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Subsequent Events
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May 31, 2013
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| Subsequent Events [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUBSEQUENT EVENTS |
SUBSEQUENT EVENTS:
Beer Business Acquisition –
On June 7, 2013, the Company acquired (i) the remaining 50% equity interest in Crown Imports (the “Crown Acquisition”) and (ii)(a) all of the issued and outstanding equity interests of Compañia Cervecera de Coahuila, S. de R.L. de C.V. (the “Brewery Company”), which owns and operates a brewery located in Nava, Coahuila, Mexico (the “Brewery”), (ii)(b) all of the issued and outstanding equity interests of Servicios Modelo de Coahuila, S. de R.L. de C.V., which provides personnel and services for the operation and maintenance of the Brewery (the “Service Company”), and (ii)(c) an irrevocable, fully-paid license to produce in Mexico (or worldwide under certain circumstances) and exclusively import, market and sell the Modelo Brands currently sold in the U.S. and Guam and certain extensions (all collectively referred to as the “Brewery Purchase”). The business of the Brewery Company and Service Company acquired by the Company is referred to as the “Brewery Business.” The Crown Acquisition and the Brewery Purchase are collectively referred to as the “Beer Business Acquisition.” In connection with the Beer Business Acquisition, the Company is required to build out and expand the Brewery to a nominal capacity of at least 20.0 million hectoliters of packaged beer annually by December 31, 2016. In addition, an interim supply agreement and a transition services agreement were entered into in association with the Beer Business Acquisition. The interim supply agreement obligates Modelo to provide Crown Imports with a supply of product not produced by the Brewery and the transition services agreement provides for certain specified services and production materials, both for a specified period of time. The associated agreements provide, among other things, that the United States will have approval rights, in its sole discretion, for amendments or modifications to the associated agreements and the United States will have a right of approval, in its sole discretion, of any extension of the term of the interim supply agreement beyond three years. The estimated aggregate purchase price of $5,209.7 million consists of cash paid at closing of $4,745.0 million, net of cash acquired of $106.8 million, plus additional estimated cash payments of $571.5 million (expected to be paid within 12 months of closing) which represent an adjustment to the purchase price for the finalization of the 2012 EBITDA (as defined below) as well as certain working capital adjustments. The aggregate cash paid was financed with:
As a result of the closing of the Beer Business Acquisition without utilizing any of the commitments under the amended and restated bridge financing, this agreement terminated pursuant to its terms on June 7, 2013.
The primary additional estimated payment consists of an adjustment to the purchase price if the Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of Grupo Modelo’s operations relating to the profit on all sales of beer to Crown Imports during calendar 2012, as defined in the purchase agreement and referred to below as the “2012 EBITDA,” is greater or less than $310.0 million. If the 2012 EBITDA is less than $310.0 million, the Company will be entitled to a purchase price refund equal to 9.3 times the amount by which the 2012 EBITDA is less than $310.0 million. If the 2012 EBITDA is greater than $310.0 million, the Company will be required to pay an additional purchase price equal to 9.3 times the amount by which the 2012 EBITDA is greater than $310.0 million; provided, the increased purchase price may not exceed a cap based on a 2012 EBITDA of $370.0 million. The potential undiscounted amount of all future payments that the Company could be required to make in connection with this adjustment is between $0.0 million and $558.0 million. The fair value of the additional estimated payment of $543.3 million related to the 2012 EBITDA was estimated by discounting future cash flows.
Prior to the Beer Business Acquisition, the Company accounted for its investment in Crown Imports under the equity method of accounting. In connection with the acquisition method of accounting, the Company’s preexisting 50% equity interest was remeasured to its estimated fair value of $1,845.0 million, and the Company will recognize an estimated gain of $1,641.0 million in selling, general and administrative expenses on its Consolidated Statements of Comprehensive Income (Loss) for the second quarter of fiscal 2014. The fair value of the Company’s preexisting 50% equity interest was based upon the estimated fair value of the acquired 50% equity interest in Crown Imports. In connection with the Beer Business Acquisition, the Company is required to estimate the fair value of 100% of the separately identifiable assets acquired and liabilities assumed of Crown Imports.
