UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2012
OR
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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
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
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Delaware | 16-0716709 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| 207 High Point Drive, Building 100, Victor, New York | 14564 | |
| (Address of principal executive offices) | (Zip Code) | |
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(585) 678-7100 |
(Registrant’s telephone number, including area code) |
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(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer x | | Accelerated filer ¨ |
| Non-accelerated filer ¨ | | Smaller reporting company ¨ |
| (Do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of September 30, 2012, is set forth below:
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Class | Number of Shares Outstanding |
Class A Common Stock, par value $.01 per share | 158,937,813 |
Class B Common Stock, par value $.01 per share | 23,525,235 |
Class 1 Common Stock, par value $.01 per share | 69 |
TABLE OF CONTENTS
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EX-31.1 | |
EX-31.2 | |
EX-32.1 | |
EX-32.2 | |
EX-101 INSTANCE DOCUMENT | |
EX-101 SCHEMA DOCUMENT | |
EX-101 CALCULATION LINKBASE DOCUMENT | |
EX-101 LABELS LINKBASE DOCUMENT | |
EX-101 PRESENTATION LINKBASE DOCUMENT | |
EX-101 DEFINITION LINKBASE DOCUMENT | |
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. For further information regarding such forward-looking statements, risks and uncertainties, please see “Information Regarding Forward-Looking Statements” under Part I – Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
PART I – FINANCIAL INFORMATION
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Item 1. | Financial Statements. |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
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| August 31, 2012 | | February 29, 2012 |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash investments | $ | 178.5 |
| | $ | 85.8 |
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Accounts receivable, net | 487.1 |
| | 437.6 |
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Inventories | 1,364.9 |
| | 1,374.5 |
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Prepaid expenses and other | 147.4 |
| | 136.4 |
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Total current assets | 2,177.9 |
| | 2,034.3 |
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PROPERTY, PLANT AND EQUIPMENT, net | 1,233.5 |
| | 1,255.8 |
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GOODWILL | 2,739.3 |
| | 2,632.9 |
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INTANGIBLE ASSETS, net | 878.2 |
| | 866.4 |
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RESTRICTED CASH | 650.0 |
| | — |
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OTHER ASSETS, net | 361.6 |
| | 320.5 |
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Total assets | $ | 8,040.5 |
| | $ | 7,109.9 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
CURRENT LIABILITIES: | | | |
Notes payable to banks | $ | 15.2 |
| | $ | 377.9 |
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Current maturities of long-term debt | 43.8 |
| | 330.2 |
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Accounts payable | 185.6 |
| | 130.5 |
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Accrued excise taxes | 27.7 |
| | 24.8 |
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Other accrued expenses and liabilities | 383.7 |
| | 336.2 |
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Total current liabilities | 656.0 |
| | 1,199.6 |
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LONG-TERM DEBT, less current maturities | 3,928.7 |
| | 2,421.4 |
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DEFERRED INCOME TAXES | 618.5 |
| | 608.7 |
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OTHER LIABILITIES | 219.2 |
| | 204.2 |
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COMMITMENTS AND CONTINGENCIES (NOTE 12) |
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STOCKHOLDERS’ EQUITY: | | | |
Class A Common Stock, $.01 par value- Authorized, 322,000,000 shares; Issued, 239,669,412 shares at August 31, 2012, and 233,751,797 shares at February 29, 2012 | 2.4 |
| | 2.3 |
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Class B Convertible Common Stock, $.01 par value- Authorized, 30,000,000 shares; Issued, 28,532,835 shares at August 31, 2012, and 28,583,916 shares at February 29, 2012 | 0.3 |
| | 0.3 |
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Additional paid-in capital | 1,832.6 |
| | 1,691.4 |
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Retained earnings | 2,303.9 |
| | 2,107.3 |
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Accumulated other comprehensive income | 157.7 |
| | 173.7 |
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| 4,296.9 |
| | 3,975.0 |
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Less: Treasury stock – | | | |
Class A Common Stock, 80,883,025 shares at August 31, 2012, and 63,015,441 shares at February 29, 2012, at cost | (1,676.6 | ) | | (1,296.8 | ) |
Class B Convertible Common Stock, 5,005,800 shares at August 31, 2012, and February 29, 2012, at cost | (2.2 | ) | | (2.2 | ) |
| (1,678.8 | ) | | (1,299.0 | ) |
Total stockholders’ equity | 2,618.1 |
| | 2,676.0 |
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Total liabilities and stockholders’ equity | $ | 8,040.5 |
| | $ | 7,109.9 |
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The accompanying notes are an integral part of these statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
(unaudited)
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| For the Six Months Ended August 31, | | For the Three Months Ended August 31, |
| 2012 | | 2011 | | 2012 | | 2011 |
SALES | $ | 1,523.0 |
| | $ | 1,481.1 |
| | $ | 797.7 |
| | $ | 770.4 |
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Less – excise taxes | (189.7 | ) | | (155.6 | ) | | (99.2 | ) | | (80.2 | ) |
Net sales | 1,333.3 |
| | 1,325.5 |
| | 698.5 |
| | 690.2 |
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COST OF PRODUCT SOLD | (797.6 | ) | | (791.5 | ) | | (413.4 | ) | | (407.2 | ) |
Gross profit | 535.7 |
| | 534.0 |
| | 285.1 |
| | 283.0 |
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | (298.3 | ) | | (276.4 | ) | | (154.3 | ) | | (138.2 | ) |
RESTRUCTURING CHARGES | (0.7 | ) | | (10.8 | ) | | (0.2 | ) | | 0.3 |
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Operating income | 236.7 |
| | 246.8 |
| | 130.6 |
| | 145.1 |
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EQUITY IN EARNINGS OF EQUITY METHOD INVESTEES | 131.1 |
| | 126.2 |
| | 70.5 |
| | 64.0 |
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INTEREST EXPENSE, net | (105.3 | ) | | (86.8 | ) | | (54.6 | ) | | (42.5 | ) |
LOSS ON WRITE-OFF OF FINANCING COSTS | (2.8 | ) | | — |
| | — |
| | — |
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Income before income taxes | 259.7 |
| | 286.2 |
| | 146.5 |
| | 166.6 |
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PROVISION FOR INCOME TAXES | (63.1 | ) | | (49.0 | ) | | (21.9 | ) | | (3.9 | ) |
NET INCOME | $ | 196.6 |
| | $ | 237.2 |
| | $ | 124.6 |
| | $ | 162.7 |
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COMPREHENSIVE INCOME | $ | 180.6 |
| | $ | 265.2 |
| | $ | 199.2 |
| | $ | 155.8 |
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SHARE DATA: | | | | | | | |
Earnings per common share: | | | | | | | |
Basic – Class A Common Stock | $ | 1.09 |
| | $ | 1.14 |
| | $ | 0.71 |
| | $ | 0.78 |
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Basic – Class B Convertible Common Stock | $ | 0.99 |
| | $ | 1.04 |
| | $ | 0.64 |
| | $ | 0.71 |
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Diluted – Class A Common Stock | $ | 1.05 |
| | $ | 1.11 |
| | $ | 0.67 |
| | $ | 0.76 |
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Diluted – Class B Convertible Common Stock | $ | 0.96 |
| | $ | 1.02 |
| | $ | 0.62 |
| | $ | 0.70 |
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Weighted average common shares outstanding: | | | | | | | |
Basic – Class A Common Stock | 158.527 |
| | 186.837 |
| | 154.794 |
| | 186.629 |
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Basic – Class B Convertible Common Stock | 23.545 |
| | 23.599 |
| | 23.536 |
| | 23.593 |
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Diluted – Class A Common Stock | 187.458 |
| | 214.406 |
| | 184.640 |
| | 213.645 |
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Diluted – Class B Convertible Common Stock | 23.545 |
| | 23.599 |
| | 23.536 |
| | 23.593 |
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The accompanying notes are an integral part of these statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
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| For the Six Months Ended August 31, |
| 2012 | | 2011 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 196.6 |
| | $ | 237.2 |
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Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation of property, plant and equipment | 52.4 |
| | 46.0 |
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Deferred tax provision | 31.9 |
| | 24.7 |
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Stock-based compensation expense | 21.4 |
| | 24.2 |
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Amortization of intangible and other assets | 4.8 |
| | 6.3 |
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Loss on extinguishment of debt | 2.8 |
| | — |
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Equity in earnings of equity method investees, net of distributed earnings | (0.6 | ) | | 10.0 |
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(Gain) loss on disposal of long-lived assets, net | (0.5 | ) | | 0.1 |
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Gain on business sold, net | — |
| | (0.8 | ) |
Change in operating assets and liabilities: | | | |
Accounts receivable, net | (51.1 | ) | | (84.5 | ) |
Inventories | 37.2 |
| | 118.7 |
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Prepaid expenses and other current assets | (1.0 | ) | | 7.7 |
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Accounts payable | 52.5 |
| | 12.8 |
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Accrued excise taxes | 2.9 |
| | 12.1 |
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Other accrued expenses and liabilities | 3.7 |
| | 83.0 |
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Other, net | 15.5 |
| | 19.9 |
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Total adjustments | 171.9 |
| | 280.2 |
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Net cash provided by operating activities | 368.5 |
| | 517.4 |
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CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchase of business, net of cash acquired | (159.7 | ) | | — |
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Purchases of property, plant and equipment | (35.6 | ) | | (39.2 | ) |
Payments related to sale of business | (0.3 | ) | | (28.8 | ) |
Proceeds from sales of assets | 7.9 |
| | 0.3 |
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Proceeds from notes receivable | 4.6 |
| | 1.0 |
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Other investing activities | (0.9 | ) | | (6.5 | ) |
Net cash used in investing activities | (184.0 | ) | | (73.2 | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Principal payments of long-term debt | (838.0 | ) | | (419.9 | ) |
Payment of restricted cash upon issuance of long-term debt | (650.0 | ) | | — |
