$
|
390
|
||
2009 |
$
|
377
|
||
2010 |
$
|
355
|
||
Thereafter |
$
|
3,064
|
||
7. OTHER
ASSETS:
The major
components of other assets are as follows:
|
February
28,
2005
|
February
29,
2004
|
||||||
(in
thousands)
|
|||||||
Investment
in equity method investees |
$
|
259,181
|
$
|
8,412
|
|||
Deferred
financing costs |
34,827
|
54,186
|
|||||
Derivative
assets |
23,147
|
41,517
|
|||||
Investment
in marketable equity security |
-
|
14,819
|
|||||
|
Other
|
37,688
|
7,580
|
|||||
|
354,843
|
126,514
|
||||||
|
Less
- Accumulated amortization
|
(9,392
|
)
|
(22,289
|
)
|
|||
$
|
345,451
|
$
|
104,225
|
||||
In
connection with the Hardy Acquisition and the Robert Mondavi acquisition, the
Company acquired several investments which are being accounted for under the
equity method. The primary investments consist of 50% owned joint venture
arrangements and consist of Opus One and Ornellaia. The percentage of ownership
of the remaining investments ranges from 20% to 50%. The Company is in the
process of obtaining third party valuations of the investments acquired as part
of the Robert Mondavi acquisition; thus certain of the investment balances are
subject to refinement.
In
addition, on December 3, 2004, the Company purchased a 40 percent interest in
Ruffino S.r.l. (“Ruffino”), the well-known Italian fine wine company, for a
preliminary purchase price of $86.1 million. The purchase price is subject to
final closing adjustments which the Company does not expect to be material. As
of February 1, 2005, the Company’s Constellation Wines segment began
distribution of Ruffino’s products in the U.S. Amounts related to this
distribution agreement were not material as of February 28, 2005. This
investment is also being accounted for under the equity method.
During
the year ended February 28, 2005, the Company sold its available-for-sale
marketable equity security for cash proceeds of $14.4 million resulting in a
gross realized loss of $0.7 million. The Company uses the average cost method as
its basis on which cost is determined in computing realized gains or
losses.
Amortization
expense for other assets was included in selling, general and administrative
expenses and was $7.7 million, $19.3 million, and $3.7 million for the years
ended February 28, 2005, February 29, 2004, and February 28, 2003, respectively.
Amortization expense for the year ended February 29, 2004, included $7.9 million
related to amortization of the deferred financing costs associated with the
Company’s
then existing bridge loan agreement. As of
February 29, 2004, the deferred financing costs associated with the Company’s
then existing bridge loan agreement were
fully amortized.
8. OTHER
ACCRUED EXPENSES AND LIABILITIES:
The major
components of other accrued expenses and liabilities are as
follows:
|
February
28,
2005
|
|
February
29,
2004
|
|||||
(in
thousands)
|
|||||||
Advertising
and promotions |
$
|
193,353
|
$
|
132,821
|
|||
Adverse
grape contracts (Note 14) |
66,737
|
40,105
|
|||||
Salaries
and commissions |
63,367
|
50,097
|
|||||
Income
taxes payable |
59,754
|
57,065
|
|||||
|
Other
|
250,697
|
161,921
|
|||||
$
|
633,908
|
$
|
442,009
|
||||
9. BORROWINGS:
Borrowings
consist of the following:
|
|
February
28, 2005
|
|
February
29,
2004
|
||||||||||
|
Current
|
Long-term
|
Total
|
Total
|
||||||||||
(in
thousands) |
|||||||||||||
Notes
Payable to Banks:
|
|||||||||||||
Senior
Credit Facility -
|
|||||||||||||
Revolving
Credit Loans
|
$
|
14,000
|
$
|
-
|
$
|
14,000
|
$
|
-
|
|||||
|
Other
|
2,475
|
-
|
2,475
|
1,792
|
|||||||||
$
|
16,475
|
$
|
-
|
$
|
16,475
|
$
|
1,792
|
||||||
Long-term
Debt:
|
|||||||||||||
Senior
Credit Facility - Term Loans
|
$
|
60,000
|
$
|
2,220,500
|
$
|
2,280,500
|
$
|
860,000
|
|||||
Senior
Notes
|
-
|
697,297
|
697,297
|
689,099
|
|||||||||
Senior
Subordinated Notes
|
-
|
250,000
|
250,000
|
450,000
|
|||||||||
|
Other
Long-term Debt
|
8,094
|
36,910
|
45,004
|
46,999
|
|||||||||
$
|
68,094
|
$
|
3,204,707
|
$
|
3,272,801
|
$
|
2,046,098
|
||||||
Senior
credit facility -
In
connection with the acquisition of Robert Mondavi, on December 22, 2004, the
Company and its U.S. subsidiaries (excluding certain inactive subsidiaries),
together with certain of its subsidiaries organized in foreign jurisdictions,
JPMorgan Chase Bank, N.A. as a lender and administrative agent, and certain
other agents, lenders, and financial institutions entered into a new credit
agreement (the “2004 Credit Agreement”). The 2004 Credit Agreement provides for
aggregate credit facilities of $2.9 billion, consisting of a $600.0 million
tranche A term loan facility due in November 2010, a $1.8 billion tranche B term
loan facility due in November 2011, and a $500.0 million revolving credit
facility (including a sub-facility for letters of credit of up to $60.0 million)
which terminates in December 2010. Proceeds of the 2004 Credit Agreement were
used to pay off the Company’s obligations under its prior senior credit
facility, to fund the cash consideration payable in connection with its
acquisition of Robert Mondavi, and to pay certain obligations of Robert Mondavi,
including indebtedness outstanding under its bank facility and unsecured notes
of $355.4 million. The Company uses the remaining availability under the 2004
Credit Agreement to fund its working capital needs on an as needed
basis. In
connection with entering into the 2004 Credit Agreement, the Company recorded a
charge during the year ended February 28, 2005, of $21.4 million in selling,
general and administrative expenses for the write-off of bank fees related to
the repayment of the Company’s prior senior credit facility.
The
tranche A term loan facility and the tranche B term loan facility were fully
drawn on December 22, 2004. As of February 28, 2005, the required principal
repayments of the tranche A term loan and the tranche B term loan are as
follows:
|
Tranche
A
Term
Loan
|
Tranche
B
Term
Loan
|
Total
|
||||||||
(in
thousands) |
||||||||||
2006 |
$ |
60,000
|
$ | - | $ |
60,000
|
||||
2007 |
67,500
|
17,168
|
84,668
|
|||||||
2008 |
97,500
|
17,168
|
114,668
|
|||||||
2009 |
120,000
|
17,168
|
137,168
|
|||||||
2010 |
127,500
|
17,168
|
144,668
|
|||||||
|
Thereafter
|
112,500
|
1,626,828
|
1,739,328
|
|||||||
$
|
585,000
|
$
|
1,695,500
|
$
|
2,280,500
|
|||||
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
2004 Credit Agreement) and, with respect to LIBOR borrowings, ranges between
1.00% and 1.75%. As of February 28, 2005, the LIBOR margin for the revolving
credit facility and the tranche A term loan facility is 1.50%, while the LIBOR
margin on the tranche B term loan facility is 1.75%.
The
Company’s obligations are guaranteed by its U.S. subsidiaries (excluding certain
inactive subsidiaries) and by certain of its foreign subsidiaries. These
obligations are also secured by a pledge of (i) 100% of the ownership interests
in most of the Company’s U.S. subsidiaries and (ii) 65% of the voting capital
stock of certain of the Company’s foreign subsidiaries.
The
Company and its subsidiaries are also subject to 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, the disposition and
acquisition of property and the making of certain investments, in each case
subject to numerous baskets, exceptions and thresholds. The financial covenants
are limited to maximum total debt and senior debt coverage ratios and minimum
fixed charges and interest coverage ratios. As of February 28, 2005, the Company
is in compliance with all of its covenants under its 2004 Credit
Agreement.
As of
February 28, 2005, under the 2004 Credit Agreement, the Company had outstanding
tranche A term loans of $585.0 million bearing a weighted average interest rate
of 4.3%, tranche B term loans of $1,695.5 million bearing a weighted average
interest rate of 4.4%, revolving loans of $14.0 million bearing a weighted
average interest rate of 3.8%, undrawn revolving letters of credit of $36.7
million, and $449.3 million in revolving loans available to be
drawn.
As of
February 28, 2005, the Company had outstanding five year interest rate swap
agreements to minimize interest rate volatility. The swap agreements fix LIBOR
interest rates on $1,200.0 million of the Company’s floating LIBOR rate debt at
an average rate of 4.1% over the five-year term. Subsequent to February 28,
2005, the Company monetized the value of the interest rate swaps by replacing
them with new swaps which extended the hedged period through fiscal 2010. The
Company received $30.3 million
in proceeds from the unwinding of the original swaps. This amount will be
reclassified from AOCI ratably into earnings in the same period in which the
original hedged item is recorded in the Consolidated Statement of Income. The
effective interest rate remains the same under the new swap structure at
4.1%.
Foreign
subsidiary facilities -
The
Company has additional credit arrangements available totaling $176.0 million as
of February 28, 2005. These arrangements support the financing needs of certain
of the Company’s foreign subsidiary operations. Interest rates and other terms
of these borrowings vary from country to country, depending on local market
conditions. As of February 28, 2005, and February 28, 2004, amounts outstanding
under the subsidiary credit arrangements were $34.0 million and $36.1 million,
respectively.
Senior
notes -
On August
4, 1999, the Company issued $200.0 million aggregate principal amount of 8 5/8%
Senior Notes due August 2006 (the “August 1999 Senior Notes”). Interest on the
August 1999 Senior Notes is payable semiannually on February 1 and August 1. As
of February 28, 2005, the Company had outstanding $200.0 million aggregate
principal amount of August 1999 Senior Notes.
On
November 17, 1999, the Company issued £75.0 million ($121.7 million upon
issuance) aggregate principal amount of 8 1/2% Senior Notes due November 2009
(the “Sterling Senior Notes”). Interest on the Sterling Senior Notes is payable
semiannually on May 15 and November 15. In March 2000, the Company exchanged
£75.0 million aggregate principal amount of 8 1/2% Series B Senior Notes due in
November 2009 (the “Sterling Series B Senior Notes”) for all of the Sterling
Senior Notes. The terms of the Sterling Series B Senior Notes are identical in
all material respects to the Sterling Senior Notes. In
October 2000, the Company exchanged £74.0 million aggregate principal amount of
Sterling Series C Senior Notes (as defined below) for £74.0 million of the
Sterling Series B Notes. The terms of the Sterling Series C Senior Notes are
identical in all material respects to the Sterling Series B Senior Notes. As of
February 28, 2005, the Company had outstanding £1.0
million ($1.9 million) aggregate
principal amount of Sterling Series B Senior Notes.
On May
15, 2000, the Company issued £80.0 million ($120.0 million upon issuance)
aggregate principal amount of 8 1/2% Series C Senior Notes due November 2009 at
an issuance price of £79.6 million ($119.4 million upon issuance, net of $0.6
million unamortized discount, with an effective interest rate of 8.6%) (the
“Sterling Series C Senior Notes”). Interest on the Sterling Series C Senior
Notes is payable semiannually on May 15 and November 15. As of February 28,
2005, the Company had outstanding £154.0 million ($295.4 million, net of
$0.5 million
unamortized discount) aggregate principal amount of Sterling Series C Senior
Notes.
On
February 21, 2001, the Company issued $200.0 million aggregate principal amount
of 8% Senior Notes due February 2008 (the “February 2001 Senior Notes”).
Interest on the February 2001 Senior Notes is payable semiannually on February
15 and August 15. In July
2001, the Company exchanged $200.0 million aggregate principal amount of 8%
Series B Senior Notes due February 2008 (the “February 2001 Series B Senior
Notes”) for all of the February 2001 Senior Notes. The terms of the February
2001 Series B Senior Notes are identical in all material respects to the
February 2001 Senior Notes. As of February 28, 2005, the Company had outstanding
$200.0 million aggregate principal amount of February 2001 Series B Senior
Notes.
The
senior notes described above are redeemable, in whole or in part, at the option
of the Company at any time at a redemption price equal to 100% of the
outstanding principal amount and a make whole payment based on the present value
of the future payments at the adjusted Treasury rate or adjusted Gilt rate plus
50 basis points. The senior notes are unsecured senior obligations and rank
equally in right of payment to all existing and future unsecured senior
indebtedness of the Company. Certain of the Company’s significant operating
subsidiaries guarantee the senior notes, on a senior basis.
Senior
subordinated notes -
On March
4, 1999, the Company issued $200.0 million aggregate principal amount of 8 1/2%
Senior Subordinated Notes due March 2009 (“Senior Subordinated Notes”). The
Senior Subordinated Notes were redeemable at the option of the Company, in whole
or in part, at any time on or after March 1, 2004. On February 10, 2004, the
Company issued a Notice of Redemption for its Senior Subordinated Notes. On
March 11, 2004, the Senior Subordinated Notes were redeemed with proceeds from
the revolving credit facility under the Company's then existing senior credit
facility at 104.25% of par plus accrued interest. During the year ended February
28, 2005, in connection with this redemption, the Company recorded a charge of
$10.3 million in selling, general and administrative expenses for the call
premium and the remaining unamortized financing fees associated with the
original issuance of the Senior Subordinated Notes.
On
January 23, 2002, the Company issued $250.0 million aggregate principal amount
of 8 1/8% Senior Subordinated Notes due January 2012 (“January 2002 Senior
Subordinated Notes”). Interest on the January 2002 Senior Subordinated Notes is
payable semiannually on January 15 and July 15. 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 January 2002 Senior
Subordinated Notes are unsecured and subordinated to the prior payment in full
of all senior indebtedness of the Company, which includes the senior credit
facility. The January 2002 Senior Subordinated Notes are guaranteed, on a senior
subordinated basis, by certain of the Company’s significant operating
subsidiaries. As of February 28, 2005, the Company had outstanding $250.0
million aggregate principal amount of January 2002 Senior Subordinated
Notes.
Trust
Indentures -
The
Company’s various Trust Indentures relating to the senior notes and senior
subordinated notes contain certain covenants, including, but not limited to: (i)
limitation on indebtedness; (ii) limitation on restricted payments; (iii)
limitation on transactions with affiliates; (iv) limitation on senior
subordinated indebtedness; (v) limitation on liens; (vi) limitation on sale of
assets; (vii) limitation on issuance of guarantees of and pledges for
indebtedness; (viii) restriction on transfer of assets; (ix) limitation on
subsidiary capital stock; (x) limitation on dividends and other payment
restrictions affecting subsidiaries; and (xi) restrictions on mergers,
consolidations and the transfer of all or substantially all of the assets of the
Company to another person. The limitation on indebtedness covenant is governed
by a rolling four quarter fixed charge ratio requiring a specified
minimum.
Debt
payments -
Principal
payments required under long-term debt obligations (excluding unamortized
discount of $0.5 million) during the next five fiscal years and thereafter are
as follows:
(in
thousands) |
||||
2006 |
$
|
68,094
|
||
2007 |
298,039
|
|||
2008 |
321,707
|
|||
2009 |
143,297
|
|||
2010 |
450,952
|
|||
|
Thereafter
|
1,991,169
|
|||
$
|
3,273,258
|
|||
10. INCOME
TAXES:
Income
before income taxes was generated as follows:
|
For
the Years Ended
|
||||||||||
|
|
February
28,
2005
|
February
29,
2004
|
February
28,
2003
|
|||||||
(in
thousands) |
||||||||||
Domestic |
$
|
357,444
|
$
|
289,960
|
$
|
294,557
|
||||
|
Foreign
|
74,530
|
54,437
|
40,379
|
|||||||
$
|
431,974
|
$
|
344,397
|
$
|
334,936
|
|||||
The
income tax provision consisted of the following:
|
For
the Years Ended
|
||||||||||
|
|
February
28,
2005
|
February
29,
2004
|
February
28,
2003
|
|||||||
(in
thousands) |
||||||||||
Current: |
||||||||||
Federal
|
$
|
70,280
|
$
|
68,125
|
$
|
79,472
|
||||
State
|
15,041
|
13,698
|
13,807
|
|||||||
|
Foreign
|
21,915
|
14,116
|
17,301
|
|||||||
|
Total
current
|
107,236
|
95,939
|
110,580
|
|||||||
Deferred: |
||||||||||
Federal
|
52,030
|
18,843
|
16,290
|
|||||||
State
|
4,507
|
6,180
|
2,502
|
|||||||
|
Foreign
|
(8,263
|
)
|
3,021
|
2,258
|
||||||
|
Total
deferred
|
48,274
|
28,044
|
21,050
|
|||||||
|
Income
tax provision
|
$
|
155,510
|
$
|
123,983
|
$
|
131,630
|
||||
The
foreign provision for income taxes is based on foreign pretax earnings. Earnings
of foreign subsidiaries would be subject to U.S. income taxation on repatriation
to the U.S. The Company’s consolidated financial statements fully provide for
any related tax liability on amounts that may be repatriated.
Deferred
tax assets and liabilities reflect the future income tax effects of temporary
differences between the consolidated financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and are measured
using enacted tax rates that apply to taxable income.
