8-K: Current report filing
Published on February 23, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date
of
Report (Date of earliest event reported) February
16, 2006
CONSTELLATION
BRANDS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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001-08495
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16-0716709
|
||
|
(State
or other jurisdiction
of
incorporation)
|
(Commission
File
Number)
|
(IRS
Employer
Identification
No.)
|
370
Woodcliff Drive, Suite 300, Fairport, NY 14450
(Address
of Principal Executive Offices) (Zip Code)
Registrant’s
telephone number, including area code (585)
218-3600
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
ITEM
1.01 ENTRY INTO
A MATERIAL DEFINITIVE AGREEMENT.
On
February 16, 2006, the Board of Directors of Constellation Brands,
Inc. (the
“Company”) approved the acceleration of the vesting of certain unvested options
to purchase shares of the Company’s $.01 par value Class A Common Stock. Such
options were previously granted to the Company’s employees, including its
executive officers, under the Company’s Long-Term Stock Incentive Plan and the
Company’s Incentive Stock Option Plan. The acceleration of vesting was effective
for (i) all unvested options (exercisable for an aggregate of 4,987,050
shares)
outstanding on February 16, 2006 with a market condition performance
accelerator
based on the price of the Company’s Class A Common Stock (“PASOs”) and (ii)
certain unvested options (exercisable for an aggregate of 143,728 shares
outstanding on February 16, 2006) that do not contain a market condition
performance accelerator (“non-PASOs”). In the absence of a specified
market condition performance acceleration event, PASOs would otherwise have
vested, subject to continued employment of the respective optionees,
at the end
of a specified term and other options accelerated on February 16, 2006
would
otherwise have vested, subject to continued employment, ratably over
a specified
term. All information provided herein reflects the effects of the Company’s
two-for-one stock splits of its Class A and Class B Common Stock that
were
distributed in the form of stock dividends on May 13, 2005 to shareholders
of record on April 29, 2005.
As
a
result of the Board’s action, approximately 92% of the Company’s outstanding
unvested options have been accelerated, of which options to purchase
868,728
shares, or approximately 16% of the shares subject to outstanding unvested
options, are held by the Company’s executive officers. Of the aggregate number
of accelerated PASOs, 750,000 shares, or approximately 15%, are held
by
executive officers. The option shares that vested due to the acceleration
represent approximately 2% of the Company’s outstanding Class A and Class B
Common Stock and have a weighted average exercise price of $25.80 per
share. The
price of the Company’s Class A Common Stock closed at $27.38 on February 16,
2006. A compensation charge of approximately $1.5 million will be recorded
in
the Company’s income statement in the current fourth quarter with respect to the
accelerated PASO options with an exercise price below $27.38 that are
exercisable for 4,919,000 shares. With respect to the 68,050 shares
subject to
PASO options with exercise prices above $27.38, no compensation charge
will be
recorded. In addition, with respect to the 143,728 shares subject to
non-PASO
options, all of which have exercise prices below $27.38, no compensation
charge
will be recorded.
The
purpose of the vesting acceleration of PASOs is to enable the Company
to prevent
potential earnings volatility that can be caused by an unpredictable
market
condition performance accelerator. The acceleration of PASOs and non-PASOs
also
results in compensation expense not being recorded in the Company’s income
statements for future periods with respect to such options. The Company
estimates that the total of pretax charges that would have been recorded
if the
PASOs and non-PASOs had not been accelerated would have been approximately
$38.8
million ($0.2 million of which is with respect to the non-PASOs) over
a
four-year period. The Company does not intend generally in the future
to grant
options with a market condition performance accelerator because that
form of
vesting can create earnings volatility. Instead, the Company expects
that grants
of options in the future generally will vest over a four-year period
at a rate
of 25% per year.
With
respect to PASOs, the following table presents information concerning
the
affected option awards and option holders.
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Named
executive officers
(identified
as such in the Company’s
most
recent proxy statement):
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Date
of
option
grant
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Option
exercise
price
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Number
of shares
for
which vesting
was
accelerated to
February
16, 2006 (1)
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||
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Richard
Sands
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12/23/04
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$23.020
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30,000
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||
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04/07/05
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$27.235
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156,200
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|||
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Robert
Sands
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12/23/04
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$23.020
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30,000
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||
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04/07/05
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$27.235
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128,000
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|||
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Stephen
B. Millar
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12/23/04
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$23.020
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30,000
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||
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04/07/05
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$27.235
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64,800
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|||
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Alexander
L. Berk
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04/07/05
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$27.235
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53,800
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Thomas
S. Summer
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12/23/04
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$23.020
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30,000
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04/07/05
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$27.235
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40,600
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|||
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563,400
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|||||
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All
other executive officers as a group
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|||||
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12/23/04
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$23.020
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90,000
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|||
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04/07/05
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$27.235
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96,600
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|||
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186,600
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|||||
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All
other employees
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|||||
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09/29/04
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$18.860
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79,400
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12/22/04
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$22.985
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57,900
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|||
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12/23/04
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$23.020
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679,500
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|||
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01/03/05
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$23.230
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49,800
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|||
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01/14/05
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$24.730
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146,250
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|||
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04/07/05
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$27.235
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3,008,700
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|||
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06/29/05
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$30.520
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68,050
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|||
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10/06/05
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$24.920
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65,000
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|||
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01/04/06
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$26.220
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32,450
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|||
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01/13/06
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$26.150
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50,000
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|||
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4,237,050
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|||||
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Grand
total - all employees
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4,987,050
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||||
(1)
Under the terms of the original option grants, the indicated options
were
scheduled to become fully exercisable on the fourth anniversary of
the option
grant date to the extent not earlier vested due to the occurrence of
specified
market condition performance acceleration events.
