Document

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2019



☐	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)

(Registrant’s telephone number, including area code)

(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 167,498,276 shares of Class A Common Stock, 23,314,407 shares of Class B Common Stock, and 823,377 shares of Class 1 Common Stock outstanding as of September 30, 2019.

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.”

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 2019” refer to our fiscal year ended February 28, 2019. All references to “Fiscal 2020” refer to our fiscal year ending February 29, 2020. All references to “$” are to U.S. dollars, all references to “C$” are to Canadian dollars, all references to MXN$ are to Mexican pesos, and all references to “A$” are to Australian dollars.



FINANCIAL STATEMENTS	Table of Contents

PART I – FINANCIAL INFORMATION

Financial Statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except share and per share data) (unaudited)

	August 31, 2019			February 28, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	81.3		$	93.6
Accounts receivable	953.7			846.9
Inventories	1,311.4			2,130.4
Prepaid expenses and other	525.1			613.1
Assets held for sale - current	666.0			—
Total current assets	3,537.5			3,684.0
Property, plant, and equipment	5,141.6			5,267.3
Goodwill	7,696.7			8,088.8
Intangible assets	2,787.0			3,198.1
Equity method investments	3,003.8			3,465.6
Securities measured at fair value	1,572.2			3,234.7
Deferred income taxes	2,146.8			2,183.3
Assets held for sale	1,019.1			—
Other assets	650.4			109.7
Total assets	$	27,555.1		$	29,231.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	150.9		$	791.5
Current maturities of long-term debt	636.1			1,065.2
Accounts payable	608.6			616.7
Other accrued expenses and liabilities	800.3			690.4
Total current liabilities	2,195.9			3,163.8
Long-term debt, less current maturities	12,159.8			11,759.8
Deferred income taxes and other liabilities	1,508.4			1,470.7
Total liabilities	15,864.1			16,394.3
Commitments and contingencies
CBI stockholders’ equity:
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued, 185,880,112 shares and 185,740,178 shares, respectively	1.9			1.9
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares; Issued, 28,321,821 shares and 28,322,419 shares, respectively	0.3			0.3
Additional paid-in capital	1,452.1			1,410.8
Retained earnings	13,221.4			14,276.2
Accumulated other comprehensive income (loss)	(476.6		)	(353.9		)
	14,199.1			15,335.3
Less: Treasury stock –
Class A Common Stock, at cost, 18,604,964 shares and 18,927,966 shares, respectively	(2,819.4		)	(2,782.1		)
Class B Convertible Common Stock, at cost, 5,005,800 shares	(2.2		)	(2.2		)
	(2,821.6		)	(2,784.3		)
Total CBI stockholders’ equity	11,377.5			12,551.0
Noncontrolling interests	313.5			286.2
Total stockholders’ equity	11,691.0			12,837.2
Total liabilities and stockholders’ equity	$	27,555.1		$	29,231.5

The accompanying notes are an integral part of these statements.



Constellation Brands, Inc. Q2 FY 2020 Form 10-Q	1



FINANCIAL STATEMENTS	Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions, except per share data) (unaudited)

	For the Six Months Ended August 31,						For the Three Months Ended August 31,
	2019			2018			2019			2018
Sales	$	4,855.9		$	4,755.7		$	2,573.4		$	2,525.7
Excise taxes	(414.7		)	(409.5		)	(229.4		)	(226.6		)
Net sales	4,441.2			4,346.2			2,344.0			2,299.1
Cost of product sold	(2,226.6		)	(2,129.4		)	(1,158.1		)	(1,130.9		)
Gross profit	2,214.6			2,216.8			1,185.9			1,168.2
Selling, general, and administrative expenses	(872.4		)	(826.4		)	(466.4		)	(403.2		)
Operating income (loss)	1,342.2			1,390.4			719.5			765.0
Income (loss) from unconsolidated investments	(2,255.3		)	1,052.8			(1,324.7		)	688.4
Interest expense	(226.2		)	(175.8		)	(111.6		)	(88.0		)
Loss on extinguishment of debt	(2.4		)	—			(2.4		)	—
Income (loss) before income taxes	(1,141.7		)	2,267.4			(719.2		)	1,365.4
(Provision for) benefit from income taxes	387.6			(369.8		)	202.2			(214.1		)
Net income (loss)	(754.1		)	1,897.6			(517.0		)	1,151.3
Net income (loss) attributable to noncontrolling interests	(16.5		)	(4.3		)	(8.2		)	(1.8		)
Net income (loss) attributable to CBI	$	(770.6	)	$	1,893.3		$	(525.2	)	$	1,149.5

Comprehensive income (loss)	$	(886.2	)	$	1,793.5		$	(646.4	)	$	1,232.6
Comprehensive (income) loss attributable to noncontrolling interests	(7.1		)	(1.9		)	0.1			(9.1		)
Comprehensive income (loss) attributable to CBI	$	(893.3	)	$	1,791.6		$	(646.3	)	$	1,223.5

Net income (loss) per common share attributable to CBI:
Basic – Class A Common Stock	$	(4.08	)	$	10.03		$	(2.77	)	$	6.11
Basic – Class B Convertible Common Stock	$	(3.71	)	$	9.11		$	(2.52	)	$	5.55

Diluted – Class A Common Stock	$	(4.08	)	$	9.64		$	(2.77	)	$	5.87
Diluted – Class B Convertible Common Stock	$	(3.71	)	$	8.89		$	(2.52	)	$	5.41

Weighted average common shares outstanding:
Basic – Class A Common Stock	168.215			167.617			168.310			167.172
Basic – Class B Convertible Common Stock	23.316			23.325			23.316			23.323

Diluted – Class A Common Stock	168.215			196.468			168.310			195.907
Diluted – Class B Convertible Common Stock	23.316			23.325			23.316			23.323

Cash dividends declared per common share:
Class A Common Stock	$	1.50		$	1.48		$	0.75		$	0.74
Class B Convertible Common Stock	$	1.36		$	1.34		$	0.68		$	0.67

The accompanying notes are an integral part of these statements.