Significant
components of deferred tax assets (liabilities) consist of the
following:
|
February
28,
2005
|
February
29,
2004
|
||||||
(in
thousands) |
|||||||
Deferred
tax assets: |
|||||||
Inventory |
$ |
89,339
|
$ |
23,347
|
|||
Employee
benefits |
32,988
|
20,696
|
|||||
Net
operating losses |
37,846
|
15,477
|
|||||
Insurance
accruals |
5,190
|
5,682
|
|||||
Unrealized
foreign exchange |
21,006
|
(542
|
) |
||||
Foreign
tax credit |
13,397
|
8,600
|
|||||
|
Other
accruals
|
20,628
|
24,248
|
|||||
Gross deferred tax assets |
220,394
|
97,508
|
|||||
|
Valuation
allowances
|
(4,628
|
)
|
(2,712
|
)
|
|||
|
Deferred tax assets, net
|
215,766
|
94,796
|
|||||
Deferred
tax liabilities: |
|||||||
Property,
plant and equipment |
$ |
(165,625
|
) |
$ |
(96,059
|
) |
|
Intangible
assets |
(240,766
|
) |
(147,271
|
) |
|||
Derivative
instruments |
(27,250
|
) |
(17,341
|
) |
|||
Investment
in equity method investees |
(53,760
|
) |
-
|
||||
|
Provision
for unremitted earnings
|
(4,892
|
)
|
(11,147
|
)
|
|||
|
Total deferred tax
liabilities
|
(492,293
|
)
|
(271,818
|
)
|
|||
Deferred
tax liabilities, net |
(276,527
|
) |
(177,022
|
) |
|||
Less: Current
deferred tax assets |
98,744
|
10,388
|
|||||
Long-term deferred assets |
21,808
|
-
|
|||||
|
Current deferred tax
liability
|
(7,193
|
)
|
-
|
||||
|
Long-term
deferred tax liabilities, net
|
$ |
(389,886
|
)
|
$ |
(187,410
|
)
|
|
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some or all of the deferred tax assets will not
be realized. Management considers the reversal of deferred tax liabilities and
projected future taxable income in making this assessment. Based upon this
assessment, management believes it is more likely than not that the Company will
realize the benefits of these deductible differences, net of any valuation
allowances.
Operating
loss carryforwards totaling $120.0 million at February 28, 2005, are being
carried forward in a number of U.S. and foreign jurisdictions where the Company
is permitted to use tax operating losses from prior periods to reduce future
taxable income. Of these operating loss carryforwards, $26.1 million will expire
in 2024 and $94.0 million may be carried forward indefinitely. In addition,
certain tax credits generated of $13.5 million are available to offset future
income taxes. These credits will expire, if not utilized, in 2012 through
2015.
On
October 22, 2004, the American Jobs Creation Act (“AJCA”) was signed into law.
The AJCA includes a special one-time 85 percent dividends received deduction for
certain foreign earnings that are repatriated. In December 2004, the FASB issued
FASB Staff Position No. FAS 109-2 (“FSP FAS 109-2”), “Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American
Jobs Creation Act of 2004.” FSP FAS 109-2 provides accounting and disclosure
guidance for this repatriation provision. Although
FSP FAS 109-2 is effective immediately, the Company is currently assessing the
impact of guidance issued by the Treasury Department and the Internal Revenue
Service on May 10, 2005, as well as the relevance of additional guidance
expected to be issued. The Company expects to complete its evaluation of the
effects of the repatriation provision within a reasonable period of time
following the publication of the additional guidance.
In
December 2004, the FASB issued FASB Staff Position No. FAS109-1 (“FSP FAS
109-1”), “Application of FASB Statement No. 109, Accounting for Income Taxes,
for the Tax Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004.” FSP FAS 109-1 clarifies that the deduction
will be treated as a “special deduction” as described in Statement of Financial
Accounting Standards No. 109, “Accounting for Income Taxes.” As such, the
special deduction has no effect on deferred tax assets and liabilities existing
at the date of enactment. The impact of the deduction will be reported in the
period in which the deduction is claimed.
The
Company is subject to ongoing tax examinations and assessments in various
jurisdictions. Accordingly, the Company provides for additional tax expense
based on probable outcomes of such matters. The Internal Revenue Service is
currently examining tax returns for the years ended February 29, 2000, February
28, 2001, February 28, 2002, and February 28, 2003. While it is often difficult
to predict the final outcome or the timing of resolution of any particular tax
matter, the Company believes the reserves reflect the probable outcome of known
tax contingencies. Unfavorable settlement of any particular issue would require
use of cash. Favorable resolution would be recognized as a reduction to the
effective tax rate in the year of resolution.
A
reconciliation of the total tax provision to the amount computed by applying the
statutory U.S. Federal income tax rate to income before provision for income
taxes is as follows:
|
For
the Years Ended
|
|||||||||||||||||||
|
|
February
28,
2005
|
February
29,
2004
|
February
28,
2003
|
||||||||||||||||
|
|
%
of
|
|
%
of
|
|
%
of
|
||||||||||||||
|
|
|
Pretax
|
|
Pretax
|
|
Pretax
|
|||||||||||||
|
|
|
Amount
|
|
Income
|
|
Amount
|
|
Income
|
|
Amount
|
|
Income
|
|||||||
(in
thousands) |
|||||||||||||||||||
Income
tax provision at statutory rate |
$
|
151,191
|
35.0
|
$
|
120,521
|
35.0
|
$
|
117,228
|
35.0
|
||||||||||
|
State
and local income taxes, net of
federal
income tax benefit
|
12,706
|
2.9
|
13,032
|
3.8
|
10,601
|
3.2
|
|||||||||||||
|
Earnings
of subsidiaries taxed at
other
than U.S. statutory rate
|
(5,024
|
) |
(1.1
|
) |
(12,170
|
)
|
(3.5
|
)
|
1,838
|
0.5
|
|||||||||
|
Miscellaneous
items, net
|
(3,363
|
)
|
(0.8
|
)
|
2,600
|
0.7
|
1,963
|
0.6
|
|||||||||||
$
|
155,510
|
36.0
|
$
|
123,983
|
36.0
|
$
|
131,630
|
39.3
|
|||||||||||
The
effect of earnings of foreign subsidiaries includes the difference between the
U.S. statutory rate and local jurisdiction tax rates, as well as the provision
for incremental U.S. taxes on unremitted earnings of foreign subsidiaries offset
by foreign tax credits and other foreign adjustments.
11. OTHER
LIABILITIES:
The major
components of other liabilities are as follows:
|
February
28,
2005
|
|
February
29,
2004
|
|||||
(in
thousands)
|
|||||||
Adverse
grape contracts (Note 14) |
$
|
145,958
|
$
|
83,464
|
|||
Accrued
pension liability |
85,584
|
55,221
|
|||||
|
Other
|
60,037
|
46,304
|
|||||
$
|
291,579
|
$
|
184,989
|
||||
12. PROFIT
SHARING AND RETIREMENT SAVINGS PLANS:
The
Company’s retirement and profit sharing plan, the Constellation Brands, Inc.
401(k) and Profit Sharing Plan (the “Plan”), covers substantially all U.S.
employees, excluding those employees covered by collective bargaining
agreements. The 401(k) portion of the Plan permits eligible employees to defer a
portion of their compensation (as defined in the Plan) on a pretax basis.
Participants may defer up to 50% of their compensation for the year, subject to
limitations of the Plan. The Company makes a matching contribution of 50% of the
first 6% of compensation a participant defers. The amount of the Company’s
contribution under the profit sharing portion of the Plan is a discretionary
amount as determined by the Board of Directors on an annual basis, subject to
limitations of the Plan. Company contributions under the Plan were $13.0
million, $11.6 million, and $10.9 million for the years ended February 28, 2005,
February 29, 2004, and February 28, 2003, respectively.
During
the year ended February 29, 2004, in connection with the Hardy Acquisition, the
Company acquired the BRL Hardy Superannuation Fund (now known as the Hardy Wine
Company Superannuation Plan) (the “Hardy Plan”) which covers substantially all
salaried Australian employees. The Hardy Plan has a defined benefit component
and a defined contribution component. The Company also has a statutory
obligation to provide a minimum defined contribution on behalf of any Australian
employees who are not covered by the Hardy Plan. In addition, during the year
ended February 29, 2004, the Company instituted a defined contribution plan that
covers substantially all of its U.K. employees. Company contributions under the
defined contribution component of the Hardy Plan, the Australian statutory
obligation, and the U.K. defined contribution plan aggregated $6.5 million and
$6.6 million for the years ended February 28, 2005, and February 29, 2004,
respectively.
The
Company also has defined benefit pension plans that cover certain of its
non-U.S. employees. These consist of a Canadian plan, an U.K. plan and the
defined benefit component of the Hardy Plan. During
the year ended February 28, 2005, an amendment to the Canadian plan modifying
pension benefits increased the pension benefit obligation by $0.9 million.
During
the year ended February 29, 2004, the Company ceased future accruals for active
employees under its U.K. plan. There were no curtailment charges arising from
this event. The Company uses a December 31 measurement date for all of its
plans. Net periodic benefit cost (income) reported in the Consolidated
Statements of Income for these plans includes the following
components:
|
For
the Years Ended
|
|
|||||||||
|
|
|
February
28,
2005
|
|
February
29,
2004
|
|
February
28,
2003
|
||||
(in
thousands) |
||||||||||
Service
cost |
$
|
2,117
|
$
|
2,202
|
$
|
4,245
|
||||
Interest
cost |
16,391
|
14,471
|
12,055
|
|||||||
Expected
return on plan assets |
(17,250
|
)
|
(15,155
|
)
|
(14,639
|
)
|
||||
Amortization
of prior service cost |
9
|
9
|
8
|
|||||||
|
Recognized
net actuarial loss (gain)
|
2,530
|
2,019
|
843
|
|||||||
|
Net
periodic benefit cost (income)
|
$
|
3,797
|
$
|
3,546
|
$
|
2,512
|
||||
The
following table summarizes the funded status of the Company’s defined benefit
pension plans and the related amounts included in the Consolidated Balance
Sheets:
|
February
28,
2005
|
|
February
29,
2004
|
|||||
(in
thousands) |
|||||||
Change
in benefit obligation: |
|||||||
Benefit
obligation as of March 1 |
$
|
301,608
|
$
|
220,686
|
|||
Service
cost |
2,117
|
2,202
|
|||||
Interest
cost |
16,391
|
14,471
|
|||||
Plan
participants’ contributions |
84
|
235
|
|||||
Actuarial
loss |
29,939
|
19,079
|
|||||
Acquisition |
-
|
10,764
|
|||||
Plan
amendment |
884
|
-
|
|||||
Benefits
paid |
(12,769
|
)
|
(11,013
|
)
|
|||
|
Foreign
currency exchange rate changes
|
10,836
|
45,184
|
|||||
|
Benefit
obligation as of the last day of February
|
$
|
349,090
|
$
|
301,608
|
|||
|
February
28,
2005
|
|
February
29,
2004
|
|||||
(in
thousands) |
|||||||
Change
in plan assets: |
|||||||
Fair
value of plan assets as of March 1 |
$
|
236,314
|
$
|
175,819
|
|||
Actual
return on plan assets |
19,092
|
21,618
|
|||||
Acquisition |
-
|
9,601
|
|||||
Plan
participants’ contributions |
84
|
235
|
|||||
Employer
contribution |
3,186
|
3,983
|
|||||
Benefits
paid |
(12,769
|
)
|
(11,013
|
)
|
|||
|
Foreign
currency exchange rate changes
|
7,750
|
36,071
|
|||||
|
Fair
value of plan assets as of the last day of February
|
$
|
253,657
|
$
|
236,314
|
|||
Funded
status of the plan as of the last day of February: |
|||||||
Funded
status |
$
|
(95,433
|
)
|
$
|
(65,294
|
)
|
|
|
Employer
contributions from measurement date
to
fiscal year end
|
759
|
-
|
|||||
Unrecognized
prior service cost |
927
|
18
|
|||||
|
Unrecognized
actuarial loss
|
123,277
|
93,926
|
|||||
|
Net
amount recognized
|
$
|
29,530
|
$
|
28,650
|
|||
|
Amounts
recognized in the Consolidated Balance Sheets consist
of:
|
|||||||
Prepaid
benefit cost |
$
|
555
|
$
|
97
|
|||
Accrued
benefit liability |
(85,584
|
)
|
(55,221
|
)
|
|||
Intangible
asset |
927
|
18
|
|||||
Deferred
tax asset |
34,210
|
25,569
|
|||||
|
Accumulated
other comprehensive loss
|
79,422
|
58,187
|
|||||
|
Net
amount recognized
|
$
|
29,530
|
$
|
28,650
|
|||
As of
February 28, 2005, and February 29, 2004, the accumulated benefit obligation for
all defined benefit pension plans was $337.9 million and $290.3 million,
respectively. The following table summarizes the projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for those pension
plans with an accumulated benefit obligation in excess of plan
assets:
|
February
28,
2005
|
February
29,
2004
|
||||||
(in
thousands) |
|||||||
Projected
benefit obligation |
$
|
332,952
|
$
|
286,617
|
|||
Accumulated
benefit obligation |
$
|
321,963
|
$
|
275,508
|
|||
Fair
value of plan assets |
$
|
236,145
|
$
|
220,287
|
|||
The
increase in minimum pension liability included in AOCI for the years ended
February 28, 2005, and February 29, 2004, were $21.2 million and $15.7
million, respectively.
The
following table sets forth the weighted average assumptions used in developing
the net periodic pension expense for the years ended February 28, 2005, and
February 29, 2004:
|
For
the Years Ended
|
|||||||
|
|
February
28,
2005
|
February
29,
2004
|
|||||
Rate
of return on plan assets |
7.50
|
% |
7.32
|
% |
|||
Discount
rate |
5.79
|
% |
5.85
|
% |
|||
Rate
of compensation increase |
3.94
|
% |
4.16
|
% |
|||
The
following table sets forth the weighted average assumptions used in developing
the benefit obligation as of February 28, 2005, and February 29,
2004:
|
February
28,
2005
|
February
29,
2004
|
||||||
Discount
rate |
5.41
|
% |
5.57
|
% |
|||
Rate
of compensation increase |
3.76
|
% |
3.34
|
% |
|||
The
Company’s weighted average expected long-term rate of return on plan assets is
7.50%. The Company considers the historical level of long-term returns and the
current level of expected long-term returns for each asset class, as well as the
current and expected allocation of assets when developing its expected long-term
rate of return on assets assumption. The expected return for each asset class is
weighted based on the target asset allocation to develop the expected long-term
rate of return on assets assumption for the Company’s portfolios.
The
following table sets forth the weighted average asset allocations as of February
28, 2005, and February 29, 2004, by asset category:
|
February
28,
2005
|
February
29,
2004
|
||||||
Asset
Category: |
|||||||
Equity
securities |
33.1
|
%
|
32.9
|
%
|
|||
Debt
securities |
38.0
|
%
|
40.0
|
%
|
|||
Real
estate |
0.5
|
%
|
0.7
|
%
|
|||
|
Other
|
28.4
|
%
|
26.4
|
%
|
|||
|
Total
|
100.0
|
%
|
100.0
|
%
|
|||
For each
of its Canadian, U.K. and Australian defined benefit plans, the Company employs
an investment return approach whereby a mix of equities and fixed income
investments are used (on a plan by plan basis) to maximize the long-term return
of plan assets for a prudent level of risk. From time to time, the Company will
target asset allocation on a plan by plan basis to enhance total return while
balancing risks. The established weighted average target allocations across all
of the Company’s plans are approximately 40% fixed income securities, 35% equity
securities, and 25% other. The other component results primarily from
investments held by the Company’s U.K. plan and consists primarily of U.K. hedge
funds which have characteristics of both equity and fixed income securities.
Risk tolerance is established separately for each plan through careful
consideration of plan liabilities, plan funded status, and corporate financial
condition. The individual investment portfolios contain a diversified blend of
equity and fixed-income investments. Equity investments are diversified
across each plan’s local jurisdiction stocks as well as international stocks,
and across multiple asset classifications, including growth, value, and large
and small capitalizations. Investment risk is measured and monitored for each
plan separately on an ongoing basis through periodic investment portfolio
reviews and annual liability measures.
The
Company expects to contribute $5.5 million to its pension plans during the year
ended February 28, 2006.
Benefit
payments, which reflect expected future service, as appropriate, expected to be
paid during the next ten fiscal years are as follows:
(in
thousands) |
||||
2006 |
$
|
11,996
|
||
2007 |
$
|
12,650
|
||
2008 |
$
|
12,585
|
||
2009 |
$
|
15,757
|
||
2010 |
$
|
13,754
|
||
2011
- 2015 |
$
|
77,881
|
||
13. POSTRETIREMENT
BENEFITS:
The
Company currently sponsors multiple unfunded postretirement benefit plans for
certain of its Constellation Beers and Spirits segment employees. During the
year ended February 28, 2005, amendments to two of the unfunded postretirement
benefit plans, one modifying retiree contributions and the other modifying
eligibility requirements and retiree contributions, decreased the postretirement
benefit obligation by $0.4 million. During the year ended February 29, 2004, an
amendment to one of the unfunded postretirement benefit plans modifying the
eligibility requirements and retiree contributions decreased the postretirement
benefit obligation by $0.6 million.