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Purchases of treasury stock | (383.0 | ) | | (187.5 | ) |
Net (repayment of) proceeds from notes payable | (358.3 | ) | | 113.3 |
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Payment of financing costs of long-term debt | (34.1 | ) | | — |
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Payment of minimum tax withholdings on stock-based payment awards | (0.5 | ) | | (2.2 | ) |
Proceeds from issuance of long-term debt | 2,050.0 |
| | — |
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Proceeds from exercises of employee stock options | 110.5 |
| | 39.0 |
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Proceeds from excess tax benefits from stock-based payment awards | 11.4 |
| | 10.6 |
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Proceeds from employee stock purchases | 2.1 |
| | 2.4 |
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Net cash used in financing activities | (89.9 | ) | | (444.3 | ) |
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Effect of exchange rate changes on cash and cash investments | (1.9 | ) | | 0.9 |
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NET INCREASE IN CASH AND CASH INVESTMENTS | 92.7 |
| | 0.8 |
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CASH AND CASH INVESTMENTS, beginning of period | 85.8 |
| | 9.2 |
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CASH AND CASH INVESTMENTS, end of period | $ | 178.5 |
| | $ | 10.0 |
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SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: | | | |
Purchase of Business | | | |
Fair value of assets acquired, including cash acquired | $ | 159.7 |
| | $ | — |
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Liabilities assumed | — |
| | — |
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Net assets acquired | 159.7 |
| | — |
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Less – cash acquired | — |
| | — |
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Net cash paid for purchase of business | $ | 159.7 |
| | $ | — |
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Property, plant and equipment acquired under financing arrangements | $ | 8.3 |
| | $ | 15.0 |
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The accompanying notes are an integral part of these statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2012
(unaudited)
The consolidated financial statements included herein have been prepared by Constellation Brands, Inc. and its subsidiaries (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect, in the opinion of the Company, all adjustments necessary to present fairly the financial information for the Company. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2012. Results of operations for interim periods are not necessarily indicative of annual results.
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2. | RECENTLY ADOPTED ACCOUNTING GUIDANCE: |
Fair value measurements –
Effective March 1, 2012, the Company adopted the Financial Accounting Standards Board (“FASB”) amended guidance to achieve common fair value measurement and disclosure requirements under generally accepted accounting principles in the U.S. and International Financial Reporting Standards. This amended guidance provides clarification about the application of existing fair value measurement and disclosure requirements, and expands certain other disclosure requirements. The adoption of this amended guidance on March 1, 2012, did not have a material impact on the Company’s consolidated financial statements.
Presentation of comprehensive income –
Effective March 1, 2012, the Company adopted the FASB amended guidance requiring an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This amended guidance eliminates the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. In addition, this amended guidance requires retrospective application. In December 2011, the FASB issued additional guidance deferring the effective date of the June 2011 amended guidance related to the presentation of reclassification adjustments by component in both the statement where net income is presented and the statement where other comprehensive income is presented for further redeliberation. The adoption of this amended guidance on March 1, 2012, did not have a material impact on the Company’s consolidated financial statements.
Intangibles – goodwill and other –
Effective March 1, 2012, the Company adopted the FASB amended guidance for goodwill impairment testing. The amended guidance allows an entity to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test would be unnecessary. If an entity concludes otherwise, the entity would be required to complete the two-step impairment test by calculating the fair value of the reporting unit and then comparing the fair value with the carrying amount of the reporting unit. The adoption of this amended guidance on March 1, 2012, did not have a material impact on the Company’s consolidated financial statements.
Inventories are stated at the lower of cost (computed in accordance with the first-in, first-out method) or market. Elements of cost include materials, labor and overhead and consist of the following:
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| August 31, 2012 | | February 29, 2012 |
(in millions) | | | |
Raw materials and supplies | $ | 46.9 |
| | $ | 47.6 |
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In-process inventories | 973.0 |
| | 1,048.4 |
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Finished case goods | 345.0 |
| | 278.5 |
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| $ | 1,364.9 |
| | $ | 1,374.5 |
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4. DERIVATIVE INSTRUMENTS:
As a multinational company, the Company is exposed to market risk from changes in foreign currency exchange rates, diesel fuel prices 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, fuel pricing and interest rate market movements during that same period.
The Company enters into derivative instruments, primarily interest rate swaps, foreign currency forward and option contracts, and diesel fuel swaps, to manage interest rate, foreign currency and diesel fuel pricing risks. In accordance with the FASB guidance for derivatives and hedging, the Company recognizes all derivatives as either assets or liabilities on its consolidated balance sheet and measures those instruments at fair value (see Note 5). The fair values of the Company’s derivative instruments change with fluctuations in interest rates, currency rates and/or fuel prices 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, foreign currency and diesel fuel pricing risks, including prohibitions on derivative market-making or other speculative activities.
To qualify for hedge accounting treatment under the FASB guidance for derivatives and hedging, the details of the hedging relationship must be formally documented at inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risk that is being hedged, the derivative instrument, how effectiveness is being assessed and how ineffectiveness will be measured. The derivative must be highly effective in offsetting either changes in the fair value or cash flows, as appropriate, of the risk being hedged. Effectiveness is evaluated on a retrospective and prospective basis based on quantitative measures.
Certain of the Company’s derivative instruments do not qualify for hedge accounting treatment under the FASB guidance for derivatives and hedging; for others, the Company chooses not to maintain the required documentation to apply hedge accounting treatment. These undesignated instruments are primarily used to economically hedge the Company’s exposure to fluctuations in the value of foreign currency denominated receivables and payables; foreign currency investments, primarily consisting of loans to subsidiaries; and cash flows related primarily to repatriation of those loans or investments. Foreign currency contracts, generally less than 12 months in duration, are used to hedge some of these risks. The Company’s derivative policy permits the use of undesignated derivatives when the derivative instrument is settled within the fiscal quarter or offsets a recognized balance sheet exposure. In these circumstances, the mark to fair value is reported currently through earnings in selling, general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income. As of August 31, 2012, and February 29, 2012, the Company had undesignated foreign currency contracts outstanding with a notional value of $273.2 million and $148.6 million, respectively. In addition, the Company had offsetting undesignated interest rate swap agreements with an absolute notional amount of $1.0 billion outstanding
as of August 31, 2012 (see Note 10). The Company had no undesignated interest rate swap agreements outstanding as of February 29, 2012.
Furthermore, when the Company determines that a derivative instrument which qualified for hedge accounting treatment has ceased to be highly effective as a hedge, the Company discontinues hedge accounting prospectively. The Company also discontinues hedge accounting prospectively when (i) a derivative expires or is sold, terminated, or exercised; (ii) it is no longer probable that the forecasted transaction will occur; or (iii) management determines that designating the derivative as a hedging instrument is no longer appropriate.
Cash flow hedges:
The Company is exposed to foreign denominated cash flow fluctuations in connection with third party and intercompany sales and purchases and, historically, third party financing arrangements. The Company primarily uses foreign currency forward and option contracts to hedge certain of these risks. In addition, the Company utilizes interest rate swaps to manage its exposure to changes in interest rates and diesel fuel swaps to manage its exposure to changes in diesel fuel prices. Derivatives managing the Company’s cash flow exposures mature generally within three years or less, with a maximum maturity of five years. Throughout the term of the designated cash flow hedge relationship, but at least quarterly, a retrospective evaluation and prospective assessment of hedge effectiveness is performed. All components of the Company’s derivative instruments’ gains or losses are included in the assessment of hedge effectiveness. In the event the relationship is no longer effective, the Company recognizes the change in the fair value of the hedging derivative instrument from the date the hedging derivative instrument became no longer effective immediately on the Company’s Consolidated Statements of Comprehensive Income. In conjunction with its effectiveness testing, the Company also evaluates ineffectiveness associated with the hedge relationship. Resulting ineffectiveness, if any, is recognized immediately on the Company’s Consolidated Statements of Comprehensive Income in selling, general and administrative expenses.
The Company records the fair value of its foreign currency contracts, interest rate swap contracts and diesel fuel swap contracts qualifying for cash flow hedge accounting treatment on its consolidated balance sheet with the effective portion of the related gain or loss on those contracts deferred in stockholders’ equity (as a component of AOCI (as defined in Note 15)). These deferred gains or losses are recognized on the Company’s Consolidated Statements of Comprehensive 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 highly effective in offsetting the change in the value of the hedged item, the hedging relationship is terminated and the amount related to the ineffective portion of such derivative instrument is immediately recognized on the Company’s Consolidated Statements of Comprehensive Income in selling, general and administrative expenses.