The purchase price of the Beer Business Acquisition and the estimated fair value of the Company’s preexisting 50% equity interest in Crown Imports have been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the acquisition date. As of the date of filing this Quarterly Report on Form 10-Q, the purchase accounting has not been finalized due primarily to the proximity of the closing date of the transaction to the filing date of the Quarterly Report on Form 10-Q; lack of availability of sufficient information; and the pending receipt of the final valuations for certain assets, including inventories, a favorable interim supply agreement, property, plant and equipment, and identifiable intangible assets. The following table summarizes the allocation of the estimated fair value of the Beer Business Acquisition to the separately identifiable assets acquired and liabilities assumed as of June 7, 2013:
The acquired accounts receivable consist primarily of trade receivables, all of which are expected to be collectible. The acquired inventory is expected to be sold during the second quarter of fiscal 2014. The preliminary intangible assets consist of definite lived customer relationships with an estimated fair value of $22.5 million which is expected to be amortized over a life of 25 years; a definite lived distribution agreement with an estimated fair value of $0.6 million which is expected to be amortized over a life of 1.5 years; a favorable interim supply agreement with an estimated fair value of $80.7 million which is expected to be amortized over a life of 3 years; and a perpetual right to use trademarks with an estimated fair value of $2,418.1 million which is indefinite lived and therefore not subject to amortization.
In determining the preliminary purchase price allocation, the Company considered, among other factors, market participants’ intentions to use the acquired assets and the historical and estimated future demand for the acquired Modelo Brands. The estimated fair values for the customer relationships and the distribution agreement were determined using a cost approach and an income approach, respectively. The estimated fair value for the trademarks was determined using an income approach, specifically, the relief from royalty method.
The intangible assets are being amortized either on a straight-line basis or an economic consumption basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such assets. Goodwill associated with the acquisition is primarily attributable to the distribution of the Modelo Brands in the U.S. as well as complete control over the sourcing of product into the U.S. Approximately $1,655.6 million of the goodwill recognized is expected to be deductible for income tax purposes.
The Company has incurred total acquisition-related costs of $53.6 million through May 31, 2013, with $27.6 million recognized for the three months ended May 31, 2013, and $26.0 million recognized for the year ended February 28, 2013. These costs are included in selling, general and administrative expenses on the Company’s Consolidated Statements of Comprehensive Income (Loss).
The results of operations of the Beer Business Acquisition will be reported in the Company’s new Constellation Beer segment and will be included in the consolidated results of operations of the Company from the date of acquisition. The following unaudited pro forma financial information for the three months ended May 31, 2013, and May 31, 2012, presents consolidated information as if the Beer Business Acquisition had occurred on March 1, 2012. Because of different fiscal period ends, and in order to present results for comparable periods, the unaudited pro forma financial information for the three months ended May 31, 2013, and May 31, 2012, combines the Company’s historical statement of income for the three months ended May 31, 2013, and May 31, 2012, with Crown Imports’ historical statement of income for its three months ended March 31, 2013, and March 31, 2012, and with the Brewery Business’ carve-out combined income statement for its three months ended March 31, 2013, and March 31, 2012. The unaudited pro forma financial information is presented after giving effect to certain adjustments for acquisition-related costs, amortization of definite lived intangible assets, interest expense on acquisition financing, amortization of deferred financing costs and related income tax effects. The unaudited pro forma financial information does not give effect to depreciation nor the impacts of the favorable interim supply agreement due to lack of availability of sufficient information. The unaudited pro forma financial information also excludes the estimated gain of $1,641.0 million on the remeasurement of the Company’s preexisting 50% equity interest in Crown Imports as it is a one-time, nonrecurring gain. The unaudited pro forma financial information is based upon currently available information and upon certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma financial information does not purport to present what the Company’s results of operations would actually have been if the aforementioned transaction had in fact occurred on such date or at the beginning of the period indicated, nor do they project the Company’s financial position or results of operations at any future date or for any future period.
2013 Credit Agreement –
In connection with the Beer Business Acquisition, on May 2, 2013 (the “Restatement Date”), the Company, CIH International S.à r.l., an indirect wholly owned subsidiary of the Company (“CIH” and together with the Company, the “Borrowers”), and Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders (all such parties other than either of the Borrowers are collectively referred to as the “Lenders”) entered into a Restatement Agreement (the “Restatement Agreement”) that amended and restated the 2012 Credit Agreement (as amended and restated by the Restatement Agreement, the “2013 Credit Agreement”). The Restatement Agreement was entered into by the Company to arrange a portion of the debt to finance the Beer Business Acquisition. The effective date of the Restatement Agreement, June 7, 2013, was the date on which all of the conditions to the 2013 Credit Agreement were satisfied, which occurred on the date of the closing of the Beer Business Acquisition (the “Restatement Effective Date”).
