Ladies and gentlemen, thank you for standing by. Welcome to the Constellation Brands’ Second Quarter Fiscal Year 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would now turn the call over to Patty Yahn-Urlaub, Vice President of Investor Relations. Please go ahead.

Thank you, Jackie. Good morning, everyone, and welcome to Constellation’s conference call. In addition to our second quarter fiscal 2015 results and outlook, we will also discuss our glass sourcing strategy and incremental brewery expansion. I’m here this morning with Rob Sands, our President and Chief Executive Officer; and Bob Ryder, our Chief Financial Officer. This call complements our two news releases, which have also been furnished to the SEC. During this call, we may discuss financial information on a GAAP comparable, organic and constant-currency basis. However, discussions will generally focus on comparable financial results. Reconciliations between the most directly comparable GAAP measure and these and other non-GAAP financial measures are included in the news release or otherwise available on the company’s website at www.cbrands.com. Please also be aware that we may make forward-looking statements during this call. While those statements represent our best estimates and expectations, actual results could differ materially from our estimates and expectations. For a detailed list of risk factors that may impact the company’s estimates, please refer to the news releases and Constellation’s SEC filings. Now, I’d like to turn the call over to Rob.

Thanks, Patty and good morning to everyone. Welcome to our discussion of our second quarter financial results, as well as other important events that will shape the strategic direction of our company going forward. It has certainly been an exciting few months at Constellation. Since last quarter, we announced the acquisition of the Casa Noble tequila brand, an award-winning handcrafted super premium tequila which will be a great addition to our portfolio. Adding Casa Noble to our portfolio is important because tequila and Mexican beer share similar target consumers and drinking occasions both on and off premise. This fast growing tequila brand naturally complements our Mexican beer brands and fits well into our existing wine and spirits distribution infrastructure. Now during the quarter, we were challenged by a Corona Extra product recall, which was caused by defects in glass models caused by a production error at a glass plant run by one of our glass suppliers. I’m very proud of the dedication and hard work of our employees, distributors and retailers who have worked tirelessly and diligently to remove potentially affected product from our retail and distribution system. While the recall impacted our financial results slightly for the quarter, we expect to replenish second quarter loss sales in the third quarter and we are currently working with our glass supplier to recover the costs of the recall. We announced this morning that we have begun a new 5 million hectoliter expansion at our Nava brewery in Mexico that will expand production capacity of that facility to 25 million hectoliters by the end of calendar year 2017. This project is being driven by the exceptional portfolio momentum of our beer business, which has significantly outperformed the U.S. beer market and our own expectations. Lastly, we are pleased to announce that we…

Thanks, Rob. Good morning, everyone. We have a lot of significant good news to talk about today both for the quarter and the longer term. First off, we continue to deliver beer sales that greatly outpace the industry. And despite the glass recall, we are affirming full year beer guidance. In addition, we are providing medium-term volume guidance that also outpaces our estimate of the total beer industry growth. We believe we have good portfolio and demographic evidence to support our projections. We’ve also completed a comprehensive year long glass sourcing strategy project. The outcome of these efforts are expected to provide Constellation a continual and diversified source of beer, glass supply from leading industry providers at a cost lower than that we currently pay today. We’re also increasing our medium-term operating target for beer which indicates considerable margin upside from our fiscal '15 year-to-date run rate of 32%. As a result of these factors, we foresee a continuation of a fast-growing top line and an increase to our already healthy beer profit margin. Finally, we will discuss increased capital spending in brewery and glass capacity to support the robust growth we are targeting. This represents investments with very high returns as the beer segment enjoys strong and growing margins and quite a high operating ROIC. I’ll provide more details on the longer term items just highlighted, but now let’s start looking at our second quarter results where my comments will generally focus on comparable basis financial results. Our comparable basis diluted EPS for Q2 came in at $1.11, a 16% increase versus Q2 last year. We continued to see robust marketplace momentum for our beer business with depletion growth of 8%. Depletions were essentially not impacted by the recall, as wholesalers worked to replenish supply at retailers before the…

(Operator Instructions). Our first question comes from the line of Bryan Spillane with Bank of America/Merrill Lynch. Bryan Spillane - Bank of America/Merrill Lynch: Hi, good morning.