As of August 31, 2012, and February 29, 2012, the Company had cash flow designated foreign currency contracts outstanding with a notional value of $199.3 million and $353.7 million, respectively. In addition, as of August 31, 2012, and February 29, 2012, the Company had cash flow designated interest rate swap agreements outstanding with a notional value of $500.0 million (see Note 10). Lastly, as of August 31, 2012, the Company had cash flow designated diesel fuel swap contracts outstanding with a notional value of $13.9 million. The Company had no cash flow designated diesel fuel swap contracts outstanding as of February 29, 2012. The Company expects $6.8 million of net losses, net of income tax effect, to be reclassified from AOCI to earnings within the next 12 months.
Fair value hedges:
Fair value hedges are hedges that offset the risk of changes in the fair values of recorded assets and liabilities, and firm commitments. The Company records changes in fair value of derivative instruments, which are designated and deemed effective as fair value hedges, in earnings offset by the corresponding changes in the fair value of the hedged items. The Company did not designate any derivative instruments as fair value hedges for the six months and three months ended August 31, 2012, and August 31, 2011.
Net investment hedges:
Net investment hedges are hedges that use derivative instruments or non-derivative instruments to hedge the foreign currency exposure of a net investment in a foreign operation. Historically, the Company has managed currency exposures resulting from certain of its net investments in foreign subsidiaries principally with debt denominated in the related foreign currency. Accordingly, gains and losses on these instruments were recorded as foreign currency translation adjustments in AOCI. The Company did not designate any derivative or non-derivative instruments as net investment hedges for the six months and three months ended August 31, 2012, and August 31, 2011.
Fair values of derivative instruments:
The fair value and location of the Company’s derivative instruments on its Consolidated Balance Sheets are as follows:
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Balance Sheet Location | | August 31, 2012 | | February 29, 2012 |
(in millions) | | | | |
Derivative instruments designated as hedging instruments | | | | |
Foreign currency contracts: | | | | |
Prepaid expenses and other | | $ | 0.9 |
| | $ | 7.9 |
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Other accrued expenses and liabilities | | $ | 1.4 |
| | $ | 2.7 |
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Other assets, net | | $ | 0.7 |
| | $ | 3.6 |
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Other liabilities | | $ | 0.6 |
| | $ | 2.2 |
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Interest rate swap contracts: | | | | |
Other accrued expenses and liabilities | | $ | 3.5 |
| | $ | 15.0 |
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Other liabilities | | $ | 4.4 |
| | $ | 30.7 |
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Diesel fuel swap contracts: | | | | |
Prepaid expenses and other | | $ | 1.1 |
| | $ | — |
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Other assets, net | | $ | 0.3 |
| | $ | — |
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Derivative instruments not designated as hedging instruments | | | | |
Foreign currency contracts: | | | | |
Prepaid expenses and other | | $ | 1.6 |
| | $ | 1.4 |
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Other accrued expenses and liabilities | | $ | 1.1 |
| | $ | 1.1 |
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Other assets, net | | $ | — |
| | $ | 0.3 |
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Other liabilities | | $ | — |
| | $ | 0.4 |
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Interest rate swap contracts: | | | | |
Prepaid expenses and other | | $ | 3.5 |
| | $ | — |
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Other accrued expenses and liabilities | | $ | 15.8 |
| | $ | — |
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Other assets, net | | $ | 4.6 |
| | $ | — |
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Other liabilities | | $ | 33.8 |
| | $ | — |
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Diesel fuel swap contracts: | | | | |
Prepaid expenses and other | | $ | 0.1 |
| | $ | — |
|
The effect of the Company’s derivative instruments designated in cash flow hedging relationships on its Consolidated Statements of Comprehensive Income, as well as its Other Comprehensive Income (“OCI”), net of income tax effect, is as follows:
|
| | | | | | | | | | |
Derivative Instruments in Designated Cash Flow Hedging Relationships | | Net (Loss) Gain Recognized in OCI (Effective portion) | | Location of Net Gain (Loss) Reclassified from AOCI to Income (Effective portion) | | Net Gain (Loss) Reclassified from AOCI to Income (Effective portion) |
(in millions) | | | | | | |
For the Six Months Ended August 31, 2012 | | | | | | |
Foreign currency contracts | | $ | (1.0 | ) | | Sales | | $ | 1.7 |
|
Foreign currency contracts | | (1.7 | ) | | Cost of product sold | | 1.5 |
|
Diesel fuel swap contracts | | 0.9 |
| | Cost of product sold | | — |
|
Interest rate swap contracts | | (6.2 | ) | | Interest expense, net | | (4.1 | ) |
Total | | $ | (8.0 | ) | | Total | | $ | (0.9 | ) |
| | | | | | |
For the Six Months Ended August 31, 2011 | | | | | | |
Foreign currency contracts | | $ | 7.0 |
| | Sales | | $ | 2.7 |
|
Foreign currency contracts | | 6.2 |
| | Cost of product sold | | 0.6 |
|
Interest rate swap contracts | | (22.6 | ) | | Interest expense, net | | — |
|
Total | | $ | (9.4 | ) | | Total | | $ | 3.3 |
|
| | | | | | |
For the Three Months Ended August 31, 2012 | | | | | | |
Foreign currency contracts | | $ | (1.4 | ) | | Sales | | $ | 0.5 |
|
Foreign currency contracts | | 2.1 |
| | Cost of product sold | | 0.8 |
|
Diesel fuel swap contracts | | 0.9 |
| | Cost of product sold | | — |
|
Interest rate swap contracts | | (3.5 | ) | | Interest expense, net | | (2.0 | ) |
Total | | $ | (1.9 | ) | | Total | | $ | (0.7 | ) |
| | | | | | |
For the Three Months Ended August 31, 2011 | | | | | | |
Foreign currency contracts | | $ | 3.3 |
| | Sales | | $ | 1.7 |
|
Foreign currency contracts | | 2.3 |
| | Cost of product sold | | 0.6 |
|
Interest rate swap contracts | | (13.0 | ) | | Interest expense, net | | — |
|
Total | | $ | (7.4 | ) | | Total | | $ | 2.3 |
|
|
| | | | | | |
Derivative Instruments in Designated Cash Flow Hedging Relationships | | Location of Net Gain Recognized in Income (Ineffective portion) | | Net Gain Recognized in Income (Ineffective portion) |
(in millions) | | | | |
For the Six Months Ended August 31, 2012 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | 0.2 |
|
| | | | |
For the Six Months Ended August 31, 2011 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | 0.8 |
|
| | | | |
For the Three Months Ended August 31, 2012 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | 0.3 |
|
| | | | |
For the Three Months Ended August 31, 2011 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | 0.2 |
|
The effect of the Company’s undesignated derivative instruments on its Consolidated Statements of Comprehensive Income is as follows:
|
| | | | | | |
Derivative Instruments Not Designated as Hedging Instruments | | Location of Net (Loss) Gain Recognized in Income | | Net (Loss) Gain Recognized in Income |
(in millions) | | | | |
For the Six Months Ended August 31, 2012 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | (2.2 | ) |
Interest rate swap contracts | | Interest expense, net | | (0.4 | ) |
| | | | $ | (2.6 | ) |
| | | | |
For the Six Months Ended August 31, 2011 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | 4.8 |
|
| | | | |
For the Three Months Ended August 31, 2012 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | 2.1 |
|
Interest rate swap contracts | | Interest expense, net | | (0.3 | ) |
| | | | $ | 1.8 |
|
| | | | |
For the Three Months Ended August 31, 2011 | | | | |
Foreign currency contracts | | Selling, general and administrative expenses | | $ | 1.7 |
|
Credit risk:
The Company enters into master agreements with its bank derivative trading counterparties that allow netting of certain derivative positions in order to manage credit risk. The Company’s derivative instruments are not subject to credit rating contingencies or collateral requirements. As of August 31, 2012, the fair value of derivative instruments in a net liability position due to counterparties was $51.5 million. If the Company were required to settle the net liability position under these derivative instruments on August 31, 2012, the Company would have had sufficient availability under its revolving credit facility to satisfy this obligation.
Counterparty credit risk:
Counterparty credit risk relates to losses the Company could incur if a counterparty defaults on a derivative contract. The Company manages exposure to counterparty credit risk by requiring specified minimum credit standards and diversification of counterparties. The Company enters into master agreements with its bank derivative trading counterparties that allow netting of certain derivative positions in order to manage counterparty credit risk. As of August 31, 2012, all of the Company’s counterparty exposures are with financial institutions which have investment grade ratings. The Company has procedures to monitor counterparty credit risk for both current and future potential credit exposures. As of August 31, 2012, the fair value of derivative instruments in a net receivable position due from counterparties was $3.7 million.