The
Company uses a December 31 measurement date for all of its plans. The status of
the plans is as follows:
|
February
28,
2005
|
|
February
29,
2004
|
|||||
(in
thousands) |
|||||||
Change
in benefit obligation: |
|||||||
Benefit
obligation as of March 1 |
$
|
5,460
|
$
|
4,471
|
|||
Service
cost |
158
|
147
|
|||||
Interest
cost |
275
|
282
|
|||||
Benefits
paid |
(186
|
)
|
(159
|
)
|
|||
Plan
amendment |
(383
|
)
|
(645
|
)
|
|||
Actuarial
loss (gain) |
(499
|
)
|
1,177
|
||||
|
Foreign
currency exchange rate changes
|
164
|
187
|
|||||
|
Benefit
obligation as of the last day of February
|
$
|
4,989
|
$
|
5,460
|
|||
Funded
status as of the last day of February: |
|||||||
Funded
status |
$
|
(4,989
|
)
|
$
|
(5,460
|
)
|
|
Unrecognized
prior service cost |
(666
|
)
|
(311
|
)
|
|||
|
Unrecognized
net loss (gain)
|
461
|
926
|
|||||
|
Accrued
benefit liability
|
$
|
(5,194
|
)
|
$
|
(4,845
|
)
|
|
Net
periodic benefit cost reported in the Consolidated Statements of Income includes
the following components:
|
For
the Years Ended
|
||||||||||
|
|
February
28,
2005
|
February
29,
2004
|
February
28,
2003
|
|||||||
(in
thousands) |
||||||||||
Service
cost |
$
|
158
|
$
|
147
|
$
|
135
|
||||
Interest
cost |
275
|
282
|
260
|
|||||||
Amortization
of prior service cost |
(21
|
)
|
7
|
41
|
||||||
|
Recognized
net actuarial gain (loss)
|
15
|
19
|
(20
|
)
|
||||||
|
Net
periodic benefit cost
|
$
|
427
|
$
|
455
|
$
|
416
|
||||
The
following table sets forth the weighted average assumptions used in developing
the benefit obligation as of February 28, 2005, and February 29,
2004:
|
February
28,
2005
|
February
29,
2004
|
||||||
Discount
rate |
5.86 |
% |
6.00 |
% |
|||
Rate
of compensation increase |
3.50 |
% |
3.50 |
% |
|||
The
following table sets forth the weighted average assumptions used in developing
the net periodic non-pension postretirement expense for the years ended February
28, 2005, and February 29, 2004:
|
For
the Years Ended
|
|||||||
|
|
February
28,
2005
|
February
29,
2004
|
|||||
Discount
rate |
6.00 |
% |
6.46 |
% |
|||
Rate
of compensation increase |
3.50 |
% |
4.00 |
% |
|||
The
following table sets forth the assumed health care cost trend rates as of
February 28, 2005, and February 29, 2004:
|
February
28, 2005
|
February
29, 2004
|
||||||||||||
|
|
U.S.
Plan
|
Non-U.S.
Plan
|
U.S.
Plan
|
Non-U.S.
Plan
|
|||||||||
Health
care cost trend rate assumed for next year |
9.0
|
% |
9.7
|
% |
5.1
|
% |
10.5
|
% |
|||||
|
Rate
to which the cost trend rate is assumed to
decline
to (the ultimate trend rate)
|
4.0
|
% |
4.7
|
% |
4.0
|
% |
4.7
|
% |
|||||
Year
that the rate reaches the ultimate trend rate |
2010
|
2011
|
2005
|
2011
|
|||||||||
Assumed
health care trend rates could have a significant effect on the amount reported
for health care plans. A one percent change in assumed health care cost trend
rates would have the following effects:
|
|
1%
Increase
|
1%
Decrease
|
|||||
(in
thousands) |
|||||||
Effect
on total service and interest cost components |
$
|
59
|
$
|
(49
|
)
|
||
Effect
on postretirement benefit obligation |
$
|
547
|
$
|
(473
|
)
|
||
Benefit
payments, which reflect expected future service, as appropriate, expected to be
paid during the next ten fiscal years are as follows:
(in
thousands) |
||||
2006 |
$
|
335
|
||
2007 |
$
|
346
|
||
2008 |
$
|
161
|
||
2009 |
$
|
155
|
||
2010 |
$
|
160
|
||
2011
- 2015 |
$
|
2,444
|
||
14. COMMITMENTS
AND CONTINGENCIES:
Operating
leases -
Step rent
provisions, escalation clauses, capital improvement funding and other lease
concessions, when present in the Company’s leases, are taken into account in
computing the minimum lease payments. The minimum lease payments for the
Company’s operating leases are recognized on a straight-line basis over the
minimum lease term. Future payments under noncancelable operating leases having
initial or remaining terms of one year or more are as follows during the next
five fiscal years and thereafter:
(in
thousands) |
||||
2006 |
$
|
52,952
|
||
2007 |
52,315 |
|||
2008 |
38,779 |
|||
2009 |
31,515
|
|||
2010 |
31,545
|
|||
|
Thereafter
|
201,115
|
|||
$
|
408,221
|
|||
Rental
expense was $47.4 million, $41.0 million, and $25.3 million for the years ended
February 28, 2005, February 29, 2004, and February 28, 2003,
respectively.
Purchase
commitments and contingencies -
The
Company has agreements with suppliers to purchase various spirits of which
certain agreements are denominated in British pound sterling. The maximum future
obligation under these agreements, based upon exchange rates at February 28,
2005, aggregate $27.2 million for contracts expiring through December
2012.
All of
the Company’s imported beer products are marketed and sold pursuant to exclusive
distribution agreements from the suppliers of these products. The Company’s
agreement to distribute Corona Extra and its other Mexican beer brands
exclusively throughout 25 primarily western U.S. states expires in December
2006, with automatic five year renewals thereafter, subject to compliance with
certain performance criteria and other terms under the agreement. The remaining
agreements expire through December 2008. Prior to their expiration, these
agreements may be terminated if the Company fails to meet certain performance
criteria. At February 28, 2005, the Company believes it is in compliance with
all of its material distribution agreements and, given the Company’s long-term
relationships with its suppliers, the Company does not believe that these
agreements will be terminated.
In
connection with previous acquisitions as well as with the Hardy Acquisition and
Robert Mondavi acquisition, the Company has assumed grape purchase contracts
with certain growers and suppliers. In addition, the Company has entered into
other grape purchase contracts with various growers and suppliers in the normal
course of business. Under the grape purchase contracts, the Company is committed
to purchase all grape production yielded from a specified number of acres for a
period of time from one to fifteen years. The actual tonnage and price of grapes
that must be purchased by the Company will vary each year depending on certain
factors, including weather, time of harvest, overall market conditions and the
agricultural practices and location of the growers and suppliers under contract.
The Company purchased $370.2 million and $284.0 million of grapes under
contracts during the years ended February 28, 2005, and February 29, 2004,
respectively. Based on current production yields and published grape prices, the
Company estimates that the aggregate purchases under these contracts over the
remaining terms of the contracts will be $2,499.7 million.
In
connection with previous acquisitions as well as with the Hardy Acquisition and
Robert Mondavi acquisition, the Company established a liability for the
estimated loss on firm purchase commitments assumed at the time of acquisition.
As of February 28, 2005, the remaining balance on this liability is $212.7
million.
The
Company’s aggregate obligations under bulk wine purchase contracts will be
$132.1 million over the remaining terms of the contracts which extend through
fiscal 2012.
The
Company’s aggregate obligations under sweetener purchase contracts will be $16.0
million over the remaining terms of the contracts which extend through fiscal
2007.
In
connection with the Hardy Acquisition, the Company assumed certain processing
contracts which commit the Company to utilize outside services to process and/or
package a minimum volume quantity. In addition, the Company entered into a new
processing contract during the year ended February 29, 2004, utilizing outside
services to process a minimum volume of brandy at prices which are dependent on
the processing ingredients provided by the Company. The Company’s aggregate
obligations under these processing contracts will be $80.0 million over the
remaining terms of the contracts which extend through December
2014.
Employment
contracts -
The
Company has employment contracts with certain of its executive officers and
certain other management personnel with either automatic one year renewals or an
indefinite term of employment unless terminated by either party. These
employment contracts provide for minimum salaries, as adjusted for annual
increases, and may include incentive bonuses based upon attainment of specified
management goals. These employment contracts also provide for severance payments
in the event of specified termination of employment. In addition, the Company
has employment arrangements with certain other management personnel which
provide for severance payments in the event of specified termination of
employment. As of February 28, 2005, the aggregate commitment for future
compensation and severance, excluding incentive bonuses, was $18.3 million, none
of which was accruable at that date.
Employees
covered by collective bargaining agreements -
Approximately
29.1% of the Company’s full-time employees are covered by collective bargaining
agreements at February 28, 2005. Agreements expiring within one year cover
approximately 12.3% of the Company’s full-time employees.
Legal
matters -
In the
course of its business, the Company is subject to litigation from time to time.
Although the amount of any liability with respect to such litigation cannot be
determined, in the opinion of management such liability will not have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
15. STOCKHOLDERS’
EQUITY:
Common
stock -
The
Company has two classes of common stock: Class A Common Stock and Class B
Convertible Common Stock. Class B Convertible Common Stock shares are
convertible into shares of Class A Common Stock on a one-to-one basis at any
time at the option of the holder. Holders of Class B Convertible Common Stock
are entitled to ten votes per share. Holders of Class A Common Stock are
entitled to one vote per share and a cash dividend premium. If the Company pays
a cash dividend on Class B Convertible Common Stock, each share of Class A
Common Stock will receive an amount at least ten percent greater than the amount
of the cash dividend per share paid on Class B Convertible Common Stock. In
addition, the Board of Directors may declare and pay a dividend on Class A
Common Stock without paying any dividend on Class B Convertible Common Stock.
However, under the terms of the Company’s senior credit facility, the Company is
currently constrained from paying cash dividends on its common stock. In
addition, the indentures for the Company’s outstanding senior notes and senior
subordinated notes may restrict the payment of cash dividends on its common
stock under certain circumstances.
In July
2002, the stockholders of the Company approved an increase in the number of
authorized shares of Class A Common Stock from 120,000,000 shares to 275,000,000
shares and Class B Convertible Common Stock from 20,000,000 shares to 30,000,000
shares, thereby increasing the aggregate number of authorized shares of the
Company to 306,000,000 shares.
At
February 28, 2005, there were 195,061,966 shares of Class A Common Stock and
23,960,260 shares of Class B Convertible Common Stock outstanding, net of
treasury stock.
Stock
repurchase authorization -
In 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 Convertible Common Stock. The
Company may finance such purchases, which will become treasury shares, through
cash generated from operations or through the senior credit facility. No shares
were repurchased under this program during the years ended February 28, 2005,
February 29, 2004, and February 28, 2003.
Preferred
stock -
During
the year ended February 29, 2004, the Company issued 5.75% Series A Mandatory
Convertible Preferred Stock (“Preferred Stock”) (see “Equity Offerings”
discussion below). Dividends are cumulative and payable quarterly, if declared,
in cash, shares of the Company’s Class A Common Stock, or a combination thereof,
at the discretion of the Company. Dividends are payable, if declared, on the
first business day of March, June, September, and December of each year,
commencing on December 1, 2003. On September 1, 2006, the automatic conversion
date, each share of Preferred Stock will automatically convert into, subject to
certain anti-dilution adjustments, between 58.552 and 71.432 shares of the
Company’s Class A Common Stock, depending on the then applicable market price of
the Company’s Class A Common Stock, in accordance with the following
table:
|
Applicable
market price
|
Conversion
rate
|
|
Less
than or equal to $14.00
|
71.432
shares
|
|
Between
$14.00 and $17.08
|
71.432
to 58.552 shares
|
|
Equal
to or greater than $17.08
|
58.552
shares
|
The
applicable market price is the average of the closing prices per share of the
Company’s Class A Common Stock on each of the 20 consecutive trading days ending
on the third trading day immediately preceding the applicable conversion date.
At any time prior to September 1, 2006, holders may elect to convert each share
of Preferred Stock, subject to certain anti-dilution adjustments, into 58.552
shares of the Company’s Class A Common Stock. If the closing market price of the
Company’s Class A Common Stock exceeds $25.62 for at least 20 trading days
within a period of 30 consecutive trading days, the Company may elect, subject
to certain limitations and anti-dilution adjustments, to cause the conversion of
all, but not less than all, of the then outstanding shares of Preferred Stock
into shares of the Company’s Class A Common Stock at a conversion rate of 58.552
shares of the Company’s Class A Common Stock. In order for the Company to cause
the early conversion of the Preferred Stock, the Company must pay all accrued
and unpaid dividends on the Preferred Stock as well as the present value of all
remaining dividend payments through and including September 1, 2006. If the
Company is involved in a merger in which at least 30% of the consideration for
all or any class of the Company’s common stock consists of cash or cash
equivalents, then on or after the date of such merger, each holder will have the
right to convert each share of Preferred Stock into the number of shares of the
Company’s Class A Common Stock applicable on the automatic conversion date. The
Preferred Stock ranks senior in right of payment to all of the Company’s common
stock and has a liquidation preference of $1,000 per share, plus accrued and
unpaid dividends.
As of
February 28, 2005,
170,500 shares of Preferred Stock were outstanding and $2.5 million of dividends
were accrued.
Equity
offerings -
During
July 2003, the Company completed a public offering of 19,600,000 shares of its
Class A Common Stock resulting in net proceeds to the Company, after deducting
underwriting discounts and expenses, of $261.2 million. In addition, the Company
also completed a public offering of 170,500 shares of its 5.75% Series A
Mandatory Convertible Preferred Stock resulting in net proceeds to the Company,
after deducting underwriting discounts and expenses, of $164.9 million. The
Class A Common Stock offering and the Preferred Stock offering are referred to
together as the “2003 Equity Offerings.” The majority of the net proceeds from
the 2003 Equity Offerings were used to repay the Company's then existing
bridge loans that were incurred to partially finance the Hardy Acquisition. The
remaining proceeds were used to repay term loan borrowings under the Company’s
then existing senior credit facility.
Long-term
stock incentive plan -
Under the
Company’s Long-Term Stock Incentive Plan, nonqualified stock options, stock
appreciation rights, restricted stock and other stock-based awards may be
granted to employees, officers and directors of the Company. The aggregate
number of shares of the Company’s Class A Common Stock available for awards
under the Company’s Long-Term Stock Incentive Plan is 80,000,000 shares. The
exercise price, vesting period and term of nonqualified stock options granted
are established by the committee administering the plan (the “Committee”).
Grants of stock appreciation rights, restricted stock and other stock-based
awards may contain such vesting, terms, conditions and other requirements as the
Committee may establish. During
the years ended February 28, 2005, February 29, 2004, and February 28, 2003, no
stock appreciation rights were granted. During the year ended February 28, 2005,
5,330 shares of restricted Class A Common Stock were granted at a grant date
fair value of $18.86 per share. No restricted stock was granted during the year
ended February 29, 2004. During the year ended February 28, 2003, 14,160 shares
of restricted Class A Common Stock were granted at a grant date fair value of
$14.21 per share.
Incentive
stock option plan -
Under the
Company’s Incentive Stock Option Plan, incentive stock options may be granted to
employees, including officers, of the Company. Grants, in the aggregate, may not
exceed 8,000,000 shares of the Company’s Class A Common Stock. The exercise
price of any incentive stock option may not be less than the fair market value
of the Company’s Class A Common Stock on the date of grant. The vesting period
and term of incentive stock options granted are established by the Committee.
The maximum term of incentive stock options is ten years.
A summary
of stock option activity under the Company’s Long-Term Stock Incentive Plan and
the Incentive Stock Option Plan is as follows:
|
Shares
Under
Option
|
Weighted
Average
Exercise
Price
|
Options
Exercisable
|
Weighted
Average
Exercise
Price
|
||||||||||
Balance,
February 28, 2002 |
24,955,616
|
$
|
7.06
|
15,130,398
|
$
|
6.16
|
|||||||
Options
granted |
2,486,400
|
$
|
13.60
|
||||||||||
Options
exercised |
(4,192,122
|
)
|
$
|
6.72
|
|||||||||
|
Options
forfeited/canceled
|
(434,032
|
)
|
$
|
10.03
|
|||||||||
Balance,
February 28, 2003 |
22,815,862
|
$
|
7.78
|
16,691,710
|
$
|
6.79
|
|||||||
Options
granted |
5,632,714
|
$
|
11.93
|
||||||||||
Options
exercised |
(5,224,622
|
)
|
$
|
6.94
|
|||||||||
|
Options
forfeited/canceled
|
(649,008
|
)
|
$
|
12.80
|
|||||||||
Balance,
February 29, 2004 |
22,574,946
|
$
|
8.86
|
17,642,596
|
$
|
7.90
|
|||||||
Options
granted |
6,826,050
|
$
|
18.31
|
||||||||||
Options
exercised |
(5,421,978
|
)
|
$
|
8.93
|
|||||||||
|
Options
forfeited/canceled
|
(378,268
|
)
|
$
|
15.10
|
|||||||||
|
Balance,
February 28, 2005
|
23,600,750
|
$
|
11.48
|
20,733,345
|
$
|
10.45
|
|||||||
The
following table summarizes information about stock options outstanding at
February 28, 2005:
|
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||
|
Range
of
Exercise
Prices
|
Number
Outstanding
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||
$
2.13 - $ 6.13
|
2,542,412
|
1.8
years
|
$
|
4.05
|
2,542,412
|
$
|
4.05
|
|||||||||
$
6.20 - $10.43
|
8,998,404
|
5.4
years
|
$
|
8.15
|
8,918,244
|
$
|
8.16
|
|||||||||
$11.44
- $16.19
|
5,683,648
|
7.8
years
|
$
|
12.31
|
4,878,253
|
$
|
12.36
|
|||||||||
|
$16.63
- $24.73
|
6,376,286
|
9.3
years
|
$
|
18.40
|
4,394,436
|
$
|
16.69
|
|||||||||
|
23,600,750
|
6.7
years
|
$
|
11.48
|
20,733,345
|
$
|
10.45
|
||||||||||
The
weighted average fair value of options granted during the years ended February
28, 2005, February 29, 2004, and February 28, 2003, was $7.20,
$4.87, and $6.09, respectively. The fair value of options is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: risk-free interest rate of 3.6%, 3.2%, and 5.0%
for the years ended February 28, 2005, February 29, 2004, and February 28, 2003,
respectively; volatility of 33.6%, 35.7%, and 36.7% for the years ended February
28, 2005, February 29, 2004, and February 28, 2003, respectively; and expected
option life of 6.0 years, 6.2 years, and 6.0 years
for the years ended February 28, 2005, February 29, 2004, and February 28, 2003,
respectively. The dividend yield was 0% for the years ended February 28, 2005,
February 29, 2004, and February 28, 2003. Forfeitures are recognized as they
occur.
