1
. BASIS OF PRESENTATION
Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We have prepared the consolidated financial statements included herein, 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 our opinion, all adjustments necessary to present fairly our financial information. 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 our Annual Report on Form 10-K for the fiscal year ended
February 28, 2019
(the “2019 Annual Report”), and include the recently adopted accounting guidance described in Note
2
and Note
15
herein. Results of operations for interim periods are not necessarily indicative of annual results.
2
. ACCOUNTING GUIDANCE
Recently adopted accounting guidance
In February 2016, the FASB issued guidance for the accounting for leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.
We adopted the guidance on March 1, 2019, using the modified retrospective approach, accordingly, prior period balances and disclosures have not been restated. We elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions regarding lease identification, classification, and initial direct costs incurred.
We finalized the implementation of changes to our accounting policies, systems and controls, including a new leasing software to capture the required data for accounting and disclosure. The adoption of this guidance resulted in the recognition of operating lease right-of-use assets of
$592.5 million
and operating lease liabilities of
$619.9 million
as of March 1, 2019, and did not have a material impact on our results of operations or liquidity.
For additional information on leases, refer to Note
15
.
3
. INVENTORIES
Inventories are stated at the lower of cost (primarily computed in accordance with the first-in, first-out method) or net realizable value. Elements of cost include materials, labor, and overhead and consist of the following:
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May 31,
2019
(1)
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|
February 28,
2019
|
(in millions)
|
|
|
|
Raw materials and supplies
|
$
|
172.8
|
|
|
$
|
182.6
|
|
In-process inventories
|
884.7
|
|
|
1,480.5
|
|
Finished case goods
|
436.6
|
|
|
467.3
|
|
|
$
|
1,494.1
|
|
|
$
|
2,130.4
|
|
|
|
(1)
|
The inventory balance at
May 31, 2019
, excludes amounts reclassified to assets held for sale (see Note
4
).
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Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
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5
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FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Related party transactions and arrangements
We have an equally-owned glass production plant joint venture with Owens-Illinois. We have entered into various contractual arrangements with affiliates of Owens-Illinois primarily for the purchase of glass bottles used largely in our imported and craft beer portfolios. Amounts purchased under these arrangements were
$88.5 million
and
$69.0 million
for the
three months ended
May 31, 2019
, and
May 31, 2018
, respectively.
4
. WINE AND SPIRITS TRANSFORMATION
Wine and Spirits Transaction
In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business, including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices, and facilities (the “Wine and Spirits Transaction”). The Wine and Spirits Transaction is subject to the satisfaction of certain closing conditions, including receipt of required regulatory approval, and is expected to close in the second half of calendar 2019. We expect to use the net cash proceeds from the Wine and Spirits Transaction primarily to reduce outstanding borrowings.
In connection with the Wine and Spirits Transaction, certain Wine and Spirits segment net assets have met the held for sale criteria as of
May 31, 2019
. We have concluded that
no
impairment existed as of
May 31, 2019
. The carrying value of assets held for sale consists of the following:
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May 31,
2019
|
(in millions)
|
|
Assets
|
|
Inventories
|
$
|
658.8
|
|
Prepaid expenses and other
|
10.1
|
|
Assets held for sale - current
|
668.9
|
|
|
|
Property, plant, and equipment
|
179.7
|
|
Goodwill
|
397.3
|
|
Intangible assets
|
347.2
|
|
Other assets
|
1.5
|
|
Assets held for sale
|
925.7
|
|
|
|
Liabilities
|
|
Accounts payable
|
7.8
|
|
Other accrued expenses and liabilities
|
26.3
|
|
Deferred income taxes and other liabilities
|
0.1
|
|
Liabilities held for sale
(1)
|
34.2
|
|
Net assets held for sale
|
$
|
1,560.4
|
|
|
|
(1)
|
Liabilities held for sale are included in the Consolidated Balance Sheet as of May 31, 2019, within the respective liability line items noted above.
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Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
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6
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FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Wine and Spirits Optimization
We recognized charges in connection with our ongoing efforts to gain efficiencies and reduce our cost structure within the Wine and Spirits segment as follows:
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Results of Operations Location
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For the Three Months Ended
May 31, 2019
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(in millions)
|
|
|
|
Loss on inventory write-downs
|
Cost of product sold
|
|
$
|
27.2
|
|
Contract termination costs
|
Cost of product sold
|
|
15.8
|
|
Employee termination costs
|
Selling, general, and administrative expenses
|
|
11.9
|
|
Other costs
|
Selling, general, and administrative expenses
|
|
6.3
|
|
|
|
|
$
|
61.2
|
|
5
. DERIVATIVE INSTRUMENTS
Overview
Our risk management and derivative accounting policies are presented in Notes 1 and 6 of our consolidated financial statements included in our 2019 Annual Report and have not changed significantly for the
three months ended
May 31, 2019
.
We have investments in certain equity securities which provide us with the option to purchase an additional ownership interest in the equity securities of Canopy (see Note
9
). These investments are included in securities measured at fair value and are accounted for at fair value, with the net gain (loss) from the changes in fair value of these investments recognized in income (loss) from unconsolidated investments (see Note
6
).
The aggregate notional value of outstanding derivative instruments is as follows:
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May 31,
2019
|
|
February 28,
2019
|
(in millions)
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|
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Derivative instruments designated as hedging instruments
|
|
|
|
Foreign currency contracts
|
$
|
1,510.1
|
|
|
$
|
1,579.3
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|
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|
Derivative instruments not designated as hedging instruments
|
|
|
|
Foreign currency contracts
|
$
|
645.4
|
|
|
$
|
460.3
|
|
Commodity derivative contracts
|
$
|
271.3
|
|
|
$
|
284.7
|
|
Credit risk
We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk is limited to the fair value of the derivative contracts. To manage this risk, we contract only with major financial institutions that have earned investment-grade credit ratings and with whom we have standard International Swaps and Derivatives Association agreements which allow for net settlement of the derivative contracts. We have also established counterparty credit guidelines that are regularly monitored. Because of these safeguards, we believe the risk of loss from counterparty default to be immaterial.
In addition, our derivative instruments are not subject to credit rating contingencies or collateral requirements. As of
May 31, 2019
, the estimated fair value of derivative instruments in a net liability position due to counterparties was
$17.2 million
. If we were required to settle the net liability position under these derivative instruments on
May 31, 2019
, we would have had sufficient available liquidity on hand to satisfy this obligation.
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Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
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7
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FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Results of period derivative activity
The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see Note
6
):
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Assets
|
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Liabilities
|
|
May 31,
2019
|
|
February 28,
2019
|
|
|
May 31,
2019
|
|
February 28,
2019
|
(in millions)
|
|
|
|
|
|
|
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|
Derivative instruments designated as hedging instruments
|
Foreign currency contracts:
|
Prepaid expenses and other
|
$
|
17.0
|
|
|
$
|
14.1
|
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|
Other accrued expenses and liabilities
|
$
|
11.0
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|
|
$
|
8.8
|
|
Other assets
|
$
|
18.3
|
|
|
$
|
22.1
|
|
|
Deferred income taxes and other liabilities
|
$
|
9.3
|
|
|
$
|
6.3
|
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Derivative instruments not designated as hedging instruments
|
Foreign currency contracts:
|
Prepaid expenses and other
|
$
|
1.2
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|
$
|
2.0
|
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|
Other accrued expenses and liabilities
|
$
|
2.3
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|
|
$
|
0.6
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|
Commodity derivative contracts:
|
Prepaid expenses and other
|
$
|
3.0
|
|
|
$
|
6.1
|
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|
Other accrued expenses and liabilities
|
$
|
11.8
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|
$
|
6.1
|
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Other assets
|
$
|
1.0
|
|
|
$
|
2.6
|
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|
Deferred income taxes and other liabilities
|
$
|
9.5
|
|
|
$
|
5.5
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|
The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as Other Comprehensive Income (Loss) (“OCI”), net of income tax effect, is as follows:
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Derivative Instruments in
Designated Cash Flow
Hedging Relationships
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Net
Gain (Loss)
Recognized
in OCI
|
|
Location of Net Gain (Loss)
Reclassified from
AOCI to Income (Loss)
|
|
Net
Gain (Loss)
Reclassified
from AOCI
to Income (Loss)
|
(in millions)
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|
For the Three Months Ended May 31, 2019
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Foreign currency contracts
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|
$
|
(2.4
|
)
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Sales
|
|
$
|
—
|
|
|
|
|
|
Cost of product sold
|
|
3.6
|
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|
$
|
(2.4
|
)
|
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|
$
|
3.6
|
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|
|
For the Three Months Ended May 31, 2018
|
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|
|
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|
Foreign currency contracts
|
|
$
|
(44.9
|
)
|
|
Sales
|
|
$
|
0.1
|
|
|
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|
Cost of product sold
|
|
4.1
|
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|
|
$
|
(44.9
|
)
|
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|
|
$
|
4.2
|
|
We expect
$12.3 million
of net gains, net of income tax effect, to be reclassified from accumulated other comprehensive income (loss) (“AOCI”) to our results of operations within the next 12 months.
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Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
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8
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FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
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The effect of our undesignated derivative instruments on our results of operations is as follows:
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Derivative Instruments Not
Designated as Hedging Instruments
|
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|
|
Location of Net Gain (Loss)
Recognized in Income (Loss)
|
|
Net
Gain (Loss)
Recognized
in Income (Loss)
|
(in millions)
|
|
|
|
|
|
|
For the Three Months Ended May 31, 2019
|
|
|
|
|
|
|
Commodity derivative contracts
|
|
|
|
Cost of product sold
|
|
$
|
(15.9
|
)
|
Foreign currency contracts
|
|
|
|
Selling, general, and administrative expenses
|
|
(3.8
|
)
|
|
|
|
|
|
|
$
|
(19.7
|
)
|
|
|
|
|
|
|
|
For the Three Months Ended May 31, 2018
|
|
|
|
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|
|
Commodity derivative contracts
|
|
|
|
Cost of product sold
|
|
$
|
15.4
|
|
Foreign currency contracts
|
|
|
|
Selling, general, and administrative expenses
|
|
(1.9
|
)
|
|
|
|
|
|
|
$
|
13.5
|
|
6
. FAIR VALUE OF FINANCIAL INSTRUMENTS
Authoritative guidance establishes a framework for measuring fair value, including 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 includes three levels:
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•
|
Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
|
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•
|
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
|
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•
|
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.
|
Fair value methodology
The following methods and assumptions are used to estimate the fair value for each class of our financial instruments:
Foreign currency and commodity derivative contracts
The fair value is estimated using market-based inputs, obtained from independent pricing services, entered into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, market commodity prices, interest-rate yield curves, and currency volatilities, as applicable (Level 2 fair value measurement).
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Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
9
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FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Canopy investments
Equity securities
–
The fair value of the November 2017 Canopy Warrants and the November 2018 Canopy Warrants (both as defined in Note
9
) is estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement). Refer to Note 9, for information on a modification of the November 2018 Canopy Warrants that occurred in June 2019. The inputs used to estimate the fair value of the warrants are as follows:
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|
May 31, 2019
|
|
February 28, 2019
|
|
November
2018 Canopy
Warrants
|
|
November
2017 Canopy
Warrants
|
|
November
2018 Canopy
Warrants
|
|
November
2017 Canopy
Warrants
|
Issue date exercise price
(1)
|
C$
|
50.40
|
|
|
C$
|
12.98
|
|
|
C$
|
50.40
|
|
|
C$
|
12.98
|
|
Valuation date stock price
(1)
|
C$
|
54.48
|
|
|
C$
|
54.48
|
|
|
C$
|
62.38
|
|
|
C$
|
62.38
|
|
Expected life
(2)
|
2.4 years
|
|
|
0.9 years
|
|
|
2.7 years
|
|
|
1.2 years
|
|
Expected volatility
(3)
|
72.7
|
%
|
|
76.2
|
%
|
|
79.3
|
%
|
|
87.8
|
%
|
Risk-free interest rate
(4)
|
1.4
|
%
|
|
1.6
|
%
|
|
1.8
|
%
|
|
1.8
|
%
|
Expected dividend yield
(5)
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
0.0
|
%
|
|
|
(1)
|
Based on the closing market price for Canopy common stock on the Toronto Stock Exchange (“TSX”) as of the applicable date.
|
|
|
(2)
|
Based on the expiration date of the warrants.
|
|
|
(3)
|
Based on historical volatility levels of the underlying equity security.
|
|
|
(4)
|
Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expected life.
|
|
|
(5)
|
Based on historical dividend levels.
|
Debt securities, Convertible
–
In June 2018, we acquired convertible debt securities issued by Canopy for
C$200.0 million
, or
$150.5 million
(the “Canopy Debt Securities”). We have elected the fair value option to account for the Canopy Debt Securities, which at that time, provided the greatest level of consistency with the accounting treatment for the November 2017 Canopy Warrants. Interest income on the Canopy Debt Securities is calculated using the effective interest method and is recognized separately from the changes in fair value in interest expense. The Canopy Debt Securities have a contractual maturity of five years from the date of issuance but may be converted prior to maturity by either party upon the occurrence of certain events. At settlement, the Canopy Debt Securities can be settled at the option of the issuer, in cash, equity shares of the issuer, or a combination thereof. The fair value is estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes an estimate of the credit spread based on the implied spread as of the issuance date of the notes. The inputs used to estimate the fair value of the Canopy Debt Securities are as follows:
|
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|
|
|
|
|
|
|
May 31,
2019
|
|
February 28,
2019
|
Conversion price
(1)
|
C$
|
48.17
|
|
|
C$
|
48.17
|
|
Valuation date stock price
(2)
|
C$
|
54.48
|
|
|
C$
|
62.38
|
|
Remaining term
(3)
|
4.1 years
|
|
|
4.4 years
|
|
Expected volatility
(4)
|
47.6
|
%
|
|
45.9
|
%
|
Risk-free interest rate
(5)
|
1.4
|
%
|
|
1.8
|
%
|
Expected dividend yield
(6)
|
0.0
|
%
|
|
0.0
|
%
|
|
|
(1)
|
Based on the rate which the Canopy Debt Securities may be converted into equity shares, or the equivalent amount of cash, at the option of the issuer.
|
|
|
(2)
|
Based on the closing market price for Canopy common stock on the TSX as of the applicable date.
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Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
10
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FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
(3)
|
Based on the contractual maturity date of the notes.
|
|
|
(4)
|
Based on historical volatility levels of the underlying equity security reduced to account for certain risks not incorporated into the option-pricing model.
|
|
|
(5)
|
Based on the implied yield currently available on Canadian Treasury zero coupon issues with a term equal to the remaining contractual term of the debt securities.
|
|
|
(6)
|
Based on historical dividend levels.
|
Short-term borrowings
The revolving credit facility under our senior credit facility is a variable interest rate bearing note which includes a fixed margin which is adjustable based upon our debt rating (as defined in our senior credit facility). Its fair value is estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions (Level 2 fair value measurement). The remaining instruments, including our commercial paper, are variable interest rate bearing notes for which the carrying value approximates the fair value.
Long-term debt
The term loans under our 2018 Credit Agreement and our Term Credit Agreement (both as defined in Note
12
) are variable interest rate bearing notes which include a fixed margin which is adjustable based upon our debt rating. The senior floating rate notes are variable interest rate bearing notes which include a fixed margin. The fair value of the term loans and the senior floating rate notes are estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions (Level 2 fair value measurement). The fair value of the remaining long-term debt, which is primarily fixed interest rate, is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings, approximate fair value as of
May 31, 2019
, and
February 28, 2019
, due to the relatively short maturity of these instruments. As of
May 31, 2019
, the carrying amount of long-term debt, including the current portion, was
$12,811.2 million
, compared with an estimated fair value of
$13,199.1 million
. As of
February 28, 2019
, the carrying amount of long-term debt, including the current portion, was
$12,825.0 million
, compared with an estimated fair value of
$12,768.5 million
.
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|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
11
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Recurring basis measurements
The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Quoted
Prices in
Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
(in millions)
|
|
|
|
|
|
|
|
May 31, 2019
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
36.5
|
|
|
$
|
—
|
|
|
$
|
36.5
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
4.0
|
|
Equity securities
(1)
|
$
|
—
|
|
|
$
|
2,228.3
|
|
|
$
|
—
|
|
|
$
|
2,228.3
|
|
Canopy Debt Securities
(1)
|
$
|
—
|
|
|
$
|
181.2
|
|
|
$
|
—
|
|
|
$
|
181.2
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
22.6
|
|
|
$
|
—
|
|
|
$
|
22.6
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
21.3
|
|
|
$
|
—
|
|
|
$
|
21.3
|
|
|
|
|
|
|
|
|
|
February 28, 2019
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
38.2
|
|
|
$
|
—
|
|
|
$
|
38.2
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
8.7
|
|
|
$
|
—
|
|
|
$
|
8.7
|
|
Equity securities
(1)
|
$
|
—
|
|
|
$
|
3,023.2
|
|
|
$
|
—
|
|
|
$
|
3,023.2
|
|
Canopy Debt Securities
(1)
|
$
|
—
|
|
|
$
|
211.5
|
|
|
$
|
—
|
|
|
$
|
211.5
|
|
Liabilities:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
15.7
|
|
|
$
|
—
|
|
|
$
|
15.7
|
|
Commodity derivative contracts
|
$
|
—
|
|
|
$
|
11.6
|
|
|
$
|
—
|
|
|
$
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unrealized net gain (loss) from the changes in fair value of our securities measured at fair value recognized in income (loss) from unconsolidated investments are as follows:
|
|
|
For the Three Months Ended
|
|
|
May 31, 2019
|
|
May 31, 2018
|
|
(in millions)
|
|
|
|
|
November 2017 Canopy Investment
(i)
|
$
|
—
|
|
|
$
|
132.9
|
|
|
November 2017 Canopy Warrants
|
(134.1
|
)
|
|
125.4
|
|
|
November 2018 Canopy Warrants
|
(660.8
|
)
|
|
—
|
|
|
Canopy Debt Securities
|
(32.6
|
)
|
|
—
|
|
|
|
$
|
(827.5
|
)
|
|
$
|
258.3
|
|
|
(i)
|
Accounted for at fair value from the date of investment in November 2017 through October 31, 2018. Accounted for under the equity method from November 1, 2018. For additional information on the November 2017 Canopy Investment, refer to Note 9.
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
12
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
7
. GOODWILL
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beer
|
|
Wine and Spirits
|
|
Consolidated
|
(in millions)
|
|
|
|
|
|
Balance, February 28, 2018
|
$
|
5,157.6
|
|
|
$
|
2,925.5
|
|
|
$
|
8,083.1
|
|
Purchase accounting allocations
(1)
|
22.3
|
|
|
2.7
|
|
|
25.0
|
|
Foreign currency translation adjustments
|
(12.0
|
)
|
|
(7.3
|
)
|
|
(19.3
|
)
|
Balance, February 28, 2019
|
5,167.9
|
|
|
2,920.9
|
|
|
8,088.8
|
|
Purchase accounting allocations
(2)
|
—
|
|
|
72.0
|
|
|
72.0
|
|
Foreign currency translation adjustments
|
(2.4
|
)
|
|
(5.1
|
)
|
|
(7.5
|
)
|
Reclassified to assets held for sale
(3)
|
—
|
|
|
(397.3
|
)
|
|
(397.3
|
)
|
Balance, May 31, 2019
|
$
|
5,165.5
|
|
|
$
|
2,590.5
|
|
|
$
|
7,756.0
|
|
|
|
(1)
|
Purchase accounting allocations associated primarily with the acquisition of
F
our Corners (Beer). See defined acquisition term below.
|
|
|
(2)
|
Preliminary purchase accounting allocations associated primarily with the acquisition of Nelson’s Green Brier (Wine and Spirits). See defined acquisition term below.
|
|
|
(3)
|
In connection with the Wine and Spirits Transaction, goodwill associated with the business being sold was reclassified to assets held for sale based on the relative fair values of the portion of the business being sold and the remaining wine and spirits portfolio. The relative fair values were determined using the income approach based on assumptions, including projected revenue growth rates, terminal growth rate, and discount rate and other projected financial information.
|
Acquisitions
Nelson’s Green Brier
In May 2019, we increased our ownership interest in Nelson’s Green Brier Distillery, LLC (“Nelson’s Green Brier”) to
75%
, resulting in consolidation of the business and recognition of a noncontrolling interest. This acquisition included a portfolio of award-winning, Tennessee-based craft bourbon and whiskey products. The preliminary fair value of the business combination was allocated primarily to goodwill, inventory, and property, plant, and equipment. The results of operations of Nelson’s Green Brier are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
We recognized a gain of
$11.8 million
for the
three months ended
May 31, 2019
, related to the remeasurement of our previously held
20%
equity interest in Nelson’s Green Brier to the acquisition-date fair value. This gain is included in selling, general, and administrative expenses within our consolidated results of operations.
Four Corners
In July 2018, we acquired Four Corners Brewing Company LLC, which included a portfolio of high-quality, dynamic, and bicultural, Texas-based craft beers (“Four Corners”). The purchase price was primarily allocated to goodwill, property, plant, and equipment, and trademarks, plus an earn-out over five years based on the performance of the brands. The results of operations of Four Corners are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition.
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
13
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
8
. INTANGIBLE ASSETS
The major components of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2019
|
|
February 28, 2019
|
|
Gross
Carrying
Amount
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Net
Carrying
Amount
|
(in millions)
|
|
|
|
|
|
|
|
Amortizable intangible assets
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
89.9
|
|
|
$
|
37.8
|
|
|
$
|
89.9
|
|
|
$
|
39.1
|
|
Other
|
20.4
|
|
|
0.7
|
|
|
20.5
|
|
|
0.9
|
|
Total
|
$
|
110.3
|
|
|
38.5
|
|
|
$
|
110.4
|
|
|
40.0
|
|
|
|
|
|
|
|
|
|
Nonamortizable intangible assets
|
|
|
|
|
|
|
|
Trademarks
(1)
|
|
|
2,809.0
|
|
|
|
|
3,158.1
|
|
Total intangible assets
|
|
|
$
|
2,847.5
|
|
|
|
|
$
|
3,198.1
|
|
|
|
(1)
|
The intangible assets balance at
May 31, 2019
, excludes trademarks reclassified to assets held for sale.
|
We did not incur costs to renew or extend the term of acquired intangible assets for the
three months ended
May 31, 2019
, and
May 31, 2018
. Net carrying amount represents the gross carrying value net of accumulated amortization.
9
. EQUITY METHOD INVESTMENTS
Our equity method investments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2019
|
|
February 28, 2019
|
|
Carrying Value
|
|
Ownership Percentage
|
|
Carrying Value
|
|
Ownership Percentage
|
(in millions)
|
|
|
|
|
|
|
|
Canopy Equity Method Investment
|
$
|
3,279.3
|
|
|
35.8
|
%
|
|
$
|
3,332.1
|
|
|
36.0
|
%
|
Other equity method investments
|
151.1
|
|
|
20%-50%
|
|
|
133.5
|
|
|
20%-50%
|
|
|
$
|
3,430.4
|
|
|
|
|
$
|
3,465.6
|
|
|
|
In November 2017, we acquired
18.9 million
common shares, which represented a
9.9%
ownership interest in Ontario, Canada-based Canopy Growth Corporation (the “November 2017 Canopy Investment”), a public company and leading provider of medicinal and recreational cannabis products (“Canopy”), plus warrants which give us the option to purchase an additional
18.9 million
common shares of Canopy (the “November 2017 Canopy Warrants”) for
C$245.0 million
, or
$191.3 million
. The November 2017 Canopy Warrants were issued with an exercise price of
C$12.98
per warrant share and are exercisable as of May 31, 2019. These warrants expire in May 2020
.
The November 2017 Canopy Investment was accounted for at fair value from the date of investment through October 31, 2018. From November 1, 2018, the November 2017 Canopy Investment has been accounted for under the equity method (see “Canopy Equity Method Investment” below). The November 2017 Canopy Warrants have been accounted for at fair value from the date of investment.
On November 1, 2018, we increased our ownership interest in Canopy by acquiring an additional
104.5 million
common shares (the “November 2018 Canopy Investment”) (see Canopy Equity Method Investment below), plus warrants which give us the option to purchase an additional
139.7 million
common shares of Canopy (the “November 2018 Canopy Warrants”, and together with the November 2018 Canopy Investment, the “November 2018 Canopy Transaction”) for
C$5,078.7 million
, or
$3,869.9 million
.
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
14
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The November 2018 Canopy Warrants consist of
88.5 million
warrants (the “Tranche A Warrants”) and
51.2 million
warrants (the “Tranche B Warrants”). The Tranche A Warrants are immediately exercisable at an exercise price of
C$50.40
per warrant share. The Tranche B Warrants are exercisable upon the exercise, in full, of the Tranche A Warrants and at an exercise price based on the volume-weighted average of the closing market price of Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date. The November 2018 Canopy Warrants expire in November 2021 and have been accounted for at fair value from the date of investment.
On November 1, 2018, our ownership interest in Canopy increased to
36.6%
which allows us to exercise significant influence, but not control, over Canopy. Therefore, we account for the November 2017 Canopy Investment and the November 2018 Canopy Investment, each of which represents an investment in common shares of Canopy, collectively, under the equity method (the “Canopy Equity Method Investment”). We recognize equity in earnings (losses) for this investment on a two-month lag. Accordingly, we recognized
$(106.0) million
of equity in earnings (losses) from Canopy’s results of operations for the period January 1, 2019, through March 31, 2019, in our consolidated financial statements for the
three months ended
May 31, 2019
. Equity in earnings (losses) from the Canopy Equity Method Investment and related activities include, among other items, the amortization of the fair value adjustments associated with the definite-lived intangible assets over their estimated useful lives, the flow through of inventory step-up, and unrealized gains associated with changes in our Canopy ownership percentage resulting from periodic equity issuances made by Canopy.
Canopy has various convertible equity securities outstanding, including primarily equity awards granted to its employees, and options and warrants issued to various third parties, including our November 2017 Canopy Warrants and November 2018 Canopy Warrants. As of
May 31, 2019
, the conversion of Canopy equity securities held by its employees and/or held by other third parties would not have a significant effect on our share of Canopy’s reported earnings or losses. Additionally, under an amended and restated investor rights agreement, we have the option to purchase additional common shares of Canopy at the then-current price of the underlying equity security to allow us to maintain our relative ownership interest. The exercise of our November 2017 Canopy Warrants as of
May 31, 2019
, also would not have a significant effect on our share of Canopy’s reported earnings or losses. However, as of
May 31, 2019
, the exercise of all of the November 2017 Canopy Warrants and the November 2018 Canopy Warrants held by us would result in an increase in our ownership interest in Canopy to greater than 50% and the consolidation of Canopy’s results of operations in our consolidated results of operations with the recognition of an associated noncontrolling ownership interest, as appropriate. This could have a significant effect on our share of Canopy’s reported earnings or losses. As of
May 31, 2019
, the exercise of all Canopy warrants held by us would have required a cash outflow of approximately
$5.6 billion
based on the terms of the November 2017 Canopy Warrants and the November 2018 Canopy Warrants. Additionally, as of
May 31, 2019
, the fair value of the Canopy Equity Method Investment was
$4,973.1 million
based on the closing price of the underlying equity security as of that date.
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
15
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The following table presents summarized financial information for Canopy presented in accordance with U.S. GAAP. The amounts shown represent 100% of Canopy’s results of operations from January 1, 2019, through March 31, 2019. We recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of Canopy’s losses from January through March 2019, which was Canopy’s fourth quarter fiscal 2019 results, in our first quarter fiscal 2020 results.
|
|
|
|
|
|
|
|
For the Three Months Ended May 31,
|
|
2019
|
|
2018
|
(in millions)
|
|
|
|
Net sales
|
$
|
70.7
|
|
|
NA
|
Gross profit
|
$
|
11.3
|
|
|
NA
|
Net gain (loss)
|
$
|
(268.9
|
)
|
|
NA
|
Net gain (loss) attributable to Canopy
|
$
|
(284.1
|
)
|
|
NA
|
|
|
|
|
NA = Not Applicable
|
|
|
|
Subsequent event
In June 2019, the Canopy shareholders approved the modification of the terms of the November 2018 Canopy Warrants and certain other rights, and the other required approvals necessary for the modifications to be effective were granted. These changes are the result of Canopy’s intention to acquire Acreage Holdings, Inc. (“Acreage”) upon U.S. Federal cannabis legalization, subject to certain conditions. As a result of the modifications, we continue to have the option to purchase an additional
139.7 million
common shares of Canopy upon exercise of the warrants originally received in November 2018; however, this option now consists of three tranches of warrants, including
88.5 million
warrants (the “New Tranche A Warrants”),
38.4 million
warrants (the “New Tranche B Warrants”), and
12.8 million
warrants (the “New Tranche C Warrants”, and collectively with the New Tranche A Warrants and the New Tranche B Warrants, the “New November 2018 Canopy Warrants”). The New Tranche A Warrants have an exercise price of
C$50.40
per warrant share and are currently exercisable, but now expire November 1, 2023. The New Tranche B Warrants now have an exercise price of
C$76.68
per warrant share and the New Tranche C Warrants have an exercise price based on the volume-weighted average of the closing market price of Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date. The New Tranche B Warrants and the New Tranche C Warrants now have an expiration date of November 1, 2026. We are currently assessing the impact of the modification of the November 2018 Canopy Warrants and preliminarily expect to recognize a material gain for the second quarter fiscal 2020. If Canopy exercises its right to acquire the shares of Acreage and we were to exercise all of our outstanding November 2017 Canopy Warrants and the New November 2018 Canopy Warrants, our ownership interest in Canopy would no longer be expected to be greater than 50 percent.
10
. OTHER ASSETS
The major components of other assets are as follows:
|
|
|
|
|
|
|
|
|
|
May 31,
2019
|
|
February 28,
2019
|
(in millions)
|
|
|
|
Operating lease right-of-use asset
|
$
|
575.3
|
|
|
$
|
—
|
|
Other
|
104.7
|
|
|
109.7
|
|
|
$
|
680.0
|
|
|
$
|
109.7
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
16
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
11
. OTHER ACCRUED EXPENSES AND LIABILITIES
The major components of other accrued expenses and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
May 31,
2019
|
|
February 28,
2019
|
(in millions)
|
|
|
|
Promotions and advertising
|
$
|
182.6
|
|
|
$
|
181.2
|
|
Salaries, commissions, and payroll benefits and withholdings
|
98.1
|
|
|
163.1
|
|
Operating lease liability
|
75.6
|
|
|
—
|
|
Deferred revenue
|
68.2
|
|
|
15.0
|
|
Accrued interest
|
65.0
|
|
|
107.3
|
|
Accrued excise taxes
|
32.2
|
|
|
21.0
|
|
Other
|
186.7
|
|
|
202.8
|
|
|
$
|
708.4
|
|
|
$
|
690.4
|
|
12
. BORROWINGS
Borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31, 2019
|
|
February 28,
2019
|
|
Current
|
|
Long-term
|
|
Total
|
|
Total
|
(in millions)
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
Senior credit facility, Revolving credit loan
|
$
|
55.0
|
|
|
|
|
|
|
|
$
|
59.0
|
|
Commercial paper
|
531.4
|
|
|
|
|
|
|
|
732.5
|
|
|
$
|
586.4
|
|
|
|
|
|
|
|
|
$
|
791.5
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
Senior credit facility, Term loan
|
$
|
5.0
|
|
|
$
|
486.6
|
|
|
$
|
491.6
|
|
|
$
|
492.8
|
|
Term loan credit facilities
|
50.0
|
|
|
1,424.1
|
|
|
1,474.1
|
|
|
1,486.4
|
|
Senior notes
|
998.6
|
|
|
9,822.1
|
|
|
10,820.7
|
|
|
10,816.9
|
|
Other
|
11.8
|
|
|
13.0
|
|
|
24.8
|
|
|
28.9
|
|
|
$
|
1,065.4
|
|
|
$
|
11,745.8
|
|
|
$
|
12,811.2
|
|
|
$
|
12,825.0
|
|
Senior credit facility
The Company, CB International Finance S.à r.l., a wholly-owned subsidiary of ours (“CB International”), certain of the Company’s subsidiaries as guarantors, Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders are parties to a credit agreement, as amended and restated (the “2018 Credit Agreement”). The 2018 Credit Agreement provides for aggregate credit facilities of
$2.5 billion
.
Term Credit Agreement
The Company, the Administrative Agent, and certain other lenders are parties to a term loan credit agreement (the “Term Credit Agreement”). The Term Credit Agreement provides for aggregate credit facilities of
$1.5 billion
, consisting of a
$500.0 million
three-year term loan facility (the “Three-Year Term Facility”) and a
$1.0 billion
five-year term loan facility (the “Five-Year Term Facility”).
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
17
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
As of
May 31, 2019
, aggregate credit facilities under the 2018 Credit Agreement and the Term Credit Agreement consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Maturity
|
|
|
Amount
|
|
Maturity
|
(in millions)
|
|
|
|
|
|
|
|
|
2018 Credit Agreement
|
|
|
|
|
Term Credit Agreement
|
|
|
|
Revolving Credit Facility
(1) (2)
|
$
|
2,000.0
|
|
|
Sept 14, 2023
|
|
Three-Year Term Facility
(1) (3)
|
$
|
500.0
|
|
|
Nov 1, 2021
|
U.S. Term A-1 Facility
(1) (3)
|
500.0
|
|
|
July 14, 2024
|
|
Five-Year Term Facility
(1) (3)
|
1,000.0
|
|
|
Nov 1, 2023
|
|
$
|
2,500.0
|
|
|
|
|
|
$
|
1,500.0
|
|
|
|
|
|
(1)
|
Contractual interest rate varies based on our debt rating (as defined in the respective agreement) and is a function of LIBOR plus a margin, or the base rate plus a margin, or, in certain circumstances where LIBOR cannot be adequately ascertained or available, an alternative benchmark rate plus a margin.
|
|
|
(2)
|
We and/or CB International are the borrower under the
$2,000.0 million
Revolving Credit Facility. Includes a sub-facility for letters of credit of up to
$200.0 million
.
|
|
|
(3)
|
We are the borrower under the U.S. Term A-1 loan facility, the Three-Year Term Facility, and the Five-Year Term Facility.
|
As of
May 31, 2019
, information with respect to borrowings under the 2018 Credit Agreement and the Term Credit Agreement is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Credit Agreement
|
|
Term Credit Agreement
|
|
Revolving
Credit
Facility
|
|
U.S.
Term A-1
Facility
(1)
|
|
Three-Year
Term
Facility
(1)
|
|
Five-Year
Term
Facility
(1)
|
(in millions)
|
|
|
|
|
|
|
|
Outstanding borrowings
|
$
|
55.0
|
|
|
$
|
491.6
|
|
|
$
|
499.6
|
|
|
$
|
974.5
|
|
Interest rate
|
3.6
|
%
|
|
4.0
|
%
|
|
3.6
|
%
|
|
3.7
|
%
|
LIBOR margin
|
1.13
|
%
|
|
1.50
|
%
|
|
1.13
|
%
|
|
1.25
|
%
|
Outstanding letters of credit
|
$
|
12.3
|
|
|
|
|
|
|
|
Remaining borrowing capacity
(2)
|
$
|
1,400.6
|
|
|
|
|
|
|
|
|
|
(1)
|
Outstanding term loan facility borrowings are net of unamortized debt issuance costs.
|
|
|
(2)
|
Net of outstanding revolving credit facility borrowings and outstanding letters of credit under the 2018 Credit Agreement and outstanding borrowings under our commercial paper program of
$532.1 million
(excluding unamortized discount) (see “Commercial paper program”).
|
Commercial paper program
We have a commercial paper program which provides for the issuance of up to an aggregate principal amount of
$2.0 billion
of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under our 2018 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under our 2018 Credit Agreement. As of
May 31, 2019
, we had
$531.4 million
of outstanding borrowings, net of unamortized discount, under our commercial paper program with a weighted average annual interest rate of
2.9%
and a weighted average remaining term of
17 days
.
Subsequent Event
2019 Term Credit Agreement
In June 2019, the Company and Bank of America, N.A., as Administrative Agent and lender (the “Lender”) entered into a term loan credit agreement (the “2019 Term Credit Agreement”). The 2019 Term Credit Agreement provides for the creation of a
$491.3 million
five-year term loan facility (the “2019 Five-Year Term Facility”) maturing on June 28, 2024. The 2019 Five-Year Term Facility will be repaid in quarterly payments of principal equal to 1.25% of the original aggregate principal amount of the 2019 Five-Year Term Facility, with the balance due and payable at maturity. We plan to use proceeds from
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
18
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
borrowings under the 2019 Term Credit Agreement to repay in full the U.S. Term A-1 Facility under the 2018 Credit Agreement.
The obligations under the 2019 Term Credit Agreement are guaranteed by certain subsidiaries of the Company. The guarantors under the 2019 Term Credit Agreement are the same subsidiary guarantors as under the 2018 Credit Agreement. We and our subsidiaries are subject to covenants that are contained in the 2019 Term Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness), additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, 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 leverage ratio.
13
. INCOME TAXES
Our effective tax rate for the
three months ended
May 31, 2019
was
43.9%
of tax benefit as compared with
17.3%
of tax expense for the
three months ended
May 31, 2018
.
For the
three months ended
May 31, 2019
, our effective tax rate was higher than the federal statutory rate of 21% primarily due to the net unrealized loss from the changes in fair value of our investments in Canopy, which has resulted in an overall net loss for the quarter. Our effective tax rate benefited from the following:
|
|
•
|
the reversal of valuation allowances for capital loss carryforwards in connection with the Wine and Spirits Transaction;
|
|
|
•
|
the recognition of a net income tax benefit from stock-based compensation award activity; and
|
|
|
•
|
lower effective tax rates applicable to our foreign businesses.
|
For the
three months ended
May 31, 2018
, our effective tax rate was lower than the federal statutory rate of 21% primarily due to:
|
|
•
|
lower effective tax rates applicable to our foreign businesses;
|
|
|
•
|
the reversal of valuation allowances in connection with the sale of our Accolade Wine Investment (see Note
20
); and
|
|
|
•
|
the recognition of a net income tax benefit from stock-based compensation award activity.
|
14
. DEFERRED INCOME TAXES AND OTHER LIABILITIES
The major components of deferred income taxes and other liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
May 31,
2019
|
|
February 28,
2019
|
(in millions)
|
|
|
|
Deferred income taxes
|
$
|
815.4
|
|
|
$
|
1,029.7
|
|
Operating lease liability
|
527.0
|
|
|
—
|
|
Unrecognized tax benefit liabilities
|
254.8
|
|
|
239.0
|
|
Long-term income tax payable
|
95.4
|
|
|
95.4
|
|
Other
|
85.2
|
|
|
106.6
|
|
|
$
|
1,777.8
|
|
|
$
|
1,470.7
|
|
15
. LEASES
General
We primarily lease certain vineyards, office and production facilities, warehouses, production equipment, and vehicles. We assess service arrangements to determine if an asset is explicitly or
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
19
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
implicitly specified in the agreement and if we have the right to control the use of the identified asset. We have concluded that certain grape purchasing arrangements associated with the purchase of grape production yielded from a specified block of a vineyard and certain third-party logistics arrangements contain a lease.
The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate. The incremental borrowing rates are determined using a portfolio approach based on publicly available information in connection with our unsecured borrowing rates adjusted for items including collateral, currency, and the timing in which lease payments are made. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet.
Our leases have varying terms with remaining lease terms of up to approximately
30 years
. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.
The right-of-use asset and lease liability are calculated including options to extend or to terminate the lease when we determine that it is reasonably certain that we will exercise those options. In making that determination, we consider various existing economic and market factors, business strategies as well as the nature, length, and terms of the agreement. Based on our evaluation using these factors, we concluded that the exercise of renewal options or early termination options would not be reasonably certain in determining the lease term at commencement for leases we currently have in place. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events such as a lease modification.
Certain of our contractual arrangements may contain both lease and non-lease components. Non-lease components are distinct elements of a contract that are not related to securing the use of the leased asset, such as raw materials, common area maintenance and other management costs. We elected to measure the lease liability by combining the lease and non-lease components as a single lease component for all asset classes.
Certain of our leases include variable lease payments, including payments that depend on an index or rate, as well as variable payments for items such as raw materials, labor, property taxes, insurance, maintenance, and other operating expenses associated with leased assets. Certain grape purchasing arrangements include variable payments that will vary depending on certain factors, including weather, time of harvest, overall market conditions, and the agricultural practices and location of the vineyard. In addition, certain third-party logistics arrangements include variable payments that vary depending on throughput. Such variable lease payments are excluded from the calculation of the right-of-use asset and are recognized in the period in which the obligation is incurred.
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
20
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Balance sheet location
A summary of lease right-of-use assets and liabilities are as follows:
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
May 31,
2019
|
(in millions)
|
|
|
|
Assets
|
|
|
|
Operating lease
|
Other assets
|
|
$
|
575.3
|
|
Finance lease
|
Property, plant, and equipment
|
|
30.3
|
|
Total right-of-use assets
|
|
|
$
|
605.6
|
|
|
|
|
|
Liabilities
|
|
|
|
Current:
|
|
|
|
Operating lease
|
Other accrued expenses and liabilities
|
|
$
|
75.6
|
|
Finance lease
|
Current maturities of long-term debt
|
|
11.8
|
|
Non-Current:
|
|
|
|
Operating lease
|
Deferred income taxes and other liabilities
|
|
527.0
|
|
Finance lease
|
Long-term debt, less current maturities
|
|
13.0
|
|
Total lease liabilities
|
|
|
$
|
627.4
|
|
Lease costs
The components of total lease cost are as follows:
|
|
|
|
|
|
|
|
For the Three Months Ended
May 31, 2019
|
(in millions)
|
|
|
Operating lease cost
|
|
$
|
23.4
|
|
Finance lease cost:
|
|
|
Amortization of right-of-use assets
|
|
2.8
|
|
Interest on lease liabilities
|
|
0.2
|
|
Short-term lease cost
|
|
3.2
|
|
Variable lease cost
|
|
42.6
|
|
Total lease cost
|
|
$
|
72.2
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
21
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Lease maturities
(1)
As of
May 31, 2019
, minimum payments due for lease liabilities for the remaining
nine
months of fiscal
2020
and for each of the five succeeding fiscal years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance Leases
|
(in millions)
|
|
|
|
2020
|
$
|
74.5
|
|
|
$
|
9.6
|
|
2021
|
93.7
|
|
|
9.4
|
|
2022
|
81.0
|
|
|
5.1
|
|
2023
|
69.4
|
|
|
1.6
|
|
2024
|
63.0
|
|
|
—
|
|
2025
|
53.2
|
|
|
—
|
|
Thereafter
|
310.5
|
|
|
—
|
|
Total lease payments
|
745.3
|
|
|
25.7
|
|
Less: Interest
|
(142.7
|
)
|
|
(0.9
|
)
|
Total lease liabilities
|
$
|
602.6
|
|
|
$
|
24.8
|
|
As of
May 31, 2019
, we have additional operating leases that have not yet commenced with aggregate minimum payments of approximately
$5.7 million
on an undiscounted basis.
As of
February 28, 2019
, future payments were expected to be as follows:
|
|
|
|
|
|
Operating Leases
|
(in millions)
|
|
2020
|
$
|
59.0
|
|
2021
|
58.2
|
|
2022
|
51.1
|
|
2023
|
47.9
|
|
2024
|
41.2
|
|
Thereafter
|
302.1
|
|
Total lease payments
|
$
|
559.5
|
|
(1)
F
or leases with terms in excess of 12 months at inception.
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
22
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Supplemental information
|
|
For the Three Months Ended
May 31, 2019
|
(in millions)
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
|
$
|
22.5
|
|
Operating cash flows from finance leases
|
|
$
|
0.2
|
|
Financing cash flows from finance leases
|
|
$
|
3.6
|
|
|
|
|
Right-of-use assets obtained in exchange for new lease liabilities:
|
|
|
Operating leases
|
|
$
|
8.0
|
|
Finance leases
|
|
$
|
—
|
|
|
|
|
Weighted-average remaining lease term:
|
|
|
Operating leases
|
|
12.0 years
|
|
Finance leases
|
|
3.4 years
|
|
|
|
|
Weighted-average discount rate:
|
|
|
Operating leases
|
|
3.7
|
%
|
Finance leases
|
|
2.7
|
%
|
16
. STOCKHOLDERS’ EQUITY
Common stock
The number of shares of common stock issued and treasury stock, and associated share activity, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Class A
|
|
Class B
|
|
Class 1
|
|
Class A
|
|
Class B
|
Balance at February 28, 2019
|
185,740,178
|
|
|
28,322,419
|
|
|
1,149,624
|
|
|
18,927,966
|
|
|
5,005,800
|
|
Conversion of shares
|
133,667
|
|
|
(55
|
)
|
|
(133,612
|
)
|
|
—
|
|
|
—
|
|
Exercise of stock options
(1)
|
—
|
|
|
—
|
|
|
2,107
|
|
|
(173,725
|
)
|
|
—
|
|
Vesting of restricted stock units
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(88,683
|
)
|
|
—
|
|
Vesting of performance share units
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(29,015
|
)
|
|
—
|
|
Cancellation of restricted shares
|
—
|
|
|
—
|
|
|
—
|
|
|
444
|
|
|
—
|
|
Balance at May 31, 2019
|
185,873,845
|
|
|
28,322,364
|
|
|
1,018,119
|
|
|
18,636,987
|
|
|
5,005,800
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2018
|
258,718,356
|
|
|
28,335,387
|
|
|
1,970
|
|
|
90,743,239
|
|
|
5,005,800
|
|
Share repurchases
|
—
|
|
|
—
|
|
|
—
|
|
|
450,508
|
|
|
—
|
|
Conversion of shares
|
5,144
|
|
|
(5,144
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
216,946
|
|
|
—
|
|
|
5,118
|
|
|
—
|
|
|
—
|
|
Vesting of restricted stock units
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,392
|
)
|
|
—
|
|
Vesting of performance share units
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(62,352
|
)
|
|
—
|
|
Balance at May 31, 2018
|
258,940,446
|
|
|
28,330,243
|
|
|
7,088
|
|
|
91,111,003
|
|
|
5,005,800
|
|
|
|
(1)
|
Includes use of Class A Treasury Stock associated with stock option exercises beginning March 1, 2019.
|
|
|
(2)
|
Net of
48,562
shares and
12,743
shares withheld for the three months ended
May 31, 2019
, and
May 31, 2018
, respectively, to satisfy tax withholding requirements.
|
|
|
(3)
|
Net of
17,439
shares and
44,016
shares withheld for the three months ended
May 31, 2019
, and
May 31, 2018
, respectively, to satisfy tax withholding requirements.
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
23
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Stock repurchases
In January 2018, our Board of Directors authorized the repurchase of up to
$3.0 billion
of our Class A Common Stock and Class B Convertible Common Stock (the “2018 Authorization”). The Board of Directors did not specify a date upon which this authorization would expire. Shares repurchased under the 2018 Authorization have become treasury shares.
As of
May 31, 2019
, total shares repurchased under the 2018 Authorizations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Shares
|
|
Repurchase
Authorization
|
|
Dollar Value
of Shares
Repurchased
|
|
Number of
Shares
Repurchased
|
(in millions, except share data)
|
|
|
|
|
|
2018 Authorization
|
$
|
3,000.0
|
|
|
$
|
995.9
|
|
|
4,632,012
|
17
. NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CBI
For the
three months ended
May 31, 2018
, net income (loss) per common share – diluted for Class A Common Stock has been computed using the if-converted method and assumes the exercise of stock options using the treasury stock method and the conversion of Class B Convertible Common Stock as this method is more dilutive than the two-class method. For the
three months ended
May 31, 2018
, net income (loss) per common share – diluted for Class B Convertible Common Stock has been computed using the two-class method and does not assume conversion of Class B Convertible Common Stock into shares of Class A Common Stock.
We have excluded
23,316,600
of Class B Convertible Common Stock and
3,433,414
of shares issuable under the assumed exercise of stock options using the treasury stock method from the calculation of diluted net income (loss) per share for the
three months ended
May 31, 2019
, as the effect of including these would have been anti-dilutive.
The computation of basic and diluted net income (loss) per common share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
May 31, 2019
|
|
May 31, 2018
|
|
Common Stock
|
|
Common Stock
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
(in millions, except per share data)
|
|
|
|
|
|
|
|
Net income (loss) attributable to CBI allocated – basic
|
$
|
(217.7
|
)
|
|
$
|
(27.7
|
)
|
|
$
|
660.6
|
|
|
$
|
83.2
|
|
Conversion of Class B common shares into Class A common shares
|
—
|
|
|
—
|
|
|
83.2
|
|
|
—
|
|
Effect of stock-based awards on allocated net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
Net income (loss) attributable to CBI allocated – diluted
|
$
|
(217.7
|
)
|
|
$
|
(27.7
|
)
|
|
$
|
743.8
|
|
|
$
|
81.3
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
168.118
|
|
|
23.317
|
|
|
168.063
|
|
|
23.326
|
|
Conversion of Class B common shares into Class A common shares
|
—
|
|
|
—
|
|
|
23.326
|
|
|
—
|
|
Stock-based awards, primarily stock options
|
—
|
|
|
—
|
|
|
5.671
|
|
|
—
|
|
Weighted average common shares outstanding – diluted
|
168.118
|
|
|
23.317
|
|
|
197.060
|
|
|
23.326
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share attributable to CBI – basic
|
$
|
(1.30
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
3.93
|
|
|
$
|
3.57
|
|
Net income (loss) per common share attributable to CBI – diluted
|
$
|
(1.30
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
3.77
|
|
|
$
|
3.48
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
24
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
18
. COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CBI
Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustments, net unrealized gain (loss) on derivative instruments, net unrealized gain (loss) on available-for-sale (“AFS”) debt securities, pension/postretirement adjustments, and our share of OCI of equity method investments. The reconciliation of net income (loss) attributable to CBI to comprehensive income (loss) attributable to CBI is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Tax
Amount
|
|
Tax (Expense)
Benefit
|
|
Net of Tax
Amount
|
(in millions)
|
|
|
|
|
|
For the Three Months Ended May 31, 2019
|
|
|
|
|
|
Net income (loss) attributable to CBI
|
|
|
|
|
$
|
(245.4
|
)
|
Other comprehensive income (loss) attributable to CBI:
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
Net gain (loss)
|
$
|
18.3
|
|
|
$
|
—
|
|
|
18.3
|
|
Reclassification adjustments
|
—
|
|
|
—
|
|
|
—
|
|
Net gain (loss) recognized in other comprehensive income (loss)
|
18.3
|
|
|
—
|
|
|
18.3
|
|
Unrealized gain (loss) on cash flow hedges:
|
|
|
|
|
|
Net derivative gain (loss)
|
(4.4
|
)
|
|
1.7
|
|
|
(2.7
|
)
|
Reclassification adjustments
|
(2.3
|
)
|
|
(0.6
|
)
|
|
(2.9
|
)
|
Net gain (loss) recognized in other comprehensive income (loss)
|
(6.7
|
)
|
|
1.1
|
|
|
(5.6
|
)
|
Pension/postretirement adjustments:
|
|
|
|
|
|
Net actuarial gain (loss)
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Reclassification adjustments
|
—
|
|
|
—
|
|
|
—
|
|
Net gain (loss) recognized in other comprehensive income (loss)
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Share of OCI of equity method investments
|
|
|
|
|
|
Net gain (loss)
|
(18.8
|
)
|
|
4.4
|
|
|
(14.4
|
)
|
Reclassification adjustments
|
—
|
|
|
—
|
|
|
—
|
|
Net gain (loss) recognized in other comprehensive income (loss)
|
(18.8
|
)
|
|
4.4
|
|
|
(14.4
|
)
|
Other comprehensive income (loss) attributable to CBI
|
$
|
(7.1
|
)
|
|
$
|
5.5
|
|
|
(1.6
|
)
|
Comprehensive income (loss) attributable to CBI
|
|
|
|
|
$
|
(247.0
|
)
|
|
|
|
|
|
|
For the Three Months Ended May 31, 2018
|
|
|
|
|
|
Net income (loss) attributable to CBI
|
|
|
|
|
$
|
743.8
|
|
Other comprehensive income (loss) attributable to CBI:
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
Net gain (loss)
|
$
|
(132.3
|
)
|
|
$
|
—
|
|
|
(132.3
|
)
|
Reclassification adjustments
|
—
|
|
|
—
|
|
|
—
|
|
Net gain (loss) recognized in other comprehensive income (loss)
|
(132.3
|
)
|
|
—
|
|
|
(132.3
|
)
|
Unrealized gain (loss) on cash flow hedges:
|
|
|
|
|
|
Net derivative gain (loss)
|
(59.1
|
)
|
|
16.6
|
|
|
(42.5
|
)
|
Reclassification adjustments
|
(4.9
|
)
|
|
1.3
|
|
|
(3.6
|
)
|
Net gain (loss) recognized in other comprehensive income (loss)
|
(64.0
|
)
|
|
17.9
|
|
|
(46.1
|
)
|
Unrealized gain (loss) on AFS debt securities:
|
|
|
|
|
|
Net AFS debt securities gain (loss)
|
(0.4
|
)
|
|
0.1
|
|
|
(0.3
|
)
|
Reclassification adjustments
|
1.9
|
|
|
0.9
|
|
|
2.8
|
|
Net gain (loss) recognized in other comprehensive income (loss)
|
1.5
|
|
|
1.0
|
|
|
2.5
|
|
Pension/postretirement adjustments:
|
|
|
|
|
|
Net actuarial gain (loss)
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification adjustments
|
0.3
|
|
|
(0.1
|
)
|
|
0.2
|
|
Net gain (loss) recognized in other comprehensive income (loss)
|
0.3
|
|
|
(0.1
|
)
|
|
0.2
|
|
Other comprehensive income (loss) attributable to CBI
|
$
|
(194.5
|
)
|
|
$
|
18.8
|
|
|
(175.7
|
)
|
Comprehensive income (loss) attributable to CBI
|
|
|
|
|
$
|
568.1
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
25
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Accumulated other comprehensive income (loss), net of income tax effect, includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
Net
Unrealized
Gain (Loss)
on Derivative
Instruments
|
|
Pension/
Postretirement
Adjustments
|
|
Share of OCI of Equity Method Investments
|
|
Accumulated
Other
Comprehensive Income
(Loss)
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Balance, February 28, 2019
|
$
|
(406.5
|
)
|
|
$
|
25.1
|
|
|
$
|
(2.1
|
)
|
|
$
|
29.6
|
|
|
$
|
(353.9
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassification adjustments
|
18.3
|
|
|
(2.7
|
)
|
|
0.1
|
|
|
(14.4
|
)
|
|
1.3
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
(2.9
|
)
|
|
—
|
|
|
—
|
|
|
(2.9
|
)
|
Other comprehensive income (loss)
|
18.3
|
|
|
(5.6
|
)
|
|
0.1
|
|
|
(14.4
|
)
|
|
(1.6
|
)
|
Balance, May 31, 2019
|
$
|
(388.2
|
)
|
|
$
|
19.5
|
|
|
$
|
(2.0
|
)
|
|
$
|
15.2
|
|
|
$
|
(355.5
|
)
|
19
. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following information sets forth the condensed consolidating balance sheets as of
May 31, 2019
, and
February 28, 2019
, the
condensed consolidating statements of comprehensive income (loss)
for the
three months ended
May 31, 2019
, and
May 31, 2018
, and the condensed consolidating statements of cash flows for the
three months ended
May 31, 2019
, and
May 31, 2018
, for the parent company, our combined subsidiaries which guarantee our senior notes (“Subsidiary Guarantors”), our combined subsidiaries which are not Subsidiary Guarantors (primarily foreign subsidiaries) (“Subsidiary Nonguarantors”) and the Company. The Subsidiary Guarantors are
100%
owned, directly or indirectly, by the parent company and the guarantees are joint and several obligations of each of the Subsidiary Guarantors. The guarantees are full and unconditional, as those terms are used in Rule 3-10 of Regulation S-X, except that a Subsidiary Guarantor can be automatically released and relieved of its obligations under certain customary circumstances contained in the indentures governing our senior notes. These customary circumstances include, so long as other applicable provisions of the indentures are adhered to, the termination or release of a Subsidiary Guarantor’s guarantee of other indebtedness or upon the legal defeasance or covenant defeasance or satisfaction and discharge of our senior notes. Separate financial information for our Subsidiary Guarantors are not presented because we have determined that such financial information would not be material to investors. The accounting policies of the parent company, the Subsidiary Guarantors, and the Subsidiary Nonguarantors are the same as those described for the Company in Note 1 of our consolidated financial statements included in our 2019 Annual Report, and include the recently adopted accounting guidance described in Note
2
and Note
15
herein. There are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to us in the form of cash dividends, loans, or advances.
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
26
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet at May 31, 2019
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3.8
|
|
|
$
|
2.9
|
|
|
$
|
92.0
|
|
|
$
|
—
|
|
|
$
|
98.7
|
|
Accounts receivable
|
301.6
|
|
|
431.6
|
|
|
55.1
|
|
|
—
|
|
|
788.3
|
|
Inventories
|
58.8
|
|
|
1,120.3
|
|
|
548.3
|
|
|
(233.3
|
)
|
|
1,494.1
|
|
Intercompany receivable
|
29,531.1
|
|
|
34,805.7
|
|
|
20,653.9
|
|
|
(84,990.7
|
)
|
|
—
|
|
Prepaid expenses and other
|
101.2
|
|
|
68.3
|
|
|
408.6
|
|
|
(47.2
|
)
|
|
530.9
|
|
Assets held for sale - current
|
157.1
|
|
|
431.5
|
|
|
80.3
|
|
|
—
|
|
|
668.9
|
|
Total current assets
|
30,153.6
|
|
|
36,860.3
|
|
|
21,838.2
|
|
|
(85,271.2
|
)
|
|
3,580.9
|
|
Property, plant, and equipment
|
60.6
|
|
|
629.2
|
|
|
4,428.2
|
|
|
—
|
|
|
5,118.0
|
|
Investments in subsidiaries
|
26,460.0
|
|
|
1,604.9
|
|
|
3,083.5
|
|
|
(31,148.4
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
5,788.6
|
|
|
1,967.4
|
|
|
—
|
|
|
7,756.0
|
|
Intangible assets
|
—
|
|
|
343.4
|
|
|
2,504.1
|
|
|
—
|
|
|
2,847.5
|
|
Intercompany notes receivable
|
3,238.3
|
|
|
—
|
|
|
323.1
|
|
|
(3,561.4
|
)
|
|
—
|
|
Equity method investments
|
—
|
|
|
1.7
|
|
|
3,428.7
|
|
|
—
|
|
|
3,430.4
|
|
Securities measured at fair value
|
—
|
|
|
—
|
|
|
2,409.5
|
|
|
—
|
|
|
2,409.5
|
|
Deferred income taxes
|
66.0
|
|
|
—
|
|
|
2,203.1
|
|
|
(66.0
|
)
|
|
2,203.1
|
|
Assets held for sale
|
30.7
|
|
|
797.6
|
|
|
97.4
|
|
|
—
|
|
|
925.7
|
|
Other assets
|
28.1
|
|
|
347.8
|
|
|
304.1
|
|
|
—
|
|
|
680.0
|
|
Total assets
|
$
|
60,037.3
|
|
|
$
|
46,373.5
|
|
|
$
|
42,587.3
|
|
|
$
|
(120,047.0
|
)
|
|
$
|
28,951.1
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
531.4
|
|
|
$
|
—
|
|
|
$
|
55.0
|
|
|
$
|
—
|
|
|
$
|
586.4
|
|
Current maturities of long-term debt
|
1,053.6
|
|
|
11.5
|
|
|
0.3
|
|
|
—
|
|
|
1,065.4
|
|
Accounts payable
|
46.3
|
|
|
97.7
|
|
|
435.1
|
|
|
—
|
|
|
579.1
|
|
Intercompany payable
|
33,847.1
|
|
|
32,339.5
|
|
|
18,804.1
|
|
|
(84,990.7
|
)
|
|
—
|
|
Other accrued expenses and liabilities
|
287.1
|
|
|
338.0
|
|
|
166.1
|
|
|
(82.8
|
)
|
|
708.4
|
|
Total current liabilities
|
35,765.5
|
|
|
32,786.7
|
|
|
19,460.6
|
|
|
(85,073.5
|
)
|
|
2,939.3
|
|
Long-term debt, less current maturities
|
11,732.8
|
|
|
12.6
|
|
|
0.4
|
|
|
—
|
|
|
11,745.8
|
|
Intercompany notes payable
|
323.1
|
|
|
2,720.7
|
|
|
517.6
|
|
|
(3,561.4
|
)
|
|
—
|
|
Deferred income taxes and other liabilities
|
41.3
|
|
|
848.3
|
|
|
954.2
|
|
|
(66.0
|
)
|
|
1,777.8
|
|
Total liabilities
|
47,862.7
|
|
|
36,368.3
|
|
|
20,932.8
|
|
|
(88,700.9
|
)
|
|
16,462.9
|
|
CBI stockholders’ equity
|
12,174.6
|
|
|
10,005.2
|
|
|
21,340.9
|
|
|
(31,346.1
|
)
|
|
12,174.6
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
313.6
|
|
|
—
|
|
|
313.6
|
|
Total stockholders’ equity
|
12,174.6
|
|
|
10,005.2
|
|
|
21,654.5
|
|
|
(31,346.1
|
)
|
|
12,488.2
|
|
Total liabilities and stockholders’ equity
|
$
|
60,037.3
|
|
|
$
|
46,373.5
|
|
|
$
|
42,587.3
|
|
|
$
|
(120,047.0
|
)
|
|
$
|
28,951.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
27
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet at February 28, 2019
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
11.0
|
|
|
$
|
2.6
|
|
|
$
|
80.0
|
|
|
$
|
—
|
|
|
$
|
93.6
|
|
Accounts receivable
|
435.6
|
|
|
370.6
|
|
|
40.7
|
|
|
—
|
|
|
846.9
|
|
Inventories
|
197.7
|
|
|
1,485.4
|
|
|
609.9
|
|
|
(162.6
|
)
|
|
2,130.4
|
|
Intercompany receivable
|
29,712.5
|
|
|
33,775.4
|
|
|
20,050.6
|
|
|
(83,538.5
|
)
|
|
—
|
|
Prepaid expenses and other
|
89.9
|
|
|
78.1
|
|
|
446.7
|
|
|
(1.6
|
)
|
|
613.1
|
|
Total current assets
|
30,446.7
|
|
|
35,712.1
|
|
|
21,227.9
|
|
|
(83,702.7
|
)
|
|
3,684.0
|
|
Property, plant, and equipment
|
85.3
|
|
|
786.8
|
|
|
4,395.2
|
|
|
—
|
|
|
5,267.3
|
|
Investments in subsidiaries
|
26,533.8
|
|
|
1,599.6
|
|
|
2,982.1
|
|
|
(31,115.5
|
)
|
|
—
|
|
Goodwill
|
—
|
|
|
6,185.5
|
|
|
1,903.3
|
|
|
—
|
|
|
8,088.8
|
|
Intangible assets
|
—
|
|
|
605.0
|
|
|
2,593.1
|
|
|
—
|
|
|
3,198.1
|
|
Intercompany notes receivable
|
3,218.6
|
|
|
—
|
|
|
38.6
|
|
|
(3,257.2
|
)
|
|
—
|
|
Equity method investments
|
—
|
|
|
1.7
|
|
|
3,463.9
|
|
|
—
|
|
|
3,465.6
|
|
Securities measured at fair value
|
—
|
|
|
—
|
|
|
3,234.7
|
|
|
—
|
|
|
3,234.7
|
|
Deferred income taxes
|
69.2
|
|
|
—
|
|
|
2,183.3
|
|
|
(69.2
|
)
|
|
2,183.3
|
|
Other assets
|
17.3
|
|
|
1.1
|
|
|
91.3
|
|
|
—
|
|
|
109.7
|
|
Total assets
|
$
|
60,370.9
|
|
|
$
|
44,891.8
|
|
|
$
|
42,113.4
|
|
|
$
|
(118,144.6
|
)
|
|
$
|
29,231.5
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
732.5
|
|
|
$
|
—
|
|
|
$
|
59.0
|
|
|
$
|
—
|
|
|
$
|
791.5
|
|
Current maturities of long-term debt
|
1,052.8
|
|
|
12.2
|
|
|
0.2
|
|
|
—
|
|
|
1,065.2
|
|
Accounts payable
|
59.6
|
|
|
141.3
|
|
|
415.8
|
|
|
—
|
|
|
616.7
|
|
Intercompany payable
|
33,787.6
|
|
|
31,428.9
|
|
|
18,322.0
|
|
|
(83,538.5
|
)
|
|
—
|
|
Other accrued expenses and liabilities
|
374.3
|
|
|
184.0
|
|
|
156.6
|
|
|
(24.5
|
)
|
|
690.4
|
|
Total current liabilities
|
36,006.8
|
|
|
31,766.4
|
|
|
18,953.6
|
|
|
(83,563.0
|
)
|
|
3,163.8
|
|
Long-term debt, less current maturities
|
11,743.4
|
|
|
16.0
|
|
|
0.4
|
|
|
—
|
|
|
11,759.8
|
|
Intercompany notes payable
|
38.5
|
|
|
2,694.4
|
|
|
524.3
|
|
|
(3,257.2
|
)
|
|
—
|
|
Deferred income taxes and other liabilities
|
31.2
|
|
|
540.5
|
|
|
955.9
|
|
|
(56.9
|
)
|
|
1,470.7
|
|
Total liabilities
|
47,819.9
|
|
|
35,017.3
|
|
|
20,434.2
|
|
|
(86,877.1
|
)
|
|
16,394.3
|
|
CBI stockholders’ equity
|
12,551.0
|
|
|
9,874.5
|
|
|
21,393.0
|
|
|
(31,267.5
|
)
|
|
12,551.0
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
286.2
|
|
|
—
|
|
|
286.2
|
|
Total stockholders’ equity
|
12,551.0
|
|
|
9,874.5
|
|
|
21,679.2
|
|
|
(31,267.5
|
)
|
|
12,837.2
|
|
Total liabilities and stockholders’ equity
|
$
|
60,370.9
|
|
|
$
|
44,891.8
|
|
|
$
|
42,113.4
|
|
|
$
|
(118,144.6
|
)
|
|
$
|
29,231.5
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
28
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Three Months Ended May 31, 2019
|
Sales
|
$
|
629.2
|
|
|
$
|
1,931.9
|
|
|
$
|
1,185.9
|
|
|
$
|
(1,464.5
|
)
|
|
$
|
2,282.5
|
|
Excise taxes
|
(76.9
|
)
|
|
(105.4
|
)
|
|
(3.0
|
)
|
|
—
|
|
|
(185.3
|
)
|
Net sales
|
552.3
|
|
|
1,826.5
|
|
|
1,182.9
|
|
|
(1,464.5
|
)
|
|
2,097.2
|
|
Cost of product sold
|
(420.6
|
)
|
|
(1,450.7
|
)
|
|
(586.1
|
)
|
|
1,388.9
|
|
|
(1,068.5
|
)
|
Gross profit
|
131.7
|
|
|
375.8
|
|
|
596.8
|
|
|
(75.6
|
)
|
|
1,028.7
|
|
Selling, general, and administrative expenses
|
(113.1
|
)
|
|
(263.7
|
)
|
|
(33.9
|
)
|
|
4.7
|
|
|
(406.0
|
)
|
Operating income (loss)
|
18.6
|
|
|
112.1
|
|
|
562.9
|
|
|
(70.9
|
)
|
|
622.7
|
|
Equity in earnings (losses) of equity method investees and subsidiaries
|
(139.3
|
)
|
|
5.1
|
|
|
(1.3
|
)
|
|
32.5
|
|
|
(103.0
|
)
|
Unrealized net gain (loss) on securities measured at fair value
|
—
|
|
|
—
|
|
|
(827.5
|
)
|
|
—
|
|
|
(827.5
|
)
|
Net gain (loss) on sale of unconsolidated investment
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Interest income
|
—
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
|
4.3
|
|
Intercompany interest income
|
38.9
|
|
|
90.9
|
|
|
2.0
|
|
|
(131.8
|
)
|
|
—
|
|
Interest expense
|
(118.0
|
)
|
|
(0.3
|
)
|
|
(0.6
|
)
|
|
—
|
|
|
(118.9
|
)
|
Intercompany interest expense
|
(88.6
|
)
|
|
(26.4
|
)
|
|
(16.8
|
)
|
|
131.8
|
|
|
—
|
|
Income (loss) before income taxes
|
(288.4
|
)
|
|
181.4
|
|
|
(277.1
|
)
|
|
(38.4
|
)
|
|
(422.5
|
)
|
(Provision for) benefit from income taxes
|
43.0
|
|
|
(40.3
|
)
|
|
169.7
|
|
|
13.0
|
|
|
185.4
|
|
Net income (loss)
|
(245.4
|
)
|
|
141.1
|
|
|
(107.4
|
)
|
|
(25.4
|
)
|
|
(237.1
|
)
|
Net income (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(8.3
|
)
|
|
—
|
|
|
(8.3
|
)
|
Net income (loss) attributable to CBI
|
$
|
(245.4
|
)
|
|
$
|
141.1
|
|
|
$
|
(115.7
|
)
|
|
$
|
(25.4
|
)
|
|
$
|
(245.4
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to CBI
|
$
|
(247.0
|
)
|
|
$
|
140.8
|
|
|
$
|
(126.3
|
)
|
|
$
|
(14.5
|
)
|
|
$
|
(247.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Three Months Ended May 31, 2018
|
Sales
|
$
|
682.6
|
|
|
$
|
1,881.2
|
|
|
$
|
1,007.6
|
|
|
$
|
(1,341.4
|
)
|
|
$
|
2,230.0
|
|
Excise taxes
|
(78.8
|
)
|
|
(100.9
|
)
|
|
(3.2
|
)
|
|
—
|
|
|
(182.9
|
)
|
Net sales
|
603.8
|
|
|
1,780.3
|
|
|
1,004.4
|
|
|
(1,341.4
|
)
|
|
2,047.1
|
|
Cost of product sold
|
(486.8
|
)
|
|
(1,322.1
|
)
|
|
(498.3
|
)
|
|
1,308.7
|
|
|
(998.5
|
)
|
Gross profit
|
117.0
|
|
|
458.2
|
|
|
506.1
|
|
|
(32.7
|
)
|
|
1,048.6
|
|
Selling, general, and administrative expenses
|
(141.3
|
)
|
|
(238.7
|
)
|
|
(49.5
|
)
|
|
6.3
|
|
|
(423.2
|
)
|
Operating income (loss)
|
(24.3
|
)
|
|
219.5
|
|
|
456.6
|
|
|
(26.4
|
)
|
|
625.4
|
|
Equity in earnings (losses) of equity method investees and subsidiaries
|
910.6
|
|
|
(12.5
|
)
|
|
147.2
|
|
|
(1,040.6
|
)
|
|
4.7
|
|
Unrealized net gain (loss) on securities measured at fair value
|
—
|
|
|
—
|
|
|
258.3
|
|
|
—
|
|
|
258.3
|
|
Net gain (loss) on sale of unconsolidated investment
|
—
|
|
|
—
|
|
|
101.4
|
|
|
—
|
|
|
101.4
|
|
Interest income
|
—
|
|
|
—
|
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Intercompany interest income
|
67.6
|
|
|
158.8
|
|
|
0.9
|
|
|
(227.3
|
)
|
|
—
|
|
Interest expense
|
(80.3
|
)
|
|
(0.3
|
)
|
|
(7.6
|
)
|
|
—
|
|
|
(88.2
|
)
|
Intercompany interest expense
|
(133.6
|
)
|
|
(49.5
|
)
|
|
(44.2
|
)
|
|
227.3
|
|
|
—
|
|
Income (loss) before income taxes
|
740.0
|
|
|
316.0
|
|
|
913.0
|
|
|
(1,067.0
|
)
|
|
902.0
|
|
(Provision for) benefit from income taxes
|
3.8
|
|
|
(76.9
|
)
|
|
(96.1
|
)
|
|
13.5
|
|
|
(155.7
|
)
|
Net income (loss)
|
743.8
|
|
|
239.1
|
|
|
816.9
|
|
|
(1,053.5
|
)
|
|
746.3
|
|
Net income (loss) attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(2.5
|
)
|
|
—
|
|
|
(2.5
|
)
|
Net income (loss) attributable to CBI
|
$
|
743.8
|
|
|
$
|
239.1
|
|
|
$
|
814.4
|
|
|
$
|
(1,053.5
|
)
|
|
$
|
743.8
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to CBI
|
$
|
568.1
|
|
|
$
|
238.5
|
|
|
$
|
638.2
|
|
|
$
|
(876.7
|
)
|
|
$
|
568.1
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
29
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for the Three Months Ended May 31, 2019
|
Net cash provided by (used in) operating activities
|
$
|
(36.8
|
)
|
|
$
|
190.8
|
|
|
$
|
439.1
|
|
|
$
|
—
|
|
|
$
|
593.1
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
(12.6
|
)
|
|
(19.8
|
)
|
|
(123.3
|
)
|
|
—
|
|
|
(155.7
|
)
|
Purchases of business, net of cash acquired
|
—
|
|
|
—
|
|
|
(36.2
|
)
|
|
—
|
|
|
(36.2
|
)
|
Investments in equity method investees
|
—
|
|
|
—
|
|
|
(20.0
|
)
|
|
—
|
|
|
(20.0
|
)
|
Net proceeds from (repayments of) intercompany notes
|
(158.8
|
)
|
|
—
|
|
|
—
|
|
|
158.8
|
|
|
—
|
|
Net contributions from (investment in) equity affiliates
|
(77.1
|
)
|
|
—
|
|
|
—
|
|
|
77.1
|
|
|
—
|
|
Other investing activities
|
0.2
|
|
|
—
|
|
|
(1.8
|
)
|
|
—
|
|
|
(1.6
|
)
|
Net cash provided by (used in) investing activities
|
(248.3
|
)
|
|
(19.8
|
)
|
|
(181.3
|
)
|
|
235.9
|
|
|
(213.5
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Dividends paid to parent company
|
—
|
|
|
—
|
|
|
(13.5
|
)
|
|
13.5
|
|
|
—
|
|
Net contributions from (investment in) equity affiliates
|
—
|
|
|
—
|
|
|
90.6
|
|
|
(90.6
|
)
|
|
—
|
|
Net proceeds from (repayments of) intercompany notes
|
625.3
|
|
|
(153.1
|
)
|
|
(313.4
|
)
|
|
(158.8
|
)
|
|
—
|
|
Net proceeds from (repayments of) short-term borrowings
|
(201.0
|
)
|
|
—
|
|
|
(4.0
|
)
|
|
—
|
|
|
(205.0
|
)
|
Dividends paid
|
(143.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(143.0
|
)
|
Principal payments of long-term debt
|
(13.8
|
)
|
|
(4.1
|
)
|
|
(5.0
|
)
|
|
—
|
|
|
(22.9
|
)
|
Payments of minimum tax withholdings on stock-based payment awards
|
—
|
|
|
(13.5
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
(13.9
|
)
|
Proceeds from shares issued under equity compensation plans
|
10.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10.4
|
|
Net cash provided by (used in) financing activities
|
277.9
|
|
|
(170.7
|
)
|
|
(245.7
|
)
|
|
(235.9
|
)
|
|
(374.4
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
(7.2
|
)
|
|
0.3
|
|
|
12.0
|
|
|
—
|
|
|
5.1
|
|
Cash and cash equivalents, beginning of period
|
11.0
|
|
|
2.6
|
|
|
80.0
|
|
|
—
|
|
|
93.6
|
|
Cash and cash equivalents, end of period
|
$
|
3.8
|
|
|
$
|
2.9
|
|
|
$
|
92.0
|
|
|
$
|
—
|
|
|
$
|
98.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
30
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
|
|
Subsidiary
Guarantors
|
|
Subsidiary
Nonguarantors
|
|
Eliminations
|
|
Consolidated
|
(in millions)
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows for the Three Months Ended May 31, 2018
|
Net cash provided by (used in) operating activities
|
$
|
(133.6
|
)
|
|
$
|
329.1
|
|
|
$
|
308.5
|
|
|
$
|
—
|
|
|
$
|
504.0
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
(3.9
|
)
|
|
(26.8
|
)
|
|
(137.5
|
)
|
|
—
|
|
|
(168.2
|
)
|
Purchases of business, net of cash acquired
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
Investments in equity method investees
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
|
—
|
|
|
(1.5
|
)
|
Proceeds from (payments related to) sale of unconsolidated investment
|
—
|
|
|
—
|
|
|
110.2
|
|
|
—
|
|
|
110.2
|
|
Net proceeds from (repayments of) intercompany notes
|
265.3
|
|
|
80.5
|
|
|
1.3
|
|
|
(347.1
|
)
|
|
—
|
|
Net contributions from (investment in) equity affiliates
|
2.1
|
|
|
—
|
|
|
—
|
|
|
(2.1
|
)
|
|
—
|
|
Other investing activities
|
0.3
|
|
|
0.5
|
|
|
6.0
|
|
|
—
|
|
|
6.8
|
|
Net cash provided by (used in) investing activities
|
263.8
|
|
|
54.2
|
|
|
(22.3
|
)
|
|
(349.2
|
)
|
|
(53.5
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Dividends paid to parent company
|
—
|
|
|
—
|
|
|
(17.0
|
)
|
|
17.0
|
|
|
—
|
|
Net contributions from (investment in) equity affiliates
|
—
|
|
|
6.8
|
|
|
8.1
|
|
|
(14.9
|
)
|
|
—
|
|
Net proceeds from (repayments of) intercompany notes
|
132.3
|
|
|
(374.8
|
)
|
|
(104.6
|
)
|
|
347.1
|
|
|
—
|
|
Net proceeds from (repayments of) short-term borrowings
|
(27.7
|
)
|
|
—
|
|
|
(49.8
|
)
|
|
—
|
|
|
(77.5
|
)
|
Dividends paid
|
(140.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(140.5
|
)
|
Principal payments of long-term debt
|
(1.2
|
)
|
|
(4.6
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
(5.9
|
)
|
Payments of minimum tax withholdings on stock-based payment awards
|
—
|
|
|
(12.3
|
)
|
|
(0.6
|
)
|
|
—
|
|
|
(12.9
|
)
|
Proceeds from shares issued under equity compensation plans
|
7.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.6
|
|
Purchases of treasury stock
|
(100.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100.0
|
)
|
Net cash provided by (used in) financing activities
|
(129.5
|
)
|
|
(384.9
|
)
|
|
(164.0
|
)
|
|
349.2
|
|
|
(329.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
and cash equivalents
|
—
|
|
|
—
|
|
|
(1.6
|
)
|
|
—
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
0.7
|
|
|
(1.6
|
)
|
|
120.6
|
|
|
—
|
|
|
119.7
|
|
Cash and cash equivalents, beginning of period
|
4.6
|
|
|
4.4
|
|
|
81.3
|
|
|
—
|
|
|
90.3
|
|
Cash and cash equivalents, end of period
|
$
|
5.3
|
|
|
$
|
2.8
|
|
|
$
|
201.9
|
|
|
$
|
—
|
|
|
$
|
210.0
|
|
20
. BUSINESS SEGMENT INFORMATION
Through February 28, 2019, our internal management financial reporting consisted of two business divisions: (i) Beer and (ii) Wine and Spirits. Beginning March 1, 2019, as a result of our November 2018 Canopy Investment and a change in our chief operating decision maker (“CODM”) on March 1, 2019, we have changed our internal management financial reporting to consist of
three
business
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
31
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy.
Consequently, as of May 31, 2019, we report our operating results in
four
segments: (i)
Beer, (ii)
Wine and Spirits, (iii) Corporate Operations and Other, and (iv)
Canopy. The Canopy Equity Method Investment
makes up the Canopy segment.
In the Beer segment, our portfolio consists of high-end imported and craft beer brands. We have an exclusive perpetual brand license to import, market, and sell in the U.S. our Mexican beer portfolio. In the Wine and Spirits segment, we sell a portfolio that includes higher-margin, higher-growth wine brands complemented by certain higher-end spirits brands. Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, corporate growth and strategy, human resources, internal audit, investor relations, legal, public relations, and information technology,
as well as our investments made through our corporate venture capital function
. All costs included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are therefore not allocated to the other reportable segments. All costs reported within the Corporate Operations and Other segment are not included in our CODM’s evaluation of the operating income (loss) performance of the other reportable segments.
The business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management, and the structure of our internal financial reporting. Long-lived tangible assets and total asset information by segment is not provided to, or reviewed by, our
CODM
as it is not used to make strategic decisions, allocate resources, or assess performance.
In addition, management excludes items that affect comparability (“Comparable Adjustments”) from its evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment operating performance and segment management compensation are evaluated based upon core segment operating income (loss). As such, the performance measures for incentive compensation purposes for segment management do not include the impact of these Comparable Adjustments.
We evaluate segment operating performance based on operating income (loss) of the respective business units. Comparable Adjustments that impacted comparability in our segment operating income (loss) for each period are as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended May 31,
|
|
2019
|
|
2018
|
(in millions)
|
|
|
|
Cost of product sold
|
|
|
|
Strategic business development costs
|
$
|
(44.5
|
)
|
|
$
|
—
|
|
Settlements of undesignated commodity derivative contracts
|
(30.0
|
)
|
|
(1.5
|
)
|
Accelerated depreciation
|
(3.5
|
)
|
|
(3.4
|
)
|
Flow through of inventory step-up
|
(0.4
|
)
|
|
(0.6
|
)
|
Net gain (loss) on undesignated commodity derivative contracts
|
15.9
|
|
|
15.4
|
|
Loss on inventory write-down
|
—
|
|
|
(1.5
|
)
|
Total cost of product sold
|
(62.5
|
)
|
|
8.4
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
|
|
Restructuring and other strategic business development costs
|
(23.6
|
)
|
|
(4.3
|
)
|
Transaction, integration, and other acquisition-related costs
|
(2.3
|
)
|
|
—
|
|
Deferred compensation
|
—
|
|
|
(16.3
|
)
|
Other gains (losses)
(1)
|
13.4
|
|
|
—
|
|
Total selling, general, and administrative expenses
|
(12.5
|
)
|
|
(20.6
|
)
|
Comparable Adjustments, Operating income (loss)
|
$
|
(75.0
|
)
|
|
$
|
(12.2
|
)
|
|
|
(1)
|
Includes a gain of
$11.8 million
for the
three months ended
May 31, 2019
, in connection with the increase in our ownership interest in Nelson’s Green Brier.
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
32
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
The accounting policies of the segments are the same as those described for the Company in Note 1 of our consolidated financial statements included in our 2019 Annual Report, and include the recently adopted accounting guidance described in Note
2
and Note
15
herein.
Amounts included below for the Canopy segment represent 100% of Canopy’s reported results
on a two-month lag,
prepared in accordance with
U.S. GAAP
, and converted from Canadian dollars to U.S. dollars. Although we own less than 100% of the outstanding shares of Canopy, 100% of the Canopy results are included in the information below and subsequently eliminated in order to reconcile to our consolidated
financial statements
.
Segment information is as follows:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended May 31,
|
|
2019
|
|
2018
|
(in millions)
|
|
|
|
Beer
|
|
|
|
Net sales
|
$
|
1,477.4
|
|
|
$
|
1,375.1
|
|
Segment operating income (loss)
|
$
|
580.6
|
|
|
$
|
520.0
|
|
Capital expenditures
|
$
|
102.1
|
|
|
$
|
136.5
|
|
Depreciation and amortization
|
$
|
54.3
|
|
|
$
|
49.5
|
|
|
|
|
|
Wine and Spirits
|
|
|
|
Net sales:
|
|
|
|
Wine
|
$
|
535.0
|
|
|
$
|
591.8
|
|
Spirits
|
84.8
|
|
|
80.2
|
|
Net sales
|
$
|
619.8
|
|
|
$
|
672.0
|
|
Segment operating income (loss)
|
$
|
160.8
|
|
|
$
|
167.8
|
|
Income (loss) from unconsolidated investments
|
$
|
4.0
|
|
|
$
|
4.8
|
|
Equity method investments
|
$
|
82.7
|
|
|
$
|
85.0
|
|
Capital expenditures
|
$
|
26.9
|
|
|
$
|
27.8
|
|
Depreciation and amortization
|
$
|
25.0
|
|
|
$
|
24.4
|
|
|
|
|
|
Corporate Operations and Other
|
|
|
|
Segment operating income (loss)
|
$
|
(43.7
|
)
|
|
$
|
(50.2
|
)
|
Income (loss) from unconsolidated investments
|
$
|
(1.1
|
)
|
|
$
|
(0.1
|
)
|
Equity method investments
|
$
|
68.4
|
|
|
$
|
42.2
|
|
Capital expenditures
|
$
|
26.7
|
|
|
$
|
3.9
|
|
Depreciation and amortization
|
$
|
5.3
|
|
|
$
|
8.4
|
|
|
|
|
|
Canopy
|
|
|
|
Net sales
|
$
|
70.7
|
|
|
NA
|
|
Segment operating income (loss)
|
$
|
(170.0
|
)
|
|
NA
|
|
Capital expenditures
|
$
|
112.2
|
|
|
NA
|
|
Depreciation and amortization
|
$
|
17.6
|
|
|
NA
|
|
|
|
|
|
Consolidation and Eliminations
|
|
|
|
Net sales
|
$
|
(70.7
|
)
|
|
$
|
—
|
|
Operating income (loss)
|
$
|
170.0
|
|
|
$
|
—
|
|
Income (loss) from unconsolidated investments
|
$
|
(54.4
|
)
|
|
$
|
—
|
|
Equity method investments
|
$
|
3,279.3
|
|
|
$
|
—
|
|
Capital expenditures
|
$
|
(112.2
|
)
|
|
$
|
—
|
|
Depreciation and amortization
|
$
|
(17.6
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Constellation Brands, Inc. Q1 FY 2020 Form 10-Q
|
33
|
|
|
|
|
FINANCIAL STATEMENTS
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended May 31,
|
|
2019
|
|
2018
|
(in millions)
|
|
|
|
Comparable Adjustments
|
|
|
|
Operating income (loss)
|
$
|
(75.0
|
)
|
|
$
|
(12.2
|
)
|
Income (loss) from unconsolidated investments
|
$
|
(879.1
|
)
|
|
$
|
359.7
|
|
Depreciation and amortization
|
$
|
3.5
|
|
|
$
|
3.4
|
|
|
|
|
|
Consolidated
|
|
|
|
Net sales
|
$
|
2,097.2
|
|
|
$
|
2,047.1
|
|
Operating income (loss)
|
$
|
622.7
|
|
|
$
|
625.4
|
|
Income (loss) from unconsolidated investments
(1)
|
$
|
(930.6
|
)
|
|
$
|
364.4
|
|
Equity method investments
|
$
|
3,430.4
|
|
|
$
|
127.2
|
|
Capital expenditures
|
$
|
155.7
|
|
|
$
|
168.2
|
|
Depreciation and amortization
|
$
|
88.1
|
|
|
$
|
85.7
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Income (loss) from unconsolidated investments consists of:
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
|
May 31,
2019
|
|
May 31,
2018
|
|
|
(in millions)
|
|
|
|
|
|
Unrealized net gain (loss) on securities measured at fair value
|
$
|
(827.5
|
)
|
|
$
|
258.3
|
|
|
|
Net gain (loss) on sale of unconsolidated investment
(i)
|
(0.1
|
)
|
|
101.4
|
|
|
|
Equity in earnings (losses) from equity method investees
|
(103.0
|
)
|
|
4.7
|
|
|
|
|
$
|
(930.6
|
)
|
|
$
|
364.4
|
|
|
|
|
|
|
|
|
(i)
|
In May 2018, we completed the sale of our remaining interest in our previously-owned Australian and European business (the “Accolade Wine Investment”) for A$149.1 million, or $113.6 million, subject to closing adjustments. We received cash proceeds, net of direct costs to sell, of $110.2 million and a note receivable of $3.4 million. This interest consisted of an investment accounted for under the cost method and available-for-sale debt securities.
|