5. 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:
|
| | | | | | | | | | | | | | | |
| August 31, 2012 | | February 29, 2012 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
(in millions) | | | | | | | |
Assets: | | | | | | | |
Cash and cash investments | $ | 178.5 |
| | $ | 178.5 |
| | $ | 85.8 |
| | $ | 85.8 |
|
Accounts receivable | $ | 487.1 |
| | $ | 487.1 |
| | $ | 436.0 |
| | $ | 436.0 |
|
Restricted cash | $ | 650.0 |
| | $ | 650.0 |
| | $ | — |
| | $ | — |
|
Available-for-sale debt securities | $ | 30.9 |
| | $ | 30.9 |
| | $ | 28.5 |
| | $ | 28.5 |
|
Foreign currency contracts | $ | 3.2 |
| | $ | 3.2 |
| | $ | 13.2 |
| | $ | 13.2 |
|
Interest rate swap contracts | $ | 8.1 |
| | $ | 8.1 |
| | $ | — |
| | $ | — |
|
Diesel fuel swap contracts | $ | 1.5 |
| | $ | 1.5 |
| | $ | — |
| | $ | — |
|
Notes receivable | $ | — |
| | $ | — |
| | $ | 1.6 |
| | $ | 1.6 |
|
| | | | | | | |
Liabilities: | | | | | | | |
Notes payable to banks | $ | 15.2 |
| | $ | 15.2 |
| | $ | 377.9 |
| | $ | 377.6 |
|
Accounts payable | $ | 185.6 |
| | $ | 185.6 |
| | $ | 130.5 |
| | $ | 130.5 |
|
Long-term debt, including current portion | $ | 3,972.5 |
| | $ | 4,318.5 |
| | $ | 2,751.6 |
| | $ | 3,007.9 |
|
Foreign currency contracts | $ | 3.1 |
| | $ | 3.1 |
| | $ | 6.4 |
| | $ | 6.4 |
|
Interest rate swap contracts | $ | 57.5 |
| | $ | 57.5 |
| | $ | 45.7 |
| | $ | 45.7 |
|
The following methods and assumptions are used to estimate the fair value of each class of financial instruments:
Cash and cash investments, accounts receivable, accounts payable and restricted cash: The carrying amounts approximate fair value due to the short maturity of these instruments (Level 1 fair value measurement).
Available-for-sale (“AFS”) debt securities: The fair value is estimated by discounting cash flows using market-based inputs (see “Fair value measurements” below) (Level 3 fair value measurement).
Foreign currency contracts: The fair value is estimated using market-based inputs, obtained from independent pricing services, into valuation models (see “Fair value measurements” below) (Level 2 fair value measurement).
Interest rate swap contracts: The fair value is estimated based on quoted market prices from respective counterparties (see “Fair value measurements” below) (Level 2 fair value measurement).
Diesel fuel swap contracts: The fair value is estimated based on quoted market prices from respective counterparties (see “Fair value measurements” below) (Level 2 fair value measurement).
Notes receivable: These instruments are fixed interest rate bearing notes. The fair value is estimated by discounting cash flows using market-based inputs, including counterparty credit risk (Level 3 fair value measurement).
Notes payable to banks: The revolving credit facility under the Company’s senior credit facility is a variable interest rate bearing note which includes a fixed margin which is adjustable based upon the Company’s debt ratio (as defined in the Company’s senior credit facility). The fair value of the revolving credit facility is estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions. The remaining instruments are variable interest rate bearing notes for which the carrying value approximates the fair value (Level 2 fair value measurement).
Long-term debt: The term loans under the Company’s senior credit facility are variable interest rate bearing notes which include a fixed margin which is adjustable based upon the Company’s debt ratio. The fair value of the term loans is estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions. The fair value of the remaining long-term debt, which is all fixed rate, is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).
Fair value measurements –
The FASB guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and requires disclosures about fair value measurements. This guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. The fair value measurement guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as interest rates and yield curves that are observable for the asset and liability, either directly or indirectly; and Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis.
|
| | | | | | | | | | | | | | | |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
(in millions) | | | | | | | |
August 31, 2012 | | | | | | | |
Assets: | | | | | | | |
AFS debt securities | $ | — |
| | $ | — |
| | $ | 30.9 |
| | $ | 30.9 |
|
Foreign currency contracts | $ | — |
| | $ | 3.2 |
| | $ | — |
| | $ | 3.2 |
|
Interest rate swap contracts | $ | — |
| | $ | 8.1 |
| | $ | — |
| | $ | 8.1 |
|
Diesel fuel swap contracts | $ | — |
| | $ | 1.5 |
| | $ | — |
| | $ | 1.5 |
|
Liabilities: | | | | | | | |
Foreign currency contracts | $ | — |
| | $ | 3.1 |
| | $ | — |
| | $ | 3.1 |
|
Interest rate swap contracts | $ | — |
| | $ | 57.5 |
| | $ | — |
| | $ | 57.5 |
|
| | | | | | | |
February 29, 2012 | | | | | | | |
Assets: | | | | | | | |
AFS debt securities | $ | — |
| | $ | — |
| | $ | 28.5 |
| | $ | 28.5 |
|
Foreign currency contracts | $ | — |
| | $ | 13.2 |
| | $ | — |
| | $ | 13.2 |
|
Liabilities: | | | | | | | |
Foreign currency contracts | $ | — |
| | $ | 6.4 |
| | $ | — |
| | $ | 6.4 |
|
Interest rate swap contracts | $ | — |
| | $ | 45.7 |
| | $ | — |
| | $ | 45.7 |
|
The Company’s foreign currency contracts consist of foreign currency forward and option contracts which are valued using market-based inputs, obtained from independent pricing services, into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, interest-rate yield curves and currency volatilities. Interest rate swap fair values are based on quotes from respective counterparties. Quotes are corroborated by the Company using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services. Diesel fuel swap fair values are based on quotes from respective counterparties. Quotes are corroborated by the Company using market data. AFS debt securities are valued using market-based inputs into discounted cash flow models.
The following table represents a reconciliation of the changes in fair value of the Company’s financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
|
| | | | | | | |
| August 31, 2012 | | August 31, 2011 |
(in millions) | | | |
AFS Debt Securities | | | |
Balance as of March 1 | $ | 28.5 |
| | $ | 40.8 |
|
Total net gains (losses): | | | |
Included in earnings (interest expense, net) | 2.4 |
| | 3.1 |
|
Included in other comprehensive income (net unrealized losses on AFS debt securities) | — |
| | (0.2 | ) |
Total net gains | 2.4 |
| | 2.9 |
|
Balance as of the end of the period | $ | 30.9 |
| | $ | 43.7 |
|
The fair value of the Level 3 AFS debt securities is based upon market-based inputs into discounted cash flow models that use both observable and unobservable inputs. The significant observable inputs used in the fair value measurement of the AFS debt securities are the Australian risk-free interest rate and the global high yield “B” rated option adjusted spread. The significant unobservable input used in the fair value measurement of the AFS debt securities is the internally reported results of operations of the underlying investment. A significant change in this unobservable input could result in a change in the fair value measurement of the AFS debt securities.
6. GOODWILL:
The changes in the carrying amount of goodwill are as follows:
|
| | | | | | | | | | | | | | | |
| Constellation Wines and Spirits | | Crown Imports LLC | | Consolidations and Eliminations | | Consolidated |
(in millions) | | | | | | | |
Balance, February 28, 2011 | | | | | | | |
Goodwill | $ | 2,619.8 |
| | $ | 13.0 |
| | $ | (13.0 | ) | | $ | 2,619.8 |
|
Accumulated impairment losses | — |
| | — |
| | — |
| | — |
|
| 2,619.8 |
| | 13.0 |
| | (13.0 | ) | | 2,619.8 |
|
Purchase accounting allocations | 9.3 |
| | — |
| | — |
| | 9.3 |
|
Foreign currency translation adjustments | 3.8 |
| | — |
| | — |
| | 3.8 |
|
Balance, February 29, 2012 | | | | | | | |
Goodwill | 2,632.9 |
| | 13.0 |
| | (13.0 | ) | | 2,632.9 |
|
Accumulated impairment losses | — |
| | — |
| | — |
| | — |
|
| 2,632.9 |
| | 13.0 |
| | (13.0 | ) | | 2,632.9 |
|
Purchase accounting allocations | 110.0 |
| | — |
| | — |
| | 110.0 |
|
Foreign currency translation adjustments | (3.6 | ) | | — |
| | — |
| | (3.6 | ) |
Balance, August 31, 2012 | | | | | | | |
Goodwill | 2,739.3 |
| | 13.0 |
| | (13.0 | ) | | 2,739.3 |
|
Accumulated impairment losses | — |
| | — |
| | — |
| | — |
|
| $ | 2,739.3 |
| | $ | 13.0 |
| | $ | (13.0 | ) | | $ | 2,739.3 |
|
Ruffino –
For the year ended February 29, 2012, purchase accounting allocations of $9.3 million in the Constellation Wines and Spirits segment (formerly known as the Constellation Wines North America segment) consist of purchase accounting allocations associated with the acquisition of Ruffino S.r.l. (“Ruffino”) (see Note 9).
