Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017
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
image_bw.jpg
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)

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.                     ý  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  ý  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
ý
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
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  ý

The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of December 31, 2017, is set forth below:
Class
 
Number of Shares Outstanding
Class A Common Stock, par value $.01 per share
 
171,380,625
Class B Common Stock, par value $.01 per share
 
23,329,587
Class 1 Common Stock, par value $.01 per share
 
1,220


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TABLE OF CONTENTS

 
 

























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 Companys 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 “Managements Discussion and Analysis of Financial Condition and Results of Operations.”

Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. Unless otherwise defined herein, refer to the Notes to Consolidated Financial Statements under Item 1 of this Quarterly Report on Form 10-Q for the definition of capitalized terms used herein. All references to “Fiscal 2017” refer to our fiscal year ended February 28, 2017. All references to “Fiscal 2018” refer to our fiscal year ending February 28, 2018.



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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, 2017
 
February 28, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
154.5

 
$
177.4

Accounts receivable
779.5

 
737.0

Inventories
2,167.6

 
1,955.1

Prepaid expenses and other
444.0

 
360.5

Total current assets
3,545.6

 
3,230.0

Property, plant and equipment
4,551.0

 
3,932.8

Goodwill
8,085.7

 
7,920.5

Intangible assets
3,303.8

 
3,377.7

Other assets
621.0

 
141.4

Total assets
$
20,107.1

 
$
18,602.4

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
1,212.8

 
$
606.5

Current maturities of long-term debt
23.2

 
910.9

Accounts payable
742.2

 
559.8

Other accrued expenses and liabilities
557.7

 
620.4

Total current liabilities
2,535.9

 
2,697.6

Long-term debt, less current maturities
8,114.2

 
7,720.7

Deferred income taxes
1,233.6

 
1,133.6

Other liabilities
214.3

 
165.7

Total liabilities
12,098.0

 
11,717.6

Commitments and contingencies

 

CBI stockholders’ equity:
 
 
 
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued, 258,532,772 shares and 257,506,184 shares, respectively
2.6

 
2.6

Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares; Issued, 28,335,387 shares and 28,358,527 shares, respectively
0.3

 
0.3

Additional paid-in capital
2,809.2

 
2,755.8

Retained earnings
8,401.7

 
7,310.0

Accumulated other comprehensive loss
(209.0
)
 
(399.8
)
 
11,004.8

 
9,668.9

Less: Treasury stock –
 
 
 
Class A Common Stock, at cost, 87,158,141 shares and 86,262,971 shares, respectively
(3,008.7
)
 
(2,775.5
)
Class B Convertible Common Stock, at cost, 5,005,800 shares
(2.2
)
 
(2.2
)
 
(3,010.9
)
 
(2,777.7
)
Total CBI stockholders’ equity
7,993.9

 
6,891.2

Noncontrolling interests
15.2

 
(6.4
)
Total stockholders’ equity
8,009.1

 
6,884.8

Total liabilities and stockholders’ equity
$
20,107.1

 
$
18,602.4


The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
(unaudited)
 
For the Nine Months Ended November 30,
 
For the Three Months Ended November 30,
 
2017
 
2016
 
2017
 
2016
Sales
$
6,391.4

 
$
6,268.5

 
$
1,978.9

 
$
1,992.7

Excise taxes
(572.3
)
 
(565.0
)
 
(179.8
)
 
(182.2
)
Net sales
5,819.1

 
5,703.5

 
1,799.1

 
1,810.5

Cost of product sold
(2,851.0
)
 
(2,961.8
)
 
(891.6
)
 
(919.1
)
Gross profit
2,968.1

 
2,741.7

 
907.5

 
891.4

Selling, general and administrative expenses
(1,199.3
)
 
(1,044.1
)
 
(420.7
)
 
(357.4
)
Operating income
1,768.8

 
1,697.6

 
486.8

 
534.0

Income from unconsolidated investments
249.7

 
28.2

 
249.1

 
27.5

Interest expense
(245.1
)
 
(256.3
)
 
(81.4
)
 
(77.6
)
Loss on write-off of debt issuance costs
(19.1
)
 

 
(10.3
)
 

Income before income taxes
1,754.3

 
1,469.5

 
644.2

 
483.9

Provision for income taxes
(352.3
)
 
(392.2
)
 
(149.5
)
 
(78.9
)
Net income
1,402.0

 
1,077.3

 
494.7

 
405.0

Net (income) loss attributable to noncontrolling interests
(8.6
)
 
5.8

 
(3.6
)
 
0.9

Net income attributable to CBI
$
1,393.4

 
$
1,083.1

 
$
491.1

 
$
405.9

 
 
 
 
 
 
 
 
Comprehensive income
$
1,605.8

 
$
918.4

 
$
367.5

 
$
240.3

Comprehensive (income) loss attributable to noncontrolling interests
(21.6
)
 
20.5

 
2.0

 
12.0

Comprehensive income attributable to CBI
$
1,584.2

 
$
938.9

 
$
369.5

 
$
252.3

 
 
 
 
 
 
 
 
Net income per common share attributable to CBI:
 
 
 
 
 
 
 
Basic – Class A Common Stock
$
7.22

 
$
5.46

 
$
2.54

 
$
2.04

Basic – Class B Convertible Common Stock
$
6.55

 
$
4.95

 
$
2.31

 
$
1.85

 
 
 
 
 
 
 
 
Diluted – Class A Common Stock
$
6.93

 
$
5.27

 
$
2.44

 
$
1.98

Diluted – Class B Convertible Common Stock
$
6.40

 
$
4.86

 
$
2.26

 
$
1.82

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic – Class A Common Stock
171.854

 
177.171

 
171.922

 
177.513

Basic – Class B Convertible Common Stock
23.339

 
23.353

 
23.333

 
23.353

 
 
 
 
 
 
 
 
Diluted – Class A Common Stock
201.183

 
205.484

 
201.177

 
205.455

Diluted – Class B Convertible Common Stock
23.339

 
23.353

 
23.333

 
23.353

 
 
 
 
 
 
 
 
Cash dividends declared per common share:
 
 
 
 
 
 
 
Class A Common Stock
$
1.56

 
$
1.20

 
$
0.52

 
$
0.40

Class B Convertible Common Stock
$
1.41

 
$
1.08

 
$
0.47

 
$
0.36


The accompanying notes are an integral part of these statements.