Employee
stock purchase plans -
The
Company has a stock purchase plan under which 9,000,000 shares of Class A Common
Stock may be issued. Under the terms of the plan, eligible employees may
purchase shares of the Company’s Class A Common Stock through payroll
deductions. The purchase price is the lower of 85% of the fair market value of
the stock on the first or last day of the purchase period. During the years
ended February 28, 2005, February 29, 2004, and February 28, 2003, employees
purchased 274,106, 275,970 shares, and 276,608 shares,
respectively.
The
weighted average fair value of purchase rights granted during the years ended
February 28, 2005, February 29, 2004, and February 28, 2003, was $4.98, $3.30,
and $3.53, respectively. The fair value of purchase rights is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: risk-free interest rate of 2.2%, 1.0%, and 1.4%
for the years ended February 28, 2005, February 29, 2004, and February 28, 2003,
respectively; volatility of 24.5%, 22.3%, and 40.4% for the years ended February
28, 2005, February 29, 2004, and February 28, 2003, respectively; and expected
purchase right life of 0.5 years for the years ended February 28, 2005, February
29, 2004, and February 28, 2003. The dividend yield was 0% for the years ended
February 28, 2005, February 29, 2004, and February 28, 2003.
The
Company has a stock purchase plan under which 2,000,000 shares of the Company’s
Class A Common Stock may be issued to eligible employees and directors of the
Company’s United Kingdom subsidiaries. Under the terms of the plan, participants
may purchase shares of the Company’s Class A Common Stock through payroll
deductions. The purchase price may be no less than 80% of the closing price of
the stock on the day the purchase price is fixed by the committee administering
the plan. During the years ended February 28, 2005, February 29, 2004, and
February 28, 2003, employees purchased 74,164, 55,582, and 1,516 shares,
respectively. During the years ended February 28, 2005, February 29, 2004, and
February 28, 2003, there were no purchase rights granted.
16. EARNINGS
PER COMMON SHARE:
Earnings
per common share are as follows:
|
For
the Years Ended
|
||||||||||
|
|
February
28,
2005
|
February
29,
2004
|
February
28,
2003
|
|||||||
(in
thousands, except per share data) |
||||||||||
Net
income |
$
|
276,464
|
$
|
220,414
|
$
|
203,306
|
||||
|
Dividends
on preferred stock
|
(9,804
|
)
|
(5,746
|
)
|
-
|
|||||
|
Income
available to common stockholders
|
$
|
266,660
|
$
|
214,668
|
$
|
203,306
|
||||
Weighted
average common shares outstanding - basic: |
||||||||||
Class
A Common Stock
|
191,489
|
177,267
|
155,533
|
|||||||
|
Class
B Common Stock
|
24,043
|
24,137
|
24,179
|
|||||||
Total
weighted average common shares outstanding - basic |
215,532
|
201,404
|
179,712
|
|||||||
Stock
options |
7,545
|
6,628
|
5,781
|
|||||||
|
Preferred
stock
|
9,983
|
5,865
|
-
|
|||||||
|
Weighted
average common shares outstanding - diluted
|
233,060
|
213,897
|
185,493
|
|||||||
Earnings
per common share - basic: |
||||||||||
|
Class
A Common Stock
|
$
|
1.25
|
$
|
1.08
|
$
|
1.15
|
||||
|
Class
B Common Stock
|
$
|
1.14
|
$
|
.98
|
$
|
1.04
|
||||
|
Earnings
per common share - diluted
|
$
|
1.19
|
$
|
1.03
|
$
|
1.10
|
||||
Stock
options to purchase 1.6 million, 0.2 million and 2.2 million shares of Class A
Common Stock at a weighted average price per share of $23.27, $15.55 and $13.71
were outstanding during the years ended February 28, 2005, February 29, 2004,
and February 28, 2003, respectively, but were not included in the computation of
the diluted earnings per common share because the stock options’ exercise price
was greater than the average market price of the Class A Common Stock for the
respective periods.
17. ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS):
Accumulated
other comprehensive loss, net of tax effects, includes the following
components:
|
Foreign
Currency
Translation
Adjustments
|
Net
Unrealized
Gains
on
Derivatives
|
Unrealized
Loss
on
Marketable
Equity
Securities
|
Minimum
Pension
Liability
Adjustment
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
||||||||||||
(in
thousands) |
||||||||||||||||
Balance,
February 29, 2004 |
$
|
393,972
|
$
|
36,949
|
$
|
(432
|
)
|
$
|
(58,187
|
)
|
$
|
372,302
|
||||
|
Current
period change
|
79,977
|
367
|
432
|
(21,235
|
)
|
59,541
|
||||||||||
|
Balance,
February 28, 2005
|
$
|
473,949
|
$
|
37,316
|
$
|
-
|
$
|
(79,422
|
)
|
$
|
431,843
|
|||||
18. SIGNIFICANT
CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Sales to
the five largest customers represented 21.5%, 20.6%, and 21.2% of the Company’s
sales for the years ended February 28, 2005, February 29, 2004, and February 28,
2003, respectively. No single customer was responsible for greater than 10% of
sales during these years. Accounts receivable from the Company’s largest
customer, Southern Wine and Spirits, represented 10.2%, 8.3%, and 11.4% of the
Company’s total accounts receivable as of February 28, 2005, February 29, 2004,
and February 28, 2003, respectively. Sales to the Company’s five largest
customers are expected to continue to represent a significant portion of the
Company’s revenues. The Company’s arrangements with certain of its customers
may, generally, be terminated by either party with prior notice. The Company
performs ongoing credit evaluations of its customers’ financial position, and
management of the Company is of the opinion that any risk of significant loss is
reduced due to the diversity of customers and geographic sales
area.
19. RESTRUCTURING
AND RELATED CHARGES:
For the
year ended February 28, 2005, the Company recorded $7.6 million of restructuring
and related charges associated with the restructuring plans of the Constellation
Wines segment. Restructuring and related charges resulted from (i) the further
realignment of business operations as previously announced during
the year ended February 29, 2004,
(ii) the Company’s decision during
the year ended February 29, 2004, to exit
the commodity concentrate product line in the U.S. (collectively, the “Fiscal
2004 Plan”), and (iii) the Company’s decision to restructure and integrate the
operations of Robert Mondavi (the “Robert Mondavi Plan”). The Company is in the
process of refining the Robert Mondavi Plan which will be finalized during the
Company’s year ending February 28, 2006. For the year ended February 29, 2004,
the Company recorded $31.2 million of restructuring and related charges
associated with the Fiscal 2004 Plan. In addition, in connection with the
Company’s decision to exit the commodity concentrate product line in the U.S.,
the Company recorded a write-down of concentrate inventory of $16.8 million,
which was recorded in cost of product sold. For the year ended February 28,
2003, the Company recorded restructuring and related charges associated with an
asset impairment charge of $4.8 million in connection with two of Constellation
Wines segment’s production facilities (see Note 1).
The
restructuring and related charges of $7.6 million for the year ended February
28, 2005, included $3.8 million of employee termination benefit costs (net of
reversal of prior accruals of $0.2 million), $1.5 million of contract
termination costs, $1.0 million of facility consolidation and relocation costs,
and $1.3 million of other related charges.
The
Company estimates that the completion of the restructuring actions will include
(i) a total of $14.1 million of employee termination benefit costs through
February 28, 2006, of which $10.5 million has been incurred through February 28,
2005, (ii) a total of $19.2 million of contract termination costs through
February 28, 2005, all of which has been incurred through February 28, 2005, and
(iii) a total of $4.2 million of facility consolidation and relocation costs
through February 28, 2006, of which $2.9 million has been incurred through
February 28, 2005.
The
following table illustrates the changes in the restructuring liability balance
since February 29, 2004:
|
Employee
Termination
Benefit
Costs
|
Contract
Termination
Costs
|
Facility
Consolidation/
Relocation
Costs
|
Total
|
||||||||||
(in
thousands) |
|||||||||||||
Balance,
February 29, 2004 |
$
|
1,539
|
$
|
1,048
|
$
|
-
|
$
|
2,587
|
|||||
Robert
Mondavi acquisition
|
25,094
|
23,215
|
752
|
49,061
|
|||||||||
Restructuring
charges
|
3,920
|
1,525
|
1,008
|
6,453
|
|||||||||
Reversal
of prior accruals
|
(228
|
)
|
-
|
-
|
(228
|
)
|
|||||||
Cash
expenditures
|
(15,046
|
)
|
(2,584
|
)
|
(1,017
|
)
|
(18,647
|
)
|
|||||
|
Foreign
currency adjustments
|
(9
|
)
|
-
|
-
|
(9
|
)
|
|||||||
|
Balance,
February 28, 2005
|
$
|
15,270
|
$
|
23,204
|
$
|
743
|
$
|
39,217
|
|||||
20. CONDENSED
CONSOLIDATING FINANCIAL INFORMATION:
The
following information sets forth the condensed consolidating balance sheets as
of February 28, 2005, and February 29, 2004, the condensed consolidating
statements of income and cash flows for each of the three years in the period
ended February 28, 2005, 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 and include the recently adopted accounting
pronouncements described in Note 2. There are no restrictions on the ability of
the Subsidiary Guarantors to transfer funds to the Company in the form of cash
dividends, loans or advances.
|
Parent
Company
|
Subsidiary
Guarantors
|
Subsidiary
Nonguarantors
|
Eliminations
|
Consolidated
|
||||||||||||
(in
thousands) |
||||||||||||||||
|
Condensed
Consolidating Balance Sheet at February 28, 2005
|
||||||||||||||||
Current
assets: |
||||||||||||||||
Cash and cash
investments |
$ |
- |
$ |
10,095 |
$ |
7,540 |
$ |
- |
$ |
17,635 |
||||||
Accounts receivable,
net |
132,997 |
293,588 |
423,057 |
- |
849,642 |
|||||||||||
Inventories |
35,719 |
943,711 |
637,556 |
(9,251 |
) |
1,607,735 |
||||||||||
|
Prepaid expenses and
other
current assets
|
41,515 |
163,910 |
53,598 |
- |
259,023 |
|||||||||||
|
Intercompany (payable)
receivable
|
450,781
|
(1,111,951
|
)
|
661,170
|
-
|
-
|
||||||||||
Total current assets |
661,012 |
299,353 |
1,782,921 |
(9,251 |
) |
2,734,035 |
||||||||||
Property,
plant and equipment, net |
37,476 |
884,690 |
674,201 |
- |
1,596,367 |
|||||||||||
Investments
in subsidiaries |
4,961,521 |
1,844,354 |
- |
(6,805,875 |
) |
- |
||||||||||
Goodwill |
- |
1,242,132 |
940,537 |
- |
2,182,669 |
|||||||||||
Intangible
assets, net |
- |
587,075 |
358,575 |
- |
945,650 |
|||||||||||
|
Other
assets, net
|
28,559
|
221,642
|
95,250
|
-
|
345,451
|
|||||||||||
|
Total assets
|
$ |
5,688,568
|
$ |
5,079,246
|
$ |
3,851,484
|
$ |
(6,815,126
|
)
|
$ |
7,804,172
|
|||||
Current
liabilities: |
||||||||||||||||
Notes payable to
banks |
$ |
14,000 |
$ |
- |
$ |
2,475 |
$ |
- |
$ |
16,475 |
||||||
Current maturities of long-term
debt |
60,068 |
4,307 |
3,719 |
- |
68,094 |
|||||||||||
Accounts payable |
4,237 |
146,116 |
194,901 |
- |
345,254 |
|||||||||||
Accrued excise
taxes |
13,633 |
41,070 |
19,653 |
- |
74,356 |
|||||||||||
|
Other accrued expenses and
liabilities
|
146,837
|
191,438
|
298,529
|
(2,896
|
)
|
633,908
|
||||||||||
Total current liabilities |
238,775 |
382,931 |
519,277 |
(2,896 |
) |
1,138,087 |
||||||||||
Long-term
debt, less current maturities |
3,167,852 |
9,089 |
27,766 |
- |
3,204,707 |
|||||||||||
Deferred
income taxes |
(17,255 |
) |
377,423 |
29,718 |
- |
389,886 |
||||||||||
Other
liabilities |
1,101 |
126,173 |
164,305 |
- |
291,579 |
|||||||||||
Stockholders’
equity: |
||||||||||||||||
Preferred stock |
2 |
- |
- |
- |
2 |
|||||||||||
Class A and Class B common
stock |
2,288 |
6,443 |
141,583 |
(148,026 |
) |
2,288 |
||||||||||
Additional paid-in
capital |
1,097,177 |
2,301,961 |
2,498,737 |
(4,800,698 |
) |
1,097,177 |
||||||||||
Retained earnings |
1,285,762 |
1,715,182 |
141,969 |
(1,866,060 |
) |
1,276,853 |
||||||||||
|
Accumulated other
comprehensive
income (loss)
|
(58,884 |
) |
160,044 |
328,129 |
2,554 |
431,843 |
||||||||||
|
Treasury stock and
other
|
(28,250
|
)
|
-
|
-
|
-
|
(28,250
|
)
|
|||||||||
|
Total stockholders’ equity
|
2,298,095
|
4,183,630
|
3,110,418
|
(6,812,230
|
)
|
2,779,913
|
||||||||||
|
Total liabilities
and
stockholders’ equity
|
$ |
5,688,568
|
$ |
5,079,246
|
$ |
3,851,484
|
$ |
(6,815,126
|
)
|
$ |
7,804,172
|
|||||
|
Condensed
Consolidating Balance Sheet at February 29, 2004
|
||||||||||||||||
Current
assets: |
||||||||||||||||
Cash and cash
investments |
$ |
1,048 |
$ |
4,664 |
$ |
31,424 |
$ |
- |
$ |
37,136 |
||||||
Accounts receivable,
net |
137,422 |
145,152 |
353,336 |
- |
635,910 |
|||||||||||
Inventories |
9,922 |
696,928 |
561,900 |
(7,372 |
) |
1,261,378 |
||||||||||
|
Prepaid expenses and
other
current assets
|
8,734 |
72,788 |
55,525 |
- |
137,047 |
|||||||||||
|
Intercompany (payable)
receivable
|
(304,555
|
)
|
(253,680
|
)
|
558,235
|
-
|
-
|
|||||||||
Total current assets |
(147,429 |
) |
665,852 |
1,560,420 |
(7,372 |
) |
2,071,471 |
|||||||||
Property,
plant and equipment, net |
33,722 |
426,152 |
637,488 |
- |
1,097,362 |
|||||||||||
Investments
in subsidiaries |
4,270,871 |
1,757,700 |
- |
(6,028,571 |
) |
- |
||||||||||
Goodwill |
- |
636,597 |
904,040 |
- |
1,540,637 |
|||||||||||
Intangible
assets, net |
- |
396,153 |
348,825 |
- |
744,978 |
|||||||||||
|
Other
assets, net
|
36,041
|
2,146
|
66,038
|
-
|
104,225
|
|||||||||||
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
||||||||
(in
thousands) |
||||||||||||||||
|
Total assets
|
$ |
4,193,205
|
$ |
3,884,600
|
$ |
3,516,811
|
$ |
(6,035,943
|
)
|
$ |
5,558,673
|
|||||
Current
liabilities: |
||||||||||||||||
Notes payable to
banks |
$ |
- |
$ |
- |
$ |
1,792 |
$ |
- |
$ |
1,792 |
||||||
Current maturities of long-term
debt |
260,061 |
3,949 |
3,235 |
- |
267,245 |
|||||||||||
Accounts payable |
33,631 |
67,459 |
169,201 |
- |
270,291 |
|||||||||||
Accrued excise
taxes |
8,005 |
15,344 |
25,116 |
- |
48,465 |
|||||||||||
|
Other accrued expenses and
liabilities
|
151,534
|
23,352
|
267,123
|
-
|
442,009
|
|||||||||||
Total current liabilities |
453,231 |
110,104 |
466,467 |
- |
1,029,802 |
|||||||||||
Long-term
debt, less current maturities |
1,739,221 |
8,510 |
31,122 |
- |
1,778,853 |
|||||||||||
Deferred
income taxes |
56,815 |
119,704 |
10,891 |
- |
187,410 |
|||||||||||
Other
liabilities |
6,209 |
21,646 |
157,134 |
- |
184,989 |
|||||||||||
Stockholders’
equity: |
||||||||||||||||
Preferred stock |
2 |
- |
- |
- |
2 |
|||||||||||
Class A and Class B common
stock |
2,234 |
6,443 |
141,573 |
(148,016 |
) |
2,234 |
||||||||||
Additional paid-in
capital |
1,022,931 |
1,977,179 |
2,418,614 |
(4,395,793 |
) |
1,022,931 |
||||||||||