Mark West –
For the six months ended August 31, 2012, purchase accounting allocations of $110.0 million in the Constellation Wines and Spirits segment consist primarily of purchase accounting allocations associated with the acquisition of Mark West (as defined below). In July 2012, the Company acquired Mark West for $159.7 million, subject to post-closing adjustments. The transaction primarily includes the acquisition of the Mark West trademark, related inventories and certain grape supply contracts (“Mark West”). The purchase price was financed with revolver borrowings under the May 2012 Credit Agreement (as defined in Note 10). In accordance with the acquisition method of accounting, the identifiable assets acquired and the liabilities assumed have been measured at their acquisition-date fair values. The acquisition of Mark West was not material for purposes of supplemental disclosure per the FASB guidance on business combinations. The results of operations of Mark West are reported in the Constellation Wines and Spirits segment and are included in the consolidated results of operations of the Company from the date of acquisition.
7. INTANGIBLE ASSETS:
The major components of intangible assets are as follows:
|
| | | | | | | | | | | | | | | |
| August 31, 2012 | | February 29, 2012 |
| Gross Carrying Amount | | Net Carrying Amount | | Gross Carrying Amount | | Net Carrying Amount |
(in millions) | | | | | | | |
Amortizable intangible assets: | | | | | | | |
Customer relationships | $ | 83.7 |
| | $ | 57.6 |
| | $ | 82.8 |
| | $ | 59.1 |
|
Other | 8.0 |
| | 3.5 |
| | 7.0 |
| | 3.7 |
|
Total | $ | 91.7 |
| | 61.1 |
| | $ | 89.8 |
| | 62.8 |
|
| | | | | | | |
Nonamortizable intangible assets: | | | | | | | |
Trademarks | | | 811.5 |
| | | | 798.0 |
|
Other | | | 5.6 |
| | | | 5.6 |
|
Total | | | 817.1 |
| | | | 803.6 |
|
Total intangible assets, net | | | $ | 878.2 |
| | | | $ | 866.4 |
|
The Company did not incur costs to renew or extend the term of acquired intangible assets during the six months and three months ended August 31, 2012, and August 31, 2011. The difference between the gross carrying amount and net carrying amount for each item presented is attributable to accumulated amortization. Amortization expense for intangible assets was $3.6 million and $2.5 million for the six months ended August 31, 2012, and August 31, 2011, respectively, and $1.8 million and $1.3 million for the three months ended August 31, 2012, and August 31, 2011, respectively. Estimated amortization expense for the remaining six months of fiscal 2013 and for each of the five succeeding fiscal years and thereafter is as follows:
|
| | | |
(in millions) | |
2013 | $ | 3.6 |
|
2014 | $ | 6.0 |
|
2015 | $ | 5.1 |
|
2016 | $ | 5.1 |
|
2017 | $ | 4.8 |
|
2018 | $ | 4.7 |
|
Thereafter | $ | 31.8 |
|
8. RESTRICTED CASH:
In connection with the issuance of the August 2012 Senior Notes (as defined in Note 10), on August 14, 2012, the Company and Manufacturers and Traders Trust Company, as Trustee, escrow agent, and securities intermediary, entered into an agreement (the “Escrow Agreement”), pursuant to which an amount equal to 100% of the principal amount of the August 2012 Senior Notes (collectively, with any other property from time to time held by the escrow agent, the “Escrowed Property”) was placed into an escrow account and will be released to the Company upon the closing of the Crown Acquisition (as defined below). The restricted cash consists of highly liquid investments with an original maturity when purchased of 30 days or less. Income from these investments is paid into the escrow account and is subject to the terms of the Escrow Agreement. As of August 31, 2012, the Company had $650.0 million of restricted cash – noncurrent on its Consolidated Balance Sheets. In the event the Crown Acquisition is not consummated, this cash would be used to redeem the August 2012 Senior Notes (see Note 10). The Company had no restricted cash as of February 29, 2012.
Pending acquisition of Crown Imports –
In June 2012, the Company signed a definitive agreement to acquire the remaining 50% equity interest in Crown Imports (as defined in Note 9) for approximately $1.85 billion (the “Crown Acquisition”). In August 2012, the Company entered into financing arrangements to fund the Crown Acquisition consisting of a $575.0 million delayed draw term loan facility under the Company’s 2012 Credit Agreement (as defined in Note 10) and the August 2012 Senior Notes. The Company expects the remaining financing for the Crown Acquisition to consist of revolver borrowings under the Company’s 2012 Credit Agreement, together with available cash. The Company also has a fully committed bridge facility through December 30, 2013, upon which it could draw to fund all or a portion of the Crown Acquisition if any of its expected financing is unavailable. The Company currently expects to complete the Crown Acquisition in the first quarter of calendar 2013, subject to the satisfaction of certain closing conditions, including the receipt of necessary regulatory approvals and the consummation of certain transactions between Anheuser-Busch InBev SA/NV and Modelo (as defined in Note 9) and certain of its affiliates. The Company cannot guarantee that the Crown Acquisition will be completed upon the agreed upon terms, or at all. The results of operations of Crown Imports will be reported in the Crown Imports segment and will be included in the consolidated results of operations of the Company from the date of acquisition. The Crown Acquisition is expected to be significant and the Company expects it to have a material impact on the Company’s future results of operations, financial position and cash flows.
9. INVESTMENTS:
Investments in equity method investees –
Crown Imports:
Constellation Beers Ltd. (“Constellation Beers”), an indirect wholly-owned subsidiary of the Company, and Diblo, S.A. de C.V. (“Diblo”), an entity owned 76.75% by Grupo Modelo, S.A.B. de C.V. (“Modelo”) and 23.25% by Anheuser-Busch Companies, Inc., each have, directly or indirectly, equal interests in a joint venture, Crown Imports LLC (“Crown Imports”). Crown Imports has the exclusive right to import, market and sell primarily Modelo’s Mexican beer portfolio (the “Modelo Brands”) in the U.S. and Guam.
The Company accounts for its investment in Crown Imports under the equity method. Accordingly, the results of operations of Crown Imports are included in equity in earnings of equity method investees on the Company’s Consolidated Statements of Comprehensive Income. As of August 31, 2012, and February 29, 2012, the Company’s investment in Crown Imports was $179.1 million and $176.4 million, respectively. As of August 31, 2012, the carrying amount of the investment is greater than the Company’s equity in the underlying assets of Crown Imports by $13.6 million due to the difference in the carrying amounts of the indefinite lived intangible assets contributed to Crown Imports by each party. As of February 29, 2012, the carrying amount of the investment is greater than the Company’s equity in the underlying assets of Crown Imports by $26.4 million due to the difference in the carrying amounts of the indefinite lived intangible assets contributed to Crown Imports by each party and timing of receipt of certain cash distributions from Crown Imports. The Company received $130.2 million and $134.5 million of cash distributions from Crown Imports for the six months ended August 31, 2012, and August 31, 2011, respectively, all of which represent distributions of earnings.
The following table presents summarized financial information for the Company’s Crown Imports equity method investment. The amounts shown represent 100% of this equity method investment’s results of operations.
|
| | | | | | | | | | | | | | | |
| For the Six Months Ended August 31, | | For the Three Months Ended August 31, |
| 2012 | | 2011 | | 2012 | | 2011 |
(in millions) | | | | | | | |
Net sales | $ | 1,512.5 |
| | $ | 1,404.5 |
| | $ | 788.4 |
| | $ | 727.0 |
|
Gross profit | $ | 436.8 |
| | $ | 409.9 |
| | $ | 225.6 |
| | $ | 210.3 |
|
Income from continuing operations | $ | 266.0 |
| | $ | 245.0 |
| | $ | 143.2 |
| | $ | 125.4 |
|
Net income | $ | 266.0 |
| | $ | 245.0 |
| | $ | 143.2 |
| | $ | 125.4 |
|
Ruffino:
Prior to the acquisition of Ruffino, the well-known Italian fine wine company, on October 5, 2011 (as further discussed below), the Company had a 49.9% interest in Ruffino. The Company did not have a controlling interest in Ruffino or exert any managerial control and the Company accounted for its investment in Ruffino under the equity method. Accordingly, the results of operations of Ruffino were included in equity in earnings of equity method investees on the Company’s Consolidated Statements of Comprehensive Income through October 5, 2011. In addition, prior to October 5, 2011, the Company’s Constellation Wines and Spirits segment distributed Ruffino’s products primarily in the U.S. Amounts purchased from Ruffino under this arrangement for the six months and three months ended August 31, 2011, were not material. As of August 31, 2011, amounts payable to Ruffino were not material.
On October 5, 2011, the Company acquired the entire remaining 50.1% interest in Ruffino for €50.3 million ($68.6 million). As a result of this acquisition, the Company assumed indebtedness of Ruffino, net of cash acquired, of €54.2 million ($73.1 million). The purchase price was financed with revolver borrowings under the Company’s then existing senior credit facility. In accordance with the acquisition method of accounting, the identifiable assets acquired and the liabilities assumed have been measured at their acquisition-date fair values. The acquisition of Ruffino was not material for purposes of supplemental disclosure per the FASB guidance on business
combinations. The results of operations of the Ruffino business are reported in the Company’s Constellation Wines and Spirits segment and are included in the consolidated results of operations of the Company from the date of acquisition.