2



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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
For the Nine Months Ended November 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
1,402.0

 
$
1,077.3

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
214.4

 
175.3

Deferred tax provision
91.4

 
114.7

Impairment and amortization of intangible assets
91.2

 
8.4

Loss on contract termination
59.0

 

Stock-based compensation
45.5

 
44.4

Amortization and loss on write-off of debt issuance costs
27.6

 
9.6

Unrealized gain on equity securities
(216.8
)
 

Equity in earnings of equity method investees, net of distributed earnings
(20.5
)
 
(16.2
)
Change in operating assets and liabilities, net of effects from purchases of businesses:
 
 
 
Accounts receivable
(38.4
)
 
(121.5
)
Inventories
(221.7
)
 
(193.9
)
Prepaid expenses and other current assets
(78.3
)
 
(30.4
)
Accounts payable
157.7

 
290.0

Other accrued expenses and liabilities
(68.6
)
 
76.9

Other
23.9

 
(18.9
)
Total adjustments
66.4

 
338.4

Net cash provided by operating activities
1,468.4

 
1,415.7

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(705.6
)
 
(591.6
)
Investment in equity securities
(191.3
)
 

Purchases of businesses, net of cash acquired
(131.9
)
 
(542.2
)
Payments related to sale of business
(5.0
)
 

Other investing activities
(4.5
)
 
(15.3
)
Net cash used in investing activities
(1,038.3
)
 
(1,149.1
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Principal payments of long-term debt
(6,522.8
)
 
(907.7
)
Dividends paid
(301.1
)
 
(238.3
)
Purchases of treasury stock
(239.2
)
 
(372.6
)
Payments of debt issuance costs
(32.4
)
 
(6.6
)
Payments of minimum tax withholdings on stock-based payment awards
(22.9
)
 
(66.9
)
Proceeds from issuance of long-term debt
6,017.9

 
1,350.1

Net proceeds from (repayments of) short-term borrowings
604.9

 
(55.9
)
Proceeds from shares issued under equity compensation plans
37.5

 
39.3

Excess tax benefits from stock-based payment awards

 
112.2

Net cash used in financing activities
(458.1
)
 
(146.4
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
5.1

 
(6.0
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(22.9
)
 
114.2

Cash and cash equivalents, beginning of period
177.4

 
83.1

Cash and cash equivalents, end of period
$
154.5

 
$
197.3

 
 
 
 
Supplemental disclosures of noncash investing and financing activities:
 
 
 
Additions to property, plant and equipment
$
155.7

 
$
218.0

The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2017
(unaudited)

1.    BASIS OF PRESENTATION:

Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We have prepared the consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect, in our opinion, all adjustments necessary to present fairly our financial information. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 28, 2017 (the “2017 Annual Report”). Results of operations for interim periods are not necessarily indicative of annual results.

2.    ACCOUNTING GUIDANCE:

Recently adopted accounting guidance –
Stock-based employee compensation:
Effective March 1, 2017, we adopted the FASB amended guidance for, among other items, the accounting for income taxes related to share-based compensation and the related classification in the statement of cash flows. This guidance requires the recognition of excess tax benefits and deficiencies (resulting from an increase or decrease in the fair value of an award from grant date to the vesting or settlement date) in the provision for income taxes as a discrete item in the quarterly period in which they occur. Through February 28, 2017, these amounts were recognized in additional paid-in capital at the time of vesting or settlement. Additionally, effective March 1, 2017, excess tax benefits are classified as an operating activity in the statement of cash flows instead of as a financing activity where they were previously presented. We adopted this guidance on a prospective basis and, accordingly, prior periods have not been adjusted. Adoption of this guidance resulted in the recognition of excess tax benefits in our provision for income taxes rather than additional paid-in capital of $61.8 million and $10.5 million for the nine months and three months ended November 30, 2017, respectively.

The adoption of this amended guidance also impacted our calculation of diluted earnings per share under the treasury stock method, as excess tax benefits and deficiencies resulting from share-based compensation are no longer included in the assumed proceeds calculation. This change in the assumed proceeds calculation resulted in a decrease in diluted earnings per share of $0.07 and $0.02 for the nine months and three months ended November 30, 2017, respectively.

We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. The remaining provisions of this amended guidance did not have a material impact on our consolidated financial statements.

Accounting guidance not yet adopted
Revenue recognition:
In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We are required to adopt this guidance for our annual and interim periods beginning March 1, 2018, utilizing one of two methods:  retrospective restatement for each reporting period presented at time of adoption, or a modified retrospective approach with the cumulative effect of initially applying this guidance recognized at the date of initial application.

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We intend to implement this guidance under the retrospective approach. Based on our analysis, we expect that the broad definition of variable consideration under this guidance will require us to estimate and record certain variable payments resulting from various sales incentives earlier than we currently record them. We do not expect this change to have a material impact on our net sales. Additionally, at time of adoption, we expect to record an adjustment to increase current accrued promotion expenses with an offsetting adjustment to our February 29, 2016, retained earnings, net of the income tax effect. We are currently preparing to implement changes to our accounting policies, systems and controls to support the new revenue recognition and disclosure requirements. We are in the process of quantifying the impacts that will result from applying this new guidance. Our assessment will be completed during the fourth quarter of fiscal 2018.

Leases:
In February 2016, the FASB issued guidance for the accounting for leases. Under this guidance, a lessee will recognize assets and liabilities for most leases, but will recognize expense similar to current lease accounting guidance. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. We are required to adopt this guidance for our annual and interim periods beginning March 1, 2019, using a modified retrospective approach. We are currently assessing the financial impact of this guidance on our consolidated financial statements.

3.    INVENTORIES:

Inventories are stated at the lower of cost (primarily computed in accordance with the first-in, first-out method) or net realizable value. Elements of cost include materials, labor and overhead and consist of the following:
 
November 30, 2017
 
February 28, 2017
(in millions)
 
 
 
Raw materials and supplies
$
157.0

 
$
149.7

In-process inventories
1,443.8

 
1,260.1

Finished case goods
566.8

 
545.3

 
$
2,167.6

 
$
1,955.1


4.    PREPAID EXPENSES AND OTHER:

The major components of prepaid expenses and other are as follows:
 
November 30, 2017
 
February 28, 2017
(in millions)
 
 
 
Value added taxes receivable
$
202.7

 
$
78.3

Income taxes receivable
88.2

 
100.4

Prepaid excise and sales taxes
51.9

 
57.8

Other
101.2

 
124.0

 
$
444.0

 
$
360.5


5.    DERIVATIVE INSTRUMENTS:

Overview –
Our risk management and derivative accounting policies are presented in Notes 1 and 6 of our consolidated financial statements included in our 2017 Annual Report and have not changed significantly for the nine months and three months ended November 30, 2017.