The
non-PASO options exercisable for 143,728 shares that were accelerated
by the
Board include 100,000 shares with an exercise price of $11.70 per share
subject
to an option held by Stephen Millar that was granted on April 8, 2003.
One-half
of these shares was scheduled to vest on April 8, 2006 and the balance
on April
8, 2007. The non-PASO option shares accelerated also include 18,728
shares
subject to an option with an exercise price of $15.25 per share granted
to Mr.
Millar on June 26, 2003. One-third of the accelerated shares was scheduled
to
vest on June 26, 2006, with the balance vesting ratably on the fourth
and fifth
anniversaries of the grant date. One other employee (who is not an
executive
officer) holds the balance of the accelerated non-PASOs. All of Mr.
Millar’s
non-PASO options were accelerated in connection with his retirement
as Chief
Executive Officer, Constellation Wines. All of Mr. Millar’s options are now
fully vested as a result of the option accelerations.
Mr.
Millar is retiring as Chief Executive Officer, Constellation Wines
in connection
with the restructuring of the Company’s global wine business described in Item
2.05 below. On February 16, 2006, the Company and Mr. Millar entered
into an
agreement (the “Agreement”) whereby, effective February 28, 2006, Mr. Millar’s
current position with the Company will end. Pursuant to the
Agreement, Mr. Millar will continue an employment relationship with
the Company
until February 9, 2007, consistent with the terms and conditions of
his service
agreement dated June 11, 1996, as amended (the “Service Agreement”), holding the
title Non-Executive Chairman, Constellation Wines. During this period
he will
have no specific duties but be available at the Company’s request to provide
counsel and guidance in various wine-related projects. On February
9, 2007, the
Service Agreement will terminate and he will be paid in accordance
with its
terms, including a termination payment in the aggregate amount of A$3,681,984
(equal to US$2,724,668 based on a conversion rate of A$1.00 to US$0.74),
together with an additional bonus in the amount of US$100,000 in recognition
of
his contributions to the Company. The Agreement provides that he will not
be entitled to receive future awards under the Company’s Long-Term Stock
Incentive Plan or Incentive Stock Option Plan. Following Mr. Millar’s retirement
from the Company on February 9, 2007, he will have twelve months to
exercise any
remaining stock options. On February 9, 2007, he will also be entitled
to
retirement benefits under the Hardy Wine Company Superannuation Plan
in
accordance with the terms of that plan. Mr. Millar will remain subject
to his
obligations of non-competition and confidentiality to the Company and
its
subsidiary Hardy Wine Company through February 9, 2008. The
Agreement is filed with this Current Report on Form 8-K as Exhibit
99.1.
Mr. Millar’s Service Agreement as varied by letter agreement dated April 9, 2003
was filed as Exhibits 10.34 and 10.36 to the Company’s Annual Report on
Form 10-K for the fiscal year ended February 29, 2004 (the “2004 10-K”), and his
non-competition agreement is filed as Exhibit 10.35 to the 2004 10-K.
The Hardy Wine Company Superannuation Plan, in which Mr. Millar is
a
participant, is filed as Exhibit 10.37 to the 2004 10-K.
ITEM
1.02 TERMINATION
OF A MATERIAL DEFINITIVE AGREEMENT.
The
information set forth in the last paragraph of Item 1.01 above
is hereby
incorporated by reference into this Item
1.02.
ITEM
2.05 COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES.
On
February 16, 2006, as part of its ongoing effort to enhance its
administrative,
operational and production efficiencies in light of its ongoing
growth,
Constellation Brands, Inc. (the “Company”) committed to the principal features
of a plan to reorganize and simplify the infrastructure and reporting
structure
of its global wine business (the “Plan”). The objective of the Plan, which has
commenced, is to achieve greater efficiency in sales, administrative
and
operational activities and eliminate redundant costs. The Plan
includes the
termination of employment of approximately 200 employees in various
locations
worldwide; the consolidation of certain worldwide wine selling
and
administrative functions; the consolidation of certain warehouse
and production
functions; and the termination of various contracts. The Company
currently
expects to complete the Plan during the fourth quarter of the Company’s fiscal
year ending February 28, 2007 (“Fiscal 2007”).