Hi, Bryan. Bryan Spillane - Bank of America/Merrill Lynch: I guess we fielded a few questions this morning just trying to reconcile the margin expectations in beer relative to some of the new news we had today, and I guess maybe if you can just walkthrough some of the puts and takes because right now it looks like if you look back at the last four quarters or so, the operating profit margin in beer are in the low 30s. And I guess what we’re expecting to see over the next three years is more capacity, more production in in-house which should be accretive to margins. It sounds like glass cost would be lower which should be accretive to margins. There’s been some pricing in this model over the last year or so and I would assume that there should be some pricing as we look forward. So I’m just trying to understand why it wouldn’t be better if there is some other cost that you’re expecting to incur whether it’s increased marketing or something else that might sort of dampen the margin expectations?

Yes. So year-to-date we’re at a 32% operating profit margin which has increased from last year. And what we’re seeing is we’re going to go to the mid-single digits as we build out the brewery and glass plant, right. So depending where you pick in the mid-single digits, that’s pretty good margin expansion. The other thing to factor in is we think mid-single digits is pretty much the highest operating profit margin of beer companies in North America, right, the mid-30%. So in our models, we have factored in all that’s going on with glass, we put assumption there what we think is going to go on with pricing based on history and we have in there what we think is going to go on with commodity inflation in the beer segment. So for me personally, right, I’m thrilled with the mid-30% profit margin. I’m not sure why people are disappointed. There is nobody with a higher margin than that in North America. Bryan Spillane - Bank of America/Merrill Lynch: I guess and I hear you, I think it’s just kind of knowing what we know now and there seemingly to be more of a list of tailwinds versus headwinds, I think that’s the component that people are kind of stuck on today. There’s two things you can clarify. When we’re talking about mid-30s, is that 34 to 36? And then I guess the second piece, I guess if there is going to be some JV income associated with glass, should that be – is that incorporated in that mid-30 margin target or would that be on top of?

Yes. So mid-30%, yes, I guess most math people would say that’s 34, 36. I think that’s a reasonable comment. The other thing just to factor this in, Bryan, and you guys would have done that, right, this increased capital spend does increase depreciation expense, right. Now, our brewery assets are long-lived assets, right, the majority is probably 15 to 20 years, but there’s a lot of capital going in which is going to start depreciating which does cause some reported headwinds on margins. And what was the last piece of…? Bryan Spillane - Bank of America/Merrill Lynch: The JV income?

Yes, good question. And again, you guys understand this, so we will be consolidating the JV because under GAAP based on the contract with us and Owens-Illinois, we are considered to control the JV, right. So what will happen there is as consolidation, we will just – our cost of goods sold will be lower. We’ll essentially be recording the cost of the bottles, right, which helps margins, okay. We will also consolidate the balance sheet, right, so you’ll see all that capital spending coming on our balance sheet and the Owens-Illinois contribution will come in down – I think it’s going to be a separate line of net income, okay, and the cash contribution will be begin the financing section of the cash flow statement. Bryan Spillane - Bank of America/Merrill Lynch: So that makes it outside of the operating profit and the margins?

That’s correct. Well, JV, yes, because we’ll be consolidating. So the JV will not exist in our financial statements, right. The JV is going to be a private company is how that will work. Bryan Spillane - Bank of America/Merrill Lynch: Okay, great. Thank you.

Our next question comes from the line of Judy Hong with Goldman Sachs.

Thank you. Good morning.

Hi, Judy.

Good morning.

I guess I wanted to just follow up on the EBIT margin on beer and I agree that the mid-30% is obviously a very good margin for this business. I guess I would just challenge you though in just terms of thinking about compared to the other beer companies, you do have higher price points which obviously raises your gross margin versus some of the peers. So I’m just trying to really understand kind of how this margin outlook is being impacted by the cost savings that you’re generating really on the packaging costs, in particular as you think about what you’re paying for glass today and then with all these different relationships that you’re building. And then the JV that you’re owning in-house, it seems like your packaging cost could be a lot higher, so maybe just starting off just a little bit more color on that particular topic?