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The aggregate notional value of outstanding derivative instruments is as follows:
 
November 30, 2017
 
February 28, 2017
(in millions)
 
 
 
Derivative instruments designated as hedging instruments
 
 
 
Foreign currency contracts
$
1,474.9

 
$
981.7

Interest rate swap contracts
$

 
$
250.0

 
 
 
 
Derivative instruments not designated as hedging instruments
 
 
 
Foreign currency contracts
$
396.6

 
$
389.9

Commodity derivative contracts
$
164.3

 
$
153.2


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, 2017, the estimated fair value of derivative instruments in a net liability position due to counterparties was $11.0 million. If we were required to settle the net liability position under these derivative instruments on November 30, 2017, 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 6):
Assets
 
Liabilities
 
November 30, 2017
 
February 28, 2017
 
 
November 30, 2017
 
February 28, 2017
(in millions)
 
 
 
 
 
 
 
 
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
16.4

 
$
5.2

 
Other accrued expenses and liabilities
$
10.3

 
$
30.4

Other assets
$
10.4

 
$
6.0

 
Other liabilities
$
15.8

 
$
37.4

Interest rate swap contracts:
Prepaid expenses and other
$

 
$
0.3

 
Other accrued expenses and liabilities
$

 
$
0.3

Other assets
$

 
$
4.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
4.2

 
$
2.0

 
Other accrued expenses and liabilities
$
1.7

 
$
2.6

Commodity derivative contracts:
Prepaid expenses and other
$
5.7

 
$
4.3

 
Other accrued expenses and liabilities
$
3.5

 
$
6.9

Other assets
$
2.9

 
$
1.5

 
Other liabilities
$
2.3

 
$
4.7



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The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as Other Comprehensive Income (“OCI”), net of income tax effect, is as follows:
Derivative Instruments in
Designated Cash Flow
Hedging Relationships
 
Net
Gain (Loss)
Recognized
in OCI
(Effective
portion)
 
Location of Net Gain (Loss)
Reclassified from AOCI to
Income (Effective portion)
 
Net
Gain (Loss)
Reclassified
from AOCI to
Income
(Effective
portion)
(in millions)
 
 
 
 
 
 
For the Nine Months Ended November 30, 2017
 
 
 
 
 
 
Foreign currency contracts
 
$
41.6

 
Sales
 
$
(0.3
)
 
 
 
 
Cost of product sold
 
0.3

Interest rate swap contracts
 
(1.5
)
 
Interest expense
 
1.3

 
 
$
40.1

 
 
 
$
1.3

 
 
 
 
 
 
 
For the Nine Months Ended November 30, 2016
 
 
 
 
 
 
Foreign currency contracts
 
$
(39.7
)
 
Sales
 
$
0.5

 
 
 
 
Cost of product sold
 
(18.4
)
Interest rate swap contracts
 
2.2

 
Interest expense
 
(3.9
)
 
 
$
(37.5
)
 
 
 
$
(21.8
)
 
 
 
 
 
 
 
For the Three Months Ended November 30, 2017
 
 
 
 
 
 
Foreign currency contracts
 
$
(20.8
)
 
Sales
 
$
(0.4
)
 
 
 
 
Cost of product sold
 
2.3

Interest rate swap contracts
 
0.9

 
Interest expense
 
1.4

 
 
$
(19.9
)
 
 
 
$
3.3

 
 
 
 
 
 
 
For the Three Months Ended November 30, 2016
 
 
 
 
 
 
Foreign currency contracts
 
$
(39.1
)
 
Sales
 
$
0.3

 
 
 
 
Cost of product sold
 
(7.7
)
Interest rate swap contracts
 
2.1

 
Interest expense
 
(0.2
)
 
 
$
(37.0
)
 
 
 
$
(7.6
)

We expect $4.4 million of net gains, net of income tax effect, to be reclassified from accumulated other comprehensive income (loss) (“AOCI”) to our results of operations within the next 12 months.

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
 
Net
Gain (Loss)
Recognized
in Income
(in millions)
 
 
 
 
 
 
For the Nine Months Ended November 30, 2017
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
4.3

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
4.4

 
 
 
 
 
 
$
8.7

 
 
 
 
 
 
 
For the Nine Months Ended November 30, 2016
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
14.4

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(20.4
)
 
 
 
 
 
 
$
(6.0
)
 
 
 
 
 
 
 

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Table of Contents

Derivative Instruments Not
Designated as Hedging Instruments
 
 
 
Location of Net Gain (Loss)
Recognized in Income
 
Net
Gain (Loss)
Recognized
in Income
(in millions)
 
 
 
 
 
 
For the Three Months Ended November 30, 2017
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
3.5

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(2.0
)
 
 
 
 
 
 
$
1.5

 
 
 
 
 
 
 
For the Three Months Ended November 30, 2016
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
6.7

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(6.1
)
 
 
 
 
 
 
$
0.6


6.    FAIR VALUE OF FINANCIAL INSTRUMENTS:

Authoritative guidance establishes a framework for measuring fair value and requires disclosures about fair value measurements for financial instruments. This guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. It establishes 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 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 and assumptions –
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: Our foreign currency contracts consist of foreign currency forward and option contracts and our commodity derivative contracts consist of swap contracts. The fair value is estimated using market-based inputs, obtained from independent pricing services, 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).
Interest rate swap contracts: The fair value is estimated based on quoted market prices from respective counterparties. Quotes are corroborated by using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services (Level 2 fair value measurement).
Equity securities, Trading (with the intent of holding more than one year): In November 2017, we acquired (i)  a 9.9% investment in Ontario, Canada-based Canopy Growth Corporation, a public company and leading provider of medicinal cannabis products (the “Canopy Investment”), and (ii)  warrants which give us the option to purchase an additional ownership interest in Canopy Growth Corporation (the “Canopy Warrants”) for C$245.0 million, or $191.3 million. The Canopy Warrants expire in May 2020. For the nine months and three months ended November 30, 2017, we recognized an unrealized gain of $216.8 million from the changes in fair value of the Canopy Investment and the Canopy Warrants, which is included in income from unconsolidated investments. The fair value of the Canopy Investment is calculated by using the closing market price of the underlying equity security

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(Level 1 fair value measurement). The fair value of the Canopy Warrants is estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement). The assumptions used to estimate the fair value of the Canopy Warrants as of November 30, 2017, are as follows:
Expected life (1)
2.4 years

Expected volatility (2)
66.7
%
Risk-free interest rate (3)
1.5
%
Expected dividend yield (4)
0.0
%
(1) 
Based on the expiration date of the warrants.
(2) 
Based on historical volatility levels of the underlying equity security.
(3) 
Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expected life.
(4) 
Based on historical dividend levels.
Debt securities, Available-for-sale (“AFS”): The fair value is estimated by discounting cash flows using market-based inputs (Level 3 fair value measurement).
Short-term borrowings: The revolving credit facility under our senior credit facility is a variable interest rate bearing note which includes a fixed margin which is adjustable based upon our debt ratio (as defined in our senior credit facility). Its fair value is estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions (Level 2 fair value measurement). The remaining instruments, including our commercial paper and accounts receivable securitization facilities, are variable interest rate bearing notes for which the carrying value approximates the fair value.
Long-term debt: The term loans under our senior credit facility are variable interest rate bearing notes which include a fixed margin which is adjustable based upon our debt ratio. The fair value of the term loans is estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions (Level 2 fair value measurement). The fair value of the remaining long-term debt, which is primarily fixed interest rate, is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).