Constellation Brands, Inc. Q2 FY 2020 Form 10-Q	2



FINANCIAL STATEMENTS	Table of Contents

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		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Non-controlling Interests			Total
Balance at February 28, 2019	$	1.9	$	0.3	$	1,410.8		$	14,276.2		$	(353.9	)	$	(2,784.3	)	$	286.2		$	12,837.2
Comprehensive income (loss):
Net income (loss)	—		—		—			(245.4		)	—			—			8.3			(237.1		)
Other comprehensive income (loss), net of income tax effect	—		—		—			—			(1.6		)	—			(1.1		)	(2.7		)
Comprehensive income (loss)																				(239.8		)
Dividends declared	—		—		—			(141.9		)	—			—			—			(141.9		)
Initial recognition of non-controlling interest	—		—		—			—			—			—			20.2			20.2
Shares issued under equity compensation plans	—		—		(9.3		)	—			—			6.3			—			(3.0		)
Stock-based compensation	—		—		15.5			—			—			—			—			15.5
Balance at May 31, 2019	$	1.9	$	0.3	$	1,417.0		$	13,888.9		$	(355.5	)	$	(2,778.0	)	$	313.6		$	12,488.2
Comprehensive income (loss):
Net income (loss)	—		—		—			(525.2		)	—			—			8.2			(517.0		)
Other comprehensive income (loss), net of income tax effect	—		—		—			—			(121.1		)	—			(8.3		)	(129.4		)
Comprehensive income (loss)																				(646.4		)
Repurchase of shares	—		—		—			—			—			(50.0		)	—			(50.0		)
Dividends declared	—		—		—			(142.3		)	—			—			—			(142.3		)
Shares issued under equity compensation plans	—		—		17.4			—			—			6.4			—			23.8
Stock-based compensation	—		—		17.7			—			—			—			—			17.7
Balance at August 31, 2019	$	1.9	$	0.3	$	1,452.1		$	13,221.4		$	(476.6	)	$	(2,821.6	)	$	313.5		$	11,691.0

Balance at February 28, 2018	$	2.6	$	0.3	$	2,825.3		$	9,157.2		$	(202.9	)	$	(3,807.4	)	$	16.6		$	7,991.7
Cumulative effect of change in accounting principle	—		—		—			2,242.0			—			—			—			2,242.0
Comprehensive income (loss):
Net income (loss)	—		—		—			743.8			—			—			2.5			746.3
Other comprehensive income (loss), net of income tax effect	—		—		—			—			(175.7		)	—			(9.7		)	(185.4		)
Comprehensive income (loss)																				560.9
Repurchase of shares	—		—		—			—			—			(100.0		)	—			(100.0		)
Dividends declared	—		—		—			(140.6		)	—			—			—			(140.6		)
Shares issued under equity compensation plans	—		—		(7.7		)	—			—			2.3			—			(5.4		)
Stock-based compensation	—		—		17.2			—			—			—			—			17.2
Balance at May 31, 2018	$	2.6	$	0.3	$	2,834.8		$	12,002.4		$	(378.6	)	$	(3,905.1	)	$	9.4		$	10,565.8
Comprehensive income (loss):
Net income (loss)	—		—		—			1,149.5			—			—			1.8			1,151.3
Other comprehensive income (loss), net of income tax effect	—		—		—			—			74.0			—			7.3			81.3
Comprehensive income (loss)																				1,232.6
Repurchase of shares	—		—		—			—			—			(404.3		)	—			(404.3		)
Dividends declared	—		—		—			(139.0		)	—			—			—			(139.0		)
Conversion of long-term debt to noncontrolling equity interest	—		—		—			—			—			—			248.4			248.4
Shares issued under equity compensation plans	—		—		12.3			—			—			1.2			—			13.5
Stock-based compensation	—		—		18.2			—			—			—			—			18.2
Balance at August 31, 2018	$	2.6	$	0.3	$	2,865.3		$	13,012.9		$	(304.6	)	$	(4,308.2	)	$	266.9		$	11,535.2

The accompanying notes are an integral part of these statements.



Constellation Brands, Inc. Q2 FY 2020 Form 10-Q	3



FINANCIAL STATEMENTS	Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited)

	For the Six Months Ended August 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(754.1	)	$	1,897.6

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Unrealized net (gain) loss on securities measured at fair value	1,666.6			(950.4		)
Equity in (earnings) losses of equity method investees and related activities, net of distributed (earnings) losses	580.3			2.1
Depreciation	169.1			168.8
Loss on inventory and related contracts	61.0			—
(Gain) loss on sale of business and assets held for sale	36.0			(6.2		)
Stock-based compensation	33.6			35.9
Impairment and amortization of intangible assets	13.9			3.0
Amortization of debt issuance costs and loss on extinguishment of debt	9.7



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3. Quantitative and Qualitative Disclosures About Market Risk	68
Item 4. Controls and Procedures	69
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 4. Mine Safety Disclosures	70
Item 6. Exhibits	71
INDEX TO EXHIBITS	72
SIGNATURES	77