The 2013 Credit Agreement provides for aggregate credit facilities of $3,787.5 million, consisting of a $515.6 million U.S. term loan facility maturing on June 7, 2018 (the “U.S. Term A Facility”), a $246.9 million U.S. term loan facility maturing on June 7, 2019 (the “U.S. Term A-1 Facility”), a new $675.0 million delayed draw U.S. term loan facility maturing on June 7, 2018 (the “U.S. Term A-2 Facility”), a new $500.0 million delayed draw European term loan facility maturing on June 7, 2018 (the “European Term A Facility”), a new $1,000.0 million European term loan facility maturing on June 7, 2020 (the “European Term B 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 June 7, 2018 (the “Revolving Credit Facility”). The 2013 Credit Agreement also permits the Company from time to time after the Restatement Effective 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, other than term loans the proceeds of which are applied to repay existing term loans, may be no more than $750.0 million. A portion of the proceeds of the 2013 Credit Agreement were used to repay the outstanding obligations under the Company’s 2012 Credit Agreement and to finance a portion of the purchase price for the Beer Business Acquisition and related expenses. The Company intends to use the remaining availability under the 2013 Credit Agreement for general corporate purposes.
As of June 7, 2013, the required principal repayments under the term loans of the 2013 Credit Agreement for the remaining approximate nine months of fiscal 2014 and for each of the five succeeding fiscal years and thereafter are as follows:
The rate of interest for borrowings, excluding the European Term B Facility, under the 2013 Credit Agreement is a function of LIBOR plus a margin or the base rate plus a margin. The rate of interest for the European Term B Facility borrowings under the 2013 Credit Agreement is a function of LIBOR, subject to a minimum rate of 0.75%, plus a margin; or the base rate, subject to a minimum rate of 1.75%, plus a margin. The margin is adjustable based upon the Company’s debt ratio (as defined in the 2013 Credit Agreement). As of June 7, 2013, the LIBOR margin for the U.S. Term A Facility, the U.S. Term A-2 Facility, the European Term A Facility and the Revolving Credit Facility was 2.0%; the LIBOR margin for the U.S. Term A-1 Facility was 2.25%; and the LIBOR margin for the European Term B Facility was 2.0%.
The principal changes to the 2012 Credit Agreement effected by the 2013 Credit Agreement are (i) changes to the rate and term of the revolving credit facility and outstanding term loan facilities that took effect on the Restatement Effective Date, and the new $675.0 million delayed draw U.S. Term A-2 Facility that replaced the former delayed draw term A-2 facility, and (ii) the creation of a $1,500.0 million delayed draw European term loan facility consisting of the $500.0 million European Term A Facility and the $1,000.0 million European Term B Facility. The Company is the borrower under the U.S. term loan facilities. CIH is the borrower under the European term loan facilities. The 2013 Credit Agreement also modified the maximum net debt coverage ratio financial covenant.
The U.S. obligations under the 2013 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 European obligations under the 2013 Credit Agreement are guaranteed by the Company. These obligations are also secured by a pledge of (i) 100% of certain interests in certain of CIH’s subsidiaries and (ii) 100% of the ownership interests in certain of the Company’s U.S. subsidiaries and 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 2013 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 June 30, 2013, under the 2013 Credit Agreement, the Company had outstanding borrowings under the U.S. Term A Facility of $515.6 million bearing an interest rate of 2.2%, U.S. Term A-1 Facility of $246.9 million bearing an interest rate of 2.4%, U.S. Term A-2 Facility of $675.0 million bearing an interest rate of 2.2%, European Term A Facility of $500.0 million bearing an interest rate of 2.2%, European Term B Facility of $1,000.0 million bearing an interest rate of 2.8%, Revolving Credit Facility of $535.0 million bearing an interest rate of 2.2%, outstanding letters of credit of $14.1 million, and $300.9 million in revolving loans available to be drawn.
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