Yes, and it’s a little bit difficult, right, because a lot of data is not out there but we have a very different business model from the North American – most of the North American competitors, right. We’re making all our products in one site which is quite a distance from a lot of our consumers, right, take the New York city consumers. So we have a reasonable amount more freight, okay, versus – and freight is – as you know, Judy, freight is a very big component of cost in beer. So we have a lot more freight costs. We probably also have higher cost of goods sold, right; thicker bottles, higher quality ingredients, all that kind of stuff. So it’s difficult to compare them apples-to-apples. But as I look at our beer model, we’ve kind of got the growth that the craft brewers have coupled with the margins that the large domestic guys have. So we’re almost the best of both worlds from a beer perspective. And if you look at some of the data that’s out there, right, generally speaking you could say we’re probably paying around, I don’t know, $0.16 a bottle right now. That data is out there from InBev. We’ve said that that will come down. We’re not really saying how much that will come down because we think that’s competitive data, but we went through a full year of negotiations with all the big glass players in the world and we’re pretty happy where we end up there both from a cost and a quality perspective.

Okay. And just to clarify, the $0.16 includes the freight cost that you’re paying to get the bottle delivered to your production facility?

That’s correct, but the glass we’ll be getting going forward is going to be coming from a number of different sources which will all have different, I’ll say, manufacturing costs and different freight costs depending where it’s coming from.

Right, okay. And then maybe just in terms of the Corona Extra trend and I think that accretion certainly in the quarter doesn’t appear to have been impacted by the recall. The more recent Nielsen or IRI data has shown a bit of softer trend for Corona Extra and some of this may just be a comparison issue, but just really wanted to kind of understand from your perspective how do you access the recall impact, if any, is having on sort of the underlying trend of Corona Extra as you see it today?

Yes. Judy, so right now as you said we look at IRI, it’s still pretty early in the game to say what’s happened to Corona Extra and I don’t get overly alarmed over weekly IRI data because there’s a lot of anomalies in just a week. You can see that Corona Extra has slowed down a little bit, but remember there were actually some retailers – not a ton but we were physically out of stock during the recall process, we were off the shelf for a period of time. So we would expect that to kind of come across in IRI. Luckily, we’re very happy with our overall depletion trends, right, and hopefully if Corona – the consumer wasn’t grabbing the Corona, he would grab a Modelo Especial or Pacifico and I guess in future months, we’ll see how the Corona Extra brand bounces back after this recall. But we couldn’t ask for better cooperation from both our internal employees and from the distributors and from retailers. It was just a really well done and an unfortunate circumstance, but we think we minimized the damage.

Judy, I might add that we’ve been tracking the weekly IRIs pretty carefully. We saw a little blip two weeks ago but we also noticed a number of other products that were affected, so it looks like it might have been a peculiarity with the week and then the latest data was very robust and appears that the brand was completely unaffected. So as Bob said, we’re pretty hopeful that in general the recall is not going to have any impact on the momentum on the brand. And clearly the momentum on our other brands has been totally unaffected by the Corona recall. So the business in general remains very strong from a consumer takeaway point of view.

Okay, got it. Thank you.

Thanks, Judy.

Our next question comes from the line of Nik Modi with RBC Capital Markets.

Thanks. A couple of questions. Just getting back to the beer margin because I know obviously that’s the most frequently asked question coming in from investors. So is it fair to assume that the target you have laid out, the kind of mid-30s; 34 to 36, is pegged to your mid-single-digit volume assumption? I guess the reason why I’m asking the question is let’s just say that things are even better than you thought which clearly has been the case the last couple of years, things have been coming in better than you expected and volumes are actually higher. I’m just wondering how you think that will impact the margin given now you are manufacturing, you should get some operating leverage, so if you can address that question would be really helpful. And the second question just kind of more of a tactical thing, just curious how the repositioning of Victoria is doing? If you can give us any more clarity around Modelo Chelada, it looks like the SKU and the brand is really starting to gain some momentum, so just trying to get an understanding of how big of a contributor that can be going forward?