As
further detailed in the table below, the Company expects to incur
approximately
$42 million of restructuring charges in connection with the Plan.
These charges
will be recorded in the Company’s results of operations during the fourth
quarter of the Company’s fiscal year ending February 28, 2006 (“Fiscal 2006”),
and in Fiscal 2007. Under the Plan, the Company expects to incur
aggregate cash
expenditures of approximately $35 million, primarily during Fiscal
2007, and an
aggregate of approximately $7 million of non-cash charges in the
fourth quarter
of Fiscal 2006. The following table sets forth the Company’s current
expectations related to the Plan:
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Estimated
pretax
charges
during
fourth
quarter
Fiscal
2006
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Estimated
pretax
charges
during
Fiscal
2007
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Estimated
Total
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(in
millions)
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Restructuring
costs:
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||||||||||
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Employee
termination costs
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$
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22
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$
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9
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$
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31
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Contract
termination costs
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1
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3
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4
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Other
associated costs
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1
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6
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7
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Total
restructuring costs
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$
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24
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$
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18
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$
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42
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In
addition to the expected restructuring charges estimated above, the Company
also
expects to incur approximately $13 million of other charges in Fiscal
2007
(consisting of approximately $4 million in cash expenditures and
approximately $9 million of non-cash charges) related to the Plan, primarily
accelerated depreciation associated with consolidation of certain manufacturing
processes and costs associated with systems integration.
ITEM
9.01 FINANCIAL
STATEMENTS AND EXHIBITS.
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(a)
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Financial
statements of businesses acquired.
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Not
applicable.
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(b)
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Pro
forma financial information.
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Not
applicable.
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(c)
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Shell
company transactions.
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Not
applicable.
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(d)
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The
following exhibit is furnished as part of this Current Report
on Form
8-K.
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No.
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Description
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99.1
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Agreement
between Constellation Brands, Inc. and Stephen B. Millar dated
February
16, 2006.
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*
* * *
*
This
Current Report on Form 8-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, which could cause actual results to differ materially from those
set
forth in, or implied by, such forward-looking statements. All statements
other
than statements of historical facts included in this Current Report on
Form 8-K,
including without limitation statements regarding the Company’s restructuring
Plan and with respect to compensation expense, restructuring and other
charges,
are forward-looking statements. The Company’s actual costs of its restructuring
Plan may vary materially from its current estimates due to lower or higher
than
anticipated reductions in employee headcount or lesser or greater expenses
than
those anticipated. Also, in addition to the risks and uncertainties of
ordinary
business operations and conditions in the general economy and the markets
in
which the Company competes, the forward-looking statements of the Company
contained in this Current Report on Form 8-K are also subject to the
risks and
uncertainties described in the Company’s Annual Report on Form 10-K for the
fiscal year ended February 28, 2005, and other SEC filings. All forward-looking
statements speak only as of the date of this Current Report on Form 8-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.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
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CONSTELLATION
BRANDS, INC.
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||
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Date: February
23, 2006
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By:
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/s/
Thomas S. Summer
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Thomas
S. Summer, Executive Vice President
and
Chief Financial Officer
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INDEX
TO EXHIBITS
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Exhibit
Number
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Description
|
|
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(1)
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UNDERWRITING
AGREEMENT
|
|
|
Not
Applicable.
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||
|
(2)
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PLAN
OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION
|
|
|
Not
Applicable.
|
||
|
(3)
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ARTICLES
OF INCORPORATION AND BYLAWS
|
|
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Not
Applicable.
|
||
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(4)
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INSTRUMENTS
DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
|
|
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Not
Applicable.
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||
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(7)
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CORRESPONDENCE
FROM AN INDEPENDENT ACCOUNTANT REGARDING NON-RELIANCE ON A PREVIOUSLY
ISSUED AUDIT REPORT OR COMPLETED INTERIM REVIEW
|
|
|
Not
Applicable.
|
||
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(14)
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CODE
OF ETHICS
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|
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Not
Applicable.
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||
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(16)
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LETTER
RE CHANGE IN CERTIFYING ACCOUNTANT
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|
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Not
Applicable.
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||
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(17)
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CORRESPONDENCE
ON DEPARTURE OF DIRECTOR
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|
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Not
Applicable.
|
||
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(20)
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OTHER
DOCUMENTS OR STATEMENTS TO SECURITY HOLDERS
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|
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Not
Applicable.
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||
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(23)
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CONSENTS
OF EXPERTS AND COUNSEL
|
|
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Not
Applicable.
|
||
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(24)
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POWER
OF ATTORNEY
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|
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Not
Applicable.
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||
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(99)
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ADDITIONAL
EXHIBITS
|
|
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(99.1)
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Agreement
between Constellation Brands, Inc. and Stephen B. Millar dated
February
16, 2006.
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(100)
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XBRL-RELATED
DOCUMENTS
|
|
|
Not
Applicable.
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