stz-20200831

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 August 31, 2020


☐			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 169,505,458 shares of Class A Common Stock, 23,273,727 shares of Class B Common Stock, and 1,021,108 shares of Class 1 Common Stock outstanding as of September 28, 2020.

Table of Contents

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets			1
Consolidated Statements of Comprehensive Income (Loss)			2
Consolidated Statements of Changes in Stockholders’ Equity			3
Consolidated Statements of Cash Flows			4
Notes to Consolidated Financial Statements
	1. Basis of Presentation	6
	2. Inventories	6
	3. Acquisitions, Divestitures, and Business Transformation	7
	4. Derivative Instruments	10
	5. Fair Value of Financial Instruments	13
	6. Goodwill	18
	7. Intangible Assets	18
	8. Equity Method Investments	19


	9. Borrowings	22
	10. Income Taxes	25


	11. Stockholders' Equity	26
	12. Net Income (Loss) Per Common Share Attributable to CBI	27
	13. Comprehensive Income (Loss) Attributable to CBI	28
	14. Business Segment Information	31


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			62
Item 4. Controls and Procedures			63
PART II – OTHER INFORMATION



Item 4. Mine Safety Disclosures			NA
Item 6. Exhibits			64
INDEX TO EXHIBITS			65
SIGNATURES			70

NA = Not Applicable

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 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 2020” refer to our fiscal year ended February 29, 2020. All references to “Fiscal 2021” refer to our fiscal year ending February 28, 2021. All references to “$” are to U.S. dollars and all references to “C$” are to Canadian dollars.


FINANCIAL STATEMENTS			Table of Contents

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)


	August 31, 2020		February 29, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	204.6	$	81.4
Accounts receivable	926.3		864.8
Inventories	1,328.4		1,373.6
Prepaid expenses and other	497.1		535.8
Assets held for sale - current	580.8		628.5
Total current assets	3,537.2		3,484.1
Property, plant, and equipment	5,184.9		5,333.0
Goodwill	7,717.4		7,757.1
Intangible assets	2,738.3		2,718.9
Equity method investments	2,931.9		3,093.9
Securities measured at fair value	764.0		1,117.1
Deferred income taxes	2,574.8		2,656.3
Assets held for sale	416.6		552.1
Other assets	597.4		610.7
Total assets	$	26,462.5	$	27,323.2
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	—	$	238.9
Current maturities of long-term debt	533.8		734.9
Accounts payable	651.2		557.6
Other accrued expenses and liabilities	724.9		780.4
Total current liabilities	1,909.9		2,311.8
Long-term debt, less current maturities	11,066.8		11,210.8

Deferred income taxes and other liabilities	1,482.0		1,326.3
Total liabilities	14,458.7		14,848.9
Commitments and contingencies
CBI stockholders’ equity:
Class A Common Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 186,778,085 shares and 186,090,745 shares, respectively	1.9		1.9
Class B Convertible Common Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,286,561 shares and 28,300,206 shares, respectively	0.3		0.3
Additional paid-in capital	1,553.6		1,514.6
Retained earnings	13,742.2		13,695.3
Accumulated other comprehensive income (loss)	(815.5)		(266.3)
	14,482.5		14,945.8
Less: Treasury stock –
Class A Common Stock, at cost, 17,301,423 shares and 18,256,826 shares, respectively	(2,792.3)		(2,811.8)
Class B Convertible Common Stock, at cost, 5,005,800 shares	(2.2)		(2.2)
	(2,794.5)		(2,814.0)
Total CBI stockholders’ equity	11,688.0		12,131.8
Noncontrolling interests	315.8		342.5
Total stockholders’ equity	12,003.8		12,474.3
Total liabilities and stockholders’ equity	$	26,462.5	$	27,323.2

The accompanying notes are an integral part of these statements.


Constellation Brands, Inc. Q2 FY 2021 Form 10-Q			#WORTHREACHINGFOR I 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,
	2020		2019		2020		2019
Sales	$	4,591.4	$	4,855.9	$	2,459.7	$	2,573.4
Excise taxes	(367.6)		(414.7)		(199.3)		(229.4)
Net sales	4,223.8		4,441.2		2,260.4		2,344.0
Cost of product sold	(2,019.7)		(2,226.6)		(1,044.6)		(1,158.1)
Gross profit	2,204.1		2,214.6		1,215.8		1,185.9
Selling, general, and administrative expenses	(752.4)		(845.4)		(399.1)		(439.4)

Impairment of assets held for sale	(3.0)		(27.0)		22.0		(27.0)

Operating income (loss)	1,448.7		1,342.2		838.7		719.5
Income (loss) from unconsolidated investments	(651.9)		(2,255.3)		(80.7)		(1,324.7)
Interest expense	(200.2)		(226.2)		(100.2)		(111.6)
Loss on extinguishment of debt	(7.6)		(2.4)		(0.6)		(2.4)
Income (loss) before income taxes	589.0		(1,141.7)		657.2		(719.2)
(Provision for) benefit from income taxes	(239.8)		387.6		(135.4)		202.2
Net income (loss)	349.2		(754.1)		521.8		(517.0)
Net income (loss) attributable to noncontrolling interests	(15.0)		(16.5)		(9.7)		(8.2)
Net income (loss) attributable to CBI	$	334.2	$	(770.6)	$	512.1	$	(525.2)

Comprehensive income (loss)	$	(231.7)	$	(886.2)	$	733.2	$	(646.4)
Comprehensive (income) loss attributable to noncontrolling interests	16.7		(7.1)		(14.2)		0.1
Comprehensive income (loss) attributable to CBI	$	(215.0)	$	(893.3)	$	719.0	$	(646.3)

Net income (loss) per common share attributable to CBI:
Basic – Class A Common Stock	$	1.74	$	(4.08)	$	2.68	$	(2.77)
Basic – Class B Convertible Common Stock	$	1.58	$	(3.71)	$	2.43	$	(2.52)

Diluted – Class A Common Stock	$	1.71	$	(4.08)	$	2.62	$	(2.77)
Diluted – Class B Convertible Common Stock	$	1.58	$	(3.71)	$	2.42	$	(2.52)

Weighted average common shares outstanding:
Basic – Class A Common Stock	169.841		168.215		170.078		168.310
Basic – Class B Convertible Common Stock	23.289		23.316		23.284		23.316

Diluted – Class A Common Stock	194.962		168.215		195.142		168.310
Diluted – Class B Convertible Common Stock	23.289		23.316		23.284		23.316

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

The accompanying notes are an integral part of these statements.


Constellation Brands, Inc. Q2 FY 2021 Form 10-Q			#WORTHREACHINGFOR I 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
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











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

The accompanying notes are an integral part of these statements.


Constellation Brands, Inc. Q2 FY 2021 Form 10-Q			#WORTHREACHINGFOR I 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,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	349.2	$	(754.1)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Unrealized net (gain) loss on securities measured at fair value	244.9		1,666.6
Deferred tax provision (benefit)	196.1		(452.7)
Depreciation	142.7		169.1
Stock-based compensation	34.0		33.6
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings	408.1		580.3
Noncash lease expense	41.3		44.8
Impairment and amortization of intangible assets	2.7		13.9






Impairment of assets held for sale	3.0		27.0

Loss on inventory and related contracts	25.1		61.0
Loss on settlement of treasury lock contracts	(29.3)		—

Change in operating assets and liabilities, net of effects from purchases of businesses:
Accounts receivable	(56.1)		(106.2)
Inventories	73.0