Okay, Nik, so I’ll take the first one and Rob will take the commercial question. So, yes, I mean when we give these guidance out, we try to tie-in the whole P&L. So in your case if we exceed the volumes that we put out there, obviously we would get good fixed cost leverage, okay, especially on that big depreciation number. So, yes, that would certainly help margins. I’ll let Rob answer the Victoria…?

Yes, so Victoria; we did reposition Victoria originally when we introduced it – we introduced it above Corona Extra in pricing and we brought the pricing on that down to the Corona level and we expanded distribution nationally and I would say that there’s a lot of momentum behind the brand right now. Actually I’d say that we’re pretty excited about the prospects for Victoria for the feature and with the repositioning we’re seeing a lot of very, very positive momentum in that. Chelada; great product, taste great. We really think that from a competitive point of view it’s the best product out there. Again, a lot of momentum. We’re a bit constrained on the package at the moment until we get our can line up and running shortly and that’s really been the only limiting factor on the brand. Otherwise, we could actually sell a lot more of it than in fact we have been selling and we will as soon as that can line is up and running which is it’s actually up and running right this second, but in terms of being fully operational it’s a few weeks away. So we’re extremely optimistic on Chelada and think that that’s going to be a very successful new product introduction for us.

Great. And just one last question, thanks for that Rob. So Bob, on the Nava brewery, if we look at it year-over-year, is the brewery running more efficiently, same as last year, less efficient – I mean can you just give us some perspective on how things have progressed over the last year within the brewery?

Yes, it’s operating more efficiently, right. So we’re getting – and we’re defining that. We’re actually getting more hectoliters of beer out of it at a lower cost per hectoliter and actually it’s almost like every quarter it gets a little bit better.

Great, that’s it from me. Thanks guys.

Our next question comes from the line of Caroline Levy with CLSA.

Good morning, everyone. Thank you so much. Just a question on your assumptions on price and mix. You gave us a good idea on volumes for beer going forward. Just how you’re thinking about the mix component and also whether you think there is room to get some pricing?

You’re talking beer I take it.

In this case, yes.

Yes, I don’t think we assumed any dramatic increase in mix but as you said, the thing supporting the volume growth calls for a lot of growth in cans and kegs. So they would have a mix impact. On pricing, we would have assumed probably historical pricing going forward, but as you know pricing gets determined based on the local geographies and all the competitive dynamics, but for an Excel model you have to assume something. So we would have just assumed probably close to continuation of historical trends.

Right. So you’re saying mix will go slightly negative as you rollout cans and kegs?

No. Cans would be a positive mix; kegs kind of neutral that’s because aluminum is cheaper than glass and cans cube out better with freight. You can fit more on a freight car than bottles because you don’t have to insulate them and they’re just better…

Right. So a bit of margin mix but on revenue, on price mix…?

Cans, we are line priced on cans except for Modelo Especial cans which are at a slightly lower price. For Modelo Especial specifically right now bottles are growing faster than cans. Probably the big can upside is on Corona Extra where we expect to have the same price as bottles.

Got it. And how is your can capacity doing for the Corona Extra product?

It will be doing well very shortly as soon as that new can line is fully operational which as I said is shortly. It’s actually up and running right now but in test mode.

But you’ll run all cans on that line then and you’ll be able to therefore drive this much faster on Corona Extra as well as on Chelada.

Yes, so what you’ll be seeing and we’re actually coming out with a really gorgeous Victoria can as well, but our can capacity will be going up and will be able to support all this can growth. And also on Corona Extra specifically we’ve actually already have a media campaign specifically I’ll say describing the activities you would do with a can that you wouldn’t do with the bottle. Same great Corona liquid, right, but you can do certain things with cans that you can’t with bottles and shots of the beach, the boats, sporting events, things like that just to get peoples’ heads around, hey, Corona is great. Let me try a can. Right now, Corona Extra probably less than 2% of the mix is cans. So we think that’s a pretty big opportunity to drive growth.

If you look at the industry in general, what you’ll see is cans is really where the vast majority of the growth is in the industry. You may be looked at the domestics which as you know are biometrically in general down but cans are actually growing and are being more than offset by glass and craft, cans are the latest craze. And as Bob said in our case, we see huge opportunity in cans because it’s such a low percentage of our business and there is so much momentum from an industry perspective against cans period. So we’re pretty excited about the can potential of our business.

That’s great. And then if I might ask, it’s back to margins, the components of what you think will drive the margins to the mid-30s and how much of that is the glass transaction?

Yes, glass is certainly factored in there and essentially what will happen as the additional glass JV furnaces come up, right, we will be able to reduce the glass that we’re buying from other furnaces. The guaranteed upside will be there is freight, right, because the glass JV is attached to the brewery. So there is no freight cost. So as those furnaces come up, our landed glass cost comes down. And so glass is a pretty good component of our margin expansion from the 32% that we have year-to-date to the mid-30% we said we’ll have in the very near future.

Thank you so much.

Our next question comes from the line of Alice Longley with Buckingham Research.

Hi. Good morning. I have a couple of questions; one is a follow up to that. I think that you gave us originally a target of getting to the mid-30% margin without glass. So I’d like to – what other things are going right between now and then besides glass to get the margin number?

Yes, the guidance we gave without glass was low to mid 30%.

Okay.

So you can go back to the investor meeting, so that was the guidance that we provided. Now with glass and with new news, right, whatever positives and negatives, we’re increasing that to mid-30%. What you get is depending where you pick in the 34% to 36% is a pretty big increase in margins and the highest anybody has in North America.

Maybe I shouldn’t be belaboring this, but you had said low to mid 30s without glass, so there was something that made you think you could get to the mid-30s without glass and it looks like maybe that contribution has gone away, and could you comment on that?

Yes, I could but I do think we’re past the belabored part here with this question, right. We give ranges because this is a business with many moving parts, okay, and especially this business as you know, Alice, has many moving parts because we’re growing so fast. Most of the moving parts are really good as are our margin assumptions I think to have the volume growth amongst the top of the industry and to be saying we’re getting to the margins in the top of the industry I think is – I’m looking at this as very good news. And then the ability, right, to reinvest the enormous free cash flow that this business spins off into a very high return on invested capital business, right, it really helps the shareholder value creation that I think Constellation is driving out of this beer segment.

Okay. My question is on your cash flow for next year, for fiscal '16. You’ve said that with all the incremental CapEx and your acquisition costs, you still think you’ll be generating cash to reduce debt. You must have a pretty good sense of what CapEx will be in fiscal '16 in order to say that. I mean with all the bits and pieces you’ve given us, it looks like CapEx might be around $1 billion in fiscal '16 and then you got 300 million for the acquisition and I’m having trouble getting cash leftover after that. Are those assumptions for CapEx too high?

So I think what I would do is we’ve given you the bigger pieces of capital spending albeit we haven’t said what specifically in fiscal '16 because that will be part of the guidance we provide in April. But we have said it’s kind of frontend loaded right. What we provided in that table in the glass press release is not holistically comprehensive. It excludes wine, it excludes maintenance CapEx, it excludes buying kegs. It’s specifically for these projects. Now my comment on deleveraging, right, because of all the capital spend, free cash flow probably won’t be an enormous number next year. Now operating cash flow could be a very good number. But the leverage rate of course is happening is the EBITDA portion, the numerator of that calculation, right, based on the volume growth in the margin expansion is probably going up quite a bit which helps the EBITDA leverage ratio come down. So it’s not necessarily free cash flow, right, it’s more the EBITDA generation.

Well, that’s helpful. Will there be cash leftover after the acquisition cost to reduce debt?

We’re not providing that kind of specific guidance yet for next year because we haven’t finished this year yet. So that would be like an April discussion most likely.

Okay. But a lot of the improvement in the ratio is the EBITDA going up, I hear that. And I have one final question. If I adjust your margins in the quarter you just reported for the recall, it looks like they were 31%. They were a lot higher in the first quarter. Could you comment on why they came down and should we be using the 31% for the second half? Is there some reason to expect an improvement in the second half versus that 31%?

I think we’ve given our guidance for the full year that expect beer operating profit margins to be around 32%. This quarter there was a pretty big increase in marketing spend in beer specifically as we really tried to hit home in the peak summer season with a lot of media flights. So that would have been a timing component. But I think year-to-date we’re at about 32% and we said full year we’ll be at about 32%.

Thank you very much. It’s marketing. Thank you.

Our next question comes from the line of Mark Swartzberg with Stifel Nicolaus.

Thanks. Good morning, guys. Also on this topic of margin, Bob, a question about the glass component of it. Is it reasonable to think that the fact that this O-I arrangement is with a facility that’s state-of-the-art and right next door to where you’re brewing is better economically than the Vitro arrangement?

I think that probably would make sense given the fact as you said it’s a brand new facility, right, and of course freight will be less.

Right, okay. And then on the Vitro component because there wasn’t quite the level of detail back in August that we get into today, did that – the new Vitro agreement you have, is that going to – the cost that you’re paying there for those bottles, does that include transportation costs?

We haven’t commented on that. That’s kind of competitive information.

Okay, all right.

That was Vitro’s release, that wasn’t our release.

Right, okay, fair enough. And then just more on the accounting for this JV. Clear that it’s going to be consolidated. Can you just help us? It sounds like it affects only your COGS line. Does it have any effect on other consolidated lines and then there’s just a minority interest coming out below the EBIT line, is that how the economy will be?

I think that’s right. It’s just the COGS line.

Got it.

And then the minority interest, that’s correct, it will come out as a component of net income and other cash. And then of course the balance sheet is consolidated, right, so all the capital spending will end up there and the cash coming in from Owens-Illinois and they will be funding 50% of all capital investments at the glass JV but that’s going to come through the financing line.

Got it. Okay, great. Thanks, Bob.

Thanks, Mark.

Our next question comes from the line of Bill Chappell with SunTrust.

Good morning. Thanks. A few quick ones. On the new expansion at Nava, does that I guess come in place of a potential West Coast facility down the road? You went through the math and it made more sense from a freight efficiency standpoint to do it all at Nava?

Yes, I think a couple of things. I think it was probably the fastest thing to do, right, because the facility is up and growing and we want to make sure that we can support a high growing, high margin beer business. So I think as we weigh the alternatives, we felt that both cost and speed, right, and confidence around execution was highest for Nava to bring that up to 25 million hectoliters.

And believe it or not, I have a wine question. In terms of the lower promotions this quarter, is that just more timing? You’re kind of waiting it more, is that kind of what you had planned all along, maybe some color there?

Yes, the timing of our promotional activities is more geared towards the second half of the year obviously to coincide with the OND period, the holiday period.

Okay, so it’s just on a year-over-year basis it’s been shifted a little bit?

Yes.

Okay. And then last one on taxes just to get to your full year rate of 30% kind of – it equates to 28% for the back half. Is that equal in both quarters or would there be one kind of catch-up one quarter?

Yes, the timing of taxes is hard to predict. So we’re just saying for the full year, it will be 30%. So we’re not saying which quarter it will hit, what quarter will be what. But the balance of the year will have to be a lower rate than the year-to-date.

Got it. Thanks so much.

Our next question comes from the line of Rob Ottenstein with ISI Group.

Thank you very much for taking the call. Guys, given the increased amount of CapEx and in a sense business outside of the U.S., how should we think about any impact on the cash tax rate going forward, the long-term numbers and the effect of tax rate, maybe you can give us an update in terms of the long-term guidance on those two items?

Yes, as we generate a lot of income from this as you said outside the U.S., that will carry a lower cash tax rate. As far as effective tax rate, it should also have a lower effective tax rate when everybody gets aligned that we stop accruing U.S. taxes on foreign earnings. We are still accruing U.S. taxes on the foreign earnings and there’s just a lot of discussions going on as to when or if we will stop accruing those taxes. That’s from an ETR not a cash tax rate.

Right. So just in terms of your guidance that you gave us for cash for fiscal '18, what cash tax rate would you be using for that?

I think we’re assuming like mid-20s.

Mid-20s. And there will be potential for that to go down in the following years?

No, cash is cash, right. The thing that could go down if we stop accruing the APB 23 U.S. accruals, the ETR could go down. Of course, if we grow the beer business faster than we say, right, that will have a lower cash tax rate. It’s kind of a mix of tax rates depending where your EBIT growth is coming from.

Great. And I know you’ve got a significant initiative on the can side. Can you give us just any kind of rough idea as you think about it between the relative margins for glass and cans for your business?

Yes, I mean cans are higher margin than bottles. It’s not tremendously material nor is it immaterial. So it’s the difference that we like if you align price with bottles.

So like 100 basis points on the margin type difference?

Yes, we’re not going to give you that kind of specifics.

Understood. Congratulations on all the glass contracts. I’m sure that was a tremendous amount of work and it sounds like you’ve come to a great solution.

Excellent. Thanks, Robert.

Our next question comes from the line of Carla Casella with JPMorgan.

Hello. This is Paul (indiscernible). Can you hear me?

Sure.

Hi. I just have a couple of questions. First, what’s your view of tapping the bank loan respond market for your 2014 debt maturity and do you guys have limitations on how much bank debt you can add?

Yes, we don’t feel there is any limitations that would hold us back. I mean we’re looking at the markets as we speak and I think we’re in a great position. We can utilize our revolver which is at a very good rate or we can go to the senior market if we want to kind of increase the duration of our debt. And it’s going to be based on what we think the market’s rates are. So it will be a decision that we can make without any pressure from the outside world or covenants or anything like that. There is a lot of flexibility that we have.

Okay. And have you guys spoken with the rating agencies at all regarding your expectation that leverage will remain over four times through 2016?

We have, yes. So the rating agencies are insiders, so they have a look at how we think the financials will pan out and I think they’d be pretty happy with how quickly we are delevering and again mostly it’s because we’re growing EBITDA so quickly which just shows the fundamental positive economics of the business.

Great. Thank you so much.

Our final question comes from the line of Tim Ramey with Pivotal Research.

Good morning. Thanks. Just one final point on the overly [belabored] beer margin question. You don’t give EBITDA margin targets on that, but it sounds to me like it would be fair to say, well, while margins are going up modestly, EBITDA margins are going to go up more meaningfully. Is that a fair statement?

I’m not sure if I understand the question. We’re not commenting all around O-I margins but EBITDA is certainly growing which is helping bring down the EBITDA leverage…

But what people seem to be missing is that the depreciation is impacting the O-I margin and so the EBITDA will be a better number based on the cash…?

Sure. As we said earlier, right, there is a lot of [DA] (ph) coming into the P&L as spend all this capital. I don’t know why you keep saying O-I. This has nothing to do with O-I. They’re not on our books. But yes, the EBITDA to your point will be much higher than the EBIT because DA is going up so much, right, is your point which is a good point. Thank you.

Okay. And then just finally on wine, it is a beautiful crop out there and I’m almost done harvest. It looks to me like margins have the ability to expand a bit going into fiscal '16. Would you agree with that statement just directionally?

Yes. We think that margins can expand a little bit going into fiscal '16.

Okay.

We’re seeing growth, we’re seeing positive mix and we’re seeing a little pricing. That’s a good combination.

As you said, Tim, the crop is coming in very high quality and we think overall the cost per ton will be similar to last year, so not a lot of grape cost inflation which is good news for margins.

I think generally a balanced supply and demand situation.

Because we’re a month ahead if there are any meaningful impact on cash flow this year from just the timing of harvest or is that not material?

No, there won’t be anything meaningful.

Okay. Thanks so much, guys.

Thanks a lot, Tim.

That was our final question. I would like to turn the floor back over to Rob Sands for any additional remarks.

Thanks everyone for joining our call today. Needless to say, it’s an exciting time to be in Constellation. We believe we have very significant growth opportunity within our beer business and glass of course is a critical component of our beer production. As such, I’m very pleased with the final outcome of our long-term glass strategy with key industry players in order to ensure that we have the quality, capability and flexibility to meet the growing demand for our iconic beer portfolio. We also have solid momentum for our wine and spirits business as we head into the second half of the year, and we are well positioned for a great holiday selling season. Our next quarterly call is scheduled after the New Year, so please be sure to enjoy some of our excellent products during the holidays. So thanks again everybody for your participation.