The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings, approximate fair value as of November 30, 2017, and February 28, 2017, due to the relatively short maturity of these instruments. As of November 30, 2017, the carrying amount of long-term debt, including the current portion, was $8,137.4 million, compared with an estimated fair value of $8,416.3 million. As of February 28, 2017, the carrying amount of long-term debt, including the current portion, was $8,631.6 million, compared with an estimated fair value of $8,845.5 million.

Recurring basis measurements –
The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis:

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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, 2017
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
31.0

 
$

 
$
31.0

Commodity derivative contracts
$

 
$
8.6

 
$

 
$
8.6

Equity securities, Trading
$
269.8

 
$
138.3

 
$

 
$
408.1

Debt securities, AFS
$

 
$

 
$
15.4

 
$
15.4

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
27.8

 
$

 
$
27.8

Commodity derivative contracts
$

 
$
5.8

 
$

 
$
5.8

 
 
 
 
 
 
 
 
February 28, 2017
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
13.2

 
$

 
$
13.2

Commodity derivative contracts
$

 
$
5.8

 
$

 
$
5.8

Interest rate swap contracts
$

 
$
4.7

 
$

 
$
4.7

Debt securities, AFS
$

 
$

 
$
9.5

 
$
9.5

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
70.4

 
$

 
$
70.4

Commodity derivative contracts
$

 
$
11.6

 
$

 
$
11.6

Interest rate swap contracts
$

 
$
0.3

 
$

 
$
0.3


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 period 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, 2017
 
 
 
 
 
 
 
Trademarks
$

 
$

 
$
136.0

 
$
86.8


For the first quarter of fiscal 2018, we identified certain negative trends within our Beer segment’s Ballast Point craft beer portfolio which, when combined with the recent negative craft beer industry trends, including slower growth rates and increased competition, indicated that it was more likely than not that the fair value of our indefinite lived intangible asset associated with the craft beer trademarks might be below its carrying value. These negative trends were the result of (i)  a disruption in our distribution network transition plan, (ii)  an unexpected decrease in sales from product innovations and (iii)  a significant shift in market conditions for our craft beer portfolio, all of which resulted in a decline in net sales and depletion trends, which represent distributor shipments of our branded products to retail customers, for the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017, following consecutive quarters of significant net sales and depletion volume growth for our craft beer portfolio. Additionally, net sales for the first quarter of fiscal 2018 were below our forecasted net sales for the first quarter of fiscal 2018. Accordingly, we performed a quantitative assessment for impairment of the craft beer

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trademark asset. As a result of this assessment, the craft beer trademark asset with a carrying value of $222.8 million was written down to its estimated fair value of $136.0 million, resulting in an impairment of $86.8 million. This impairment is included in selling, general and administrative expenses.

We measured the amount of impairment by calculating the amount by which the carrying value of the trademark asset exceeded its estimated fair value. The estimated fair value was determined based on an income approach using the relief from royalty method, which assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of the trademark asset. The cash flow projections we use to estimate the fair values of our trademarks involve several assumptions, including (i)  projected revenue growth rates, (ii)  estimated royalty rates, (iii)  after-tax royalty savings expected from ownership of the trademarks and (iv)  discount rates used to derive the estimated fair value of the trademarks.

7.    GOODWILL:

The changes in the carrying amount of goodwill are as follows:
 
Beer
 
Wine and Spirits
 
Consolidated
(in millions)
 
 
 
 
 
Balance, February 29, 2016
$
4,530.1

 
$
2,608.5

 
$
7,138.6

Purchase accounting allocations (1)
510.8

 
373.7

 
884.5

Canadian Divestiture (2)

 
(126.1
)
 
(126.1
)
Foreign currency translation adjustments
12.1

 
11.4

 
23.5

Balance, February 28, 2017
5,053.0

 
2,867.5

 
7,920.5

Purchase accounting allocations (3)
63.7

 
56.2

 
119.9

Foreign currency translation adjustments
49.7

 
(4.4
)
 
45.3

Balance, November 30, 2017
$
5,166.4

 
$
2,919.3

 
$
8,085.7

(1) 
Purchase accounting allocations primarily associated with the acquisitions of the Obregon Brewery (Beer), Prisoner, High West and Charles Smith (Wine and Spirits). See defined acquisition terms below.
(2) 
Includes accumulated impairment losses of C$289.1 million, or $216.8 million.
(3) 
Purchase accounting allocations associated primarily with the acquisition of the Obregon Brewery ($13.8 million) and preliminary purchase accounting allocations associated with the acquisitions of Funky Buddha (Beer) and Schrader Cellars (Wine and Spirits). See defined acquisition terms below.

Acquisitions –
Obregon Brewery:
In December 2016, we acquired a brewery operation business in Obregon, Sonora, Mexico from Grupo Modelo, S. de R.L. de C.V., formerly known as Grupo Modelo, S.A.B. de C.V., (“Modelo”), a subsidiary of Anheuser-Busch InBev SA/NV for cash paid of $569.7 million, net of cash acquired (the “Obregon Brewery”). The transaction primarily included the acquisition of operations; goodwill; property, plant and equipment; and inventories. This acquisition provided us with immediate functioning brewery capacity to support our fast-growing, high-end Mexican beer portfolio and flexibility for future innovation initiatives. It also enabled us to become fully independent from an interim supply agreement with Modelo, which was terminated at the time of this acquisition. The results of operations of the Obregon Brewery are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition.

High West:
In October 2016, we acquired all of the issued and outstanding common and preferred membership interests of High West Holdings, LLC for $136.6 million, net of cash acquired (“High West”). This transaction primarily included the acquisition of operations, goodwill, trademarks, inventories and property, plant and equipment. This acquisition included a portfolio of craft whiskeys and other select spirits. The results of operations of High West are

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reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Charles Smith:
In October 2016, we acquired the Charles Smith Wines, LLC business, a collection of five super and ultra-premium wine brands, for $120.8 million (“Charles Smith”). This transaction primarily included the acquisition of goodwill, trademarks, inventories and certain grape supply contracts, plus an earn-out over three years based on the performance of the brands. The results of operations of Charles Smith are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Prisoner:
In April 2016, we acquired The Prisoner Wine Company business, including a portfolio of five super-luxury wine brands, for $284.9 million (“Prisoner”). This transaction primarily included the acquisition of goodwill, inventories, trademarks and certain grape supply contracts. The results of operations of Prisoner are reported in the Wine and Spirits segment and have been included in our results of operations from the date of acquisition.

Other Acquisitions:
During the second quarter of fiscal 2018, we acquired the Funky Buddha Brewery LLC business, which included a portfolio of high-quality, Florida-based craft beers (“Funky Buddha”), and the Schrader Cellars, LLC business, which included a collection of highly-rated, limited-production fine wines (“Schrader Cellars”), for a combined purchase price of $130.9 million. The purchase price for each acquisition was primarily allocated to goodwill and trademarks. In addition, the purchase price for Funky Buddha includes an earn-out over five years based on the performance of the brands. The results of operations of Funky Buddha are reported in the Beer segment and the results of operations of Schrader Cellars are reported in the Wine and Spirits segment, and each have been included in our consolidated results of operations from their respective date of acquisition.

Divestiture –
Canadian Divestiture:
In December 2016, we sold the Wine and Spirits Canadian wine business, which included Canadian wine brands such as Jackson-Triggs and Inniskillin, wineries, vineyards, offices, facilities and Wine Rack retail stores, at a transaction value of C$1.03 billion, or $775.1 million, (the “Canadian Divestiture”). We received cash proceeds of $570.3 million, net of outstanding debt and direct costs to sell of $194.9 million and $9.9 million, respectively. The following table summarizes the net gain recognized in connection with this divestiture:
(in millions)
 
Cash received from buyer
$
580.2

Net assets sold
(175.3
)
AOCI reclassification adjustments, primarily foreign currency translation
(122.5
)
Direct costs to sell
(9.9
)
Other
(10.1
)
Gain on sale of business
$
262.4


Additionally, our Wine and Spirits U.S. business recognized an impairment of $8.4 million for the fourth quarter of fiscal 2017 for trademarks associated with certain U.S. brands sold exclusively through the Canadian wine business for which we expect future sales of these brands to be minimal subsequent to the Canadian Divestiture. We have also recognized $15.2 million of other costs associated with the Canadian Divestiture, with $12.0 million recognized for the year ended February 28, 2017, primarily in connection with the evaluation of the merits of executing an initial public offering for a portion of our then-owned Canadian wine business, and $3.2 million recognized for the first quarter of fiscal 2018 in connection with the sale of the Canadian wine business. These amounts are included in selling, general and administrative expenses. In total, we have recognized $238.8 million of net gains associated with the Canadian Divestiture, with $242.0 million of net gains recognized for the year ended February 28, 2017, and $3.2 million of net losses recognized for the nine months ended November 30, 2017, as follows:

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(in millions)
 
Gain on sale of business
$
262.4

Impairment of trademarks
(8.4
)
Other net costs
(15.2
)
Net gain associated with the Canadian Divestiture and related activities
$
238.8


8.    INTANGIBLE ASSETS:

The major components of intangible assets are as follows:
 
November 30, 2017
 
February 28, 2017
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
(in millions)
 
 
 
 
 
 
 
Amortizable intangible assets
 
 
 
 
 
 
 
Customer relationships
$
89.8

 
$
45.5

 
$
89.1

 
$
48.6

Other
20.3

 
1.7

 
19.9

 
1.7

Total
$
110.1

 
47.2

 
$
109.0

 
50.3

 
 
 
 
 
 
 
 
Nonamortizable intangible assets
 
 
 
 
 
 
 
Trademarks
 
 
3,256.6

 
 
 
3,327.4

Total intangible assets
 
 
$
3,303.8

 
 
 
$
3,377.7


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, 2017, and November 30, 2016. Net carrying amount represents the gross carrying value net of accumulated amortization. Amortization expense for intangible assets was $4.4 million and $8.4 million for the nine months ended November 30, 2017, and November 30, 2016, respectively, and $1.5 million and $2.1 million for the three months ended November 30, 2017, and November 30, 2016, respectively. Estimated amortization expense for the remaining three months of fiscal 2018 and for each of the five succeeding fiscal years and thereafter is as follows:
(in millions)
 
2018
$
1.5

2019
$
6.0

2020
$
5.7

2021
$
5.4

2022
$
5.1

2023
$
3.3

Thereafter
$
20.2


9.    OTHER ASSETS:

The major components of other assets are as follows:
 
November 30, 2017
 
February 28, 2017
(in millions)
 
 
 
Investments in equity securities, Trading
$
408.1

 
$

Investments in equity method investees
118.9

 
98.7

Other
94.0

 
42.7

 
$
621.0

 
$
141.4



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10.    BORROWINGS:

Borrowings consist of the following:
 
November 30, 2017
 
February 28, 2017
 
Current
 
Long-term
 
Total
 
Total
(in millions)
 
 
 
 
 
 
 
Short-term borrowings
 
 
 
 
 
 
 
Senior credit facility, Revolving credit loans
$
336.3

 
 
 


 
$
231.0

Commercial paper
470.4

 
 
 


 

Other
406.1

 
 
 


 
375.5

 
$
1,212.8

 


 


 
$
606.5

 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
Senior credit facility, Term loans
$
5.0

 
$
493.8

 
$
498.8

 
$
3,787.5

Senior notes

 
7,386.8

 
7,386.8

 
4,617.0

Other
18.2

 
233.6

 
251.8

 
227.1

 
$
23.2

 
$
8,114.2

 
$
8,137.4

 
$
8,631.6


Senior credit facility –
The Company, CIH International S.à r.l., a wholly-owned indirect subsidiary of ours (“CIH”), CB International Finance S.à r.l., a wholly-owned indirect subsidiary of ours (“CB International”), CIH Holdings S.à r.l., a wholly-owned indirect subsidiary of ours (“CIHH”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders were parties to a credit agreement, as amended and restated (the “2016 Credit Agreement”).

In May 2017, we repaid the outstanding obligations under the U.S. Term A loan facility under the 2016 Credit Agreement primarily with a portion of the proceeds from the May 2017 Senior Notes (as defined below) and revolver borrowings under the 2016 Credit Agreement.

In July 2017, the Company, CIH, CB International (together with CIH, the “European Borrowers”), CIHH, the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2017 Restatement Agreement”) that amended and restated the 2016 Credit Agreement (as amended and restated by the 2017 Restatement Agreement, the “2017 Credit Agreement”). The principal changes effected by the 2017 Restatement Agreement were:

The refinance and increase of the existing U.S. Term A-1 loan facility with a new $500.0 million U.S. Term A-1 loan facility and extension of its maturity to July 14, 2024;
The creation of a new $2.0 billion European Term A loan facility into which the then-existing European Term A loan facility, European Term A-1 loan facility and European Term A-2 loan facility were combined;
The increase of the revolving credit facility by $350.0 million to $1.5 billion and extension of its maturity to July 14, 2022; and
The removal of CIHH as a borrower under the 2017 Restatement Agreement.

In addition, the Company and certain of our U.S. subsidiaries executed an amended and restated guarantee agreement which, among other things, released certain of our U.S. subsidiaries as guarantors of borrowings under the 2017 Credit Agreement. Furthermore, the European Borrowers executed an amended and restated cross-guarantee agreement which, among other things, removed CIHH as a party to the amended and restated cross-guarantee agreement. The U.S. obligations under the 2017 Credit Agreement are guaranteed by certain of our U.S. subsidiaries. The European obligations under the 2017 Credit Agreement are guaranteed by us and certain of our U.S. subsidiaries. The European obligations are cross-guaranteed by the European Borrowers whereby each guarantees the other’s obligations.

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In November 2017, we repaid the outstanding obligations under the European Term A loan facility under the 2017 Credit Agreement primarily with proceeds from the November 2017 Senior Notes (as defined below). Subsequent to this repayment, the 2017 Credit Agreement now provides for aggregate credit facilities of $2,000.0 million, consisting of the following:
 
Amount
 
Maturity
(in millions)
 
 
 
Revolving Credit Facility (1) (2)
$
1,500.0

 
July 14, 2022
U.S. Term A-1 Facility (1) (3)
500.0

 
July 14, 2024
 
$
2,000.0

 
 
(1) 
Contractual interest rate varies based on our debt rating (as defined in the 2017 Credit Agreement) and is a function of LIBOR plus a margin, or the base rate plus a margin.
(2) 
Consists of a $190.0 million U.S. Revolving Credit Facility and a $1,310.0 million European Revolving Credit Facility. We are the borrower under the $1,500.0 million Revolving Credit Facility (inclusive of the U.S. Revolving Credit Facility and the European Revolving Credit Facility). CIH and/or CB International are additional borrowers under the European Revolving Credit Facility. Includes two sub-facilities for letters of credit of up to $200.0 million in the aggregate.
(3) 
We are the borrower under the U.S. Term A-1 loan facility.

The 2017 Credit Agreement also permits us to elect, subject to the willingness of existing or new lenders to fund such increase or term loans and other customary conditions, to increase the revolving credit commitments or add one or more tranches of additional term loans (the “Incremental Facilities”). The Incremental Facilities may be an unlimited amount so long as our leverage ratio, as defined and computed pursuant to the 2017 Credit Agreement, is no greater than 4.00 to 1.00 subject to certain limitations and for the period defined pursuant to the 2017 Credit Agreement.

We and our subsidiaries are subject to covenants that are contained in the 2017 Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness) by subsidiaries that are not guarantors, 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.

As of November 30, 2017, information with respect to borrowings under the 2017 Credit Agreement is as follows:
 
Revolving
Credit
Facility
 
U.S.
Term A-1
Facility (1)
(in millions)
 
 
 
Outstanding borrowings
$
336.3

 
$
498.8

Interest rate
2.5
%
 
2.8
%
LIBOR margin
1.25
%
 
1.55
%
Outstanding letters of credit
$
13.7

 
 
Remaining borrowing capacity (2)
$
679.3

 
 
(1) 
Outstanding term loan facility borrowings are net of unamortized debt issuance costs.
(2) 
Net of outstanding revolving credit facility borrowings and outstanding letters of credit under the 2017 Credit Agreement and outstanding borrowings under our commercial paper program of $470.7 million (excluding unamortized discount) (see additional discussion below).


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As of November 30, 2017, the required principal repayments of the U.S. Term A-1 loan facility under the 2017 Credit Agreement (excluding unamortized debt issuance costs) for the remaining three months of fiscal 2018 and for each of the five succeeding fiscal years and thereafter are as follows:
(in millions)
 
2018
$
1.3

2019
5.0

2020
5.0

2021
5.0

2022
5.0

2023
5.0

Thereafter
473.7

 
$
500.0


Commercial paper program
In October 2017, we implemented a commercial paper program which provides for the issuance of up to an aggregate principal amount of $1.0 billion of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under our 2017 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under our 2017 Credit Agreement. As of November 30, 2017, we had $470.4 million of outstanding borrowings, net of unamortized discount, under our commercial paper program with a weighted average annual interest rate of 1.6% and a weighted average remaining term of 14 days.

Senior notes –
In May 2017, we issued $1,500.0 million aggregate principal amount of Senior Notes (the “May 2017 Senior Notes”). In November 2017, we issued $2,000.0 million aggregate principal amount of Senior Notes (the “November 2017 Senior Notes”). Proceeds from the May 2017 and November 2017 offerings, net of discounts and debt issuance costs, were $1,482.5 million and $1,982.6 million, respectively. These senior note offerings consist of:
 
 
 
Date of
 
Redemption
 
Principal
 
Maturity
 
Interest
Payments
 
Stated
Redemption
Date
 
Stated
Basis
Points
(in millions, except basis points)
 
 
 
 
 
 
 
 
 
May 2017 Senior Notes
 
 
 
 
 
 
 
 
 
2.70% Senior Notes (1) (2)
$
500.0

 
May 2022
 
May/Nov
 
April 2022
 
15

3.50% Senior Notes (1) (2)
$
500.0

 
May 2027
 
May/Nov
 
February 2027
 
20

4.50% Senior Notes (1) (2)
$
500.0

 
May 2047
 
May/Nov
 
November 2046
 
25

 
 
 
 
 
 
 
 
 
 
November 2017 Senior Notes
 
 
 
 
 
 
 
 
 
2.00% Senior Notes (1) (3)
$
600.0

 
November 2019
 
May/Nov
 
November 2019
 
10

2.25% Senior Notes (1) (3)
$
700.0

 
November 2020
 
May/Nov
 
November 2020
 
10

2.65% Senior Notes (1) (2)
$
700.0

 
November 2022
 
May/Nov
 
October 2022
 
15

(1) 
Senior unsecured obligations which rank equally in right of payment to all of our existing and future senior unsecured indebtedness. Guaranteed by certain of our U.S. subsidiaries on a senior unsecured basis.
(2) 
Redeemable, in whole or in part, at our option at any time prior to the stated redemption date as defined in the indenture, 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 plus the stated basis points as defined in the indenture. On or after the stated redemption date, redeemable, 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.

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(3) 
Redeemable, in whole or in part, at our option at any time prior to maturity, 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 plus the stated basis points.

In January 2008, we issued $700.0 million aggregate principal amount of 7.25% Senior Notes due May 2017 (the “January 2008 Senior Notes”) in exchange for notes originally issued in May 2007. In May 2017, we repaid the January 2008 Senior Notes with a portion of the proceeds from the May 2017 Senior Notes.

Debt payments
As of November 30, 2017, the required principal repayments under long-term debt obligations (excluding unamortized debt issuance costs and unamortized discounts of $54.5 million and $9.9 million, respectively) for the remaining three months of fiscal 2018 and for each of the five succeeding fiscal years and thereafter are as follows:
(in millions)
 
2018
$
4.4

2019
23.5

2020
1,015.7

2021
711.3

2022
507.1

2023
1,805.0

Thereafter
4,134.8

 
$
8,201.8


Other
In September 2017, we amended our prior trade accounts receivable securitization facility (as amended, the “CBI Facility”) for an additional 364-day term. Under the CBI Facility, trade accounts receivable generated by us and certain of our subsidiaries are sold by us to a wholly-owned bankruptcy remote single purpose subsidiary, the CBI SPV, which is consolidated by us for financial reporting purposes. The CBI Facility provides borrowing capacity of $230.0 million up to $330.0 million structured to account for the seasonality of our business, subject to further limitations based upon various pre-agreed formulas. The remaining provisions of the CBI Facility are substantially identical in all material respects to the prior CBI facility.

Also, in September 2017, Crown Imports amended its prior trade accounts receivable securitization facility (as amended, the “Crown Facility”) for an additional 364-day term. Under the Crown Facility, trade accounts receivable generated by Crown Imports are sold by Crown Imports to its wholly-owned bankruptcy remote single purpose subsidiary, the Crown SPV, which is consolidated by us for financial reporting purposes. The Crown Facility provides borrowing capacity of $130.0 million up to $250.0 million structured to account for the seasonality of Crown Imports’ business. The remaining provisions of the Crown Facility are substantially identical in all material respects to the prior Crown facility.

As of November 30, 2017, our accounts receivable securitization facilities are as follows:
 
Outstanding
Borrowings
 
Weighted
Average
Interest Rate
 
Remaining
Borrowing
Capacity
(in millions)
 
 
 
 
 
CBI Facility
$
266.8

 
2.1
%
 
$
3.2

Crown Facility
$
138.9

 
2.1
%
 
$
31.1


11.    INCOME TAXES:

Our effective tax rate for the nine months ended November 30, 2017, and November 30, 2016, was 20.1% and 26.7%, respectively. Our effective tax rate for the three months ended November 30, 2017, and November 30, 2016, was 23.2% and 16.3%, respectively.

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For the nine months and three months ended November 30, 2017, our effective tax rate was lower than the federal statutory rate of 35% primarily due to (i)  lower effective tax rates applicable to our foreign businesses, including our assertion regarding indefinitely reinvesting earnings of certain foreign subsidiaries, which was initially asserted in the third quarter of fiscal 2017, and (ii)  the recognition of the income tax effect of stock-based compensation awards in the income statement when the awards vest or are settled in connection with our March 1, 2017, adoption of the FASB amended share-based compensation guidance. For the nine months and three months ended November 30, 2016, our effective tax rate was lower than the federal statutory rate primarily due to the change in our assertion regarding our ability and intent to indefinitely reinvest undistributed earnings of certain foreign subsidiaries.

In December 2017, the Tax Cuts and Jobs Act was signed into law, which will result in significant changes to U.S. tax rules. We are currently assessing the impact of this legislation on our consolidated financial statements for the year ended February 28, 2018, and beyond. Based on our preliminary analysis, our expectation is that the reduction in the corporate federal statutory tax rate, effective January 1, 2018, will result in a reduction in our existing net deferred tax liabilities. This benefit will be recorded during the fourth quarter of fiscal 2018.

12.    STOCKHOLDERS’ EQUITY:

In November 2016, our Board of Directors authorized the repurchase of up to $1.0 billion of our Class A Common Stock and Class B Convertible Common Stock (the “2017 Authorization”). The Board of Directors did not specify a date upon which this authorization would expire. Shares repurchased under the 2017 Authorization have become treasury shares.

For the nine months ended November 30, 2017, we repurchased 1,123,484 shares of Class A Common Stock pursuant to the 2017 Authorization at an aggregate cost of $239.2 million through a combination of open market transactions and an accelerated share repurchase agreement with a third-party financial institution.

As of November 30, 2017, total shares repurchased under the 2017 Authorization are as follows:
 
 
 
Class A Common Shares
 
Repurchase Authorization
 
Dollar Value of Shares Repurchased
 
Number of Shares Repurchased
(in millions, except share data)
 
 
 
 
 
2017 Authorization
$
1,000.0

 
$
692.3

 
4,130,031

Additionally, in January 2018, our Board of Directors authorized the repurchase of up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock (the “2018 Authorization”). The Board of Directors did not specify a date upon which this authorization would expire. No shares have been repurchased under the 2018 Authorization. Shares repurchased under the 2018 Authorization will become treasury shares.

13.    NET INCOME PER COMMON SHARE ATTRIBUTABLE TO CBI:

For the nine months and three months ended November 30, 2017, and November 30, 2016, net income 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 nine months and three months ended November 30, 2017, and November 30, 2016, net income 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.


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The computation of basic and diluted net income per common share is as follows:
 
For the Nine Months Ended
 
November 30, 2017
 
November 30, 2016
 
Common Stock
 
Common Stock
 
Class A
 
Class B
 
Class A
 
Class B
(in millions, except per share data)
 
 
 
 
 
 
 
Net income attributable to CBI allocated – basic
$
1,240.4

 
$
153.0

 
$
967.5

 
$
115.6

Conversion of Class B common shares into Class A common shares
153.0

 

 
115.6

 

Effect of stock-based awards on allocated net income

 
(3.6
)
 

 
(2.2
)
Net income attributable to CBI allocated – diluted
$
1,393.4

 
$
149.4

 
$
1,083.1

 
$
113.4

 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
171.854

 
23.339

 
177.171

 
23.353

Conversion of Class B common shares into Class A common shares
23.339

 

 
23.353

 

Stock-based awards, primarily stock options
5.990

 

 
4.960

 

Weighted average common shares outstanding – diluted
201.183

 
23.339

 
205.484

 
23.353

 
 
 
 
 
 
 
 
Net income per common share attributable to CBI – basic
$
7.22

 
$
6.55

 
$
5.46

 
$
4.95

Net income per common share attributable to CBI – diluted
$
6.93

 
$
6.40

 
$
5.27

 
$
4.86

 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
November 30, 2017
 
November 30, 2016
 
Common Stock
 
Common Stock
 
Class A
 
Class B
 
Class A
 
Class B
(in millions, except per share data)
 
 
 
 
 
 
 
Net income attributable to CBI allocated – basic
$
437.2

 
$
53.9

 
$
362.6

 
$
43.3

Conversion of Class B common shares into Class A common shares
53.9

 

 
43.3

 

Effect of stock-based awards on allocated net income

 
(1.3
)
 

 
(0.8
)
Net income attributable to CBI allocated – diluted
$
491.1

 
$
52.6

 
$
405.9

 
$
42.5

 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
171.922

 
23.333

 
177.513

 
23.353

Conversion of Class B common shares into Class A common shares
23.333

 

 
23.353

 

Stock-based awards, primarily stock options
5.922

 

 
4.589

 

Weighted average common shares outstanding – diluted
201.177

 
23.333

 
205.455

 
23.353

 
 
 
 
 
 
 
 
Net income per common share attributable to CBI – basic
$
2.54

 
$
2.31

 
$
2.04

 
$
1.85

Net income per common share attributable to CBI – diluted
$
2.44

 
$
2.26

 
$
1.98

 
$
1.82


14.    COMPREHENSIVE INCOME ATTRIBUTABLE TO CBI:

Comprehensive income consists of net income, foreign currency translation adjustments, net unrealized gains (losses) on derivative instruments, net unrealized gains (losses) on AFS debt securities and pension/postretirement adjustments. The reconciliation of net income attributable to CBI to comprehensive income attributable to CBI is as follows:

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Table of Contents


 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)
 
 
 
 
 
For the Nine Months Ended November 30, 2017
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
1,393.4

Other comprehensive income (loss) attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net gains
$
154.4

 
$
(0.1
)
 
154.3

Reclassification adjustments

 

 

Net gain recognized in other comprehensive income
154.4

 
(0.1
)
 
154.3

Unrealized gain on cash flow hedges:
 
 
 
 
 
Net derivative gains
57.2

 
(17.1
)
 
40.1

Reclassification adjustments
(4.0
)
 
0.8

 
(3.2
)
Net gain recognized in other comprehensive income
53.2

 
(16.3
)
 
36.9

Unrealized loss on AFS debt securities:
 
 
 
 
 
Net AFS debt securities losses
(0.4
)
 

 
(0.4
)
Reclassification adjustments

 

 

Net loss recognized in other comprehensive income
(0.4
)
 

 
(0.4
)
Pension/postretirement adjustments:
 
 
 
 
 
Net actuarial losses
(0.1
)
 

 
(0.1
)
Reclassification adjustments
0.1

 

 
0.1

Net loss recognized in other comprehensive income

 

 

Other comprehensive income attributable to CBI
$
207.2

 
$
(16.4
)
 
190.8

Comprehensive income attributable to CBI
 
 
 
 
$
1,584.2

 
 
 
 
 
 
For the Nine Months Ended November 30, 2016
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
1,083.1

Other comprehensive income (loss) attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net losses
$
(128.4
)
 
$
(0.7
)
 
(129.1
)
Reclassification adjustments

 

 

Net loss recognized in other comprehensive loss
(128.4
)
 
(0.7
)
 
(129.1
)
Unrealized loss on cash flow hedges:
 
 
 
 
 
Net derivative losses
(55.3
)
 
17.8

 
(37.5
)
Reclassification adjustments
32.0

 
(10.1
)
 
21.9

Net loss recognized in other comprehensive loss
(23.3
)
 
7.7

 
(15.6
)
Unrealized gain on AFS debt securities:
 
 
 
 
 
Net AFS debt securities gains
0.1

 
0.1

 
0.2

Reclassification adjustments

 

 

Net gain recognized in other comprehensive loss
0.1

 
0.1

 
0.2

Pension/postretirement adjustments:
 
 
 
 
 
Net actuarial losses
(0.1
)
 

 
(0.1
)
Reclassification adjustments
0.5

 
(0.1
)
 
0.4

Net gain recognized in other comprehensive loss
0.4

 
(0.1
)
 
0.3

Other comprehensive loss attributable to CBI
$
(151.2
)
 
$
7.0

 
(144.2
)
Comprehensive income attributable to CBI
 
 
 
 
$
938.9

 
 
 
 
 
 

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Table of Contents

 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)
 
 
 
 
 
For the Three Months Ended November 30, 2017
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
491.1

Other comprehensive loss attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net losses
$
(99.1
)
 
$
0.9

 
(98.2
)
Reclassification adjustments

 

 

Net loss recognized in other comprehensive loss
(99.1
)
 
0.9

 
(98.2
)
Unrealized loss on cash flow hedges:
 
 
 
 
 
Net derivative losses
(26.7
)
 
6.8

 
(19.9
)
Reclassification adjustments
(3.8
)
 
0.9

 
(2.9
)
Net loss recognized in other comprehensive loss
(30.5
)
 
7.7

 
(22.8
)
Unrealized loss on AFS debt securities:
 
 
 
 
 
Net AFS debt securities losses
(0.8
)
 
0.2

 
(0.6
)
Reclassification adjustments

 

 

Net loss recognized in other comprehensive loss
(0.8
)
 
0.2

 
(0.6
)
Pension/postretirement adjustments:
 
 
 
 
 
Net actuarial losses

 
(0.1
)
 
(0.1
)
Reclassification adjustments
0.1

 

 
0.1

Net loss recognized in other comprehensive loss
0.1

 
(0.1
)
 

Other comprehensive loss attributable to CBI
$
(130.3
)
 
$
8.7

 
(121.6
)
Comprehensive income attributable to CBI
 
 
 
 
$
369.5

 
 
 
 
 
 
For the Three Months Ended November 30, 2016
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
405.9

Other comprehensive income (loss) attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net losses
$
(125.6
)
 
$
1.0

 
(124.6
)
Reclassification adjustments

 

 

Net loss recognized in other comprehensive loss
(125.6
)
 
1.0

 
(124.6
)
Unrealized loss on cash flow hedges: