CONSTELLATION BRANDS, INC. - Quarter Report: 2021 November (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2021
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-08495

CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 16-0716709 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
207 High Point Drive, Building 100, Victor, New York 14564
(Address of principal executive offices) (Zip code)
(585) 678-7100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
Class A Common Stock | STZ | New York Stock Exchange | ||||||
Class B Common Stock | STZ.B | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
There were 164,339,182 shares of Class A Common Stock, 23,208,540 shares of Class B Common Stock, and 2,216,750 shares of Class 1 Common Stock outstanding as of December 31, 2021.
TABLE OF CONTENTS
Page | ||||||||
DEFINED TERMS | ||||||||
PART I - FINANCIAL INFORMATION | ||||||||
Item 1. Financial Statements | ||||||||
Consolidated Balance Sheets | ||||||||
Consolidated Statements of Comprehensive Income (Loss) | ||||||||
Consolidated Statements of Changes in Stockholders’ Equity | ||||||||
Consolidated Statements of Cash Flows | ||||||||
Notes to Consolidated Financial Statements | ||||||||
1. Basis of Presentation | ||||||||
2. Inventories | ||||||||
3. Acquisitions and Divestitures | ||||||||
4. Derivative Instruments | ||||||||
5. Fair Value of Financial Instruments | ||||||||
6. Goodwill | ||||||||
7. Intangible Assets | ||||||||
8. Equity Method Investments | ||||||||
9. Other Accrued Expenses and Liabilities | ||||||||
10. Borrowings | ||||||||
11. Income Taxes | ||||||||
12. Stockholders' Equity | ||||||||
13. Net Income (Loss) Per Common Share Attributable to CBI | ||||||||
14. Comprehensive Income (Loss) Attributable to CBI | ||||||||
15. Business Segment Information | ||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | ||||||||
Item 4. Controls and Procedures | ||||||||
PART II – OTHER INFORMATION | ||||||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | ||||||||
Item 4. Mine Safety Disclosures | NA | |||||||
Item 6. Exhibits | ||||||||
INDEX TO EXHIBITS | ||||||||
SIGNATURES |
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. For further information regarding such forward-looking statements, risks and uncertainties, please see “Information Regarding Forward-Looking Statements” under Part I – Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Defined Terms
Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We use terms in this Quarterly Report on Form 10-Q and in our notes to the consolidated financial statements that are specific to us or are abbreviations that may not be commonly known or used.
Term | Meaning | ||||
$ | U.S. dollars | ||||
2.25% July 2021 Senior Notes | $1,000.0 million principal amount of 2.25% senior notes issued in July 2021 | ||||
2.65% November 2017 Senior Notes | $700.0 million principal amount of 2.65% senior notes issued in November 2017 and redeemed in August 2021, prior to maturity | ||||
2.70% May 2017 Senior Notes | $500.0 million principal amount of 2.70% senior notes issued in May 2017 and redeemed in August 2021, prior to maturity | ||||
2018 Authorization | authority to repurchase up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2018 by our Board of Directors | ||||
2019 Five-Year Term Facility | a $491.3 million, five-year term loan facility under the June 2021 Term Credit Agreement, originally entered into in June 2019 | ||||
2020 Credit Agreement | ninth amended and restated credit agreement, dated as of March 26, 2020, provides for an aggregate revolving credit facility of $2.0 billion | ||||
2020 U.S. wildfires | significant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest | ||||
2021 Annual Report | our Annual Report on Form 10-K for the fiscal year ended February 28, 2021, unless otherwise specified | ||||
2021 Authorization | authority to repurchase up to $2.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2021 by our Board of Directors | ||||
ABA | alternative beverage alcohol | ||||
Acreage | Acreage Holdings, Inc. | ||||
Acreage Financial Instrument | a call option for Canopy to acquire 70% of the shares of Acreage, at a fixed exchange ratio and 30% at a floating exchange ratio | ||||
Acreage Transaction | Canopy’s intention to acquire Acreage upon U.S. federal cannabis legalization, subject to certain conditions | ||||
Administrative Agent | Bank of America, N.A., as administrative agent for the senior credit facility and term credit agreement | ||||
AOCI | accumulated other comprehensive income (loss) | ||||
ASR | accelerated share repurchase agreement with a third-party financial institution | ||||
Ballast Point Divestiture | sale of Ballast Point craft beer business, including a number of its associated production facilities and brewpubs | ||||
C$ | Canadian dollars | ||||
Canopy | we made an investment in Canopy Growth Corporation, an Ontario, Canada-based public company | ||||
Canopy Debt Securities | convertible debt securities issued by Canopy | ||||
Canopy Equity Method Investment | November 2017 Canopy Investment, November 2018 Canopy Investment, and May 2020 Canopy Investment, collectively | ||||
Canopy Strategic Transaction(s) | any potential acquisition, divestiture, investment, or other similar transaction made by Canopy, including but not limited to the Acreage Transaction | ||||
CARES Act | Coronavirus Aid, Relief, and Economic Security Act | ||||
CBD | cannabidiol, an active ingredient in cannabis | ||||
CB International | CB International Finance S.à r.l., a wholly-owned subsidiary of ours | ||||
Coca-Cola | The Coca-Cola Company | ||||
CODM | chief operating decision maker |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I i |
Term | Meaning | ||||
Comparable Adjustments | certain items affecting comparability that have been excluded by management | ||||
Concentrate Business Divestiture | sale of certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets | ||||
Copper & Kings | Copper & Kings American Brandy Company, acquired by us | ||||
CSR | corporate social responsibility | ||||
DE&I | diversity, equity, and inclusion | ||||
Depletions | represent U.S. domestic distributor shipments of our respective branded products to retail customers, based on third-party data | ||||
DTC | direct-to-consumer | ||||
Empathy Wines | Empathy Wines business, including a digitally-native wine brand, acquired by us | ||||
ERP | enterprise resource planning system | ||||
Financial Statements | our consolidated financial statements and notes thereto included herein | ||||
Fiscal 2021 | the Company’s fiscal year ended February 28, 2021 | ||||
Fiscal 2022 | the Company’s fiscal year ending February 28, 2022 | ||||
Fiscal 2023 | the Company’s fiscal year ending February 28, 2023 | ||||
Fiscal 2026 | the Company’s fiscal year ending February 28, 2026 | ||||
GivingTuesday | a global generosity movement to encourage others to give back to their community, occurring each year on the Tuesday following Thanksgiving in the U.S. | ||||
June 2021 Term Credit Agreement | March 2020 Term Credit Agreement, inclusive of amendment dated as of June 10, 2021 | ||||
Lender | Bank of America, N.A., as lender for the term credit agreement | ||||
LIBOR | London Interbank Offered Rate | ||||
March 2020 Term Credit Agreement | amended and restated term loan credit agreement, dated as of March 26, 2020, that provided for aggregate facilities of $491.3 million, consisting of the 2019 Five-Year Term Facility | ||||
May 2020 Canopy Investment | May 2020 exercise of the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share | ||||
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2. of this quarterly report on Form 10-Q | ||||
Mexicali Brewery | suspended brewery construction project located in Mexicali, Baja California, Mexico | ||||
Mexico Beer Projects | expansion, optimization, and construction activities at the Obregon Brewery, Nava Brewery, and Southeast Mexico Brewery | ||||
My Favorite Neighbor | we made an initial investment in My Favorite Neighbor, LLC and subsequently acquired the remaining ownership interest | ||||
NA | not applicable | ||||
Nava Brewery | brewery located in Nava, Coahuila, Mexico | ||||
Net sales | gross sales less promotions, returns and allowances, and excise taxes | ||||
Nine Months 2021 | the Company’s nine months ended November 30, 2020 | ||||
Nine Months 2022 | the Company’s nine months ended November 30, 2021 | ||||
NM | not meaningful | ||||
Nobilo Wine Divestiture | sale of New Zealand-based Nobilo Wine brand and certain related assets | ||||
Note(s) | notes to the consolidated financial statements | ||||
November 2017 Canopy Investment | our initial investment for 18.9 million common shares of Canopy | ||||
November 2017 Canopy Warrants | warrants which gave us the option to purchase 18.9 million common shares of Canopy, exercised May 1, 2020 | ||||
November 2018 Canopy Investment | our incremental investment for 104.5 million common shares of Canopy | ||||
November 2018 Canopy Transaction | November 2018 Canopy Investment and the purchase by us of the November 2018 Canopy Warrants, collectively |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I ii |
Term | Meaning | ||||
November 2018 Canopy Warrants | Tranche A Warrants, Tranche B Warrants, and Tranche C Warrants, collectively | ||||
Obregon Brewery | brewery located in Obregon, Sonora, Mexico | ||||
OCI | other comprehensive income (loss) | ||||
Paul Masson Divestiture | sale of Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts | ||||
SEC | Securities and Exchange Commission | ||||
Senior Floating Rate Notes | $650.0 million principal amount of senior floating rate notes issued in October 2018 and redeemed in November 2020, prior to maturity | ||||
Southeast Mexico Brewery | a new brewery intended to be located in Southeast Mexico in the state of Veracruz | ||||
Third Quarter 2021 | the Company’s three months ended November 30, 2020 | ||||
Third Quarter 2022 | the Company’s three months ended November 30, 2021 | ||||
Tranche A Warrants | warrants which give us the option to purchase 88.5 million common shares of Canopy expiring November 1, 2023 | ||||
Tranche B Warrants | warrants which give us the option to purchase 38.4 million common shares of Canopy expiring November 1, 2026 | ||||
Tranche C Warrants | warrants which give us the option to purchase 12.8 million common shares of Canopy expiring November 1, 2026 | ||||
TSX | Toronto Stock Exchange | ||||
U.S. | United States of America | ||||
U.S. GAAP | generally accepted accounting principles in the U.S. | ||||
VWAP Exercise Price | 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 | ||||
Wine and Spirits Divestiture | sale of a portion of our wine and spirits business, including lower-margin, lower-growth wine and spirits brands, related inventory, interests in certain contracts, wineries, vineyards, offices, and facilities | ||||
Wine and Spirits Divestitures | Wine and Spirits Divestiture and the Nobilo Wine Divestiture, collectively |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I iii |
FINANCIAL STATEMENTS |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
November 30, 2021 | February 28, 2021 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 361.3 | $ | 460.6 | |||||||
Accounts receivable | 917.8 | 785.3 | |||||||||
Inventories | 1,518.9 | 1,291.1 | |||||||||
Prepaid expenses and other | 578.6 | 507.5 | |||||||||
Total current assets | 3,376.6 | 3,044.5 | |||||||||
Property, plant, and equipment | 5,519.3 | 5,821.6 | |||||||||
Goodwill | 7,848.1 | 7,793.5 | |||||||||
Intangible assets | 2,756.7 | 2,732.1 | |||||||||
Equity method investments | 2,756.4 | 2,788.4 | |||||||||
Securities measured at fair value | 292.9 | 1,818.1 | |||||||||
Deferred income taxes | 2,414.2 | 2,492.5 | |||||||||
Other assets | 563.1 | 614.1 | |||||||||
Total assets | $ | 25,527.3 | $ | 27,104.8 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Short-term borrowings | $ | 243.0 | $ | — | |||||||
Current maturities of long-term debt | 5.7 | 29.2 | |||||||||
Accounts payable | 945.4 | 460.0 | |||||||||
Other accrued expenses and liabilities | 1,054.5 | 779.9 | |||||||||
Total current liabilities | 2,248.6 | 1,269.1 | |||||||||
Long-term debt, less current maturities | 10,083.8 | 10,413.1 | |||||||||
Deferred income taxes and other liabilities | 1,648.5 | 1,493.5 | |||||||||
Total liabilities | 13,980.9 | 13,175.7 | |||||||||
Commitments and contingencies | |||||||||||
CBI stockholders’ equity: | |||||||||||
Class A Common Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 187,247,721 shares and 187,204,280 shares, respectively | 1.9 | 1.9 | |||||||||
Class B Convertible Common Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,227,478 shares and 28,270,288 shares, respectively | 0.3 | 0.3 | |||||||||
Additional paid-in capital | 1,781.8 | 1,604.2 | |||||||||
Retained earnings | 14,251.6 | 15,117.8 | |||||||||
Accumulated other comprehensive income (loss) | (623.1) | (335.5) | |||||||||
15,412.5 | 16,388.7 | ||||||||||
Less: Treasury stock – | |||||||||||
Class A Common Stock, at cost, 22,947,122 shares and 17,070,550 shares, respectively | (4,172.0) | (2,787.6) | |||||||||
Class B Convertible Common Stock, at cost, 5,005,800 shares | (2.2) | (2.2) | |||||||||
(4,174.2) | (2,789.8) | ||||||||||
Total CBI stockholders’ equity | 11,238.3 | 13,598.9 | |||||||||
Noncontrolling interests | 308.1 | 330.2 | |||||||||
Total stockholders’ equity | 11,546.4 | 13,929.1 | |||||||||
Total liabilities and stockholders’ equity | $ | 25,527.3 | $ | 27,104.8 |
The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 1 |
FINANCIAL STATEMENTS |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, except per share data)
(unaudited)
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Sales | $ | 7,260.3 | $ | 7,235.1 | $ | 2,507.0 | $ | 2,643.7 | |||||||||||||||
Excise taxes | (542.1) | (573.2) | (186.4) | (205.6) | |||||||||||||||||||
Net sales | 6,718.2 | 6,661.9 | 2,320.6 | 2,438.1 | |||||||||||||||||||
Cost of product sold | (3,143.5) | (3,189.6) | (1,094.9) | (1,169.9) | |||||||||||||||||||
Gross profit | 3,574.7 | 3,472.3 | 1,225.7 | 1,268.2 | |||||||||||||||||||
Selling, general, and administrative expenses | (1,254.6) | (1,216.5) | (385.8) | (464.1) | |||||||||||||||||||
Impairment of brewery construction in progress | (665.9) | — | — | — | |||||||||||||||||||
Impairment of assets held for sale | — | (24.0) | — | (21.0) | |||||||||||||||||||
Operating income (loss) | 1,654.2 | 2,231.8 | 839.9 | 783.1 | |||||||||||||||||||
Income (loss) from unconsolidated investments | (1,541.8) | 130.5 | (171.8) | 782.4 | |||||||||||||||||||
Interest expense | (270.5) | (295.9) | (88.0) | (95.7) | |||||||||||||||||||
Loss on extinguishment of debt | (29.4) | (8.8) | — | (1.2) | |||||||||||||||||||
Income (loss) before income taxes | (187.5) | 2,057.6 | 580.1 | 1,468.6 | |||||||||||||||||||
(Provision for) benefit from income taxes | (217.1) | (416.4) | (99.3) | (176.6) | |||||||||||||||||||
Net income (loss) | (404.6) | 1,641.2 | 480.8 | 1,292.0 | |||||||||||||||||||
Net (income) loss attributable to noncontrolling interests | (31.2) | (26.1) | (10.0) | (11.1) | |||||||||||||||||||
Net income (loss) attributable to CBI | $ | (435.8) | $ | 1,615.1 | $ | 470.8 | $ | 1,280.9 | |||||||||||||||
Comprehensive income (loss) | $ | (708.6) | $ | 1,544.4 | $ | 130.0 | $ | 1,776.1 | |||||||||||||||
Comprehensive (income) loss attributable to noncontrolling interests | (14.8) | (20.4) | 8.1 | (37.1) | |||||||||||||||||||
Comprehensive income (loss) attributable to CBI | $ | (723.4) | $ | 1,524.0 | $ | 138.1 | $ | 1,739.0 | |||||||||||||||
Net income (loss) per common share attributable to CBI: | |||||||||||||||||||||||
Basic – Class A Common Stock | $ | (2.31) | $ | 8.44 | $ | 2.53 | $ | 6.68 | |||||||||||||||
Basic – Class B Convertible Common Stock | $ | (2.10) | $ | 7.67 | $ | 2.30 | $ | 6.07 | |||||||||||||||
Diluted – Class A Common Stock | $ | (2.31) | $ | 8.28 | $ | 2.48 | $ | 6.55 | |||||||||||||||
Diluted – Class B Convertible Common Stock | $ | (2.10) | $ | 7.62 | $ | 2.29 | $ | 6.03 | |||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||||||||
Basic – Class A Common Stock | 167.692 | 170.083 | 164.999 | 170.571 | |||||||||||||||||||
Basic – Class B Convertible Common Stock | 23.230 | 23.284 | 23.222 | 23.274 | |||||||||||||||||||
Diluted – Class A Common Stock | 167.692 | 195.101 | 189.939 | 195.444 | |||||||||||||||||||
Diluted – Class B Convertible Common Stock | 23.230 | 23.284 | 23.222 | 23.274 | |||||||||||||||||||
Cash dividends declared per common share: | |||||||||||||||||||||||
Class A Common Stock | $ | 2.28 | $ | 2.25 | $ | 0.76 | $ | 0.75 | |||||||||||||||
Class B Convertible Common Stock | $ | 2.07 | $ | 2.04 | $ | 0.69 | $ | 0.68 |
The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 2 |
FINANCIAL STATEMENTS |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Non-controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||
Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at February 28, 2021 | $ | 1.9 | $ | 0.3 | $ | 1,604.2 | $ | 15,117.8 | $ | (335.5) | $ | (2,789.8) | $ | 330.2 | $ | 13,929.1 | |||||||||||||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | (908.1) | — | — | 10.8 | (897.3) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of income tax effect | — | — | — | — | 98.9 | — | 5.6 | 104.5 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | (792.8) | ||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (400.8) | — | (400.8) | |||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | (146.1) | — | — | — | (146.1) | |||||||||||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | (10.6) | (10.6) | |||||||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans | — | — | (0.9) | — | — | 3.8 | — | 2.9 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 15.9 | — | — | — | — | 15.9 | |||||||||||||||||||||||||||||||||||||||
Balance at May 31, 2021 | 1.9 | 0.3 | 1,619.2 | 14,063.6 | (236.6) | (3,186.8) | 336.0 | 12,597.6 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | 1.5 | — | — | 10.4 | 11.9 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of income tax effect | — | — | — | — | (53.8) | — | (3.9) | (57.7) | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | (45.8) | ||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (904.2) | — | (904.2) | |||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | (142.9) | — | — | — | (142.9) | |||||||||||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | (10.6) | (10.6) | |||||||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans | — | — | 8.9 | — | — | 1.4 | — | 10.3 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 20.2 | — | — | — | — | 20.2 | |||||||||||||||||||||||||||||||||||||||
Balance at August 31, 2021 | 1.9 | 0.3 | 1,648.3 | 13,922.2 | (290.4) | (4,089.6) | 331.9 | 11,524.6 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | 470.8 | — | — | 10.0 | 480.8 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of income tax effect | — | — | — | — | (332.7) | — | (18.1) | (350.8) | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | 130.0 | ||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of shares | — | — | — | — | — | (85.5) | — | (85.5) | |||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | (141.4) | — | — | — | (141.4) | |||||||||||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | (15.7) | (15.7) | |||||||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans | — | — | 135.8 | — | — | 0.9 | — | 136.7 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | (2.3) | — | — | — | — | (2.3) | |||||||||||||||||||||||||||||||||||||||
Balance at November 30, 2021 | $ | 1.9 | $ | 0.3 | $ | 1,781.8 | $ | 14,251.6 | $ | (623.1) | $ | (4,174.2) | $ | 308.1 | $ | 11,546.4 | |||||||||||||||||||||||||||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 3 |
FINANCIAL STATEMENTS |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Non-controlling Interests | Total | |||||||||||||||||||||||||||||||||||||||||
Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at February 29, 2020 | $ | 1.9 | $ | 0.3 | $ | 1,514.6 | $ | 13,695.3 | $ | (266.3) | $ | (2,814.0) | $ | 342.5 | $ | 12,474.3 | |||||||||||||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | (177.9) | — | — | 5.3 | (172.6) | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of income tax effect | — | — | — | — | (756.1) | — | (36.2) | (792.3) | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | (964.9) | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | (143.3) | — | — | — | (143.3) | |||||||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans | — | — | (6.0) | — | — | 2.8 | — | (3.2) | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 14.7 | — | — | — | — | 14.7 | |||||||||||||||||||||||||||||||||||||||
Balance at May 31, 2020 | 1.9 | 0.3 | 1,523.3 | 13,374.1 | (1,022.4) | (2,811.2) | 311.6 | 11,377.6 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | 512.1 | — | — | 9.7 | 521.8 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of income tax effect | — | — | — | — | 206.9 | — | 4.5 | 211.4 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | 733.2 | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | (144.0) | — | — | — | (144.0) | |||||||||||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | (10.0) | (10.0) | |||||||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans | — | — | 10.9 | — | — | 16.7 | — | 27.6 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 19.4 | — | — | — | — | 19.4 | |||||||||||||||||||||||||||||||||||||||
Balance at August 31, 2020 | 1.9 | 0.3 | 1,553.6 | 13,742.2 | (815.5) | (2,794.5) | 315.8 | 12,003.8 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | — | — | — | 1,280.9 | — | — | 11.1 | 1,292.0 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of income tax effect | — | — | — | — | 458.1 | — | 26.0 | 484.1 | |||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | 1,776.1 | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared | — | — | — | (144.0) | — | — | — | (144.0) | |||||||||||||||||||||||||||||||||||||||
Noncontrolling interest distributions | — | — | — | — | — | — | (12.5) | (12.5) | |||||||||||||||||||||||||||||||||||||||
Shares issued under equity compensation plans | — | — | 8.8 | — | — | 2.3 | — | 11.1 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 18.0 | — | — | — | — | 18.0 | |||||||||||||||||||||||||||||||||||||||
Balance at November 30, 2020 | $ | 1.9 | $ | 0.3 | $ | 1,580.4 | $ | 14,879.1 | $ | (357.4) | $ | (2,792.2) | $ | 340.4 | $ | 13,652.5 | |||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 4 |
FINANCIAL STATEMENTS |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
For the Nine Months Ended November 30, | |||||||||||
2021 | 2020 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net income (loss) | $ | (404.6) | $ | 1,641.2 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
Unrealized net (gain) loss on securities measured at fair value | 1,534.8 | (524.7) | |||||||||
Deferred tax provision (benefit) | 58.5 | 287.0 | |||||||||
Depreciation | 248.6 | 219.2 | |||||||||
Stock-based compensation | 33.8 | 52.0 | |||||||||
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings | 6.0 | 403.0 | |||||||||
Noncash lease expense | 60.9 | 63.0 | |||||||||
Amortization of debt issuance costs and loss on extinguishment of debt | 37.5 | 17.7 | |||||||||
Impairment of brewery construction in progress | 665.9 | — | |||||||||
Impairment of assets held for sale | — | 24.0 | |||||||||
Loss on inventory and related contracts associated with business optimization | — | 25.8 | |||||||||
Loss on settlement of treasury lock contracts | — | (29.3) | |||||||||
Change in operating assets and liabilities, net of effects from purchase and sale of business: | |||||||||||
Accounts receivable | (134.8) | (44.1) | |||||||||
Inventories | (218.4) | 75.2 | |||||||||
Prepaid expenses and other current assets | (114.7) | 67.4 | |||||||||
Accounts payable | 340.5 | 146.8 | |||||||||
Deferred revenue | 124.3 | 3.6 | |||||||||
Other accrued expenses and liabilities | 200.9 | (29.7) | |||||||||
Other | 4.9 | (34.5) | |||||||||
Total adjustments | 2,848.7 | 722.4 | |||||||||
Net cash provided by (used in) operating activities | 2,444.1 | 2,363.6 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
Purchase of property, plant, and equipment | (598.7) | (467.7) | |||||||||
Purchase of business, net of cash acquired | (53.5) | (19.9) | |||||||||
Investments in equity method investees and securities | (28.6) | (217.4) | |||||||||
Proceeds from sale of assets | 4.0 | 18.3 | |||||||||
Proceeds from sale of business | 4.6 | 42.9 | |||||||||
Other investing activities | (2.0) | 0.6 | |||||||||
Net cash provided by (used in) investing activities | (674.2) | (643.2) | |||||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 5 |
FINANCIAL STATEMENTS |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
For the Nine Months Ended November 30, | |||||||||||
2021 | 2020 | ||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
Proceeds from issuance of long-term debt | 995.6 | 1,194.7 | |||||||||
Principal payments of long-term debt | (1,363.5) | (2,214.0) | |||||||||
Net proceeds from (repayments of) short-term borrowings | 243.0 | (198.9) | |||||||||
Dividends paid | (430.5) | (431.2) | |||||||||
Purchases of treasury stock | (1,390.5) | — | |||||||||
Proceeds from shares issued under equity compensation plans | 159.7 | 43.2 | |||||||||
Payments of minimum tax withholdings on stock-based payment awards | (9.8) | (7.7) | |||||||||
Payments of debt issuance, debt extinguishment, and other financing costs | (35.0) | (18.3) | |||||||||
Distributions to noncontrolling interests | (36.9) | (22.5) | |||||||||
Net cash provided by (used in) financing activities | (1,867.9) | (1,654.7) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (1.3) | 5.8 | |||||||||
Net increase (decrease) in cash and cash equivalents | (99.3) | 71.5 | |||||||||
Cash and cash equivalents, beginning of period | 460.6 | 81.4 | |||||||||
Cash and cash equivalents, end of period | $ | 361.3 | $ | 152.9 | |||||||
Supplemental disclosures of noncash investing and financing activities | |||||||||||
Additions to property, plant, and equipment | $ | 223.1 | $ | 120.4 |
The accompanying notes are an integral part of these statements.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 6 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOVEMBER 30, 2021
(unaudited)
1. BASIS OF PRESENTATION
We have prepared the Financial Statements, without audit, pursuant to the rules and regulations of the SEC 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 Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in the 2021 Annual Report. Results of operations for interim periods are not necessarily indicative of annual results.
2. 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:
November 30, 2021 | February 28, 2021 | ||||||||||
(in millions) | |||||||||||
Raw materials and supplies | $ | 157.9 | $ | 151.1 | |||||||
In-process inventories | 821.7 | 735.9 | |||||||||
Finished case goods | 539.3 | 404.1 | |||||||||
$ | 1,518.9 | $ | 1,291.1 |
We assess the valuation of our inventories and reduce the carrying value of those inventories that are obsolete or in excess of our forecasted usage to their estimated net realizable value based on analyses and assumptions including, but not limited to, historical usage, future demand, and market requirements. We evaluated the carrying value of certain inventories and recognized the following in cost of product sold within our consolidated results of operations:
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||
2021 (1) | 2020 (2) | 2021 | 2020 (2) | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Loss on inventory write-down | $ | 85.2 | $ | 38.1 | $ | 2.6 | $ | 29.5 |
(1)We recognized a loss predominantly from excess inventory of hard seltzers, within the Beer segment, resulting from a slowdown in the overall category which occurred in early Fiscal 2022.
(2)We recognized of a loss primarily in connection with the write-down of certain grapes, within the Wine and Spirits segment, as a result of smoke damage sustained during the 2020 U.S. wildfires.
3. ACQUISITIONS AND DIVESTITURES
Acquisitions
My Favorite Neighbor
In November 2021, we acquired the remaining 65% ownership interest in My Favorite Neighbor, a super-luxury, DTC focused wine business. This transaction primarily included the acquisition of goodwill, trademarks, inventory, and property, plant, and equipment. In addition, the My Favorite Neighbor transaction includes an earn-out over 10 years based on performance, with a 50% minimum guarantee due at the end of the earn-out
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 7 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
period. The results of operations of My Favorite Neighbor 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 $13.5 million for the nine months and three months ended November 30, 2021, related to the remeasurement of our previously held 35% equity interest in My Favorite Neighbor to the acquisition-date fair value. This gain is included in selling, general, and administrative expenses within our consolidated results of operations. See Note 8 for further discussion.
Copper & Kings
In September 2020, we acquired the remaining ownership interest in Copper & Kings. This acquisition included a collection of traditional and craft batch-distilled American brandies and other select spirits. The transaction primarily included the acquisition of inventory and property, plant, and equipment. The results of operations of Copper & Kings are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
Empathy Wines
In June 2020, we acquired Empathy Wines, including the acquisition of a digitally-native wine brand which strengthened our position in the DTC and other eCommerce markets. This transaction primarily included the acquisition of goodwill, trademarks, and inventory. In addition, the purchase price for Empathy Wines includes an earn-out over five years based on performance. The results of operations of Empathy Wines are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
Divestitures
Paul Masson Divestiture
On January 12, 2021, we sold the Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts. The cash proceeds were used for general corporate purposes. Prior to the Paul Masson Divestiture, we recorded the results of operations of our Paul Masson Grande Amber Brandy business in the Wine and Spirits segment. The following table summarizes the net gain recognized in connection with this divestiture:
(in millions) | |||||
Cash received from buyer | $ | 272.0 | |||
Net assets sold | (206.4) | ||||
Contract termination | (4.0) | ||||
Direct costs to sell | (3.2) | ||||
Gain on sale of business | $ | 58.4 |
Wine and Spirits Divestitures
On January 5, 2021, we sold a portion of our wine and spirits business, including lower-margin, lower-growth wine and spirits brands, related inventory, interests in certain contracts, wineries, vineyards, offices, and facilities. We have the potential to earn an incremental $250 million of contingent consideration if certain brand performance targets are met over a two-year period after closing. Also on January 5, 2021, in a separate, but related transaction with the same buyer, we sold the New Zealand-based Nobilo Wine brand and certain related assets. The cash proceeds were utilized to reduce outstanding debt and for other general corporate purposes.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 8 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Prior to the Wine and Spirits Divestitures, we recorded the results of operations for this portion of our business in the Wine and Spirits segment. The following table summarizes the net loss recognized in connection with these divestitures:
(in millions) | |||||
Cash received from buyer | $ | 667.4 | |||
Net assets sold | (669.1) | ||||
Transition services agreements | (13.0) | ||||
Direct costs to sell | (8.5) | ||||
AOCI reclassification adjustments, primarily foreign currency translation | (5.1) | ||||
Other | (5.2) | ||||
Loss on sale of business | $ | (33.5) |
Concentrate Business Divestiture
On December 29, 2020, we sold certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets. Prior to the Concentrate Business Divestiture, we recorded the results of operations of our concentrates and high-color concentrate business in the Wine and Spirits segment.
Ballast Point Divestiture
On March 2, 2020, we sold the Ballast Point craft beer business, including a number of its associated production facilities and brewpubs. Prior to the Ballast Point Divestiture, we recorded the results of operations of the Ballast Point craft beer business in the Beer segment. We received cash proceeds of $41.1 million, which were primarily utilized to reduce outstanding borrowings.
Subsequent event
Other acquisition
In December 2021, we acquired a previously leased wine and spirits distribution facility located in Lodi, California.
4. 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 2021 Annual Report and have not changed significantly for the nine months and three months ended November 30, 2021.
We have an investment in certain equity securities and other rights which provide us with the option to purchase an additional ownership interest in the equity securities of Canopy (see Note 8). This investment is included in securities measured at fair value and is accounted for at fair value, with the net gain (loss) from the changes in fair value of this investment recognized in income (loss) from unconsolidated investments (see Note 5).
The aggregate notional value of outstanding derivative instruments is as follows:
November 30, 2021 | February 28, 2021 | ||||||||||
(in millions) | |||||||||||
Derivative instruments designated as hedging instruments | |||||||||||
Foreign currency contracts | $ | 1,722.7 | $ | 1,558.0 | |||||||
Derivative instruments not designated as hedging instruments | |||||||||||
Foreign currency contracts | $ | 522.1 | $ | 704.7 | |||||||
Commodity derivative contracts | $ | 243.5 | $ | 221.6 | |||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 9 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 November 30, 2021, the estimated fair value of derivative instruments in a net liability position due to counterparties was $20.1 million. If we were required to settle the net liability position under these derivative instruments on November 30, 2021, we would have had sufficient available liquidity on hand to satisfy this obligation.
Results of period derivative activity
The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see Note 5):
Assets | Liabilities | |||||||||||||||||||||||||
November 30, 2021 | February 28, 2021 | November 30, 2021 | February 28, 2021 | |||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
Derivative instruments designated as hedging instruments | ||||||||||||||||||||||||||
Foreign currency contracts: | ||||||||||||||||||||||||||
Prepaid expenses and other | $ | 8.8 | $ | 32.0 | Other accrued expenses and liabilities | $ | 18.6 | $ | 3.5 | |||||||||||||||||
Other assets | $ | 6.7 | $ | 41.3 | Deferred income taxes and other liabilities | $ | 42.7 | $ | 2.7 | |||||||||||||||||
Derivative instruments not designated as hedging instruments | ||||||||||||||||||||||||||
Foreign currency contracts: | ||||||||||||||||||||||||||
Prepaid expenses and other | $ | 5.5 | $ | 3.3 | Other accrued expenses and liabilities | $ | 10.5 | $ | 3.5 | |||||||||||||||||
Commodity derivative contracts: | ||||||||||||||||||||||||||
Prepaid expenses and other | $ | 28.2 | $ | 13.4 | Other accrued expenses and liabilities | $ | 2.9 | $ | 3.9 | |||||||||||||||||
Other assets | $ | 17.6 | $ | 7.8 | Deferred income taxes and other liabilities | $ | 1.2 | $ | 1.4 | |||||||||||||||||
The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as OCI, net of income tax effect, is as follows:
Derivative Instruments in Designated Cash Flow Hedging Relationships | 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) | ||||||||||||||||||||
For the Nine Months Ended November 30, 2021 | ||||||||||||||||||||
Foreign currency contracts | $ | (75.7) | Sales | $ | (0.8) | |||||||||||||||
Cost of product sold | 30.4 | |||||||||||||||||||
Treasury lock contracts | — | Interest expense | (1.8) | |||||||||||||||||
$ | (75.7) | $ | 27.8 | |||||||||||||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 10 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Derivative Instruments in Designated Cash Flow Hedging Relationships | 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) | ||||||||||||||||||||
For the Nine Months Ended November 30, 2020 | ||||||||||||||||||||
Foreign currency contracts | $ | (21.3) | Sales | $ | 1.1 | |||||||||||||||
Cost of product sold | (32.2) | |||||||||||||||||||
Interest rate swap contracts | (0.6) | Interest expense | (1.1) | |||||||||||||||||
Treasury lock contracts | (16.1) | Interest expense | (1.3) | |||||||||||||||||
$ | (38.0) | $ | (33.5) | |||||||||||||||||
For the Three Months Ended November 30, 2021 | ||||||||||||||||||||
Foreign currency contracts | $ | (87.4) | Sales | $ | (0.4) | |||||||||||||||
Cost of product sold | 8.8 | |||||||||||||||||||
Treasury lock contracts | — | Interest expense | (0.3) | |||||||||||||||||
$ | (87.4) | $ | 8.1 | |||||||||||||||||
For the Three Months Ended November 30, 2020 | ||||||||||||||||||||
Foreign currency contracts | $ | 134.7 | Sales | $ | 0.2 | |||||||||||||||
Cost of product sold | (5.0) | |||||||||||||||||||
Treasury lock contracts | — | Interest expense | (0.6) | |||||||||||||||||
$ | 134.7 | $ | (5.4) |
We expect $10.5 million of net losses, net of income tax effect, to be reclassified from AOCI to our results of operations within the next 12 months.
The effect of our undesignated derivative instruments on our results of operations is as follows:
Derivative Instruments Not Designated as Hedging Instruments | Location of Net Gain (Loss) Recognized in Income (Loss) | Net Gain (Loss) Recognized in Income (Loss) | ||||||||||||||||||
(in millions) | ||||||||||||||||||||
For the Nine Months Ended November 30, 2021 | ||||||||||||||||||||
Commodity derivative contracts | Cost of product sold | $ | 48.1 | |||||||||||||||||
Foreign currency contracts | Selling, general, and administrative expenses | (19.4) | ||||||||||||||||||
$ | 28.7 | |||||||||||||||||||
For the Nine Months Ended November 30, 2020 | ||||||||||||||||||||
Commodity derivative contracts | Cost of product sold | $ | (0.3) | |||||||||||||||||
Foreign currency contracts | Selling, general, and administrative expenses | (18.1) | ||||||||||||||||||
$ | (18.4) | |||||||||||||||||||
For the Three Months Ended November 30, 2021 | ||||||||||||||||||||
Commodity derivative contracts | Cost of product sold | $ | — | |||||||||||||||||
Foreign currency contracts | Selling, general, and administrative expenses | (11.0) | ||||||||||||||||||
$ | (11.0) | |||||||||||||||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 11 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Derivative Instruments Not Designated as Hedging Instruments | Location of Net Gain (Loss) Recognized in Income (Loss) | Net Gain (Loss) Recognized in Income (Loss) | ||||||||||||||||||
(in millions) | ||||||||||||||||||||
For the Three Months Ended November 30, 2020 | ||||||||||||||||||||
Commodity derivative contracts | Cost of product sold | $ | 9.1 | |||||||||||||||||
Foreign currency contracts | Selling, general, and administrative expenses | 1.9 | ||||||||||||||||||
$ | 11.0 |
5. 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:
•Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
•Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as volatility, interest rates, and yield curves that are observable for the asset and liability, either directly or indirectly; and
•Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
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).
Canopy investment
Equity securities, Warrants – The November 2018 Canopy Warrants consist of three tranches of warrants, including 88.5 million Tranche A Warrants expiring November 1, 2023, which are currently exercisable, 38.4 million Tranche B Warrants expiring November 1, 2026, and 12.8 million Tranche C Warrants expiring November 1, 2026. The inputs used to estimate the fair value of the November 2018 Canopy Warrants are as follows(1) (2):
November 30, 2021 | February 28, 2021 | ||||||||||||||||||||||
Tranche A Warrants (3) | Tranche B Warrants (4) | Tranche A Warrants (3) | Tranche B Warrants (4) | ||||||||||||||||||||
Exercise price (5) | C$ | 50.40 | C$ | 76.68 | C$ | 50.40 | C$ | 76.68 | |||||||||||||||
Valuation date stock price (6) | C$ | 13.72 | C$ | 13.72 | C$ | 41.90 | C$ | 41.90 | |||||||||||||||
Remaining contractual term (7) | 1.9 years | 4.9 years | 2.7 years | 5.7 years | |||||||||||||||||||
Expected volatility (8) | 75.0 | % | 75.0 | % | 70.0 | % | 70.0 | % | |||||||||||||||
Risk-free interest rate (9) | 1.0 | % | 1.4 | % | 0.5 | % | 1.1 | % | |||||||||||||||
Expected dividend yield (10) | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % |
(1)The exercise price for the Tranche C Warrants is based on the VWAP Exercise Price. The Tranche C Warrants are not included in the table as there is no fair value assigned.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 12 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(2)In connection with the Acreage Transaction, we obtained other rights which include a share repurchase credit. If Canopy has not purchased the lesser of 27,378,866 Canopy common shares, or C$1,583.0 million worth of Canopy common shares for cancellation between April 18, 2019, and two-years after the full exercise of the Tranche A Warrants, we will be credited an amount that will reduce the aggregate exercise price otherwise payable upon each exercise of the Tranche B Warrants and Tranche C Warrants. The credit will be an amount equal to the difference between C$1,583.0 million and the actual price paid by Canopy in purchasing its common shares for cancellation. The likelihood of receiving the share repurchase credit if we were to fully exercise the Tranche A Warrants is remote, therefore, no fair value has been assigned.
(3)The fair value is estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement).
(4)The fair value is estimated using Monte Carlo simulations (Level 2 fair value measurement).
(5)Based on the exercise price from the applicable underlying agreements.
(6)Based on the closing market price for Canopy common stock on the TSX as of the applicable date.
(7)Based on the expiration date of the warrants.
(8)Based on consideration of historical and/or implied volatility levels of the underlying equity security and limited consideration of historical peer group volatility levels.
(9)Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expiration date of the applicable warrants.
(10)Based on historical dividend levels.
Debt securities, Convertible – We have elected the fair value option to account for the Canopy Debt Securities acquired in June 2018 for C$200.0 million, or $150.5 million. Interest income on the Canopy Debt Securities is calculated using the effective interest method and is recognized separately from the changes in fair value in interest expense. The Canopy Debt Securities have a contractual maturity of five years from the date of issuance but may be converted prior to maturity by either party upon the occurrence of certain events. At settlement, the Canopy Debt Securities can be settled at the option of the issuer, in cash, equity shares of the issuer, or a combination thereof. The fair value is estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes an estimate of the credit spread based on market spreads using bond data as of the valuation date.
The inputs used to estimate the fair value of the Canopy Debt Securities are as follows:
November 30, 2021 | February 28, 2021 | ||||||||||
Conversion price (1) | C$ | 48.17 | C$ | 48.17 | |||||||
Valuation date stock price (2) | C$ | 13.72 | C$ | 41.90 | |||||||
Remaining term (3) | 1.6 years | 2.4 years | |||||||||
Expected volatility (4) | 75.0 | % | 57.6 | % | |||||||
Risk-free interest rate (5) | 0.8 | % | 0.4 | % | |||||||
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.
(3)Based on the contractual maturity date of the notes.
(4)Based on consideration of historical and/or implied volatility levels of the underlying equity security, adjusted for certain risks associated with debt securities, as appropriate.
(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 Canopy Debt Securities.
(6)Based on historical dividend levels.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 13 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Short-term borrowings
Our short-term borrowings consist of our commercial paper program and the revolving credit facility under our 2020 Credit Agreement. The revolving credit facility is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating (as defined in our senior credit facility). For these short-term borrowings the carrying value approximates the fair value.
Long-term debt
The term loan under our June 2021 Term Credit Agreement is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating. The carrying value approximates the fair value of the term loan. The fair value of the remaining fixed interest rate long-term debt 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, and accounts payable, approximate fair value as of November 30, 2021, and February 28, 2021, due to the relatively short maturity of these instruments. As of November 30, 2021, the carrying amount of long-term debt, including the current portion, was $10,089.5 million, compared with an estimated fair value of $10,995.5 million. As of February 28, 2021, the carrying amount of long-term debt, including the current portion, was $10,442.3 million, compared with an estimated fair value of $11,580.9 million.
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) | |||||||||||||||||||||||
November 30, 2021 | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||
Foreign currency contracts | $ | — | $ | 21.0 | $ | — | $ | 21.0 | |||||||||||||||
Commodity derivative contracts | $ | — | $ | 45.8 | $ | — | $ | 45.8 | |||||||||||||||
Equity securities (1) | $ | — | $ | 143.3 | $ | — | $ | 143.3 | |||||||||||||||
Canopy Debt Securities (1) | $ | — | $ | 146.5 | $ | — | $ | 146.5 | |||||||||||||||
Liabilities: | |||||||||||||||||||||||
Foreign currency contracts | $ | — | $ | 71.8 | $ | — | $ | 71.8 | |||||||||||||||
Commodity derivative contracts | $ | — | $ | 4.1 | $ | — | $ | 4.1 | |||||||||||||||
February 28, 2021 | |||||||||||||||||||||||
Assets: | |||||||||||||||||||||||
Foreign currency contracts | $ | — | $ | 76.6 | $ | — | $ | 76.6 | |||||||||||||||
Commodity derivative contracts | $ | — | $ | 21.2 | $ | — | $ | 21.2 | |||||||||||||||
Equity securities (1) | $ | — | $ | 1,639.7 | $ | — | $ | 1,639.7 | |||||||||||||||
Canopy Debt Securities (1) | $ | — | $ | 176.3 | $ | — | $ | 176.3 | |||||||||||||||
Liabilities: | |||||||||||||||||||||||
Foreign currency contracts | $ | — | $ | 9.7 | $ | — | $ | 9.7 | |||||||||||||||
Commodity derivative contracts | $ | — | $ | 5.3 | $ | — | $ | 5.3 | |||||||||||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 14 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
(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 Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
November 2017 Canopy Warrants (i) | $ | — | $ | (61.8) | $ | — | $ | — | |||||||||||||||||||||
November 2018 Canopy Warrants | (1,496.4) | 561.3 | (189.4) | 741.9 | |||||||||||||||||||||||||
Canopy Debt Securities | (38.4) | 25.2 | (10.3) | 27.7 | |||||||||||||||||||||||||
$ | (1,534.8) | $ | 524.7 | $ | (199.7) | $ | 769.6 | ||||||||||||||||||||||
(i) | In May 2020, we exercised the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share for C$245.0 million, or $173.9 million, and received 18.9 million common shares of Canopy. |
Nonrecurring basis measurements
The following table presents our assets and liabilities measured at estimated fair value on a nonrecurring basis for which an impairment assessment was performed for the periods presented:
Fair Value Measurements Using | |||||||||||||||||||||||
Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Losses | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
For the Nine Months Ended November 30, 2021 | |||||||||||||||||||||||
Long-lived assets | $ | — | $ | — | $ | 20.0 | $ | 665.9 | |||||||||||||||
For the Nine Months Ended November 30, 2020 | |||||||||||||||||||||||
Long-lived assets held for sale | $ | — | $ | — | $ | 712.4 | $ | 24.0 | |||||||||||||||
Long-lived assets
In April 2021, our Board of Directors authorized management to sell or abandon the Mexicali Brewery. Subsequently, management determined that we will be unable to use or repurpose certain assets at the Mexicali Brewery. Accordingly, for the first quarter of Fiscal 2022, long-lived assets with a carrying value of $685.9 million were written down to their estimated fair value of $20.0 million, resulting in an impairment of $665.9 million. This impairment was included in impairment of brewery construction in progress within our consolidated results of operations for the nine months ended November 30, 2021. Our estimate of fair value was determined based on the expected salvage value of the assets. The Mexicali Brewery is a component of the Beer segment. We continue to work with government officials in Mexico to (i) determine next steps for our suspended Mexicali Brewery construction project, (ii) pursue various forms of recovery for capitalized costs and additional expenses incurred in establishing the brewery, however, there can be no assurance of any recoveries, and (iii) explore options to add further capacity at other locations in Mexico, including the construction of the Southeast Mexico Brewery where there is ample water and a skilled workforce to meet our long-term needs. In the medium-term, under normal operating conditions, we have ample capacity at the Nava and Obregon breweries to meet consumer needs based on current growth forecasts and current and planned production capabilities. Expansion and optimization efforts continue at our current brewery locations under our Mexico Beer Projects to align with our anticipated future growth expectations.
Long-lived assets held for sale
For the first quarter of Fiscal 2021, in connection with the Wine and Spirits Divestitures and the Concentrate Business Divestiture, long-lived assets held for sale were written down to their estimated fair value, less cost to sell, resulting in a loss of $25.0 million. For the second quarter of Fiscal 2021, a reduction to the loss on long-lived assets held for sale of $22.0 million was recognized. Subsequently, for the third quarter of Fiscal 2021, primarily in connection with the Wine and Spirits Divestitures and the Concentrate Business Divestiture, long-lived
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 15 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
assets held for sale were written down to their estimated fair value, less costs to sell, resulting in a loss of $21.0 million. The long-lived assets held for sale with a carrying value of $736.4 million were written down to their estimated fair value of $712.4 million, less costs to sell, resulting in a total loss of $24.0 million for the nine months ended November 30, 2020. This loss was included in impairment of assets held for sale within our consolidated results of operations. These assets consisted primarily of goodwill, intangible assets, and certain winery and vineyard assets which had satisfied the conditions necessary to be classified as held for sale. Our estimated fair value was determined based on the expected proceeds primarily from the Wine and Spirits Divestitures and the Concentrate Business Divestiture as of November 30, 2020, excluding the contingent consideration, which we will recognize when it is determined to be realizable.
6. GOODWILL
The changes in the carrying amount of goodwill are as follows:
Beer | Wine and Spirits | Consolidated | |||||||||||||||
(in millions) | |||||||||||||||||
Balance, February 29, 2020 | $ | 5,163.4 | $ | 2,593.7 | $ | 7,757.1 | |||||||||||
Purchase accounting allocations (1) | — | 14.3 | 14.3 | ||||||||||||||
Foreign currency translation adjustments | (38.7) | 15.9 | (22.8) | ||||||||||||||
Reclassified from assets held for sale (2) | 0.9 | 44.0 | 44.9 | ||||||||||||||
Balance, February 28, 2021 | 5,125.6 | 2,667.9 | 7,793.5 | ||||||||||||||
Purchase accounting allocations (1)(3) | — | 94.5 | 94.5 | ||||||||||||||
Foreign currency translation adjustments | (34.7) | (5.2) | (39.9) | ||||||||||||||
Balance, November 30, 2021 | $ | 5,090.9 | $ | 2,757.2 | $ | 7,848.1 |
(1)Purchase accounting allocations associated with the acquisition of Empathy Wines.
(2)Primarily in connection with the Wine and Spirits Divestitures, goodwill associated with the businesses being sold was reclassified from assets held for sale based on the changes to relative fair values of the portion of the business being sold and the remaining wine and spirits and beer portfolios. 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.
(3)Preliminary purchase accounting allocations associated with the acquisition of My Favorite Neighbor.
7. INTANGIBLE ASSETS
The major components of intangible assets are as follows:
November 30, 2021 | February 28, 2021 | ||||||||||||||||||||||
Gross Carrying Amount | Net Carrying Amount | Gross Carrying Amount | Net Carrying Amount | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Amortizable intangible assets | |||||||||||||||||||||||
Customer relationships | $ | 87.1 | $ | 23.0 | $ | 87.2 | $ | 26.3 | |||||||||||||||
Other | 21.0 | 0.2 | 21.1 | 0.2 | |||||||||||||||||||
Total | $ | 108.1 | 23.2 | $ | 108.3 | 26.5 | |||||||||||||||||
Nonamortizable intangible assets | |||||||||||||||||||||||
Trademarks | 2,733.5 | 2,705.6 | |||||||||||||||||||||
Total intangible assets | $ | 2,756.7 | $ | 2,732.1 |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 16 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
We did not incur costs to renew or extend the term of acquired intangible assets for the nine months and three months ended November 30, 2021, and November 30, 2020. Net carrying amount represents the gross carrying value net of accumulated amortization.
8. EQUITY METHOD INVESTMENTS
Our equity method investments are as follows:
November 30, 2021 | February 28, 2021 | ||||||||||||||||||||||
Carrying Value | Ownership Percentage | Carrying Value | Ownership Percentage | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Canopy Equity Method Investment (1) (2) | $ | 2,528.7 | 36.2 | % | $ | 2,578.8 | 38.1 | % | |||||||||||||||
Other equity method investments | 227.7 | 20%-50% | 209.6 | 20%-50% | |||||||||||||||||||
$ | 2,756.4 | $ | 2,788.4 |
(1)The fair value based on the closing price of the underlying equity security as of November 30, 2021, and February 28, 2021, was $1,527.2 million and $4,679.3 million, respectively.
(2)Includes the following:
Common Shares | Purchase Price | ||||||||||
(in millions) | |||||||||||
November 2017 Canopy Investment | 18.9 | $ | 130.1 | ||||||||
November 2018 Canopy Investment | 104.5 | 2,740.3 | |||||||||
May 2020 Canopy Investment | 18.9 | 173.9 | |||||||||
142.3 | $ | 3,044.3 |
Canopy Equity Method Investment
We complement our beverage alcohol strategy with our investment in Canopy, a leading provider of medicinal and recreational cannabis products. Equity in earnings (losses) from the Canopy Equity Method Investment and related activities (see table below) include, among other items, restructuring and other strategic business development costs, the amortization of the fair value adjustments associated with the definite-lived intangible assets over their estimated useful lives, and unrealized gains (losses) associated with changes in our Canopy ownership percentage resulting from periodic equity issuances made by Canopy. Amounts included in our consolidated results of operations for each period are as follows:
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Equity in earnings (losses) from Canopy and related activities | $ | (39.5) | $ | (421.0) | $ | (4.2) | $ | (12.4) |
Canopy has various equity and convertible debt securities outstanding, including primarily equity awards granted to its employees, and options and warrants issued to various third parties, including our November 2018 Canopy Warrants, Canopy Debt Securities, and the Acreage Financial Instrument. As of November 30, 2021, the exercise and/or conversion of certain of these outstanding securities could have a significant effect on our share of Canopy’s reported earnings or losses and our ownership interest in Canopy.
We have evaluated the Canopy Equity Method Investment as of November 30, 2021, and determined that there was not an other-than-temporary-impairment. Our conclusion was based on several contributing factors, including: (i) the period of time for which the fair value has been less than the carrying value, (ii) an expectation that Canopy’s results will improve, (iii) an expectation that the Canopy stock price will recover in the near term, and (iv) our ability and intent to hold the investment until that recovery. We will continue to review the Canopy
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 17 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Equity Method Investment for an other-than-temporary impairment. There may be a future impairment of our Canopy Equity Method Investment if Canopy’s stock price does not recover in the near term or our expectations about Canopy’s prospective results and cash flows decline, which could be influenced by a variety of factors including adverse market conditions and the economic impact of COVID-19.
The following table presents summarized financial information for Canopy prepared in accordance with U.S. GAAP. We recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of Canopy’s earnings (losses) for the periods January through September 2021 and January through September 2020 in our nine months ended November 30, 2021, and November 30, 2020, results, respectively. We recognized our share of Canopy’s earnings (losses) for the periods July through September 2021 and July through September 2020 in our three months ended November 30, 2021, and November 30, 2020, results, respectively. The amounts shown represent 100% of Canopy’s reported results for the respective periods.
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Net sales | $ | 332.4 | $ | 261.5 | $ | 104.3 | $ | 101.5 | |||||||||||||||
Gross profit (loss) | $ | (26.6) | $ | (33.0) | $ | (56.5) | $ | 19.6 | |||||||||||||||
Net income (loss) | $ | (182.6) | $ | (1,138.7) | $ | (12.9) | $ | (72.5) | |||||||||||||||
Net income (loss) attributable to Canopy | $ | (242.2) | $ | (1,055.8) | $ | (8.7) | $ | (24.1) |
Other equity method investment
My Favorite Neighbor
In April 2020, we invested in My Favorite Neighbor, which we accounted for under the equity method. We recognized our share of their equity in earnings (losses) in our consolidated financial statements in the Wine and Spirits segment up to the date we acquired the remaining ownership interest.
9. OTHER ACCRUED EXPENSES AND LIABILITIES
The major components of other accrued expenses and liabilities are as follows:
November 30, 2021 | February 28, 2021 | ||||||||||
(in millions) | |||||||||||
Salaries, commissions, and payroll benefits and withholdings | $ | 336.6 | $ | 232.1 | |||||||
Promotions and advertising | 186.1 | 159.9 | |||||||||
Income taxes payable | 114.1 | 24.7 | |||||||||
Accrued interest | 71.1 | 93.4 | |||||||||
Operating lease liability | 69.6 | 68.8 | |||||||||
Accrued excise taxes | 39.5 | 19.9 | |||||||||
Deferred revenue | 36.9 | 16.3 | |||||||||
Derivative liabilities | 32.0 | 10.9 | |||||||||
Other | 168.6 | 153.9 | |||||||||
$ | 1,054.5 | $ | 779.9 |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 18 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
10. BORROWINGS
Borrowings consist of the following:
November 30, 2021 | February 28, 2021 | ||||||||||||||||||||||
Current | Long-term | Total | Total | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Short-term borrowings | |||||||||||||||||||||||
Commercial paper | $ | 243.0 | $ | — | |||||||||||||||||||
$ | 243.0 | $ | — | ||||||||||||||||||||
Long-term debt | |||||||||||||||||||||||
Term loan credit facilities | $ | — | $ | 300.0 | $ | 300.0 | $ | 454.4 | |||||||||||||||
Senior notes | — | 9,771.0 | 9,771.0 | 9,972.4 | |||||||||||||||||||
Other | 5.7 | 12.8 | 18.5 | 15.5 | |||||||||||||||||||
$ | 5.7 | $ | 10,083.8 | $ | 10,089.5 | $ | 10,442.3 |
Bank facilities
The Company, CB International, the Administrative Agent, and certain other lenders are parties to the 2020 Credit Agreement. Also, the Company and the Administrative Agent and Lender are parties to the June 2021 Term Credit Agreement.
As of November 30, 2021, aggregate credit facilities under the 2020 Credit Agreement and the June 2021 Term Credit Agreement consist of the following:
Amount | Maturity | ||||||||||
(in millions) | |||||||||||
2020 Credit Agreement | |||||||||||
Revolving credit facility (1) (2) | $ | 2,000.0 | Sept 14, 2023 | ||||||||
June 2021 Term Credit Agreement | |||||||||||
2019 Five-Year Term Facility (1) (3) | $ | 491.3 | Jun 28, 2024 |
(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 2019 Five-Year Term Facility.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 19 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
As of November 30, 2021, information with respect to borrowings under the 2020 Credit Agreement and the June 2021 Term Credit Agreement is as follows:
Outstanding borrowings | Interest rate | LIBOR margin | Outstanding letters of credit | Remaining borrowing capacity (1) | |||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
2020 Credit Agreement | |||||||||||||||||||||||||||||
Revolving credit facility | $ | — | — | % | — | % | $ | 12.2 | $ | 1,744.8 | |||||||||||||||||||
June 2021 Term Credit Agreement | |||||||||||||||||||||||||||||
2019 Five-Year Term Facility (2) (3) | $ | 300.0 | 0.7 | % | 0.63 | % |
(1)Net of outstanding revolving credit facility borrowings, outstanding letters of credit under the 2020 Credit Agreement, and outstanding borrowings under our commercial paper program of $243.0 million (excluding unamortized discount) (see “Commercial paper program” below).
(2)Outstanding term loan facilities borrowings are net of unamortized debt issuance costs.
(3)Outstanding borrowings reflect a $142.1 million partial prepayment of the 2019 Five-Year Term Facility under our June 2021 Term Credit Agreement.
We and our subsidiaries are subject to covenants that are contained in the 2020 Credit Agreement and the June 2021 Term Credit Agreement, including those restricting the incurrence of additional 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.
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 2020 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility. As of November 30, 2021, we had $243.0 million of outstanding borrowings, net of unamortized discount, under our commercial paper program with a weighted average annual interest rate of 0.3% and a weighted average remaining term of six days.
Senior notes
In July 2021, we issued $1,000.0 million aggregate principal amount of 2.25% senior notes due August 2031. Proceeds from this offering, net of discount and debt issuance costs, were $987.2 million. Interest on the 2.25% July 2021 Senior Notes is payable semiannually on February 1 and August 1 of each year, beginning February 1, 2022. The 2.25% July 2021 Senior Notes are redeemable, in whole or in part, at our option at any time prior to May 1, 2031, at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment based on the present value of the future payments at the adjusted treasury rate, as defined in the applicable indenture, plus 15 basis points. On or after May 1, 2031, we may redeem the 2.25% July 2021 Senior Notes, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest. The 2.25% July 2021 Senior Notes are senior unsecured obligations which rank equally in right of payment to all of our existing and future senior unsecured indebtedness.
In May 2017, we issued $500.0 million aggregate principal amount of 2.70% senior notes due May 2022. In November 2017, we issued $700.0 million aggregate principal amount of 2.65% senior notes due November 2022. On August 25, 2021, we repaid the 2.70% May 2017 Senior Notes and 2.65% November 2017 Senior Notes with proceeds from the 2.25% July 2021 Senior Notes and cash on hand. These notes were redeemed prior to maturity at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a $26.6 million make-whole payment. The make-whole payment is included in loss on extinguishment of debt within our consolidated results.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 20 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Debt payments
As of November 30, 2021, the required principal repayments under long-term debt obligations (excluding unamortized debt issuance costs and unamortized discounts of $59.9 million and $19.1 million, respectively) for the remaining three months of Fiscal 2022 and for each of the five succeeding fiscal years and thereafter are as follows:
(in millions) | |||||
2022 | $ | 1.6 | |||
2023 | 606.3 | ||||
2024 | 1,055.6 | ||||
2025 | 703.3 | ||||
2026 | 901.3 | ||||
2027 | 600.3 | ||||
Thereafter | 6,300.1 | ||||
$ | 10,168.5 |
11. INCOME TAXES
Our effective tax rate for the nine months ended November 30, 2021, and November 30, 2020, was (115.8)% and 20.2%, respectively. Our effective tax rate for the three months ended November 30, 2021, and November 30, 2020, was 17.1% and 12.0%, respectively.
For the nine months and three months ended November 30, 2021, our effective tax rate did not approximate the federal statutory rate of 21% primarily due to (i) valuation allowances on the unrealized net loss from the changes in fair value of our investment in Canopy and Canopy equity in earnings (losses), (ii) a benefit of lower effective tax rates applicable to our foreign businesses, and (iii) recognition of a net income tax benefit from stock-based compensation award activity. For the nine months ended November 30, 2021, our effective rate was also impacted by the long-lived asset impairment of brewery construction in progress.
For the nine months ended November 30, 2020, our effective tax rate approximated the federal statutory rate of 21% as the effective rate of tax benefit from our foreign businesses and the recognition of a net income tax benefit from stock-based compensation award activity was largely offset by the net income tax expense recognized on the unrealized net gain from the changes in fair value of our investment in Canopy.
For the three months ended November 30, 2020, our effective tax rate was lower than the federal statutory rate of 21% primarily due to (i) the removal of valuation allowances due to the unrealized net gain from the changes in fair value of our investment in Canopy and (ii) lower effective tax rates from our foreign businesses.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 21 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
12. 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, 2021 | 187,204,280 | 28,270,288 | 612,936 | 17,070,550 | 5,005,800 | ||||||||||||||||||||||||
Share repurchases | — | — | — | 1,696,722 | — | ||||||||||||||||||||||||
Conversion of shares | 43,441 | (42,810) | (631) | — | — | ||||||||||||||||||||||||
Exercise of stock options | — | — | 781 | (116,058) | — | ||||||||||||||||||||||||
Vesting of restricted stock units (1) | — | — | — | (66,157) | — | ||||||||||||||||||||||||
Vesting of performance share units (1) | — | — | — | (7,934) | — | ||||||||||||||||||||||||
Balance at May 31, 2021 | 187,247,721 | 28,227,478 | 613,086 | 18,577,123 | 5,005,800 | ||||||||||||||||||||||||
Share repurchases | — | — | — | 4,079,651 | — | ||||||||||||||||||||||||
Exercise of stock options | — | — | 1,267 | (34,736) | — | ||||||||||||||||||||||||
Employee stock purchases | — | — | — | (28,768) | — | ||||||||||||||||||||||||
Vesting of restricted stock units (1) | — | — | — | (5,256) | — | ||||||||||||||||||||||||
Balance at August 31, 2021 | 187,247,721 | 28,227,478 | 614,353 | 22,588,014 | 5,005,800 | ||||||||||||||||||||||||
Share repurchases | — | — | — | 402,642 | — | ||||||||||||||||||||||||
Exercise of stock options | — | — | 1,603,397 | (43,534) | — | ||||||||||||||||||||||||
Balance at November 30, 2021 | 187,247,721 | 28,227,478 | 2,217,750 | 22,947,122 | 5,005,800 | ||||||||||||||||||||||||
Balance at February 29, 2020 | 186,090,745 | 28,300,206 | 1,692,227 | 18,256,826 | 5,005,800 | ||||||||||||||||||||||||
Conversion of shares | 2,532 | (2,532) | — | — | — | ||||||||||||||||||||||||
Exercise of stock options | — | — | 2,576 | (44,593) | — | ||||||||||||||||||||||||
Vesting of restricted stock units (1) | — | — | — | (76,019) | — | ||||||||||||||||||||||||
Vesting of performance share units (1) | — | — | — | (17,335) | — | ||||||||||||||||||||||||
Balance at May 31, 2020 | 186,093,277 | 28,297,674 | 1,694,803 | 18,118,879 | 5,005,800 | ||||||||||||||||||||||||
Conversion of shares | 684,808 | (11,113) | (673,695) | — | — | ||||||||||||||||||||||||
Exercise of stock options | — | — | — | (781,075) | — | ||||||||||||||||||||||||
Employee stock purchases | — | — | — | (32,867) | — | ||||||||||||||||||||||||
Vesting of restricted stock units (1) | — | — | — | (3,514) | — | ||||||||||||||||||||||||
Balance at August 31, 2020 | 186,778,085 | 28,286,561 | 1,021,108 | 17,301,423 | 5,005,800 | ||||||||||||||||||||||||
Conversion of shares | 417,966 | (9,044) | (408,922) | — | — | ||||||||||||||||||||||||
Exercise of stock options | — | — | — | (110,717) | — | ||||||||||||||||||||||||
Vesting of restricted stock units (1) | — | — | — | (666) | — | ||||||||||||||||||||||||
Balance at November 30, 2020 | 187,196,051 | 28,277,517 | 612,186 | 17,190,040 | 5,005,800 |
(1) Net of the following shares withheld to satisfy tax withholding requirements:
For the Three Months Ended May 31, | For the Three Months Ended August 31, | For the Three Months Ended November 30, | For the Nine Months Ended November 30, | ||||||||||||||||||||
2021 | |||||||||||||||||||||||
Restricted Stock Units | 36,048 | 165 | — | 36,213 | |||||||||||||||||||
Performance Share Units | 4,565 | — | — | 4,565 | |||||||||||||||||||
2020 | |||||||||||||||||||||||
Restricted Stock Units | 37,506 | 187 | 240 | 37,933 | |||||||||||||||||||
Performance Share Units | 9,433 | — | — | 9,433 |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 22 |
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. In January 2021, our Board of Directors authorized an additional repurchase of up to $2.0 billion of our Class A Common Stock and Class B Convertible Common Stock. The Board of Directors did not specify a date upon which these authorizations would expire. Shares repurchased under these authorizations will become treasury shares.
For the nine months ended November 30, 2021, we repurchased 6,179,015 shares of Class A Common Stock pursuant to the 2018 Authorization at an aggregate cost of $1,390.5 million through a combination of open market transactions and an ASR that was announced in June 2021.
As of November 30, 2021, total shares repurchased under the 2018 Authorization and the 2021 Authorization 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 | $ | 2,436.4 | 11,076,620 | ||||||||||||
2021 Authorization | $ | 2,000.0 | $ | — | — |
13. NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CBI
For the nine months ended November 30, 2021, net income (loss) per common share – diluted for Class A Common Stock and Class B Convertible Common Stock have been computed using the two-class method. For the three months ended November 30, 2021, and for the nine months and three months ended November 30, 2020, 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 November 30, 2021, and for the nine months and three months ended November 30, 2020, 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. The computation of basic and diluted net income (loss) per common share is as follows:
For the Nine Months Ended | |||||||||||||||||||||||
November 30, 2021 | November 30, 2020 | ||||||||||||||||||||||
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 | $ | (386.9) | $ | (48.9) | $ | 1,436.5 | $ | 178.6 | |||||||||||||||
Conversion of Class B common shares into Class A common shares | — | — | 178.6 | — | |||||||||||||||||||
Effect of stock-based awards on allocated net income (loss) | — | — | — | (1.2) | |||||||||||||||||||
Net income (loss) attributable to CBI allocated – diluted | $ | (386.9) | $ | (48.9) | $ | 1,615.1 | $ | 177.4 | |||||||||||||||
Weighted average common shares outstanding – basic | 167.692 | 23.230 | 170.083 | 23.284 | |||||||||||||||||||
Conversion of Class B common shares into Class A common shares (1) | — | — | 23.284 | — | |||||||||||||||||||
Stock-based awards, primarily stock options (1) | — | — | 1.734 | — | |||||||||||||||||||
Weighted average common shares outstanding – diluted | 167.692 | 23.230 | 195.101 | 23.284 | |||||||||||||||||||
Net income (loss) per common share attributable to CBI – basic | $ | (2.31) | $ | (2.10) | $ | 8.44 | $ | 7.67 | |||||||||||||||
Net income (loss) per common share attributable to CBI – diluted | $ | (2.31) | $ | (2.10) | $ | 8.28 | $ | 7.62 | |||||||||||||||
For the Three Months Ended | |||||||||||||||||||||||
November 30, 2021 | November 30, 2020 | ||||||||||||||||||||||
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 | $ | 417.4 | $ | 53.4 | $ | 1,139.5 | $ | 141.4 | |||||||||||||||
Conversion of Class B common shares into Class A common shares | 53.4 | — | 141.4 | — | |||||||||||||||||||
Effect of stock-based awards on allocated net income (loss) | — | (0.3) | — | (1.1) | |||||||||||||||||||
Net income (loss) attributable to CBI allocated – diluted | $ | 470.8 | $ | 53.1 | $ | 1,280.9 | $ | 140.3 | |||||||||||||||
Weighted average common shares outstanding – basic | 164.999 | 23.222 | 170.571 | 23.274 | |||||||||||||||||||
Conversion of Class B common shares into Class A common shares | 23.222 | — | 23.274 | — | |||||||||||||||||||
Stock-based awards, primarily stock options | 1.718 | — | 1.599 | — | |||||||||||||||||||
Weighted average common shares outstanding – diluted | 189.939 | 23.222 | 195.444 | 23.274 | |||||||||||||||||||
Net income (loss) per common share attributable to CBI – basic | $ | 2.53 | $ | 2.30 | $ | 6.68 | $ | 6.07 | |||||||||||||||
Net income (loss) per common share attributable to CBI – diluted | $ | 2.48 | $ | 2.29 | $ | 6.55 | $ | 6.03 |
(1) | For the nine months ended November 30, 2021, we have excluded the following weighted average common shares outstanding from the calculation of diluted net income (loss) per common share, as the effect of including these would have been anti-dilutive, in millions: | ||||||||||
Class B Convertible Common Stock | 23.230 | ||||||||||
Stock-based awards, primarily stock options | 1.807 | ||||||||||
14. COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CBI
Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustments, unrealized net gain (loss) on derivative instruments, 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 Nine Months Ended November 30, 2021 | |||||||||||||||||
Net income (loss) attributable to CBI | $ | (435.8) | |||||||||||||||
Other comprehensive income (loss) attributable to CBI: | |||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||
Net gain (loss) | $ | (178.2) | $ | — | (178.2) | ||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (178.2) | — | (178.2) | ||||||||||||||
Unrealized gain (loss) on cash flow hedges: | |||||||||||||||||
Net derivative gain (loss) | (74.5) | 3.2 | (71.3) | ||||||||||||||
Reclassification adjustments | (28.2) | 2.5 | (25.7) | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (102.7) | 5.7 | (97.0) | ||||||||||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 23 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Before Tax Amount | Tax (Expense) Benefit | Net of Tax Amount | |||||||||||||||
(in millions) | |||||||||||||||||
Pension/postretirement adjustments: | |||||||||||||||||
Net actuarial gain (loss) | 0.4 | (0.1) | 0.3 | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | 0.4 | (0.1) | 0.3 | ||||||||||||||
Share of OCI of equity method investments | |||||||||||||||||
Net gain (loss) | (16.4) | 3.7 | (12.7) | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (16.4) | 3.7 | (12.7) | ||||||||||||||
Other comprehensive income (loss) attributable to CBI | $ | (296.9) | $ | 9.3 | (287.6) | ||||||||||||
Comprehensive income (loss) attributable to CBI | $ | (723.4) | |||||||||||||||
For the Nine Months Ended November 30, 2020 | |||||||||||||||||
Net income (loss) attributable to CBI | $ | 1,615.1 | |||||||||||||||
Other comprehensive income (loss) attributable to CBI: | |||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||
Net gain (loss) | $ | (101.8) | $ | — | (101.8) | ||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (101.8) | — | (101.8) | ||||||||||||||
Unrealized gain (loss) on cash flow hedges: | |||||||||||||||||
Net derivative gain (loss) | (39.1) | 3.2 | (35.9) | ||||||||||||||
Reclassification adjustments | 34.1 | (2.4) | 31.7 | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (5.0) | 0.8 | (4.2) | ||||||||||||||
Pension/postretirement adjustments: | |||||||||||||||||
Net actuarial gain (loss) | (0.6) | 0.2 | (0.4) | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (0.6) | 0.2 | (0.4) | ||||||||||||||
Share of OCI of equity method investments | |||||||||||||||||
Net gain (loss) | 20.6 | (5.3) | 15.3 | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | 20.6 | (5.3) | 15.3 | ||||||||||||||
Other comprehensive income (loss) attributable to CBI | $ | (86.8) | $ | (4.3) | (91.1) | ||||||||||||
Comprehensive income (loss) attributable to CBI | $ | 1,524.0 | |||||||||||||||
For the Three Months Ended November 30, 2021 | |||||||||||||||||
Net income (loss) attributable to CBI | $ | 470.8 | |||||||||||||||
Other comprehensive income (loss) attributable to CBI: | |||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||
Net gain (loss) | $ | (251.2) | $ | — | (251.2) | ||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (251.2) | — | (251.2) |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 24 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Before Tax Amount | Tax (Expense) Benefit | Net of Tax Amount | |||||||||||||||
(in millions) | |||||||||||||||||
Unrealized gain (loss) on cash flow hedges: | |||||||||||||||||
Net derivative gain (loss) | (93.8) | 11.7 | (82.1) | ||||||||||||||
Reclassification adjustments | (8.1) | 0.8 | (7.3) | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (101.9) | 12.5 | (89.4) | ||||||||||||||
Pension/postretirement adjustments: | |||||||||||||||||
Net actuarial gain (loss) | 0.5 | (0.1) | 0.4 | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | 0.5 | (0.1) | 0.4 | ||||||||||||||
Share of OCI of equity method investments | |||||||||||||||||
Net gain (loss) | 9.7 | (2.2) | 7.5 | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | 9.7 | (2.2) | 7.5 | ||||||||||||||
Other comprehensive income (loss) attributable to CBI | $ | (342.9) | $ | 10.2 | (332.7) | ||||||||||||
Comprehensive income (loss) attributable to CBI | $ | 138.1 | |||||||||||||||
For the Three Months Ended November 30, 2020 | |||||||||||||||||
Net income (loss) attributable to CBI | $ | 1,280.9 | |||||||||||||||
Other comprehensive income (loss) attributable to CBI: | |||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||
Net gain (loss) | $ | 347.2 | $ | — | 347.2 | ||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | 347.2 | — | 347.2 | ||||||||||||||
Unrealized gain (loss) on cash flow hedges: | |||||||||||||||||
Net derivative gain (loss) | 124.3 | — | 124.3 | ||||||||||||||
Reclassification adjustments | 6.1 | (0.5) | 5.6 | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | 130.4 | (0.5) | 129.9 | ||||||||||||||
Pension/postretirement adjustments: | |||||||||||||||||
Net actuarial gain (loss) | (0.4) | 0.2 | (0.2) | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (0.4) | 0.2 | (0.2) | ||||||||||||||
Share of OCI of equity method investments | |||||||||||||||||
Net gain (loss) | (14.1) | (4.7) | (18.8) | ||||||||||||||
Reclassification adjustments | — | — | — | ||||||||||||||
Net gain (loss) recognized in other comprehensive income (loss) | (14.1) | (4.7) | (18.8) | ||||||||||||||
Other comprehensive income (loss) attributable to CBI | $ | 463.1 | $ | (5.0) | 458.1 | ||||||||||||
Comprehensive income (loss) attributable to CBI | $ | 1,739.0 |
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 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 | Unrealized Net 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, 2021 | $ | (392.5) | $ | 43.5 | $ | (4.2) | $ | 17.7 | $ | (335.5) | |||||||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||||||
Other comprehensive income (loss) before reclassification adjustments | (178.2) | (71.3) | 0.3 | (12.7) | (261.9) | ||||||||||||||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | (25.7) | — | — | (25.7) | ||||||||||||||||||||||||
Other comprehensive income (loss) | (178.2) | (97.0) | 0.3 | (12.7) | (287.6) | ||||||||||||||||||||||||
Balance, November 30, 2021 | $ | (570.7) | $ | (53.5) | $ | (3.9) | $ | 5.0 | $ | (623.1) |
15. BUSINESS SEGMENT INFORMATION
Our internal management financial reporting consists of three business divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy and 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 beer brands, craft beer, and ABAs. We have an exclusive perpetual brand license to import, market, and sell our Mexican beer portfolio in the U.S. 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 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 the incentive compensation of segment management are evaluated based on core segment operating income (loss) which do not include the impact of these Comparable Adjustments.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 26 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
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 Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Cost of product sold | |||||||||||||||||||||||
Net gain (loss) on undesignated commodity derivative contracts | $ | 48.1 | $ | (0.3) | $ | — | $ | 9.1 | |||||||||||||||
Net flow through of reserved inventory | 11.6 | — | 11.6 | — | |||||||||||||||||||
Settlements of undesignated commodity derivative contracts | (24.8) | 30.2 | (12.5) | 6.6 | |||||||||||||||||||
Strategic business development costs | (2.6) | (25.8) | — | (0.7) | |||||||||||||||||||
Loss on inventory write-down | (1.0) | (26.5) | (1.0) | (26.5) | |||||||||||||||||||
COVID-19 incremental costs | — | (6.3) | — | (0.8) | |||||||||||||||||||
Flow through of inventory step-up | — | (0.1) | (0.1) | — | |||||||||||||||||||
Total cost of product sold | 31.3 | (28.8) | (2.0) | (12.3) | |||||||||||||||||||
Selling, general, and administrative expenses | |||||||||||||||||||||||
Restructuring and other strategic business development costs | 0.1 | (21.6) | 0.2 | (12.7) | |||||||||||||||||||
Transaction, integration, and other acquisition-related costs | (0.8) | (5.4) | (0.8) | (1.5) | |||||||||||||||||||
Net gain (loss) on foreign currency derivative contracts | — | (8.0) | — | — | |||||||||||||||||||
COVID-19 incremental costs | — | (4.8) | — | (0.2) | |||||||||||||||||||
Other gains (losses) (1) | 12.6 | (0.1) | 18.7 | (4.6) | |||||||||||||||||||
Total selling, general, and administrative expenses | 11.9 | (39.9) | 18.1 | (19.0) | |||||||||||||||||||
Impairment of brewery construction in progress | (665.9) | — | — | — | |||||||||||||||||||
Impairment of assets held for sale | — | (24.0) | — | (21.0) | |||||||||||||||||||
Comparable Adjustments, Operating income (loss) | $ | (622.7) | $ | (92.7) | $ | 16.1 | $ | (52.3) |
(1) | Includes the following: | |||||||||||||||||||||||||
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||
Increase in our ownership interest in My Favorite Neighbor | $ | 13.5 | $ | — | $ | 13.5 | $ | — | ||||||||||||||||||
Property tax settlement | $ | 10.4 | $ | — | $ | 10.4 | $ | — | ||||||||||||||||||
Transition services agreements activity | $ | (11.7) | $ | — | $ | (4.5) | $ | — | ||||||||||||||||||
Gain (loss) on vineyard sale | $ | (0.7) | $ | 8.8 | $ | (0.7) | $ | — | ||||||||||||||||||
Gain (loss) on sale of the Black Velvet Canadian Whisky business | $ | — | $ | (3.6) | $ | — | $ | — |
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 2021 Annual Report. 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 its results are included in the information below and subsequently eliminated in order to reconcile to our consolidated financial statements.
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 27 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
Segment information is as follows:
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Beer | |||||||||||||||||||||||
Net sales | $ | 5,185.9 | $ | 4,697.9 | $ | 1,752.6 | $ | 1,677.9 | |||||||||||||||
Segment operating income (loss) | $ | 2,089.7 | $ | 1,988.0 | $ | 723.6 | $ | 714.5 | |||||||||||||||
Capital expenditures | $ | 501.5 | $ | 347.8 | $ | 205.7 | $ | 149.3 | |||||||||||||||
Depreciation and amortization | $ | 183.1 | $ | 143.8 | $ | 64.6 | $ | 50.9 | |||||||||||||||
Wine and Spirits | |||||||||||||||||||||||
Net sales: | |||||||||||||||||||||||
Wine | $ | 1,351.1 | $ | 1,711.2 | $ | 506.2 | $ | 666.7 | |||||||||||||||
Spirits | 181.2 | 252.8 | 61.8 | 93.5 | |||||||||||||||||||
Net sales | $ | 1,532.3 | $ | 1,964.0 | $ | 568.0 | $ | 760.2 | |||||||||||||||
Segment operating income (loss) | $ | 348.9 | $ | 507.8 | $ | 144.5 | $ | 182.3 | |||||||||||||||
Income (loss) from unconsolidated investments | $ | 33.6 | $ | 26.6 | $ | 33.4 | $ | 25.5 | |||||||||||||||
Equity method investments (1) | $ | 117.4 | $ | 137.7 | $ | 117.4 | $ | 137.7 | |||||||||||||||
Capital expenditures | $ | 78.0 | $ | 67.3 | $ | 24.0 | $ | 29.9 | |||||||||||||||
Depreciation and amortization | $ | 59.6 | $ | 68.5 | $ | 20.0 | $ | 23.2 | |||||||||||||||
Corporate Operations and Other | |||||||||||||||||||||||
Segment operating income (loss) | $ | (161.7) | $ | (171.3) | $ | (44.3) | $ | (61.4) | |||||||||||||||
Income (loss) from unconsolidated investments | $ | (2.1) | $ | 0.2 | $ | (1.3) | $ | (0.3) | |||||||||||||||
Equity method investments | $ | 110.3 | $ | 83.5 | $ | 110.3 | $ | 83.5 | |||||||||||||||
Capital expenditures | $ | 19.2 | $ | 52.6 | $ | 15.6 | $ | 10.7 | |||||||||||||||
Depreciation and amortization | $ | 9.7 | $ | 10.9 | $ | 3.2 | $ | 3.7 | |||||||||||||||
Canopy | |||||||||||||||||||||||
Net sales | $ | 332.4 | $ | 261.5 | $ | 104.3 | $ | 101.5 | |||||||||||||||
Segment operating income (loss) | $ | (508.0) | $ | (1,071.0) | $ | (171.0) | $ | (213.4) | |||||||||||||||
Capital expenditures | $ | 49.7 | $ | 135.9 | $ | 12.2 | $ | 21.5 | |||||||||||||||
Depreciation and amortization | $ | 66.2 | $ | 78.5 | $ | 22.9 | $ | 23.9 | |||||||||||||||
Consolidation and Eliminations | |||||||||||||||||||||||
Net sales | $ | (332.4) | $ | (261.5) | $ | (104.3) | $ | (101.5) | |||||||||||||||
Operating income (loss) | $ | 508.0 | $ | 1,071.0 | $ | 171.0 | $ | 213.4 | |||||||||||||||
Income (loss) from unconsolidated investments | $ | (142.6) | $ | (108.8) | $ | (68.4) | $ | (43.0) | |||||||||||||||
Equity method investments | $ | 2,528.7 | $ | 2,738.7 | $ | 2,528.7 | $ | 2,738.7 | |||||||||||||||
Capital expenditures | $ | (49.7) | $ | (135.9) | $ | (12.2) | $ | (21.5) | |||||||||||||||
Depreciation and amortization | $ | (66.2) | $ | (78.5) | $ | (22.9) | $ | (23.9) | |||||||||||||||
Comparable Adjustments | |||||||||||||||||||||||
Operating income (loss) | $ | (622.7) | $ | (92.7) | $ | 16.1 | $ | (52.3) | |||||||||||||||
Income (loss) from unconsolidated investments | $ | (1,430.7) | $ | 212.5 | $ | (135.5) | $ | 800.2 | |||||||||||||||
Constellation Brands, Inc. Q3 FY 2022 Form 10-Q | #WORTHREACHINGFOR I 28 |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | ||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
Consolidated | |||||||||||||||||||||||
Net sales | $ | 6,718.2 | $ | 6,661.9 | $ | 2,320.6 | $ | 2,438.1 | |||||||||||||||
Operating income (loss) | $ | 1,654.2 | $ | 2,231.8 | $ | 839.9 | $ | 783.1 | |||||||||||||||