Investment in Accolade –
The Company retained a less than 20% interest in Accolade, its previously owned Australian and U.K. business divested in January 2011, which consists of equity securities and AFS debt securities. The investment in the equity securities is accounted for under the cost method. Accordingly, the Company recognizes earnings only upon the receipt of a dividend from Accolade. Dividends received in excess of net accumulated earnings since the date of investment are considered a return of investment and are recorded as a reduction of the cost of the investment. No dividends were received for the six months and three months ended August 31, 2012, and August 31, 2011. The AFS debt securities are measured at fair value on a recurring basis with unrealized holding gains and losses, including foreign currency gains and losses, reported in AOCI until realized (see Note 15). Interest income is recognized based on the interest rate implicit in the AFS debt securities’ fair value and is reported in interest expense, net, on the Company’s Consolidated Statements of Comprehensive Income. Interest income of $2.4 million and $3.1 million was recognized in connection with the AFS debt securities for the six months ended August 31, 2012, and August 31, 2011, respectively. Interest income of $1.2 million and $1.6 million was recognized in connection with the AFS debt securities for the three months ended August 31, 2012, and August 31, 2011, respectively. The AFS debt securities contractually mature in January 2023 and can be settled, at the option of the issuer, in cash, equity shares of the issuer, or a combination thereof.
The Company is party to several agreements with Accolade, including distribution agreements under which the Company’s Constellation Wines and Spirits segment distributes Accolade’s products primarily in the U.S. and Canada, and Accolade distributes Constellation Wines and Spirits’ products primarily in Australia, the U.K., and Mainland Europe; certain bulk wine supply agreements; and certain bottling agreements. The following table presents a summary of amounts recognized under these arrangements. As of August 31, 2012, and February 29, 2012, amounts receivable from or payable to Accolade under these arrangements were not material. Effective October 1, 2012, the Company no longer distributes Accolade’s products in the U.S.
|
| | | | | | | | | | | | | | | |
| For the Six Months Ended August 31, | | For the Three Months Ended August 31, |
| 2012 | | 2011 | | 2012 | | 2011 |
(in millions) | | | | | | | |
Amounts sold to or related to services performed for Accolade | $ | 48.5 |
| | $ | 49.6 |
| | $ | 24.0 |
| | $ | 22.6 |
|
| | | | | | | |
Amounts purchased from or related to services performed by Accolade | $ | 7.8 |
| | $ | 8.0 |
| | $ | 3.8 |
| | $ | 4.7 |
|
10. BORROWINGS:
Borrowings consist of the following:
|
| | | | | | | | | | | | | | | |
| August 31, 2012 | | February 29, 2012 |
| Current | | Long-term | | Total | | Total |
(in millions) | | | | | | | |
Notes Payable to Banks | | | | | | | |
Senior Credit Facility – | | | | | | | |
Revolving Credit Loans | $ | — |
| | $ | — |
| | $ | — |
| | $ | 298.0 |
|
Other | 15.2 |
| | — |
| | 15.2 |
| | 79.9 |
|
| $ | 15.2 |
| | $ | — |
| | $ | 15.2 |
| | $ | 377.9 |
|
| | | | | | | |
Long-term Debt | | | | | | | |
Senior Credit Facility – Term Loans | $ | 30.0 |
| | $ | 770.0 |
| | $ | 800.0 |
| | $ | 826.6 |
|
Senior Notes | — |
| | 3,145.4 |
| | 3,145.4 |
| | 1,894.8 |
|
Other Long-term Debt | 13.8 |
| | 13.3 |
| | 27.1 |
| | 30.2 |
|
| $ | 43.8 |
| | $ | 3,928.7 |
| | $ | 3,972.5 |
| | $ | 2,751.6 |
|
Senior credit facility –
On May 3, 2012 (the “Closing Date”), the Company, Bank of America, N.A., as administrative agent, and certain other lenders (all such parties other than the Company are collectively referred to as the “Lenders”) entered into a new Credit Agreement (the “May 2012 Credit Agreement”). On August 8, 2012, the May 2012 Credit Agreement was amended and restated (the “August 2012 Restatement”). The May 2012 Credit Agreement together with the August 2012 Restatement is referred to as the “2012 Credit Agreement.” The 2012 Credit Agreement provides for aggregate credit facilities of $2,225.0 million, consisting of a $550.0 million term loan facility maturing on May 3, 2017 (the “Term A Facility”), a $250.0 million term loan facility maturing on May 3, 2019 (the “Term A-1 Facility”), a $575.0 million delayed draw term loan facility maturing on August 8, 2017 (the “Term A-2 Facility”), and an $850.0 million revolving credit facility (including a sub-facility for letters of credit of up to $200.0 million) which terminates on May 3, 2017 (the “Revolving Credit Facility”). The obligation of the relevant Lenders to make loans pursuant to the Term A-2 Facility (the “Term A-2 Loans”) terminates no later than December 30, 2013, and is subject to limited conditions, including, but not limited to, the Crown Acquisition having closed (or closing concurrently with the making of the Term A-2 Loans, the “Term A-2 Closing Date”). The 2012 Credit Agreement also permits the Company from time to time after the Closing Date to elect to increase the Lenders’ revolving credit commitments or add one or more tranches of additional term loans, subject to the willingness of existing or new lenders to fund such increase or term loans and other customary conditions. The minimum aggregate principal amount of such incremental revolving credit commitment increases or additional term loans may be no less than $25.0 million and the maximum aggregate principal amount of all such incremental revolving credit commitment increases and additional term loans (the “Incremental Facilities Cap”), other than term loans the proceeds of which are applied to repay existing term loans, may be no more than $500.0 million until the Term A-2 Closing Date (see additional discussion below). A portion of the proceeds of the May 2012 Credit Agreement were used to repay the outstanding obligations under the Company’s then existing senior credit facility. The Company uses its revolving credit facility under the 2012 Credit Agreement for general corporate purposes.
The rate of interest on borrowings under the 2012 Credit Agreement is a function of LIBOR plus a margin, the federal funds rate plus a margin, or the prime rate plus a margin. The margin is adjustable based upon the Company’s debt ratio (as defined in the 2012 Credit Agreement). As of August 31, 2012, the LIBOR margin for the Term A Facility and the Revolving Credit Facility was 1.75%; and the LIBOR margin for the Term A-1 Facility was 2.0%.
The changes to the May 2012 Credit Agreement effected by the August 2012 Restatement, among other things, (i) arranged a portion of the debt to finance the Crown Acquisition (the Term A-2 Facility), (ii) facilitated the issuance of the August 2012 Senior Notes and the arrangements under the Escrow Agreement, (iii) modified certain defined terms and covenant requirements, and (iv) adjusted the Incremental Facilities Cap from $750.0 million to $500.0 million until the Term A-2 Closing Date. Subsequent to the Term A-2 Closing Date, the Incremental Facilities Cap will be $750.0 million minus the amount by which the aggregate initial principal amount of the Term A-2 Loans exceeds $325.0 million, if any. If the Term A-2 Loans are never borrowed and the commitments for the Term A-2 Facility are terminated, the Incremental Facilities Cap will revert to $750.0 million.
The obligations under the 2012 Credit Agreement are guaranteed by certain of the Company's U.S. subsidiaries. These obligations are also secured by a pledge of (i) 100% of the ownership interests in certain of the Company’s U.S. subsidiaries and (ii) 55-65% of certain interests of certain of the Company’s foreign subsidiaries.
The Company and its subsidiaries are also subject to covenants that are contained in the 2012 Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness), additional liens, mergers and consolidations, the payment of dividends, the making of certain investments, prepayments of certain debt, transactions with affiliates, agreements that restrict the Company’s non-guarantor subsidiaries from paying dividends, and dispositions of property, in each case subject to numerous conditions, exceptions and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net debt coverage ratio.
As of August 31, 2012, under the 2012 Credit Agreement, the Company had outstanding borrowings under the Term A Facility of $550.0 million bearing an interest rate of 2.0%, Term A-1 Facility of $250.0 million bearing an interest rate of 2.2%, outstanding letters of credit of $15.4 million, and $834.6 million in revolving loans available to be drawn.
As of August 31, 2012, the required principal repayments of the Term A Facility and the Term A-1 Facility for the remaining six months of fiscal 2013 and for each of the five succeeding fiscal years and thereafter are as follows:
|
| | | | | | | | | | | |
| Term A Facility | | Term A-1 Facility | | Total |
(in millions) | | | | | |
2013 | $ | 13.7 |
| | $ | 1.3 |
| | $ | 15.0 |
|
2014 | 27.5 |
| | 2.5 |
| | 30.0 |
|
2015 | 41.3 |
| | 2.5 |
| | 43.8 |
|
2016 | 55.0 |
| | 2.5 |
| | 57.5 |
|
2017 | 55.0 |
| | 2.5 |
| | 57.5 |
|
2018 | 357.5 |
| | 2.5 |
| | 360.0 |
|
Thereafter | — |
| | 236.2 |
| | 236.2 |
|
| $ | 550.0 |
| | $ | 250.0 |
| | $ | 800.0 |
|
In April 2012, the Company transitioned its interest rate swap agreements to a one-month LIBOR base rate versus the then existing three-month LIBOR base rate. Accordingly, the Company entered into new interest rate swap agreements which were designated as cash flow hedges of $500.0 million of the Company’s floating LIBOR rate debt. In addition, the then existing interest rate swap agreements were dedesignated by the Company and the Company entered into additional undesignated interest rate swap agreements for $500.0 million to offset the prospective impact of the newly undesignated interest rate swap agreements. The unrealized losses in AOCI related to the dedesignated interest rate swap agreements are being reclassified from AOCI ratably into earnings in the same period in which the original hedged item is recorded in the Consolidated Statements of Comprehensive Income. Accordingly, the Company has fixed its interest rates on $500.0 million of the Company’s floating LIBOR rate debt at an average rate of 2.8% (exclusive of borrowing margins) through September 1, 2016. For the six
months ended August 31, 2012, the Company reclassified net losses of $4.1 million, net of income tax effect, from AOCI to interest expense, net on the Company’s Consolidated Statements of Comprehensive Income. For the three months ended August 31, 2012, the Company reclassified net losses of $2.0 million, net of income tax effect, from AOCI to interest expense, net on the Company’s Consolidated Statements of Comprehensive Income. The Company did not reclassify any amount from AOCI to interest expense, net on its Consolidated Statements of Comprehensive Income for the six months and three months ended August 31, 2011.
Senior notes –
On April 17, 2012, the Company issued $600.0 million aggregate principal amount of 6% Senior Notes due May 2022 (the “April 2012 Senior Notes”). The net proceeds of the offering ($591.4 million) were used for general corporate purposes, including, among others, reducing the outstanding indebtedness under the Company’s prior senior credit facility and common stock share repurchases under the 2013 Authorization (as defined in Note 13). Interest on the April 2012 Senior Notes is payable semiannually on May 1 and November 1 of each year, beginning November 1, 2012. The April 2012 Senior Notes are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to 100% of the outstanding principal amount plus a make whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 50 basis points. The April 2012 Senior Notes are senior unsecured obligations and rank equally in right of payment to all existing and future senior unsecured indebtedness of the Company. Certain of the Company’s U.S. subsidiaries guarantee the April 2012 Senior Notes, on a senior unsecured basis. As of August 31, 2012, the Company had outstanding $600.0 million aggregate principal amount of April 2012 Senior Notes.
On August 14, 2012, the Company issued $650.0 million aggregate principal amount of 4.625% Senior Notes due March 2023 (the “August 2012 Senior Notes”). The Company intends to use the net proceeds from the offering ($641.4 million) to fund a portion of the Crown Acquisition. Interest on the August 2012 Senior Notes is payable semiannually on March 1 and September 1 of each year, beginning March 1, 2013. The August 2012 Senior Notes are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to 100% of the outstanding principal amount plus a make whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 50 basis points. In addition, if the Crown Acquisition is terminated or has not been consummated on or prior to December 30, 2013, all of the August 2012 Senior Notes will be redeemed (the “Special Mandatory Redemption”) at a price equal to 100% of the outstanding principal amount, together with accrued and unpaid interest to the date of the Special Mandatory Redemption. The August 2012 Senior Notes are senior unsecured obligations that rank equally with the Company’s other senior unsecured indebtedness except that the Escrowed Property will be held in escrow and has been pledged to secure the August 2012 Senior Notes until it is used to fund a portion of the purchase price for the Crown Acquisition. Certain of the Company’s U.S. subsidiaries guarantee the August 2012 Senior Notes, on a senior unsecured basis. As of August 31, 2012, the Company had outstanding $650.0 million aggregate principal amount of August 2012 Senior Notes.
As discussed previously, in connection with the issuance of the August 2012 Senior Notes, the Company entered into the Escrow Agreement pursuant to which the Escrowed Property was placed into an escrow account. In accordance with the terms of the Escrow Agreement, the Escrowed Property will be released to the Company upon closing of the Crown Acquisition. If the Crown Acquisition is terminated or has not been consummated on or prior to December 30, 2013, the Escrowed Property will be released for purposes of effecting the Special Mandatory Redemption.
Debt payments –
Principal payments required under long-term debt obligations (excluding unamortized discount of $4.6 million) for the remaining six months of fiscal 2013 and for each of the five succeeding fiscal years and thereafter are as follows:
|
| | | |
(in millions) | |
2013 | $ | 24.0 |
|
2014 | 38.0 |
|
2015 | 550.7 |
|
2016 | 60.3 |
|
2017 | 757.9 |
|
2018 | 1,060.0 |
|
Thereafter | 1,486.2 |
|
| $ | 3,977.1 |
|
11. INCOME TAXES:
The Company’s effective tax rate for the six months ended August 31, 2012, and August 31, 2011, was 24.3% and 17.1%, respectively. The Company’s effective tax rate for the six months ended August 31, 2012, was substantially impacted by the additional generation of foreign tax credits. The Company’s effective tax rate for the six months ended August 31, 2011, was substantially impacted by a decrease in uncertain tax positions in connection with the completion of various income tax examinations during the six months ended August 31, 2011.
The Company’s effective tax rate for the three months ended August 31, 2012, and August 31, 2011, was 14.9% and 2.3%, respectively. The Company’s effective tax rate for the three months ended August 31, 2012, was substantially impacted by the additional generation of foreign tax credits. The Company’s effective tax rate for the three months ended August 31, 2011, was substantially impacted by a decrease in uncertain tax positions in connection with the completion of various income tax examinations during the three months ended August 31, 2011.
12. COMMITMENTS AND CONTINGENCIES:
Indemnification liabilities –
In connection with the Company’s January 2011 divestiture of 80.1% of its Australian and U.K. business (the “CWAE Divestiture”), the Company indemnified respective parties against certain liabilities that may arise related to certain contracts with certain investees of Accolade, a certain facility in the U.K. and certain income tax matters. As of August 31, 2012, and February 29, 2012, the carrying amount of these indemnification liabilities was $22.4 million. If the indemnified party were to incur a liability, pursuant to the terms of the indemnification, the Company would be required to reimburse the indemnified party. As of August 31, 2012, the Company estimates that these indemnifications could require the Company to make potential future payments of up to $303.5 million under these indemnifications with $282.1 million of this amount able to be recovered by the Company from third parties under recourse provisions. The Company does not expect to be required to make material payments under the indemnifications and the Company believes that the likelihood is remote that the indemnifications could have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity.
In addition, prior to January 1, 2012, Constellation Beers provided certain administrative services to Crown Imports. On January 1, 2012, in accordance with the terms of the original joint venture agreement, such administrative services were discontinued. In connection with the discontinuation of the Company’s administrative services agreement with Crown Imports, Crown Imports entered into a contract with a third party for the lease of certain office facilities. The Company is jointly and severally liable with Modelo to indemnify the third party for
lease payments over the term of the contract which extends through June 2021. The fair value of the liability recorded at January 1, 2012, was not material. As of August 31, 2012, if the indemnified party were to incur a liability, pursuant to the terms of the indemnification, the Company would be required to reimburse the indemnified party. As of August 31, 2012, this indemnification could require the Company to make potential future payments of up to $39.2 million with none of this amount able to be recovered by the Company from third parties under recourse provisions. The Company does not expect to be required to make material payments under this indemnification and the Company believes that the likelihood is remote that this indemnification could have a material adverse effect on the Company’s financial position, results of operations, cash flows or liquidity. As of August 31, 2012, and February 29, 2012, the carrying amount of this indemnification liability was not material.
13. STOCKHOLDERS’ EQUITY:
In April 2011, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of the Company’s Class A Common Stock and Class B Convertible Common Stock (the “2012 Authorization”). During the year ended February 29, 2012, the Company repurchased 21,234,266 shares of Class A Common Stock pursuant to the 2012 Authorization at an aggregate cost of $413.7 million, or an average cost of $19.48 per share, through open market transactions. During the six months ended August 31, 2012, the Company utilized the remaining $86.3 million outstanding under the 2012 Authorization to repurchase 3,970,481 shares of Class A Common Stock at an average cost of $21.74 per share, through open market transactions. In total, the Company has repurchased 25,204,747 shares of Class A Common Stock pursuant to the 2012 Authorization at an aggregate cost of $500.0 million, or an average cost of $19.84 per share. The Company used proceeds from revolver borrowings under its then existing senior credit facility and cash generated from operations to pay the purchase price for the repurchased shares. The repurchased shares have become treasury shares.
In April 2012, the Company’s Board of Directors authorized the repurchase of up to $1.0 billion of the Company’s Class A Common Stock and Class B Convertible Common Stock (the “2013 Authorization”). The Board of Directors did not specify a date upon which the 2013 Authorization would expire. Share repurchases under the 2013 Authorization may be accomplished at management’s discretion from time to time based on market conditions, the Company’s cash and debt position, and other factors as determined by management. Shares may be repurchased through open market or privately negotiated transactions. The Company may fund future share repurchases with cash generated from operations or proceeds from borrowings under its senior credit facility. Any repurchased shares will become treasury shares.
During the six months ended August 31, 2012, the Company repurchased 14,023,985 shares of Class A Common Stock pursuant to the 2013 Authorization at an aggregate cost of $296.7 million, or an average cost of $21.15 per share, through open market transactions. The Company used proceeds from the April 2012 Senior Notes, revolver borrowings under both the May 2012 Credit Agreement and its prior senior credit facility, and cash generated from operations to pay the purchase price for the repurchased shares. The repurchased shares have become treasury shares.
14. EARNINGS PER COMMON SHARE:
Earnings per common share – basic excludes the effect of common stock equivalents and is computed using the two-class computation method. Earnings per common share – diluted for Class A Common Stock reflects the potential dilution that could result if securities or other contracts to issue common stock were exercised or converted into common stock. Earnings per common share – diluted for Class A Common Stock has been computed using the more dilutive of the if-converted or two-class computation method. Using the if-converted method, earnings per common share – diluted for Class A Common Stock assumes the exercise of stock options using the treasury stock method and the conversion of Class B Convertible Common Stock. Using the two-class computation method, earnings per common share – diluted for Class A Common Stock assumes the exercise of stock options using the treasury stock method and no conversion of Class B Convertible Common Stock. For the six months and three months ended August 31, 2012, and August 31, 2011, earnings per common share – diluted for Class A Common Stock has been calculated using the if-converted method. For the six months and three months
ended August 31, 2012, and August 31, 2011, earnings per common share – diluted for Class B Convertible Common Stock is presented without assuming conversion into Class A Common Stock and is computed using the two-class computation method.
The computation of basic and diluted earnings per common share is as follows:
|
| | | | | | | | | | | | | | | |
| For the Six Months Ended August 31, | | For the Three Months Ended August 31, |
| 2012 | | 2011 | | 2012 | | 2011 |
(in millions, except per share data) | | | | | | | |
Income available to common stockholders | $ | 196.6 |
| | $ | 237.2 |
| | $ | 124.6 |
| | $ | 162.7 |
|
| | | | | | | |
Weighted average common shares outstanding – basic: | | | | | | | |
Class A Common Stock | 158.527 |
| | 186.837 |
| | 154.794 |
| | 186.629 |
|
Class B Convertible Common Stock | 23.545 |
| | 23.599 |
| | 23.536 |
| | 23.593 |
|
| | | | | | | |
Weighted average common shares outstanding – diluted: | | | | | | | |
Class A Common Stock | 158.527 |
| | 186.837 |
| | 154.794 |
| | 186.629 |
|
Class B Convertible Common Stock | 23.545 |
| | 23.599 |
| | 23.536 |
| | 23.593 |
|
Stock-based awards, primarily stock options | 5.386 |
| | 3.970 |
| | 6.310 |
| | 3.423 |
|
Weighted average common shares outstanding – diluted | 187.458 |
| | 214.406 |
| | 184.640 |
| | 213.645 |
|
| | | | | | | |
Earnings per common share – basic: | | | | | | | |
Class A Common Stock | $ | 1.09 |
| | $ | 1.14 |
| | $ | 0.71 |
| | $ | 0.78 |
|
Class B Convertible Common Stock | $ | 0.99 |
| | $ | 1.04 |
| | $ | 0.64 |
| | $ | 0.71 |
|
Earnings per common share – diluted: | | | | | | | |
Class A Common Stock | $ | 1.05 |
| | $ | 1.11 |
| | $ | 0.67 |
| | $ | 0.76 |
|
Class B Convertible Common Stock | $ | 0.96 |
| | $ | 1.02 |
| | $ | 0.62 |
| | $ | 0.70 |
|
For the six months ended August 31, 2012, and August 31, 2011, stock-based awards, primarily stock options, which could result in the issuance of 3.6 million and 9.0 million shares, respectively, of Class A Common Stock were outstanding, but were not included in the computation of earnings per common share – diluted for Class A Common Stock because the effect of including such awards would have been antidilutive. For the three months ended August 31, 2012, and August 31, 2011, stock-based awards, primarily stock options, which could result in the issuance of 3.2 million and 9.1 million shares, respectively, of Class A Common Stock were outstanding, but were not included in the computation of earnings per common share – diluted for Class A Common Stock because the effect of including such awards would have been antidilutive.
15. COMPREHENSIVE INCOME:
Comprehensive income consists of net income, foreign currency translation adjustments, net unrealized losses on derivative instruments, net unrealized (losses) gains on AFS debt securities and pension/postretirement adjustments. The reconciliation of net income to comprehensive income is as follows:
|
| | | | | | | | | | | |
| Before Tax Amount | | Tax Benefit (Expense) | | Net of Tax Amount |
(in millions) | | | | | |
For the Six Months Ended August 31, 2012 | | | | | |
Net income | | | | | $ | 196.6 |
|
Other comprehensive (loss) income: | | | | | |
Foreign currency translation adjustments: | | | | | |
Net losses | $ | (12.4 | ) | | $ | 3.5 |
| | (8.9 | ) |
Reclassification adjustments | — |
| | — |
| | — |
|
Net loss recognized in other comprehensive loss | (12.4 | ) | | 3.5 |
| | (8.9 | ) |
Unrealized loss on cash flow hedges: | | | | | |
Net derivative losses | (12.6 | ) | | 4.6 |
| | (8.0 | ) |
Reclassification adjustments | 2.1 |
| | (1.4 | ) | | 0.7 |
|
Net loss recognized in other comprehensive loss | (10.5 | ) | | 3.2 |
| | (7.3 | ) |
Unrealized loss on AFS debt securities: | | | | | |
Net AFS debt securities losses | — |
| | (0.1 | ) | | (0.1 | ) |
Reclassification adjustments | — |
| | — |
| | — |
|
Net loss recognized in other comprehensive loss | — |
| | (0.1 | ) | | (0.1 | ) |
Pension/postretirement adjustments: | | | | | |
Net actuarial losses | (0.1 | ) | | 0.1 |
| | — |
|
Reclassification adjustments | 0.4 |
| | (0.1 | ) | | 0.3 |
|
Net gain recognized in other comprehensive loss | 0.3 |
| | — |
| | 0.3 |
|
Other comprehensive loss | $ | (22.6 | ) | | $ | 6.6 |
| | (16.0 | ) |
Total comprehensive income | | | | | $ | 180.6 |
|
| | | | | |
|
| | | | | | | | | | | |
| Before Tax Amount | | Tax Benefit (Expense) | | Net of Tax Amount |
(in millions) | | | | | |
For the Six Months Ended August 31, 2011 | | | | | |
Net income | | | | | $ | 237.2 |
|
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments: | | | | | |
Net gains | $ | 42.0 |
| | $ | (0.5 | ) | | 41.5 |
|
Reclassification adjustments | — |
| | — |
| | — |
|
Net gain recognized in other comprehensive income | 42.0 |
| | (0.5 | ) | | 41.5 |
|
Unrealized loss on cash flow hedges: | | | | | |
Net derivative losses | (19.6 | ) | | 10.2 |
| | (9.4 | ) |
Reclassification adjustments | (5.1 | ) | | 1.0 |
| | (4.1 | ) |
Net loss recognized in other comprehensive income | (24.7 | ) | | 11.2 |
| | (13.5 | ) |
Unrealized loss on AFS debt securities: | | | | | |
Net AFS debt securities losses | (0.2 | ) | | — |
| | (0.2 | ) |
Reclassification adjustments | — |
| | — |
| | — |
|
Net loss recognized in other comprehensive income | (0.2 | ) | | — |
| | (0.2 | ) |
Pension/postretirement adjustments: | | | | | |
Net actuarial losses | — |
| | — |
| | — |
|
Reclassification adjustments | 0.2 |
| | — |
| | 0.2 |
|
Net gain recognized in other comprehensive income | 0.2 |
| | — |
| | 0.2 |
|
Other comprehensive income | $ | 17.3 |
| | $ | 10.7 |
| | 28.0 |
|
Total comprehensive income | | | | | $ | 265.2 |
|
| | | | | |
For the Three Months Ended August 31, 2012 | | | | | |
Net income | | | | | $ | 124.6 |
|
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments: | | | | | |
Net gains | $ | 70.7 |
| | $ | 3.7 |
| | 74.4 |
|
Reclassification adjustments | — |
| | — |
| | — |
|
Net gain recognized in other comprehensive income | 70.7 |
| | 3.7 |
| | 74.4 |
|
Unrealized loss on cash flow hedges: | | | | | |
Net derivative losses | (4.1 | ) | | 2.2 |
| | (1.9 | ) |
Reclassification adjustments | 1.1 |
| | (0.7 | ) | | 0.4 |
|
Net loss recognized in other comprehensive income | (3.0 | ) | | 1.5 |
| | (1.5 | ) |
Unrealized gain on AFS debt securities: | | | | | |
Net AFS debt securities gains | 2.3 |
| | (0.1 | ) | | 2.2 |
|
Reclassification adjustments | — |
| | — |
| | — |
|
Net gain recognized in other comprehensive income | 2.3 | |