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Commitments and Contingencies
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Feb. 28, 2013
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| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES |
COMMITMENTS AND CONTINGENCIES:
Operating leases –
Step rent provisions, escalation clauses, capital improvement funding and other lease concessions, when present in the Company’s leases, are taken into account in computing the minimum lease payments. The minimum lease payments for the Company’s operating leases are recognized on a straight-line basis over the minimum lease term.
Future payments under noncancelable operating leases having initial or remaining terms of one year or more are as follows for each of the five succeeding fiscal years and thereafter:
Rental expense was $60.4 million, $73.7 million and $92.6 million for the years ended February 28, 2013, February 29, 2012, and February 28, 2011, respectively.
Purchase commitments and contingencies –
In connection with prior acquisitions, the Company has assumed grape purchase contracts with certain growers and suppliers. In addition, the Company has entered into other grape purchase contracts with various growers and suppliers in the normal course of business. Under the grape purchase contracts, the Company is committed to purchase grape production yielded from a specified number of acres for a period of time from one to fifteen years. The actual tonnage and price of grapes that must be purchased by the Company will vary each year depending on certain factors, including weather, time of harvest, overall market conditions and the agricultural practices and location of the growers and suppliers under contract. The Company purchased $370.8 million, $286.6 million and $383.0 million of grapes under contracts for the years ended February 28, 2013, February 29, 2012, and February 28, 2011, respectively. Based on current production yields and published grape prices, the aggregate minimum purchase obligations under these contracts are estimated to be $1,415.7 million over the remaining terms of the contracts which extend through December 2027.
In addition, in connection with prior acquisitions, the Company established a liability for the estimated loss on firm purchase commitments assumed at the time of acquisition. As of February 28, 2013, and February 29, 2012, the remaining balance on this liability is $4.0 million and $4.8 million, respectively.
The Company’s aggregate minimum purchase obligations under bulk wine purchase contracts are estimated to be $60.8 million over the remaining terms of the contracts which extend through December 2017. The Company’s aggregate minimum purchase obligations under certain raw material purchase contracts are estimated to be $253.7 million over the remaining terms of the contracts which extend through February 2015.
In addition, the Company has entered into certain processing contracts which commit the Company to utilize outside services to process and/or package a minimum volume quantity. The Company’s aggregate minimum contractual obligations under these processing contracts are estimated to be $115.3 million over the remaining terms of the contracts which extend through March 2019.
Indemnification liabilities –
In connection with the Company’s January 2011 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 a result, the Company recorded liabilities with a fair value of $26.1 million at January 31, 2011, resulting in a loss of $26.1 million. This loss is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income. The fair value was determined using a probability-weighted discounted cash flow analysis based on the credit profile of the issuer. During the year ended February 29, 2012, the Company was released from one of its guarantees and had adjustments to certain of the other guarantees, including the partial settlement of one of its guarantees for a cash payment of $3.1 million. During the year ended February 28, 2013, the Company had an adjustment to one of the guarantees, resulting in a gain of $7.1 million. This gain is included in selling, general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income. As of February 28, 2013, and February 29, 2012, the carrying amount of these indemnification liabilities was $15.1 million and $22.4 million, respectively. 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 February 28, 2013, the Company estimates that these indemnifications could require the Company to make potential future payments of up to $296.2 million under these indemnifications with $281.9 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.
On January 1, 2012, 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 February 28, 2013, 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 February 28, 2013, this indemnification could require the Company to make potential future payments of up to $35.1 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 February 28, 2013, and February 29, 2012, the carrying amount of this indemnification liability was not material.
Employment contracts –
The Company has employment contracts with its executive officers and certain other management personnel with either automatic one year renewals after an initial term or an indefinite term of employment unless terminated by either party. These employment contracts provide for minimum salaries, as adjusted for annual increases, and may include incentive bonuses based upon attainment of specified management goals. These employment contracts may also provide for severance payments in the event of specified termination of employment. In addition, the Company has employment arrangements with certain other management personnel which provide for severance payments in the event of specified termination of employment. As of February 28, 2013, the aggregate commitment for future compensation and severance, excluding incentive bonuses, was $36.1 million, of which $3.0 million was accrued.
Employees covered by collective bargaining agreements –
Approximately 10% of the Company’s full-time employees are covered by collective bargaining agreements at February 28, 2013. Agreements expiring within one year cover approximately 2% of the Company’s full-time employees.
Legal matters –
In the course of its business, the Company is subject to litigation from time to time. Although the amount of any liability with respect to such litigation cannot be determined, in the opinion of management, such liability will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
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