Retained earnings |
1,017,565 |
1,431,384 |
53,378 |
(1,492,134 |
) |
1,010,193 |
||||||||||
|
Accumulated other
comprehensive
income (loss)
|
(74,960 |
) |
209,630 |
237,632 |
- |
372,302 |
||||||||||
|
Treasury stock and
other
|
(30,043
|
)
|
-
|
-
|
-
|
(30,043
|
)
|
|||||||||
|
Total stockholders’ equity
|
1,937,729
|
3,624,636
|
2,851,197
|
(6,035,943
|
)
|
2,377,619
|
||||||||||
|
Total liabilities
and
stockholders’ equity
|
$ |
4,193,205
|
$ |
3,884,600
|
$ |
3,516,811
|
$ |
(6,035,943
|
)
|
$ |
5,558,673
|
|||||
|
Condensed
Consolidating Statement of Income for the Year Ended February 28,
2005
|
||||||||||||||||
Gross
sales |
$ |
823,873 |
$ |
2,585,660 |
$ |
2,563,199 |
$ |
(832,869 |
) |
$ |
5,139,863 |
|||||
|
Less - excise
taxes
|
(148,269
|
)
|
(435,984
|
)
|
(467,972
|
)
|
-
|
(1,052,225
|
)
|
|||||||
Net sales |
675,604 |
2,149,676 |
2,095,227 |
(832,869 |
) |
4,087,638 |
||||||||||
|
Cost
of product sold
|
(547,882
|
)
|
(1,502,234
|
)
|
(1,724,195
|
)
|
827,262
|
(2,947,049
|
)
|
|||||||
Gross profit |
127,722 |
647,442 |
371,032 |
(5,607 |
) |
1,140,589 |
||||||||||
|
Selling,
general and administrative
expenses
|
(155,687 |
) |
(217,967 |
) |
(182,040 |
) |
- |
(555,694 |
) |
|||||||
Acquisition-related
integration costs |
- |
(9,421 |
) |
- |
- |
(9,421 |
) |
|||||||||
|
Restructuring
and related charges
|
-
|
(4,203
|
)
|
(3,375
|
)
|
-
|
(7,578
|
)
|
||||||||
Operating (loss) income |
(27,965 |
) |
415,851 |
185,617 |
(5,607 |
) |
567,896 |
|||||||||
|
Gain
on change in fair value of
derivative
instruments
|
- |
- |
- |
- |
- |
|||||||||||
|
Equity
in earnings of equity
method investees
|
282,858 |
107,970 |
(115 |
) |
(388,960 |
) |
1,753 |
|||||||||
|
Interest
income (expense), net
|
21,425
|
(125,226
|
)
|
(33,874
|
)
|
-
|
(137,675
|
)
|
||||||||
Income before income
taxes |
276,318 |
398,595 |
151,628 |
(394,567 |
) |
431,974 |
||||||||||
|
Benefit
from (provision for)
income taxes
|
1,683
|
(114,797
|
)
|
(46,467
|
)
|
4,071
|
(155,510
|
)
|
||||||||
Net
income |
278,001 |
283,798 |
105,161 |
(390,496 |
) |
276,464 |
||||||||||
|
Dividends on preferred
stock
|
(9,804
|
)
|
-
|
-
|
-
|
(9,804
|
)
|
|||||||||
|
Income
available to common
stockholders
|
$ |
268,197
|
$ |
283,798
|
$ |
105,161
|
$ |
(390,496
|
)
|
$ |
266,660
|
|||||
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
||||||||
(in
thousands) |
||||||||||||||||
|
Condensed
Consolidating Statement of Income for the Year Ended February 29,
2004
|
||||||||||||||||
Gross
sales |
$ |
814,042 |
$ |
2,276,747 |
$ |
1,866,165 |
$ |
(487,684 |
) |
$ |
4,469,270 |
|||||
|
Less - excise
taxes
|
(143,964
|
)
|
(417,130
|
)
|
(355,747
|
)
|
-
|
(916,841
|
)
|
|||||||
Net sales |
670,078 |
1,859,617 |
1,510,418 |
(487,684 |
) |
3,552,429 |
||||||||||
|
Cost
of product sold
|
(553,391
|
)
|
(1,291,532
|
)
|
(1,212,105
|
)
|
480,387
|
(2,576,641
|
)
|
|||||||
Gross profit |
116,687 |
568,085 |
298,313 |
(7,297 |
) |
975,788 |
||||||||||
|
Selling,
general and administrative
expenses
|
(115,163 |
) |
(171,036 |
) |
(171,078 |
) |
- |
(457,277 |
) |
|||||||
Acquisition-related
integration costs |
- |
- |
- |
- |
- |
|||||||||||
|
Restructuring
charges
|
-
|
(40,567
|
)
|
9,413
|
-
|
(31,154
|
)
|
|||||||||
Operating income |
1,524 |
356,482 |
136,648 |
(7,297 |
) |
487,357 |
||||||||||
|
Gain
on change in fair value of
derivative
instruments
|
1,181 |
- |
- |
- |
1,181 |
|||||||||||
|
Equity
in earnings of equity
method investees
|
215,775 |
90,157 |
2 |
(305,392 |
) |
542 |
||||||||||
|
Interest
income (expense), net
|
15,945
|
(154,914
|
)
|
(5,714
|
)
|
-
|
(144,683
|
)
|
||||||||
Income before income
taxes |
234,425 |
291,725 |
130,936 |
(312,689 |
) |
344,397 |
||||||||||
|
Provision
for income taxes
|
(6,714
|
)
|
(75,950
|
)
|
(41,319
|
)
|
-
|
(123,983
|
)
|
|||||||
Net
income |
227,711 |
215,775 |
89,617 |
(312,689 |
) |
220,414 |
||||||||||
|
Dividends on preferred
stock
|
(5,746
|
)
|
-
|
-
|
-
|
(5,746
|
)
|
|||||||||
|
Income
available to common
stockholders
|
$ |
221,965
|
$ |
215,775
|
$ |
89,617
|
$ |
(312,689
|
)
|
$ |
214,668
|
|||||
|
Condensed
Consolidating Statement of Income for the Year Ended February 28,
2003
|
||||||||||||||||
Gross
sales |
$ |
817,458 |
$ |
1,989,490 |
$ |
1,145,520 |
$ |
(369,386 |
) |
$ |
3,583,082 |
|||||
|
Less - excise
taxes
|
(148,129
|
)
|
(412,022
|
)
|
(291,319
|
)
|
-
|
(851,470
|
)
|
|||||||
Net sales |
669,329 |
1,577,468 |
854,201 |
(369,386 |
) |
2,731,612 |
||||||||||
|
Cost
of product sold
|
(558,811
|
)
|
(1,088,899
|
)
|
(692,558
|
)
|
369,371
|
(1,970,897
|
)
|
|||||||
Gross profit |
110,518 |
488,569 |
161,643 |
(15 |
) |
760,715 |
||||||||||
|
Selling,
general and administrative
expenses
|
(109,576 |
) |
(146,037 |
) |
(95,380 |
) |
- |
(350,993 |
) |
|||||||
Acquisition-related
integration costs |
- |
- |
- |
- |
- |
|||||||||||
|
Restructuring
charges
|
-
|
(4,764
|
)
|
-
|
-
|
(4,764
|
)
|
|||||||||
Operating income |
942 |
337,768 |
66,263 |
(15 |
) |
404,958 |
||||||||||
|
Gain
on change in fair value of
derivative
instruments
|
23,129 |
- |
- |
- |
23,129 |
|||||||||||
|
Equity
in earnings of equity
method investees
|
186,448 |
55,129 |
- |
(229,341 |
) |
12,236 |
||||||||||
|
Interest
income (expense), net
|
11,648
|
(114,051
|
)
|
(2,984
|
)
|
-
|
(105,387
|
)
|
||||||||
Income before income
taxes |
222,167 |
278,846 |
63,279 |
(229,356 |
) |
334,936 |
||||||||||
|
Provision
for income taxes
|
(18,846
|
)
|
(92,398
|
)
|
(20,386
|
)
|
-
|
(131,630
|
)
|
|||||||
Net
income |
203,321 |
186,448 |
42,893 |
(229,356 |
) |
203,306 |
||||||||||
|
Dividends on preferred
stock
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Income
available to common
stockholders
|
$ |
203,321
|
$ |
186,448
|
$ |
42,893
|
$ |
(229,356
|
)
|
$ |
203,306
|
|||||
|
|
||||||||||||||||
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
||||||||
(in
thousands) |
||||||||||||||||
|
Condensed
Consolidating Statement of Cash Flows for the Year Ended February 28,
2005
|
||||||||||||||||
|
Net
cash (used in) provided by
operating
activities
|
$ |
(5,108 |
) |
$ |
213,887 |
$ |
111,921 |
$ |
- |
$ |
320,700 |
|||||
Cash
flows from investing activities: |
||||||||||||||||
|
Purchases of businesses, net of
cash acquired
|
(1,035,086 |
) |
(8,485 |
) |
(8,900 |
) |
- |
(1,052,471 |
) |
|||||||
|
Purchases of property, plant
and
equipment
|
(7,301 |
) |
(45,839 |
) |
(66,524 |
) |
- |
(119,664 |
) |
|||||||
Investment in equity method
investee |
- |
- |
(86,121 |
) |
- |
(86,121 |
) |
|||||||||
Payment of accrued earn-out
amount |
- |
(2,618 |
) |
- |
- |
(2,618 |
) |
|||||||||
|
Proceeds from sale of
marketable
equity securities
|
- | - |
14,359 |
- |
14,359 |
|||||||||||
Proceeds from sale of
assets |
- |
181 |
13,590 |
- |
13,771 |
|||||||||||
|
Proceeds from sale of
equity
method investment
|
- |
9,884 |
- |
- |
9,884 |
|||||||||||
|
Proceeds from sale of
business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Net
cash used in investing activities
|
(1,042,387
|
)
|
(46,877
|
)
|
(133,596
|
)
|
-
|
(1,222,860
|
)
|
|||||||
Cash
flows from financing activities: |
||||||||||||||||
|
Proceeds from issuance of
long-term
debt
|
2,400,000 |
- |
- |
- |
2,400,000 |
|||||||||||
Exercise of employee stock
options |
48,241 |
- |
- |
- |
48,241 |
|||||||||||
|
Proceeds from employee
stock
purchases
|
4,690 |
- |
- |
- |
4,690 |
|||||||||||
Principal payments of long-term
debt |
(1,179,562 |
) |
(302,189 |
) |
(6,935 |
) |
- |
(1,488,686 |
) |
|||||||
|
Net proceeds (repayment) of
notes
payable
|
14,000 |
(60,000 |
) |
142 |
- |
(45,858 |
) |
|||||||||
|
Payment of issuance costs of
long-term debt
|
(24,403 |
) |
- |
- |
- |
(24,403 |
) |
|||||||||
Payment of preferred stock
dividends |
(9,804 |
) |
- |
- |
- |
(9,804 |
) |
|||||||||
Intercompany financings,
net |
(206,756 |
) |
200,891 |
5,865 |
- |
- |
||||||||||
|
Proceeds from equity
offerings,
net of fees
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Net
cash provided by (used in)
financing
activities
|
1,046,406
|
(161,298
|
)
|
(928
|
)
|
-
|
884,180
|
|||||||||
|
Effect
of exchange rate changes on
cash and cash
investments
|
41
|
(281
|
)
|
(1,281
|
)
|
-
|
(1,521
|
)
|
||||||||
|
Net
(decrease) increase in cash and
cash investments
|
(1,048 |
) |
5,431 |
(23,884 |
) |
- |
(19,501 |
) |
||||||||
|
Cash
and cash investments, beginning
of year
|
1,048
|
4,664
|
31,424
|
-
|
37,136
|
|||||||||||
|
Cash
and cash investments, end of year
|
$ |
-
|
$ |
10,095
|
$ |
7,540
|
$ |
-
|
$ |
17,635
|
||||||
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
||||||||
(in
thousands) |
||||||||||||||||
|
Condensed
Consolidating Statement of Cash Flows for the Year Ended February 29,
2004
|
||||||||||||||||
|
Net
cash provided by (used in)
operating
activities
|
$ |
397,785 |
$ |
115,791 |
$ |
(173,269 |
) |
$ |
- |
$ |
340,307 |
|||||
Cash
flows from investing activities: |
||||||||||||||||
|
Purchases of businesses, net of
cash acquired
|
- |
(1,069,470 |
) |
- |
- |
(1,069,470 |
) |
|||||||||
|
Purchases of property, plant
and
equipment
|
(25,063 |
) |
(19,982 |
) |
(60,049 |
) |
- |
(105,094 |
) |
|||||||
Investment in equity method
investee |
- |
- |
- |
- |
- |
|||||||||||
Payment of accrued earn-out
amount |
- |
(2,035 |
) |
- |
- |
(2,035 |
) |
|||||||||
|
Proceeds from sale of
marketable
equity securities
|
- |
- |
849 |
- |
849 |
|||||||||||
Proceeds from sale of
assets |
- |
11,396 |
2,053 |
- |
13,449 |
|||||||||||
|
Proceeds from sale of
equity
method investment
|
- |
- |
- |
- |
- |
|||||||||||
|
Proceeds from sale of
business
|
-
|
-
|
3,814
|
-
|
3,814
|
|||||||||||
|
Net
cash used in investing activities
|
(25,063
|
)
|
(1,080,091
|
)
|
(53,333
|
)
|
-
|
(1,158,487
|
)
|
|||||||
Cash
flows from financing activities: |
||||||||||||||||
|
Proceeds from issuance of
long-term
debt
|
1,600,000 |
- |
- |
- |
1,600,000 |
|||||||||||
Exercise of employee stock
options |
36,017 |
- |
- |
- |
36,017 |
|||||||||||
|
Proceeds from employee
stock
purchases
|
3,481 |
- |
- |
- |
3,481 |
|||||||||||
Intercompany financing
activities, net |
(1,474,100 |
) |
776,442 |
697,658 |
- |
- |
||||||||||
Principal payments of long-term
debt |
(885,359 |
) |
(23,394 |
) |
(373,521 |
) |
- |
(1,282,274 |
) |
|||||||
|
Net (repayment of) proceeds
from
notes payable
|
(2,000 |
) |
(1,400 |
) |
2,287 |
- |
(1,113 |
) |
||||||||
|
Payment of issuance costs of
long-term debt
|
(33,748 |
) |
- |
- |
- |
(33,748 |
) |
|||||||||
Payment of preferred stock
dividends |
(3,295 |
) |
- |
- |
- |
(3,295 |
) |
|||||||||
|
Proceeds from equity
offerings,
net of fees
|
426,086
|
-
|
-
|
-
|
426,086
|
|||||||||||
|
Net
cash (used in) provided by
financing
activities
|
(332,918
|
)
|
751,648
|
326,424
|
-
|
745,154
|
||||||||||
|
Effect
of exchange rate changes on
cash and cash
investments
|
(40,182
|
)
|
216,068
|
(79,534
|
)
|
-
|
96,352
|
|||||||||
|
Net
(decrease) increase in cash and
cash investments
|
(378 |
) |
3,416 |
20,288 |
- |
23,326 |
||||||||||
|
Cash
and cash investments, beginning
of year
|
1,426
|
1,248
|
11,136
|
-
|
13,810
|
|||||||||||
|
Cash
and cash investments, end of year
|
$ |
1,048
|
$ |
4,664
|
$ |
31,424
|
$ |
-
|
$ |
37,136
|
||||||
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
||||||||
(in
thousands) |
||||||||||||||||
|
Condensed
Consolidating Statement of Cash Flows for the Year Ended February 28,
2003
|
||||||||||||||||
|
Net
cash provided by operating
activities
|
$ |
135,057 |
$ |
83,491 |
$ |
17,505 |
$ |
- |
$ |
236,053 |
||||||
Cash
flows from investing activities: |
||||||||||||||||
|
Purchases of businesses, net of
cash acquired
|
- |
- |
- |
- |
- |
|||||||||||
|
Purchases of property, plant
and
equipment
|
(15,541 |
) |
(39,451 |
) |
(16,583 |
) |
- |
(71,575 |
) |
|||||||
Investment in equity method
investee |
- |
- |
- |
- |
- |
|||||||||||
Payment of accrued earn-out
amount |
- |
(1,674 |
) |
- |
- |
(1,674 |
) |
|||||||||
|
Proceeds from sale of
marketable
equity securities
|
- |
- |
- |
- |
- |
|||||||||||
Proceeds from sale of
assets |
1 |
409 |
878 |
- |
1,288 |
|||||||||||
|
Proceeds from sale of
equity
method investment
|
- |
- |
- |
- |
- |
|||||||||||
|
Proceeds from sale of
business
|
-
|
-
|
-
|
-
|
-
|
|||||||||||
|
Net
cash used in investing activities
|
(15,540
|
)
|
(40,716
|
)
|
(15,705
|
)
|
-
|
(71,961
|
)
|
|||||||
Cash
flows from financing activities: |
||||||||||||||||
|
Proceeds from issuance of
long-term
debt
|
- |
- |
10,000 |
- |
10,000 |
|||||||||||
Exercise of employee stock
options |
28,706 |
- |
- |
- |
28,706 |
|||||||||||
|
Proceeds from employee
stock
purchases
|
2,885 |
- |
- |
- |
2,885 |
|||||||||||
Principal payments of long-term
debt |
(141,423 |
) |
(3,458 |
) |
(6,253 |
) |
- |
(151,134 |
) |
|||||||
Net repayment of notes
payable |
(48,000 |
) |
- |
(3,921 |
) |
- |
(51,921 |
) |
||||||||
|
Payment of issuance costs of
long-term debt
|
(20 |
) |
- |
- |
- |
(20 |
) |
|||||||||
Payment of preferred stock
dividends |
- |
- |
- |
- |
- |
|||||||||||
|
Proceeds from equity
offerings,
net of fees
|
- |
- |
- |
- |
- |
|||||||||||
|
Other
|
-
|
142
|
(142
|
)
|
-
|
-
|
||||||||||
|
Net
cash used in financing activities
|
(157,852
|
)
|
(3,316
|
)
|
(316
|
)
|
-
|
(161,484
|
)
|
|||||||
|
Effect
of exchange rate changes on
cash and cash
investments
|
38,923
|
(40,295
|
)
|
3,613
|
-
|
2,241
|
||||||||||
|
Net
increase (decrease) in cash and
cash investments
|
588 |
(836 |
) |
5,097 |
- |
4,849 |
||||||||||
|
Cash
and cash investments, beginning
of year
|
838
|
2,084
|
6,039
|
-
|
8,961
|
|||||||||||
|
Cash
and cash investments, end of year
|
$ |
1,426
|
$ |
1,248
|
$ |
11,136
|
$ |
-
|
$ |
13,810
|
||||||
21. 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
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. Amounts
included in the Corporate Operations and Other segment consist of general
corporate administration and finance expenses. These amounts include costs of
executive management, corporate development, corporate finance, human resources,
internal audit, investor relations, legal and public relations. Any costs
incurred at the corporate office that are applicable to the segments are
allocated to the appropriate segment. The amounts included in the Corporate
Operations and Other segment are general costs that are applicable to the
consolidated group and are therefore not allocated to the other reportable
segments. All costs reported within the Corporate Operations and Other segment
are not included in the chief operating decision maker’s evaluation of the
operating income performance of the other operating segments.
The new
business segments reflect how the Company’s operations are being managed, how
operating performance within the Company is 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
acquisition-related integration costs, restructuring and related charges and net
unusual costs that affect comparability. Accordingly, the financial information
for the year ended February 28, 2003, has been restated to conform to the new
segment presentation.
For the
year ended February 28, 2005, acquisition-related integration costs,
restructuring and related charges and net unusual costs consist of financing
costs associated with the redemption of the Company’s Senior Subordinated Notes
(as defined in Note 9) and the repayment of the Company’s prior senior credit
facility of $31.7 million, the flow through of adverse grape cost (as described
below) and acquisition-related integration costs associated with the Robert
Mondavi acquisition of $9.8 million and $9.4 million, respectively,
restructuring and related charges of $7.6 million, and the flow through of
inventory step-up associated with the Hardy Acquisition and the Robert Mondavi
acquisition of $6.5 million, partially offset by a net gain on the sale of
non-strategic assets and a gain related to the receipt of a payment associated
with the termination of a previously announced potential fine wine joint venture
of $6.1 million. Adverse grape cost represents the amount of historical
inventory cost on Robert Mondavi’s balance sheet that exceeds the Company’s
estimated ongoing grape cost and is primarily due to the purchase of grapes by
Robert Mondavi prior to the acquisition date at above-market prices as required
under the terms of their existing grape purchase contracts. For the year ended
February 29, 2004, acquisition-related integration costs, restructuring and
related charges and net unusual costs consist of the flow through of inventory
step-up and financing costs associated with the Hardy Acquisition of $22.5
million and $11.6 million, respectively, and restructuring and related charges
of $48.0 million, including a write-down of commodity concentrate inventory of
$16.8 million, partially offset by the relief from certain excise tax, duty and
other costs incurred in prior years of $10.4 million. For the year ended
February 28, 2003, acquisition-related integration costs, restructuring and
related charges and net unusual costs consist of an asset impairment charge of
$4.8 million recorded in connection with the Company’s realignment of its
business operations within the Constellation Wines segment.
The
Company evaluates performance based on operating income of the respective
business units. The accounting policies of the segments are the same as those
described for the Company in the Summary of Significant Accounting Policies in
Note 1 and include the recently adopted accounting pronouncements described in
Note 2. Transactions between segments consist mainly of sales of products and
are accounted for at cost plus an applicable margin.
Segment
information is as follows:
|
For
the Years Ended
|
|
|||||||||
|
|
|
February
28,
2005
|
|
February
29,
2004
|
|
February
28,
2003
|
||||
(in
thousands) |
||||||||||
Constellation
Wines: |
||||||||||
Net
sales: |
||||||||||
Branded
wine
|
$
|
1,830,808
|
$
|
1,549,750
|
$
|
983,505
|
||||
|
Wholesale
and other
|
1,020,600
|
846,306
|
689,794
|
|||||||
Net
sales |
$
|
2,851,408
|
$
|
2,396,056
|
$
|
1,673,299
|
||||
Segment
operating income |
$
|
406,562
|
$
|
348,132
|
$
|
224,556
|
||||
Equity
in earnings of equity method |
||||||||||
investees |
$
|
1,753
|
$
|
542
|
$
|
12,236
|
||||
Long-lived
assets |
$
|
1,498,124
|
$
|
1,004,906
|
$
|
509,598
|
||||
Investment
in equity method |
||||||||||
investees |
$
|
259,181
|
$
|
8,412
|
$
|
123,064
|
||||
Total
assets |
$
|
6,941,068
|
$
|
4,789,199
|
$
|
2,429,890
|
||||
Capital
expenditures |
$
|
109,240
|
$
|
94,147
|
$
|
57,551
|
||||
Depreciation
and amortization |
$
|
83,744
|
$
|
73,046
|
$
|
46,167
|
||||
Constellation
Beers and Spirits: |
||||||||||
Net
sales: |
||||||||||
Imported
beers
|
$
|
922,947
|
$
|
862,637
|
$
|
776,006
|
||||
|
Spirits
|
313,283
|
284,551
|
282,307
|
|||||||
Net
sales |
$
|
1,236,230
|
$
|
1,147,188
|
$
|
1,058,313
|
||||
Segment
operating income |
$
|
276,109
|
$
|
252,533
|
$
|
217,963
|
||||
Long-lived
assets |
$
|
83,548
|
$
|
80,388
|
$
|
79,757
|
||||
Total
assets |
$
|
790,457
|
$
|
718,380
|
$
|
700,545
|
||||
Capital
expenditures |
$
|
6,524
|
$
|
7,497
|
$
|
8,722
|
||||
Depreciation
and amortization |
$
|
10,590
|
$
|
9,491
|
$
|
9,732
|
||||
Corporate
Operations and Other: |
||||||||||
Net
sales |
$
|
-
|
$
|
-
|
$
|
-
|
||||
Segment
operating loss |
$
|
(55,980
|
)
|
$
|
(41,717
|
)
|
$
|
(32,797
|
)
|
|
Long-lived
assets |
$
|
14,695
|
$
|
12,068
|
$
|
13,114
|
||||
Total
assets |
$
|
72,647
|
$
|
51,094
|
$
|
65,895
|
||||
Capital
expenditures |
$
|
3,900
|
$
|
3,450
|
$
|
5,302
|
||||
Depreciation
and amortization |
$
|
9,321
|
$
|
19,417
|
$
|
4,190
|
||||
|
Acquisition-Related
Integration
Costs,
Restructuring and Related
Charges
and Net Unusual Costs:
|
||||||||||
Net
sales |
$
|
-
|
$
|
9,185
|
$
|
-
|
||||
Operating
loss |
$
|
(58,795
|
)
|
$
|
(71,591
|
)
|
$
|
(4,764
|
)
|
|
Consolidated: |
||||||||||
Net
sales |
$
|
4,087,638
|
$
|
3,552,429
|
$
|
2,731,612
|
||||
Operating
income |
$
|
567,896
|
$
|
487,357
|
$
|
404,958
|
||||
Equity
in earnings of equity method |
||||||||||
investees |
$
|
1,753
|
$
|
542
|
$
|
12,236
|
||||
Long-lived
assets |
$
|
1,596,367
|
$
|
1,097,362
|
$
|
602,469
|
||||
Investment
in equity method |
||||||||||
investees |
$
|
259,181
|
$
|
8,412
|
$
|
123,064
|
||||
Total
assets |
$
|
7,804,172
|
$
|
5,558,673
|
$
|
3,196,330
|
||||
Capital
expenditures |
$
|
119,664
|
$
|
105,094
|
$
|
71,575
|
||||
Depreciation
and amortization |
$
|
103,655
|
$
|
101,954
|
$
|
60,089
|
||||
The
Company’s areas of operations are principally in the United States. Operations
outside the United States are primarily in the United Kingdom and Australia and
are included within the Constellation Wines segment. Revenues are attributed to
countries based on the location of the selling subsidiary.
Geographic
data is as follows:
|
For
the Years Ended
|
|
|||||||||
|
|
|
February
28,
2005
|
|
February
29,
2004
|
|
February
28,
2003
|
||||
Net
Sales |
||||||||||
United
States
|
$
|
2,326,253
|
$
|
2,125,538
|
$
|
1,895,589
|
||||
|
Non-U.S.
|
1,761,385
|
1,426,891
|
836,023
|
|||||||
|
Total
|
$
|
4,087,638
|
$
|
3,552,429
|
$
|
2,731,612
|
||||
|
Significant
non-U.S. revenue sources include:
|
||||||||||
United
Kingdom
|
$
|
1,374,775
|
$
|
1,128,022
|
$
|
789,629
|
||||
Australia
/ New Zealand
|
314,704
|
238,229
|
-
|
|||||||
|
Other
|
71,906
|
60,640
|
46,394
|
|||||||
|
Total
|
$
|
1,761,385
|
$
|
1,426,891
|
$
|
836,023
|
||||
|
February
28,
2005
|
|
February
29,
2004
|
|||||
Long-lived
assets |
|||||||
United
States
|
$
|
922,161
|
$
|
459,875
|
|||
|
Non-U.S.
|
674,206
|
637,487
|
|||||
|
Total
|
$
|
1,596,367
|
$
|
1,097,362
|
|||
|
Significant
non-U.S. long-lived assets include:
|
|||||||
Australia
/ New Zealand
|
$
|
437,157
|
$
|
396,042
|
|||
United
Kingdom
|
175,638
|
183,214
|
|||||
|
Other
|
61,411
|
58,231
|
|||||
|
Total
|
$
|
674,206
|
$
|
637,487
|
|||
22. ACCOUNTING
PRONOUNCEMENTS NOT YET ADOPTED:
In
November 2004, the FASB issued Statement of Financial Accounting Standards No.
151 (“SFAS No. 151”), “Inventory Costs - an amendment of ARB No. 43, Chapter 4.”
SFAS No. 151 amends the guidance in Accounting Research Bulletin No. 43 (“ARB
No. 43”), “Restatement and Revision of Accounting Research Bulletins,” Chapter
4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). SFAS
No. 151 requires that those items be recognized as current period charges. In
addition, SFAS No. 151 requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of the production
facilities. The Company is required to adopt SFAS No. 151 for fiscal years
beginning March 1, 2006. The Company is currently assessing the financial impact
of SFAS No. 151 on its consolidated financial statements.
In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004) (“SFAS No. 123(R)”), “Share-Based Payment.” SFAS No. 123(R)
replaces Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”),
“Accounting for Stock-Based Compensation,” and supersedes Accounting Principles
Board Opinion No. 25 (“APB Opinion No. 25”), “Accounting for Stock Issued to
Employees.” SFAS No. 123(R) requires the cost resulting from all share-based
payment transactions be recognized in the financial statements. In addition,
SFAS No. 123(R) establishes fair value as the measurement objective in
accounting for share-based payment arrangements and requires all entities to
apply a grant date fair-value-based measurement method in accounting for
share-based payment transactions. SFAS No. 123(R) also amends Statement of
Financial Accounting Standards No. 95 (“SFAS No. 95”), “Statement of Cash
Flows,” to require that excess tax benefits be reported as a financing cash
inflow rather than as a reduction of taxes paid. SFAS No. 123(R) applies to all
awards granted, modified, repurchased, or cancelled after the required effective
date (see below). In addition, SFAS No. 123(R) requires entities that used the
fair-value-based method for either recognition or disclosure under SFAS No. 123
to apply SFAS No. 123(R) using a modified version of prospective application.
This application requires compensation cost to be recognized on or after the
required effective date for the portion of outstanding awards for which the
requisite service has not yet been rendered based on the grant date fair value
of those awards as calculated under SFAS No. 123 for either recognition or pro
forma disclosures. For periods before the required effective date, those
entities may elect to apply a modified version of retrospective application
under which financial statements for prior periods are adjusted on a basis
consistent with the pro forma disclosures required for those periods by SFAS No.
123. In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 (“SAB
No. 107”), “Share Based Payment”, to express the views of the staff regarding
the interaction between SFAS No. 123(R) and certain SEC rules and regulations
and to provide the staff’s views regarding the valuation of share-based payment
arrangements for public companies. The Company is required to adopt SFAS No.
123(R) for interim periods beginning March 1, 2006. The Company is currently
assessing the financial impact of SFAS No. 123(R) on its consolidated financial
statements and will take into consideration the additional guidance provided by
SAB No. 107 in connection with the Company’s adoption of SFAS No.
123(R).
In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
153 (“SFAS No. 153”), “Exchanges of Nonmonetary Assets - an amendment of APB
Opinion No. 29.” SFAS No. 153 amends Accounting Principles Board Opinion No. 29
(“APB No. 29”), “Accounting for Nonmonetary Transactions,” to eliminate the
exception from fair value measurement for nonmonetary exchanges of similar
productive assets and replace it with a general exception from fair value
measurement for exchanges that do not have commercial substance. SFAS No. 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. The Company is required to adopt SFAS No. 153 for fiscal years
beginning March 1, 2006. The Company is currently assessing the financial impact
of SFAS No. 153 on its consolidated financial statements.
On
October 22, 2004, the American Jobs Creation Act (“AJCA”) was signed into law.
The AJCA includes a special one-time 85 percent dividends received deduction for
certain foreign earnings that are repatriated. In December 2004, the FASB issued
FASB Staff Position No. FAS 109-2 (“FSP FAS 109-2”), “Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American
Jobs Creation Act of 2004.” FSP FAS 109-2 provides accounting and disclosure
guidance for this repatriation provision. Although
FSP FAS 109-2 is effective immediately, the Company is currently assessing the
impact of guidance issued by the Treasury Department and the Internal Revenue
Service on May 10, 2005, as well as the relevance of additional guidance
expected to be issued. The Company expects to complete its evaluation of the
effects of the repatriation provision within a reasonable period of time
following the publication of the additional guidance.
In March
2005, the FASB issued FASB Interpretation No. 47 (“FIN No. 47”), “Accounting for
Conditional Asset Retirement Obligations - an interpretation of FASB Statement
No. 143.” FIN No. 47 clarifies the term conditional asset retirement obligation
as used in FASB Statement No. 143, “Accounting for Asset Retirement
Obligations.” A conditional asset retirement obligation is an unconditional
legal obligation to perform an asset retirement activity in which the timing
and/or method of settlement are conditional on a future event that may or may
not be within the control of the entity. Therefore, an entity is required to
recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated. FIN
No. 47 is effective for the Company no later than the end of the year ending
February 28, 2006. The Company is currently assessing the financial impact of
FIN No. 47 on its consolidated financial statements.
23. SELECTED
QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
A summary
of selected quarterly financial information is as follows:
|
|
|
QUARTER
ENDED
|
|
|
|
|||||||||||
|
Fiscal
2005
|
|
May
31,
2004
|
|
August
31,
2004
|
|
November
30,
2004
|
|
February
28,
2005
|
|
Full
Year
|
||||||
(in
thousands, except per share data) |
||||||||||||||||
Net
sales |
$
|
927,305
|
$
|
1,036,941
|
$
|
1,085,711
|
$
|
1,037,681
|
$
|
4,087,638
|
||||||
Gross
profit |
$
|
250,462
|
$
|
289,683
|
$
|
313,664
|
$
|
286,780
|
$
|
1,140,589
|
||||||
Net
income(1)
|
$
|
51,329
|
$
|
80,614
|
$
|
96,893
|
$
|
47,628
|
$
|
276,464
|
||||||
Earnings
per common share(2):
|
||||||||||||||||
|
Basic
- Class A Common Stock
|
$
|
0.23
|
$
|
0.37
|
$
|
0.44
|
$
|
0.21
|
$
|
1.25
|
||||||
|
Basic
- Class B Common Stock
|
$
|
0.21
|
$
|
0.33
|
$
|
0.40
|
$
|
0.19
|
$
|
1.14
|
||||||
|
Diluted
|
$
|
0.22
|
$
|
0.35
|
$
|
0.42
|
$
|
0.20
|
$
|
1.19
|
||||||
|
|
|
QUARTER
ENDED
|
|
|
|
|||||||||||
|
Fiscal
2004
|
|
May
31,
2003
|
|
August
31,
2003
|
|
November
30,
2003
|
|
February
29,
2004
|
|
Full
Year
|
|
|||||
(in
thousands, except per share data) |
|
|
||||||||||||||
Net
sales(3)
|
$
|
772,802
|
$
|
911,064
|
$
|
987,248
|
$
|
881,315
|
$
|
3,552,429
|
||||||
Gross
profit(3)
|
$
|
209,085
|
$
|
240,532
|
$
|
282,616
|
$
|
243,555
|
$
|
975,788
|
||||||
Net
income(4)
|
$
|
39,189
|
$
|
35,564
|
$
|
82,840
|
$
|
62,821
|
$
|
220,414
|
||||||
Earnings
per common share(2):
|
||||||||||||||||
|
Basic
- Class A Common Stock
|
$
|
0.21
|
$
|
0.18
|
$
|
0.39
|
$
|
0.29
|
$
|
1.08
|
||||||
|
Basic
- Class B Common Stock
|
$
|
0.19
|
$
|
0.16
|
$
|
0.35
|
$
|
0.26
|
$
|
0.98
|
||||||
|
Diluted
|
$
|
0.20
|
$
|
0.17
|
$
|
0.36
|
$
|
0.27
|
$
|
1.03
|
||||||
|
(1)
|
In
Fiscal 2005, the Company recorded net unusual costs consisting of
financing costs associated with the redemption of senior subordinated
notes and the repayment of the Company’s prior senior credit facility; the
flow through of adverse grape cost associated with the Robert Mondavi
acquisition; acquisition-related integration costs associated with the
Robert Mondavi acquisition; restructuring and related charges resulting
primarily from (i) the realignment of business operations in the
Constellation Wines segment and (ii) the Robert Mondavi acquisition; the
flow through of inventory step-up associated with the Hardy Acquisition
and the Robert Mondavi acquisition; and other, which include net gains
from the sale of non-strategic assets and the receipt of a payment
associated with the termination of a previously announced potential fine
wine joint venture. The following table identifies these items, net of
income taxes, by quarter and in the aggregate for Fiscal
2005:
|
|
|
QUARTER
ENDED
|
|
||||||||||||||
|
Fiscal
2005
|
May
31,
2004
|
August
31,
2004
|
November
30,
2004
|
February
28,
2005
|
Full
Year
|
|||||||||||
(in
thousands, net of tax) |
||||||||||||||||
Financing
costs |
$
|
6,601
|
$
|
-
|
$
|
-
|
$
|
13,684
|
$
|
20,285
|
||||||
Flow
through of adverse grape cost |
-
|
-
|
-
|
6,240
|
6,240
|
|||||||||||
Acquisition-related
integration costs |
-
|
-
|
-
|
6,029
|
6,029
|
|||||||||||
Restructuring
and related charges |
1,032
|
748
|
1,052
|
2,018
|
4,850
|
|||||||||||
Flow
through of inventory step-up |
829
|
622
|
1,210
|
1,479
|
4,140
|
|||||||||||
|
Other
|
-
|
-
|
-
|
(3,916
|
)
|
(3,916
|
)
|
|||||||||
|
Total
restructuring and related
charges
and net unusual costs
|
$
|
8,462
|
$
|
1,370
|
$
|
2,262
|
$
|
25,534
|
$
|
37,628
|
||||||
|
(2)
|
Effective
June 1, 2004, the Company adopted EITF No. 03-6 (see Note 1). Earnings per
share - basic reflects the application of EITF No. 03-6 and has been
computed using the two-class method for all periods presented. The sum of
the quarterly earnings per common share in Fiscal 2005 and Fiscal 2004 may
not equal the total computed for the respective years as the earnings per
common share are computed independently for each of the quarters presented
and for the full year.
|
|
(3)
|
In
the third quarter of fiscal 2004, the Company revised its accounting
policy with regard to the income statement presentation of the
reclassification adjustments of cash flow hedges of certain sales
transactions. These cash flow hedges are used to reduce the risk of
foreign currency exchange rate fluctuations resulting from the sale of
product denominated in various foreign currencies. As such, the Company’s
revised accounting policy is to report the reclassification adjustments
from AOCI to sales. Previously, the Company reported such reclassification
adjustments in selling, general and administrative expenses. This change
in accounting policy resulted in a reclassification which increased
selling, general and administrative expenses and sales by $1.2 million and
$2.3 million for the three months ended May 31, 2003, and August 31, 2003,
respectively. This reclassification did not affect operating income or net
income.
|
|
(4)
|
In
Fiscal 2004, the Company recorded net unusual costs consisting of
restructuring and related charges resulting from (i) the realignment of
business operations in the Constellation Wines segment and (ii) the
Company’s decision to exit the commodity concentrate product line in the
U.S. and sell its winery located in Escalon, California; the flow through
of inventory step-up and financing costs associated with the Hardy
Acquisition; gains from the relief of certain excise tax, duty and other
costs incurred in prior years, imputed interest charge associated with the
Hardy Acquisition, and a gain on changes in fair value of derivative
instruments associated with the Hardy Acquisition. The following table
identifies these items, net of income taxes, by quarter and in the
aggregate for Fiscal 2004:
|
|
|
QUARTER
ENDED
|
|
||||||||||||||
|
Fiscal
2004
|
May
31,
2003
|
August
31,
2003
|
November
30,
2003
|
February
29,
2004
|
Full
Year
|
|||||||||||
(in
thousands, net of tax) |
||||||||||||||||
Restructuring
and related charges |
$
|
1,482
|
$
|
10,934
|
$
|
5,176
|
$
|
2,347
|
$
|
19,939
|
||||||
Flow
through of inventory step-up |
3,531
|
5,770
|
1,741
|
3,340
|
14,382
|
|||||||||||
Concentrate
inventory write-down |
-
|
10,769
|
-
|
-
|
10,769
|
|||||||||||
Financing
costs |
2,582
|
3,334
|
1,490
|
-
|
7,406
|
|||||||||||
|
Relief
of certain excise tax, duty and
other
costs
|
-
|
-
|
-
|
(6,678
|
)
|
(6,678
|
)
|
|||||||||
Imputed
interest charge |
1,061
|
-
|
-
|
-
|
1,061
|
|||||||||||
|
Gain
on changes in fair value of
derivative
instruments
|
(756
|
)
|
-
|
-
|
-
|
(756
|
)
|
|||||||||
|
Total
restructuring and related
charges
and net unusual costs
|
$
|
7,900
|
$
|
30,807
|
$
|
8,407
|
$
|
(991
|
)
|
$
|
46,123
|
|||||
|
Item
9.
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
Not
Applicable.
|
Item
9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
The
Company’s Chief Executive Officer and its Chief Financial Officer have
concluded, based on their evaluation as of the end of the period covered by this
report, that the Company’s “disclosure controls and procedures” (as defined in
the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective
to ensure that information required to be disclosed in the reports that the
Company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms.
Internal
Control over Financial Reporting
|
(a)
|
See
page 48 of this Annual Report on Form 10-K for Management’s
Report on Internal Control over Financial Reporting, which is incorporated
herein by reference.
|
|
(b)
|
See
page 46 of this Annual Report on Form 10-K for the
attestation report of KPMG LLP, the Company’s independent registered
public accounting firm, which is incorporated herein by
reference.
|
|
(c)
|
In
connection with the foregoing evaluation of the Company’s Chief Executive
Officer and its Chief Financial Officer, no changes were identified in the
Company’s “internal control over financial reporting” (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) that
occurred during the Company’s fiscal quarter ended February 28, 2005 (the
Company’s fourth fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control
over financial reporting.
|
|
Item
9B. |
Other
Information |
Not
Applicable.
PART
III
|
Item
10.
|
Directors
and Executive Officers of the
Registrant
|
The
information required by this Item (except for the information regarding
executive officers required by Item 401 of Regulation S-K which is included in
Part I hereof in accordance with General Instruction G(3)) is incorporated
herein by reference to the Company’s proxy statement to be issued in connection
with the Annual Meeting of Stockholders of the Company which is expected to be
held on July 28, 2005, under those sections of the proxy statement to be titled
“Election of Directors”, “The Board of Directors and Committees of the Board”
and “Section 16(a) Beneficial Ownership Reporting Compliance”, which proxy
statement will be filed within 120 days after the end of the Company’s fiscal
year.
The
Company has adopted a code of ethics that applies to its chief executive officer
and its senior financial officers. The Company’s Chief Executive Officer and
Senior Financial Executive Code of Ethics is located on the Company’s internet
website at http://www.cbrands.com/CBI/investors.htm. Amendments to, and waivers
granted under, the Company’s Chief Executive Officer and Senior Financial
Executive Code of Ethics, if any, will be posted to the Company’s website as
well. The Company will provide to anyone, without charge, upon request, a copy
of such Code of Ethics. Such requests should be directed in writing to Investor
Relations Department, Constellation Brands, Inc., 370 Woodcliff Drive, Suite
300, Fairport, New York 14450 or by telephoning the Company’s Investor Center at
1-888-922-2150.
|
Item
11.
|
Executive
Compensation
|
The
information required by this Item is incorporated herein by reference to the
Company’s proxy statement to be issued in connection with the Annual Meeting of
Stockholders of the Company which is expected to be held on July 28, 2005,
under that section of the proxy statement to be titled “Executive Compensation”
and that caption to be titled “Director Compensation” under “Election of
Directors”, which proxy statement will be filed within 120 days after the end of
the Company’s fiscal year.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters
|
The
information required by this Item is incorporated herein by reference to the
Company’s proxy statement to be issued in connection with the Annual Meeting of
Stockholders of the Company which is expected to be held on July 28, 2005, under
those sections of the proxy statement to be titled “Beneficial Ownership” and
“Stock Ownership of Management”,
which proxy statement will be filed within 120 days after the end of the
Company’s fiscal year.
Additional information required by this item is as follows:
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth information with respect to the Company’s
compensation plans under which its equity securities may be issued, as of
February 28, 2005. The equity compensation plans approved by security holders
include the Company’s Long-Term Stock Incentive Plan, Incentive Stock Option
Plan and 1989 Employee Stock Purchase Plan. The Company's UK Sharesave Scheme
(the "UK Plan") is an equity compensation plan not approved by security
holders. Under the UK Plan, 2,000,000 shares of Class A Stock may be issued to
eligible United Kingdom employees and directors of the Company in offerings that
typically extend from three to five years. Under the terms of the UK Plan,
participants may purchase shares of Class A Stock at the end of the offering
period through payroll deductions made during the offering period. The payroll
deductions are kept in interest bearing accounts until the participant either
exercises the option at the end of the offering or withdraws from the offering.
The exercise price for each offering is fixed at the beginning of the offering
by the committee administering the plan and may be no less than 80% of the
closing price of the stock on the day the exercise price is fixed. If a
participant ceases to be employed by the Company, that participant may exercise
the option during a period of time specified in the UK Plan or may withdraw from
the offering. During the year ended February 28, 2005, an aggregate
of 74,164 shares
were issued pursuant to the UK Plan.
Equity
Compensation Plan Information
|
(a)
|
(b)
|
(c)
|
|
|
Plan
Category
|
Number
of securities
to
be issued upon
exercise
of
outstanding
options,
warrants
and rights
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation plans
(excluding
securities
reflected
in column (a))
|
|
Equity
compensation
plans
approved by
security
holders
|
23,600,750
|
$11.48
|
36,124,678
|
|
Equity
compensation
plans
not approved by
security
holders (1)
|
-
|
-
|
1,868,738
|
|
Total
|
23,600,750
|
$11.48
|
37,993,416
|
______________________
(1)
There are
currently two ongoing offerings under the UK Plan. The exercise prices for
shares that may be purchased at the end of these offerings are $6.3047 and
$7.105,
respectively. The number of options outstanding that represent the right to
purchase shares at the end of the offerings is not determinable because the
exchange rate is not known and because the Company cannot predict the level of
participation by employees during the remaining term of the
offerings.
|
Item
13.
|
Certain
Relationships and Related
Transactions
|
The
information required by this Item is incorporated herein by reference to the
Company’s proxy statement to be issued in connection with the Annual Meeting of
Stockholders of the Company which is expected to be held on July 28, 2005, under
that section of the proxy statement to be titled “Executive Compensation”, which
proxy statement will be filed within 120 days after the end of the Company’s
fiscal year.
|
Item
14.
|
Principal
Accountant Fees and Services
|
The
information required by this Item is incorporated herein by reference to the
Company’s proxy statement to be issued in connection with the Annual Meeting of
Stockholders of the Company which is expected to be held on July 28, 2005, under
the relevant portion of the sections of the proxy statement to be titled "Audit
Committee Report" and "Selection of Independent Public
Accountants".
|
PART
IV
|
|||
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
||
|
1.
|
Financial
Statements
|
||
|
The
following consolidated financial statements of the Company are submitted
herewith:
|
|||
|
|
Report
of Independent Registered Public Accounting Firm - KPMG LLP
Report
of Independent Registered Public Accounting Firm - KPMB
LLP
Management's
Annual Report on Internal Control Over Financial
Reporting
|
||
|
Consolidated
Balance Sheets - February 28, 2005, and February 29,
2004
|
|||
|
Consolidated
Statements of Income for the years ended February 28, 2005, February 29,
2004, and February 28, 2003
|
|||
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended February
28, 2005, February 29, 2004, and February 28, 2003
|
|||
|
Consolidated
Statements of Cash Flows for the years ended February 28, 2005, February
29, 2004, and February 28, 2003
|
|||
|
Notes
to Consolidated Financial Statements
|
|||
|
2.
|
Financial
Statement Schedules
|
||
|
Schedules
are not submitted because they are not applicable or not required under
Regulation S-X or because the required information is included in the
financial statements or notes thereto.
|
|||
|
3.
|
Exhibits
required to be filed by Item 601 of Regulation S-K
|
||
|
For
the exhibits that are filed herewith or incorporated herein by reference,
see the Index to Exhibits located on Page 106 of this Report. The
Index to Exhibits is incorporated herein by
reference.
|
|||
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
Dated:
May__, 2005
|
CONSTELLATION
BRANDS, INC.
|
|
|
|
|
By: /s/
Richard Sands
|
|
|
Richard
Sands, Chairman of the Board
and
Chief Executive Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|
/s/
Richard Sands
|
/s/
Thomas S. Summer
|
|
|
Richard
Sands, Director, Chairman of the
Board
and Chief Executive Officer
(principal
executive officer)
Dated:
May 16, 2005
|
Thomas
S. Summer, Executive Vice
President
and Chief Financial
Officer
(principal
financial officer and
principal
accounting officer)
Dated:
May 16, 2005
|
|
|
/s/
Robert Sands
|
/s/
George Bresler
|
|
|
Robert
Sands, Director
Dated:
May 16, 2005
|
George
Bresler, Director
Dated:
May 16, 2005
|
|
|
/s/
James A. Locke III
|
/s/
Thomas C. McDermott
|
|
|
James
A. Locke III, Director
Dated:
May 16, 2005
|
Thomas
C. McDermott, Director
Dated:
May 16, 2005
|
|
|
/s/
Paul L. Smith
|
/s/
Jeananne K. Hauswald
|
|
|
Paul
L. Smith, Director
Dated:
May 16, 2005
|
Jeananne
K. Hauswald, Director
Dated:
May 16, 2005
|
|
INDEX
TO EXHIBITS
|
||
|
Exhibit
No
|
||
|
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).
|
|
|
2.6
|
Agreement
and Plan of Merger, dated as of November 3, 2004, by and among
Constellation Brands, Inc., a Delaware corporation, RMD Acquisition Corp.,
a California corporation and a wholly-owned subsidiary of Constellation
Brands, Inc., and The Robert Mondavi Corporation, a California corporation
(filed as Exhibit 2.6 to the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended November 30, 2004 and incorporated herein by
reference).
|
|
|
2.7
|
Support
Agreement, dated as of November 3, 2004, by and among Constellation
Brands, Inc., a Delaware corporation and certain shareholders of The
Robert Mondavi Corporation (filed as Exhibit 2.7 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30,
2004 and incorporated herein by reference).
|
|
|
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
|
Certificate
of Designations of 5.75% Series A Mandatory Convertible Preferred Stock of
the Company (filed as Exhibit 4.1 to the Company’s Current Report on Form
8-K dated July 24, 2003, filed July 30, 2003 and incorporated herein by
reference).
|
|
|
3.3
|
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).
|
|
|
4.1
|
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
|
Supplemental
Indenture No. 9, dated as of July 8, 2004, by and among the Company, BRL
Hardy Investments (USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners
LLC, Nobilo Holdings, and BNY Midwest Trust Company, as Trustee (filed as
Exhibit 4.10 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2004 and incorporated herein by
reference).
|
|
|
4.11
|
Supplemental
Indenture No. 10, dated as of September 13, 2004, by and among the
Company, Constellation Trading, Inc., and BNY Midwest Trust Company, as
Trustee (filed as Exhibit 4.11 to the Company’s Quarterly Report on Form
10-Q for the fiscal quarter ended August 31, 2004 and incorporated herein
by reference).
|
|
|
4.12
|
Supplemental
Indenture No. 11, dated as of December 22, 2004, by and among the Company,
The Robert Mondavi Corporation, R.M.E. Inc., Robert Mondavi Winery, Robert
Mondavi Investments, Robert Mondavi Affilates d/b/a Vichon Winery and
Robert Mondavi Properties, Inc., and BNY Midwest Trust Company, as Trustee
(filed as
Exhibit 4.12 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2004 and incorporated herein by
reference).
|
|
|
4.13
|
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. acts 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).#
|
|
|
4.14
|
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).
|
|
|
4.15
|
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).
|
|
|
4.16
|
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).
|
|
|
4.17
|
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).
|
|
|
4.18
|
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).
|
|
|
4.19
|
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).
|
|
|
4.20
|
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).
|
|
|
4.21
|
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 (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).
|
|
|
4.22
|
Supplemental
Indenture No. 3, dated as of July 8, 2004, by and among the Company, BRL
Hardy Investments (USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners
LLC, Nobilo Holdings, and BNY Midwest Trust Company, as Trustee (filed as
Exhibit 4.15 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2004 and incorporated herein by
reference).
|
|
|
4.23
|
Supplemental
Indenture No. 4, dated as of September 13, 2004, by and among the Company,
Constellation Trading, Inc., and BNY Midwest Trust Company, as Trustee
(filed as Exhibit 4.16 to the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 2004 and incorporated herein by
reference).
|
|
|
4.24
|
Supplemental
Indenture No. 5, dated as of December 22, 2004, by and among the Company,
The Robert Mondavi Corporation, R.M.E. Inc., Robert Mondavi Winery, Robert
Mondavi Investments, Robert Mondavi Affilates d/b/a Vichon Winery and
Robert Mondavi Properties, Inc., and BNY Midwest Trust Company, as Trustee
(filed as
Exhibit 4.18 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2004 and incorporated herein by
reference).
|
|
|
4.25
|
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).
|
|
|
4.26
|
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).
|
|
|
4.27
|
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).
|
|
|
4.28
|
Supplemental
Indenture No. 3, dated as of July 8, 2004, by and among the Company, BRL
Hardy Investments (USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners
LLC, Nobilo Holdings, and BNY Midwest Trust Company, as Trustee (filed as
Exhibit 4.20 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2004 and incorporated herein by
reference).
|
|
|
4.29
|
Supplemental
Indenture No. 4, dated as of September 13, 2004, by and among the Company,
Constellation Trading, Inc., and BNY Midwest Trust Company, as Trustee
(filed as Exhibit 4.21 to the Company’s Quarterly Report on Form 10-Q for
the fiscal quarter ended August 31, 2004 and incorporated herein by
reference).
|
|
|
4.30
|
Supplemental
Indenture No. 5, dated as of December 22, 2004, by and among the Company,
The Robert Mondavi Corporation, R.M.E. Inc., Robert Mondavi Winery, Robert
Mondavi Investments, Robert Mondavi Affilates d/b/a Vichon Winery and
Robert Mondavi Properties, Inc., and BNY Midwest Trust Company, as Trustee
(filed as
Exhibit 4.24 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended November 30, 2004 and incorporated herein by
reference).
|
|
|
4.31
|
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).
|
|
|
4.32
|
Amendment
No. 1 to the Amended and Restated Credit Agreement, dated as of July 18,
2003, among the Company and certain of its subsidiaries, and JPMorgan
Chase Bank, as Administrative Agent (filed as Exhibit 4.17 to the
Company’s Report on Form 10-Q for the fiscal quarter ended August 31, 2003
and incorporated herein by reference).
|
|
|
4.33
|
Second
Amended and Restated Credit Agreement, dated as of October 31, 2003, among
the Company and certain of its subsidiaries, the lenders named therein,
JPMorgan Chase Bank, as Administrative Agent, and J.P. Morgan Europe
Limited, as London Agent (filed as Exhibit 4.18 to the Company’s Report on
Form 10-Q for the fiscal quarter ended November 30, 2003 and incorporated
herein by reference).
|
|
|
4.34
|
Amendment
No. 1, dated as of February 10, 2004, to the Second Amended and Restated
Credit Agreement, dated as of October 31, 2003, among the Company, the
Subsidiary Guarantors party thereto, the Lenders party thereto and
JPMorgan Chase Bank, as Administrative Agent (filed as Exhibit 4.25 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February
29, 2004 and incorporated herein by reference).
|
|
|
4.35
|
Third
Amended and Restated Credit Agreement, dated as of August 17, 2004, among
the Company and certain of its subsidiaries, the lenders named therein,
JPMorgan Chase Bank, as Administrative Agent, and J.P. Morgan Europe
Limited, as London Agent (filed as Exhibit 4.26 to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended August 31, 2004 and
incorporated herein by reference).
|
|
|
4.36
|
Credit
Agreement, dated as of December 22, 2004, among the Company, the
Subsidiary Guarantors party thereto, the Lenders party thereto, JPMorgan
Chase Bank, N.A., as Administrative Agent, Merrill Lynch, Pierce Fenner
& Smith, Incorporated, as Syndication Agent, J.P. Morgan Securities
Inc., as Sole Lead Arranger and Bookrunner, and Bank of America, SunTrust
Bank and Bank of Nova Scotia, as Co-Documentation Agents (filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K, dated December 22, 2004,
filed December 29, 2004 and incorporated herein by
reference).
|
|
|
4.37
|
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).
|
|
|
4.38
|
Certificate
of Designations of 5.75% Series A Mandatory Convertible Preferred Stock of
the Company (filed as Exhibit 4.1 to the Company’s Current Report on Form
8-K dated July 24, 2003, filed July 30, 2003 and incorporated herein by
reference).
|
|
|
4.39
|
Deposit
Agreement, dated as of July 30, 2003, by and among the Company, Mellon
Investor Services LLC and all holders from time to time of Depositary
Receipts evidencing Depositary Shares Representing 5.75% Series A
Mandatory Convertible Preferred Stock of the Company (filed as Exhibit 4.2
to the Company’s Current Report on Form 8-K dated July 24, 2003, filed
July 30, 2003 and incorporated herein by reference).
|
|
|
4.40
|
Guarantee
Assumption Agreement, dated as of July 8, 2004, by BRL Hardy Investments
(USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners LLC and Nobilo
Holdings in favor of JP Morgan Chase Bank, as administrative agent,
pursuant to the Second Amended and Restated Credit Agreement dated as of
October 31, 2003 (as modified and supplemented and in effect from time to
time) (filed as Exhibit 4.30 to the Company’s Quarterly Report on Form
10-Q for the fiscal quarter ended August 31, 2004 and incorporated herein
by reference).
|
|
|
4.41
|
Guarantee
Assumption Agreement, dated as of September 13, 2004, by Constellation
Trading Company, Inc., in favor of JP Morgan Chase Bank, as administrative
agent, pursuant to the Third Amended and Restated Credit Agreement dated
as of August 17, 2003 (as modified and supplemented and in effect from
time to time) (filed as Exhibit 4.31 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 2004 and incorporated
herein by reference).
|
|
|
10.1
|
Marvin
Sands Split Dollar Insurance Agreement (filed as Exhibit 10.9 to the
Company’s Annual Report on Form 10-K for the fiscal year ended August 31,
1993 and also filed as
Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal
year ended February 29, 2004 and incorporated herein by
reference).#
|
|
|
10.2
|
Employment
Agreement between Barton Incorporated and Alexander L. Berk dated as of
September 1, 1990 as amended by Amendment No. 1 to Employment Agreement
between Barton Incorporated and Alexander L. Berk dated November 11, 1996
(filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the
fiscal year ended February 28, 1998 and incorporated herein by
reference).* #
|
|
|
10.3
|
Amendment
No. 2 to Employment Agreement between Barton Incorporated and Alexander L.
Berk dated October 20, 1998 (filed as Exhibit 10.5 to the Company’s Annual
Report on Form 10-K for the fiscal year ended February 28, 1999 and
incorporated herein by reference).* #
|
|
|
10.4
|
Long-Term
Stock Incentive Plan, which amends and restates the Canandaigua Wine
Company, Inc. Stock Option and Stock Appreciation Right Plan (filed as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended May 31, 1997 and incorporated herein by reference).*
#
|
|
|
10.5
|
Amendment
Number One to the Company’s Long-Term Stock Incentive Plan (filed as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1997 and incorporated herein by reference).*
#
|
|
|
10.6
|
Amendment
Number Two to the Company’s Long-Term Stock Incentive Plan (filed as
Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1999 and incorporated herein by reference).*
#
|
|
|
10.7
|
Amendment
Number Three to the Company’s Long-Term Stock Incentive Plan (filed as
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2000 and incorporated herein by reference).*
#
|
|
|
10.8
|
Amendment
Number Four to the Company’s Long-Term Stock Incentive Plan (filed as
Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 2001 and incorporated herein by
reference).*
|
|
|
10.9
|
Amendment
Number Five to the Company’s Long-Term Stock Incentive Plan (filed as
Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2004 and incorporated herein by reference).
*
|
|
|
10.10
|
Amendment
Number Six to the Company’s Long-Term Stock Incentive Plan (filed as
Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 2004 and incorporated herein by
reference).*
|
|
|
10.11
|
Form
of Terms and Conditions Memorandum for Employees with respect to the
Company’s Long-Term Stock Incentive Plan (filed
herewith).*
|
|
|
10.12
|
Form
of Terms and Conditions Memorandum for Directors with respect to the
Company’s Long-Term Stock Incentive Plan (filed
herewith).*
|
|
|
10.13
|
Form
of Restricted Stock Agreement with respect to the Company’s Long-Term
Stock Incentive Plan (filed herewith).*
|
|
|
10.14
|
Incentive
Stock Option Plan of the Company (filed as Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
1997 and incorporated herein by reference).* #
|
|
|
10.15
|
Amendment
Number One to the Company’s Incentive Stock Option Plan (filed as Exhibit
10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 1997 and incorporated herein by reference).*
#
|
|
|
10.16
|
Amendment
Number Two to the Company’s Incentive Stock Option Plan (filed as Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2000 and incorporated herein by
reference).*
|
|
|
10.17
|
Amendment
Number Three to the Company’s Incentive Stock Option Plan (filed as
Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 2001 and incorporated herein by
reference).*
|
|
|
10.18
|
Form
of Terms and Conditions Memorandum with respect to the Company’s Incentive
Stock Option Plan (filed herewith).
|
|
|
10.19
|
Annual
Management Incentive Plan of the Company (filed as Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1997 and incorporated herein by reference).*
#
|
|
|
10.20
|
Amendment
Number One to the Company’s Annual Management Incentive Plan (filed as
Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 1998 and incorporated herein by reference).*
#
|
|
|
10.21
|
Amendment
Number Two to the Company’s Annual Management Incentive Plan (filed as
Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 2001 and incorporated herein by
reference).*
|
|
|
10.22
|
Lease,
effective December 25, 1997, by and among Matthew Clark Brands Limited and
Pontsarn Investments Limited (filed as Exhibit 10.13 to the Company’s
Annual Report on Form 10-K for the fiscal year ended February 28,
1999 and incorporated herein by reference).#
|
|
|
10.23
|
Supplemental
Executive Retirement Plan of the Company (filed as Exhibit 10.14 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February
28, 1999 and incorporated herein by reference).* #
|
|
|
10.24
|
First
Amendment to the Company’s Supplemental Executive Retirement Plan (filed
as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended May 31, 1999 and incorporated herein by
reference).* #
|
|
|
10.25
|
Second
Amendment to the Company’s Supplemental Executive Retirement Plan (filed
as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the
fiscal year ended February 28, 2001 and incorporated herein by
reference).*
|
|
|
10.26
|
Third
Amendment to the Company’s Supplemental Executive Retirement Plan (filed
as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated April 7,
2005, filed April 13, 2005 and incorporated herein by
reference).*
|
|
|
10.27
|
2005
Supplemental Executive Retirement Plan of the Company (filed as Exhibit
99.3 to the Company’s Current Report on Form 8-K dated April 7, 2005,
filed April 13, 2005 and incorporated herein by
reference).*
|
|
|
10.28
|
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. acts 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).#
|
|
|
10.29
|
Amendment
No. 1 to the 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).
|
|
|
10.30
|
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).
|
|
|
10.31
|
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).
|
|
|
10.32
|
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).
|
|
|
10.33
|
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).
|
|
|
10.34
|
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 J.P. Morgan 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).
|
|
|
10.35
|
Amendment
No. 1, dated as of July 18, 2003, to the Amended and Restated Credit
Agreement, dated as of March 19, 2003, among the Company and certain of
its subsidiaries, and JPMorgan Chase Bank, as Administrative Agent (filed
as Exhibit 4.17 to the Company’s Report on Form 10-Q for the fiscal
quarter ended August 31, 2003 and incorporated herein by
reference).
|
|
|
10.36
|
Second
Amended and Restated Credit Agreement, dated as of October 31, 2003, among
the Company and certain of its subsidiaries, the lenders named therein,
JPMorgan Chase Bank, as Administrative Agent, and J.P. Morgan Europe
Limited, as London Agent (filed as Exhibit 4.18 to the Company’s Report on
Form 10-Q for the fiscal quarter ended November 30, 2003 and incorporated
herein by reference).
|
|
|
10.37
|
Amendment
No. 1, dated as of February 10, 2004, to the Second Amended and Restated
Credit Agreement, dated as of October 31, 2003, among the Company, the
Subsidiary Guarantors party thereto, the Lenders party thereto and
JPMorgan Chase Bank, as Administrative Agent (filed as Exhibit 4.25 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February
29, 2004 and incorporated herein by reference).
|
|
|
10.38
|
Third
Amended and Restated Credit Agreement, dated as of August 17, 2004, among
the Company and certain of its subsidiaries, the lenders named therein,
JPMorgan Chase Bank, as Administrative Agent, and J.P. Morgan Europe
Limited, as London Agent (filed as Exhibit 4.26 to the Company’s Report on
Form 10-Q for the fiscal quarter ended August 31, 2004 and incorporated
herein by reference).
|
|
|
10.39
|
Credit
Agreement, dated as of December 22, 2004, among the Company, the
Subsidiary Guarantors party thereto, the Lenders party thereto, JPMorgan
Chase Bank, N.A., as Administrative Agent, Merrill Lynch, Pierce Fenner
& Smith, Incorporated, as Syndication Agent, J.P. Morgan Securities
Inc., as Sole Lead Arranger and Bookrunner, and Bank of America, SunTrust
Bank and Bank of Nova Scotia, as Co-Documentation Agents (filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K, dated December 22, 2004,
filed December 29, 2004 and incorporated herein by
reference).
|
|
|
10.40
|
Guarantee
Assumption Agreement, dated as of July 8, 2004, by BRL Hardy Investments
(USA) Inc., BRL Hardy (USA) Inc., Pacific Wine Partners LLC and Nobilo
Holdings in favor of JP Morgan Chase Bank, as administrative agent,
pursuant to the Second Amended and Restated Credit Agreement dated as of
October 31, 2003 (as modified and supplemented and in effect from time to
time) (filed as Exhibit 4.30 to the Company’s Report on Form 10-Q for the
fiscal quarter ended August 31, 2004 and incorporated herein by
reference).
|
|
|
10.41
|
Guarantee
Assumption Agreement, dated as of September 13, 2004, by Constellation
Trading Company, Inc., in favor of JP Morgan Chase Bank, as administrative
agent, pursuant to the Third Amended and Restated Credit Agreement dated
as of August 17, 2003 (as modified and supplemented and in effect from
time to time) (filed as Exhibit 4.31 to the Company’s Report on Form 10-Q
for the fiscal quarter ended August 31, 2004 and incorporated herein by
reference).
|
|
|
10.42
|
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).
|
|
|
10.43
|
Letter
Agreement between the Company and Thomas S. Summer, dated March 10, 1997,
addressing compensation (filed as Exhibit 10.16 to the Company’s Annual
Report on Form 10-K for the fiscal year ended February 29, 2000 and
incorporated herein by reference).* #
|
|
|
10.44
|
The
Constellation Brands UK Sharesave Scheme, as amended (filed as Exhibit
10.29 to the Company’s Annual Report on Form 10-K for the fiscal year
ended February 28, 2002 and incorporated herein by
reference).
|
|
|
10.45
|
Letter
Agreement between the Company and Thomas J. Mullin, dated February 18,
2000, addressing compensation (filed as
Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the fiscal
year ended February 28, 2003 and incorporated herein by
reference).*
|
|
|
10.46
|
Letter
Agreement between the Company and Stephen B. Millar, dated 9 April 2003,
addressing compensation (filed as Exhibit 10.34 to the Company’s Annual
Report on Form 10-K for the fiscal year ended February 29, 2004 and
incorporated herein by reference).*
|
|
|
10.47
|
Non-Competition
Agreement between Stephen Brian Millar and BRL Hardy Limited (now known as
Hardy Wine Company Limited) dated April 8, 2003 (filed as Exhibit 10.35 to
the Company’s Annual Report on Form 10-K for the fiscal year ended
February 29, 2004 and incorporated herein by
reference).*
|
|
|
10.48
|
Memorandum
of Agreement (Service Contract) between BRL Hardy Limited (now known as
Hardy Wine Company Limited) and Stephen Brian Millar dated 11 June 1996
(filed as Exhibit 10.36 to the Company’s Annual Report on Form 10-K for
the fiscal year ended February 29, 2004 and incorporated herein by
reference).*
|
|
|
10.49
|
BRL
Hardy Superannuation Fund Deed of Variation dated 7 October 1998, together
with Amending Deed No. 5 made on 23 December 1999, Amending Deed No. 6
made on 20 January 2003 and Amending Deed No. 7 made on 9 February 2004
(filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K for
the fiscal year ended February 29, 2004 and incorporated herein by
reference).*
|
|
|
10.50
|
Description
of Compensation Arrangements for Certain Executive Officers (filed
herewith).*
|
|
|
10.51
|
Description
of Compensation Arrangements for Non-Management Directors (filed
herewith).*
|
|
|
21.1
|
Subsidiaries
of Company (filed herewith).
|
|
|
23.1
|
Consent
of KPMG LLP (filed herewith).
|
|
|
31.1
|
Certificate
of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended (filed
herewith).
|
|
|
31.2
|
Certificate
of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended (filed
herewith).
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 18 U.S.C. 1350 (filed
herewith).
|
|
|
32.2
|
Certification
of Chief Financial Officer pursuant to Section 18 U.S.C. 1350 (filed
herewith).
|
|
|
99.1
|
1989
Employee Stock Purchase Plan (Restated June 27, 2001) (filed as Exhibit
99.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2001 and incorporated herein by
reference).
|
|
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Designates management contract or compensatory plan or arrangement.
# Company's Commission File No. 001-08495. For filings prior to
October 4, 1999, use Commission File No. 000-07570.
The
Company agrees, upon request of the Securities and Exchange Commission, to
furnish copies of each instrument that defines the rights of holders of
long-term debt of the Company or its subsidiaries that is not filed herewith
pursuant to Item 601(b)(4)(iii)(A) because the total amount of long-term debt
authorized under such instrument does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis.