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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 30, 2024
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-08495
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
Delaware | 16-0716709 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
50 East Broad Street, Rochester, New York 14614
(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 |
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 180,704,555 shares of Class A Common Stock and 25,777 shares of Class 1 Common Stock outstanding as of December 31, 2024.
TABLE OF CONTENTS
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| | Page |
| | |
DEFINED TERMS | |
| | |
PART I – FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Consolidated Balance Sheets | |
Consolidated Statements of Comprehensive Income (Loss) | |
Consolidated Statements of Changes in Stockholders’ Equity | |
Consolidated Statements of Cash Flows | |
Notes to Consolidated Financial Statements | |
| 1. Basis of Presentation | |
| 2. Inventories | |
| | |
| | |
| 3. Derivative Instruments | |
| 4. Fair Value of Financial Instruments | |
| 5. Goodwill | |
| 6. Intangible Assets | |
| | |
| 7. Other Assets | |
| | |
| 8. Borrowings | |
| 9. Income Taxes | |
| 10. Deferred Income Taxes and Other Liabilities | |
| | |
| 11. Stockholders' Equity | |
| 12. Net Income (Loss) Per Common Share Attributable to CBI | |
| 13. Comprehensive Income (Loss) Attributable to CBI | |
| 14. Business Segment Information | |
| 15. Accounting Guidance Not Yet Adopted | |
| | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
| | |
PART II – OTHER INFORMATION | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 5. Other Information | |
Item 6. Exhibits | |
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SIGNATURES | |
This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which 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 MD&A.
Defined Terms
Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We use terms in this Form 10-Q and in our Notes that are specific to us or are abbreviations that may not be commonly known or used.
| | | | | | |
Term | | Meaning |
| | |
$ | | U.S. dollars |
10b5-1 Trading Plan | | a pre-arranged trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act |
2021 Authorization | | authorization to repurchase up to $2.0 billion of our publicly traded common stock, approved by our Board of Directors in January 2021 and fully utilized in November 2024 |
2022 Credit Agreement | | tenth amended and restated credit agreement, dated as of April 14, 2022, that provides for an aggregate revolving credit facility of $2.25 billion, inclusive of October 2022 Credit Agreement Amendment |
2023 Authorization | | authorization to repurchase up to $2.0 billion of our publicly traded common stock, approved by our Board of Directors in November 2023 |
2023 Canopy Promissory Note | | C$100.0 million principal amount of 4.25% promissory note issued to us by Canopy in April 2023, exchanged, in part, for Exchangeable Shares in April 2024 |
2024 Annual Report | | our Annual Report on Form 10-K for the fiscal year ended February 29, 2024 |
3.60% May 2022 Senior Notes | | $550.0 million principal amount of 3.60% senior notes issued in May 2022, now repaid in full |
3-tier | | distribution channel where products are sold to a distributor (wholesaler) who then sells to a retailer; the retailer sells the products to a consumer |
3-tier eCommerce | | digital commerce experience for consumers to purchase beverage alcohol from retailers |
4.75% November 2014 Senior Notes | | $400.0 million principal amount of 4.75% senior notes issued in November 2014, now repaid in full |
ABA | | alternative beverage alcohol |
Administrative Agent | | Bank of America, N.A., as administrative agent for the senior credit facility |
| | |
| | |
AOCI | | accumulated other comprehensive income (loss) |
| | |
C$ | | Canadian dollars |
Canopy | | Canopy Growth Corporation, an Ontario, Canada-based public company in which we have an investment |
Canopy Debt Securities | | debt securities issued by Canopy in June 2018, no longer outstanding |
Canopy Equity Method Investment | | an investment in Canopy common shares, no longer applicable following conversion of Canopy common shares into Exchangeable Shares in April 2024 |
CB International | | CB International Finance S.à r.l., a wholly-owned subsidiary of ours |
Class 1 Stock | | our Class 1 Convertible Common Stock, par value $0.01 per share |
Class A Stock | | our Class A Common Stock, par value $0.01 per share |
CODM | | chief operating decision maker, our President and Chief Executive Officer |
Comparable Adjustments | | certain items affecting comparability that have been excluded by management |
CPG | | consumer packaged goods |
Craft Beer Divestitures | | the Four Corners Divestiture and the Funky Buddha Divestiture, collectively |
Daleville Facility | | production facility located in Roanoke, Virginia, sold in May 2023 |
| | |
Depletions | | represent U.S. distributor shipments of our respective branded products to retail customers, based on third-party data |
Digital Business Acceleration | | a multi-year initiative by the Company to create a cohesive digital strategy and build an advanced digital business |
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I i |
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Term | | Meaning |
| | |
DTC | | direct-to-consumer inclusive of (i) a digital commerce experience for consumers to purchase directly from brand websites with inventory coming straight from the supplier and (ii) consumer purchases at hospitality locations (tasting rooms and tap rooms) from the supplier |
ESG | | environmental, social, and governance |
Exchangeable Shares | | class of non-voting and non-participating exchangeable shares in Canopy which are convertible into common shares of Canopy on a one-for-one basis |
Exchange Act | | Securities Exchange Act of 1934, as amended |
FASB | | Financial Accounting Standards Board |
Financial Statements | | our consolidated financial statements and notes thereto included herein |
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| | |
Fiscal 2024 | | the Company’s fiscal year ended February 29, 2024 |
Fiscal 2025 | | the Company’s fiscal year ending February 28, 2025 |
Fiscal 2026 | | the Company’s fiscal year ending February 28, 2026 |
Fiscal 2027 | | the Company’s fiscal year ending February 28, 2027 |
Fiscal 2028 | | the Company’s fiscal year ending February 29, 2028 |
Fiscal 2029 | | the Company’s fiscal year ending February 28, 2029 |
Fiscal 2030 | | the Company’s fiscal year ending February 28, 2030 |
Form 10-Q | | this Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2024, unless otherwise specified |
Four Corners Divestiture | | sale of the Four Corners craft beer business |
Funky Buddha Divestiture | | sale of the Funky Buddha craft beer business |
GHG | | greenhouse gas |
IRA | | Inflation Reduction Act of 2022 |
IT | | information technology |
MD&A | | Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part I – Item 2. of this Form 10-Q |
Mexicali Brewery | | canceled brewery construction project located in Mexicali, Baja California, Mexico, sold the remaining assets classified as held for sale in July 2024 |
Mexico Beer Projects | | expansion, optimization, and/or construction activities at the Obregón Brewery, Nava Brewery, and Veracruz Brewery |
M&T | | Manufacturers and Traders Trust Company |
Nava | | Nava, Coahuila, Mexico |
Nava Brewery | | brewery located in Nava |
Nelson’s Green Brier | | Nelson’s Green Brier craft spirits business, fully owned by us |
Net sales | | gross sales less promotions, returns and allowances, and excise taxes |
Net Shares Received | | the quantity of Class A Stock received by an individual net of shares withheld by us to satisfy taxes in connection with the net settlement of equity awards |
Nine Months 2024 | | the Company’s nine months ended November 30, 2023 |
Nine Months 2025 | | the Company’s nine months ended November 30, 2024 |
NM | | not meaningful |
Note(s) | | notes to the consolidated financial statements |
| | |
Obregón | | Obregón, Sonora, Mexico |
Obregón Brewery | | brewery located in Obregón |
OCI | | other comprehensive income (loss) |
October 2022 Credit Agreement Amendment | | amendment dated as of October 18, 2022, to the 2022 Credit Agreement, effective in April 2024 |
Pre-issuance hedge contracts | | treasury lock and/or swap lock contracts designated as cash flow hedges entered into to hedge treasury rate volatility on future debt issuances |
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I ii |
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Term | | Meaning |
| | |
Sands Family Stockholders | | RES Master LLC, RES Business Holdings LP, SER Business Holdings LP, RHT 2015 Business Holdings LP, RSS Master LLC, RSS Business Holdings LP, SSR Business Holdings LP, RSS 2015 Business Holdings LP, RCT 2015 Business Holdings LP, RCT 2020 Investments LLC, NSDT 2009 STZ LLC, NSDT 2011 STZ LLC, RSS Business Management LLC, SSR Business Management LLC, LES Lauren Holdings LLC, MES Mackenzie Holdings LLC, Abigail Bennett, Zachary Stern, A&Z 2015 Business Holdings LP (subsequently liquidated), Marilyn Sands Master Trust, MAS Business Holdings LP, Sands Family Foundation, Richard Sands, Robert Sands, WildStar Partners LLC, Astra Legacy LLC, AJB Business Holdings LP, and ZMSS Business Holdings LP |
Sea Smoke | | Sea Smoke wine business, acquired by us |
SEC | | Securities and Exchange Commission |
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| | |
Securities Act | | Securities Act of 1933, as amended |
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| | |
SOFR | | secured overnight financing rate administered by the Federal Reserve Bank of New York |
SVEDKA Divestiture | | sale of the SVEDKA brand and related assets, primarily including inventory and equipment |
Third Quarter 2024 | | the Company’s three months ended November 30, 2023 |
Third Quarter 2025 | | the Company’s three months ended November 30, 2024 |
U.S. | | United States of America |
Veracruz | | Heroica Veracruz, Veracruz, Mexico |
Veracruz Brewery | | a new brewery being constructed in Veracruz |
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I iii |
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, 2024 | | February 29, 2024 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 73.7 | | | $ | 152.4 | |
Accounts receivable | 836.2 | | | 832.8 | |
Inventories | 2,129.6 | | | 2,078.3 | |
Prepaid expenses and other | 590.0 | | | 666.0 | |
| | | |
Total current assets | 3,629.5 | | | 3,729.5 | |
Property, plant, and equipment | 7,785.3 | | | 8,055.2 | |
Goodwill | 5,612.4 | | | 7,980.3 | |
Intangible assets | 2,718.2 | | | 2,731.7 | |
| | | |
| | | |
Deferred income taxes | 1,914.7 | | | 2,055.0 | |
| | | |
Other assets | 1,146.1 | | | 1,140.0 | |
Total assets | $ | 22,806.2 | | | $ | 25,691.7 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Short-term borrowings | $ | 890.1 | | | $ | 241.4 | |
Current maturities of long-term debt | 503.3 | | | 956.8 | |
Accounts payable | 1,055.9 | | | 1,107.1 | |
Other accrued expenses and liabilities | 839.7 | | | 836.4 | |
Total current liabilities | 3,289.0 | | | 3,141.7 | |
Long-term debt, less current maturities | 10,185.7 | | | 10,681.1 | |
| | | |
Deferred income taxes and other liabilities | 1,259.8 | | | 1,804.3 | |
Total liabilities | 14,734.5 | | | 15,627.1 | |
Commitments and contingencies | | | |
CBI stockholders’ equity: | | | |
Class A Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 212,698,298 shares and 212,698,298 shares, respectively | 2.1 | | | 2.1 | |
Additional paid-in capital | 2,132.7 | | | 2,047.3 | |
Retained earnings | 13,159.7 | | | 13,417.2 | |
Accumulated other comprehensive income (loss) | (724.7) | | | 376.8 | |
Class A Stock in treasury, at cost, 31,994,945 shares and 29,809,881 shares, respectively | (6,752.0) | | | (6,100.3) | |
Total CBI stockholders’ equity | 7,817.8 | | | 9,743.1 | |
Noncontrolling interests | 253.9 | | | 321.5 | |
Total stockholders’ equity | 8,071.7 | | | 10,064.6 | |
Total liabilities and stockholders’ equity | $ | 22,806.2 | | | $ | 25,691.7 | |
The accompanying notes are an integral part of these statements.
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 1 |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Nine Months Ended November 30, | | For the Three Months Ended November 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Sales | $ | 8,644.2 | | | $ | 8,410.7 | | | $ | 2,644.4 | | | $ | 2,658.2 | |
Excise taxes | (599.7) | | | (588.1) | | | (180.6) | | | (187.3) | |
Net sales | 8,044.5 | | | 7,822.6 | | | 2,463.8 | | | 2,470.9 | |
Cost of product sold | (3,844.6) | | | (3,844.3) | | | (1,179.5) | | | (1,200.3) | |
Gross profit | 4,199.9 | | | 3,978.3 | | | 1,284.3 | | | 1,270.6 | |
Selling, general, and administrative expenses | (1,444.7) | | | (1,438.0) | | | (491.3) | | | (473.7) | |
Goodwill impairment | (2,250.0) | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Operating income (loss) | 505.2 | | | 2,540.3 | | | 793.0 | | | 796.9 | |
Income (loss) from unconsolidated investments | 65.8 | | | (477.4) | | | (15.0) | | | (41.8) | |
Interest expense, net | (311.2) | | | (333.7) | | | (104.4) | | | (104.2) | |
| | | | | | | |
Income (loss) before income taxes | 259.8 | | | 1,729.2 | | | 673.6 | | | 650.9 | |
(Provision for) benefit from income taxes | 79.7 | | | (368.4) | | | (44.5) | | | (130.0) | |
Net income (loss) | 339.5 | | | 1,360.8 | | | 629.1 | | | 520.9 | |
Net (income) loss attributable to noncontrolling interests | (45.6) | | | (25.8) | | | (13.2) | | | (11.8) | |
Net income (loss) attributable to CBI | $ | 293.9 | | | $ | 1,335.0 | | | $ | 615.9 | | | $ | 509.1 | |
| | | | | | | |
Comprehensive income (loss) | $ | (810.4) | | | $ | 1,713.0 | | | $ | 319.3 | | | $ | 447.0 | |
Comprehensive (income) loss attributable to noncontrolling interests | 2.8 | | | (42.1) | | | (1.1) | | | (7.9) | |
Comprehensive income (loss) attributable to CBI | $ | (807.6) | | | $ | 1,670.9 | | | $ | 318.2 | | | $ | 439.1 | |
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Class A Stock: | | | | | | | |
Net income (loss) per common share attributable to CBI – basic | $ | 1.61 | | | $ | 7.28 | | | $ | 3.40 | | | $ | 2.77 | |
Net income (loss) per common share attributable to CBI – diluted | $ | 1.61 | | | $ | 7.25 | | | $ | 3.39 | | | $ | 2.76 | |
| | | | | | | |
Weighted average common shares outstanding – basic | 181.988 | | | 183.431 | | | 181.243 | | | 183.525 | |
Weighted average common shares outstanding – diluted | 182.555 | | | 184.096 | | | 181.753 | | | 184.170 | |
| | | | | | | |
Cash dividends declared per common share | $ | 3.03 | | | $ | 2.67 | | | $ | 1.01 | | | $ | 0.89 | |
The accompanying notes are an integral part of these statements.
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 2 |
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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited) |
| Class A Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Non-controlling Interests | | Total |
Balance at February 29, 2024 | $ | 2.1 | | | $ | 2,047.3 | | | $ | 13,417.2 | | | $ | 376.8 | | | $ | (6,100.3) | | | $ | 321.5 | | | $ | 10,064.6 | |
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Comprehensive income (loss): | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | 877.0 | | | — | | | — | | | 15.8 | | | 892.8 | |
Other comprehensive income (loss), net of income tax effect | — | | | — | | | — | | | (9.0) | | | — | | | 0.3 | | | (8.7) | |
Comprehensive income (loss) | | | | | | | | | | | | | 884.1 | |
Repurchase of shares | — | | | — | | | — | | | — | | | (200.0) | | | — | | | (200.0) | |
Dividends declared | — | | | — | | | (184.7) | | | — | | | — | | | — | | | (184.7) | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | (17.5) | | | (17.5) | |
Shares issued under equity compensation plans | — | | | 5.7 | | | — | | | — | | | 2.4 | | | — | | | 8.1 | |
Stock-based compensation | — | | | 17.3 | | | — | | | — | | | — | | | — | | | 17.3 | |
Balance at May 31, 2024 | 2.1 | | | 2,070.3 | | | 14,109.5 | | | 367.8 | | | (6,297.9) | | | 320.1 | | | 10,571.9 | |
Comprehensive income (loss): | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | (1,199.0) | | | — | | | — | | | 16.6 | | | (1,182.4) | |
Other comprehensive income (loss), net of income tax effect | — | | | — | | | — | | | (794.8) | | | — | | | (36.6) | | | (831.4) | |
Comprehensive income (loss) | | | | | | | | | | | | | (2,013.8) | |
Repurchase of shares | — | | | — | | | — | | | — | | | (249.2) | | | — | | | (249.2) | |
Dividends declared | — | | | — | | | (183.3) | | | — | | | — | | | — | | | (183.3) | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | (15.0) | | | (15.0) | |
Shares issued under equity compensation plans | — | | | 21.2 | | | — | | | — | | | 0.4 | | | — | | | 21.6 | |
Stock-based compensation | — | | | 23.7 | | | — | | | — | | | — | | | — | | | 23.7 | |
Balance at August 31, 2024 | 2.1 | | | 2,115.2 | | | 12,727.2 | | | (427.0) | | | (6,546.7) | | | 285.1 | | | 8,155.9 | |
Comprehensive income (loss): | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | 615.9 | | | — | | | — | | | 13.2 | | | 629.1 | |
Other comprehensive income (loss), net of income tax effect | — | | | — | | | — | | | (297.7) | | | — | | | (12.1) | | | (309.8) | |
Comprehensive income (loss) | | | | | | | | | | | | | 319.3 | |
Repurchase of shares | — | | | — | | | — | | | — | | | (218.9) | | | — | | | (218.9) | |
Dividends declared | — | | | — | | | (183.4) | | | — | | | — | | | — | | | (183.4) | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | (15.0) | | | (15.0) | |
Shares issued under equity compensation plans | — | | | 5.8 | | | — | | | — | | | 13.6 | | | — | | | 19.4 | |
Stock-based compensation | — | | | 19.8 | | | — | | | — | | | — | | | — | | | 19.8 | |
Purchase of noncontrolling interest | — | | | (8.1) | | | — | | | — | | | — | | | (17.3) | | | (25.4) | |
Balance at November 30, 2024 | $ | 2.1 | | | $ | 2,132.7 | | | $ | 13,159.7 | | | $ | (724.7) | | | $ | (6,752.0) | | | $ | 253.9 | | | $ | 8,071.7 | |
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 3 |
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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited) |
| Class A Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Non-controlling Interests | | Total |
Balance at February 28, 2023 | $ | 2.1 | | | $ | 1,903.0 | | | $ | 12,343.9 | | | $ | 28.5 | | | $ | (5,863.9) | | | $ | 320.3 | | | $ | 8,733.9 | |
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Comprehensive income (loss): | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | 135.9 | | | — | | | — | | | 3.3 | | | 139.2 | |
Other comprehensive income (loss), net of income tax effect | — | | | — | | | — | | | 214.4 | | | — | | | 10.9 | | | 225.3 | |
Comprehensive income (loss) | | | | | | | | | | | | | 364.5 | |
Repurchase of shares | — | | | — | | | — | | | — | | | (35.0) | | | — | | | (35.0) | |
Dividends declared | — | | | — | | | (163.1) | | | — | | | — | | | — | | | (163.1) | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | (11.3) | | | (11.3) | |
Shares issued under equity compensation plans | — | | | 0.6 | | | — | | | — | | | 4.1 | | | — | | | 4.7 | |
Stock-based compensation | — | | | 14.5 | | | — | | | — | | | — | | | — | | | 14.5 | |
Balance at May 31, 2023 | 2.1 | | | 1,918.1 | | | 12,316.7 | | | 242.9 | | | (5,894.8) | | | 323.2 | | | 8,908.2 | |
Comprehensive income (loss): | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | 690.0 | | | — | | | — | | | 10.7 | | | 700.7 | |
Other comprehensive income (loss), net of income tax effect | — | | | — | | | — | | | 191.5 | | | — | | | 9.3 | | | 200.8 | |
Comprehensive income (loss) | | | | | | | | | | | | | 901.5 | |
| | | | | | | | | | | | | |
Dividends declared | — | | | — | | | (164.0) | | | — | | | — | | | — | | | (164.0) | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | (10.0) | | | (10.0) | |
Shares issued under equity compensation plans | — | | | 62.6 | | | — | | | — | | | 7.6 | | | — | | | 70.2 | |
Stock-based compensation | — | | | 18.1 | | | — | | | — | | | — | | | — | | | 18.1 | |
Balance at August 31, 2023 | 2.1 | | | 1,998.8 | | | 12,842.7 | | | 434.4 | | | (5,887.2) | | | 333.2 | | | 9,724.0 | |
Comprehensive income (loss): | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | 509.1 | | | — | | | — | | | 11.8 | | | 520.9 | |
Other comprehensive income (loss), net of income tax effect | — | | | — | | | — | | | (70.0) | | | — | | | (3.9) | | | (73.9) | |
Comprehensive income (loss) | | | | | | | | | | | | | 447.0 | |
Repurchase of shares | — | | | — | | | — | | | — | | | (214.7) | | | — | | | (214.7) | |
Dividends declared | — | | | — | | | (164.2) | | | — | | | — | | | — | | | (164.2) | |
Noncontrolling interest distributions | — | | | — | | | — | | | — | | | — | | | (13.7) | | | (13.7) | |
Shares issued under equity compensation plans | — | | | 3.4 | | | — | | | — | | | (0.4) | | | — | | | 3.0 | |
Stock-based compensation | — | | | 17.0 | | | — | | | — | | | — | | | — | | | 17.0 | |
Balance at November 30, 2023 | $ | 2.1 | | | $ | 2,019.2 | | | $ | 13,187.6 | | | $ | 364.4 | | | $ | (6,102.3) | | | $ | 327.4 | | | $ | 9,798.4 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these statements.
| | | | | |
Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 4 |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| | | | | | | | | | | |
| For the Nine Months Ended November 30, |
| 2024 | | 2023 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income (loss) | $ | 339.5 | | | $ | 1,360.8 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | |
Unrealized net (gain) loss on securities measured at fair value | 2.5 | | | 85.4 | |
Deferred tax provision (benefit) | (184.2) | | | 28.2 | |
Depreciation | 339.8 | | | 321.8 | |
Stock-based compensation | 60.7 | | | 49.5 | |
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings | (25.8) | | | 257.3 | |
Noncash lease expense | 85.2 | | | 62.9 | |
| | | |
| | | |
| | | |
| | | |
Impairment of equity method investments | 2.4 | | | 136.1 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net gain in connection with Exchangeable Shares | (44.7) | | | — | |
Goodwill impairment | 2,250.0 | | | — | |
Change in operating assets and liabilities, net of effects from purchase and sale of business: | | | |
Accounts receivable | (7.7) | | | 6.9 | |
Inventories | (54.2) | | | (90.4) | |
Prepaid expenses and other current assets | (47.2) | | | (49.1) | |
Accounts payable | 117.4 | | | 24.5 | |
| | | |
Other accrued expenses and liabilities | (117.4) | | | 37.1 | |
Other | (158.8) | | | 115.8 | |
Total adjustments | 2,218.0 | | | 986.0 | |
Net cash provided by (used in) operating activities | 2,557.5 | | | 2,346.8 | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Purchase of property, plant, and equipment | (931.5) | | | (911.9) | |
Purchase of business, net of cash acquired | (158.7) | | | (7.5) | |
Investments in equity method investees and securities | (31.1) | | | (34.6) | |
Proceeds from sale of assets | 34.8 | | | 21.8 | |
| | | |
Proceeds from sale of business | — | | | 5.4 | |
Other investing activities | (11.7) | | | (3.1) | |
Net cash provided by (used in) investing activities | (1,098.2) | | | (929.9) | |
| | | | | |
Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 5 |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| | | | | | | | | | | |
| For the Nine Months Ended November 30, |
| 2024 | | 2023 |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from issuance of long-term debt | — | | | 744.8 | |
Principal payments of long-term debt | (956.0) | | | (807.5) | |
Net proceeds from (repayments of) short-term borrowings | 648.7 | | | (706.4) | |
Dividends paid | (551.3) | | | (491.1) | |
Purchases of treasury stock | (668.1) | | | (249.7) | |
Proceeds from shares issued under equity compensation plans | 66.2 | | | 89.0 | |
Payments of minimum tax withholdings on stock-based payment awards | (13.8) | | | (11.2) | |
Payments of debt issuance, debt extinguishment, and other financing costs | (0.1) | | | (5.3) | |
Distributions to noncontrolling interests | (47.5) | | | (35.0) | |
Payment of contingent consideration | (0.7) | | | — | |
Purchase of noncontrolling interest | (16.2) | | | — | |
| | | |
| | | |
| | | |
| | | |
Net cash provided by (used in) financing activities | (1,538.8) | | | (1,472.4) | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | 0.8 | | | 0.7 | |
| | | |
Net increase (decrease) in cash and cash equivalents | (78.7) | | | (54.8) | |
Cash and cash equivalents, beginning of period | 152.4 | | | 133.5 | |
Cash and cash equivalents, end of period | $ | 73.7 | | | $ | 78.7 | |
| | | |
Supplemental disclosures of noncash investing and financing activities | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Additions to property, plant, and equipment | $ | 111.3 | | | $ | 178.1 | |
Purchase of noncontrolling interest | $ | 9.2 | | | $ | — | |
The accompanying notes are an integral part of these statements.
| | | | | |
Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 6 |
| | | | | | | | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOVEMBER 30, 2024
(unaudited)
1. BASIS OF PRESENTATION
We have prepared the Financial Statements, without audit, pursuant to the rules and regulations of the SEC applicable to quarterly reporting on Form 10-Q and reflect, in our opinion, all adjustments necessary to present fairly our financial information. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in the 2024 Annual Report. Results of operations for interim periods are not necessarily indicative of annual results.
Reclassification
We reclassified equity method investments to other assets on our consolidated balance sheet as of February 29, 2024, to conform with current year presentation.
2. INVENTORIES
Inventories are stated at the lower of cost (primarily computed in accordance with the first-in, first-out method) or net realizable value. Elements of cost include materials, labor, and overhead and consist of the following:
| | | | | | | | | | | |
| November 30, 2024 | | February 29, 2024 |
(in millions) | | | |
Raw materials and supplies | $ | 244.8 | | | $ | 254.1 | |
In-process inventories | 1,198.9 | | | 1,096.0 | |
Finished case goods | 685.9 | | | 728.2 | |
| $ | 2,129.6 | | | $ | 2,078.3 | |
The inventories balance at November 30, 2024, exclude amounts reclassified to assets held for sale. See Notes 5 and 7 for further discussion.
3. 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 2024 Annual Report and have not changed significantly for the nine months and three months ended November 30, 2024.
| | | | | |
Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 7 |
| | | | | | | | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
The aggregate notional value of outstanding derivative instruments is as follows:
| | | | | | | | | | | |
| November 30, 2024 | | February 29, 2024 |
(in millions) | | | |
Derivative instruments designated as hedging instruments | | | |
Foreign currency contracts | $ | 2,854.4 | | | $ | 2,045.6 | |
| | | |
| | | |
Pre-issuance hedge contracts | $ | 75.0 | | | $ | — | |
| | | |
Derivative instruments not designated as hedging instruments | | | |
Foreign currency contracts | $ | 448.9 | | | $ | 735.9 | |
Commodity derivative contracts | $ | 337.9 | | | $ | 397.5 | |
| | | |
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, 2024, the estimated fair value of derivative instruments in a net liability position due to counterparties was $60.1 million. If we were required to settle the net liability position under these derivative instruments on November 30, 2024, 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 4):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | Liabilities |
| November 30, 2024 | | February 29, 2024 | | | November 30, 2024 | | February 29, 2024 |
(in millions) | | | | | | | | |
Derivative instruments designated as hedging instruments |
Foreign currency contracts: |
Prepaid expenses and other | $ | 44.2 | | | $ | 154.1 | | | Other accrued expenses and liabilities | $ | 34.9 | | | $ | 3.5 | |
Other assets | $ | 43.4 | | | $ | 153.5 | | | Deferred income taxes and other liabilities | $ | 77.8 | | | $ | 0.2 | |
|
| | | | | | | | |
| | | | | | | | |
Pre-issuance hedge contracts: |
Prepaid expenses and other | $ | 3.1 | | | $ | — | | | Other accrued expenses and liabilities | $ | — | | | $ | — | |
| | | | | | | | |
|
| | | | | | | | |
| | | | | | | | |
| | | | | |
Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 8 |
| | | | | | | | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets | | Liabilities |
| November 30, 2024 | | February 29, 2024 | | | November 30, 2024 | | February 29, 2024 |
(in millions) | | | | | | | | |
Derivative instruments not designated as hedging instruments |
Foreign currency contracts: |
Prepaid expenses and other | $ | 1.0 | | | $ | 3.6 | | | Other accrued expenses and liabilities | $ | 0.9 | | | $ | 1.7 | |
Commodity derivative contracts: |
Prepaid expenses and other | $ | 5.7 | | | $ | 4.8 | | | Other accrued expenses and liabilities | $ | 18.7 | | | $ | 27.9 | |
Other assets | $ | 3.2 | | | $ | 1.4 | | | Deferred income taxes and other liabilities | $ | 6.1 | | | $ | 8.1 | |
|
| | | | | | | | |
The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as OCI, net of income tax effect, is as follows:
| | | | | | | | | | | | | | | | | | | | |
Derivative Instruments in Designated Cash Flow Hedging Relationships | | Net Gain (Loss) Recognized in OCI | | Location of Net Gain (Loss) Reclassified from AOCI to Income (Loss) | | Net Gain (Loss) Reclassified from AOCI to Income (Loss) |
(in millions) | | | | | | |
For the Nine Months Ended November 30, 2024 | | | | | | |
Foreign currency contracts | | $ | (209.2) | | | Sales | | $ | 0.6 | |
| | | | Cost of product sold | | 89.5 | |
| | | | | | |
| | | | | | |
Pre-issuance hedge contracts | | 3.1 | | | Interest expense, net | | — | |
| | $ | (206.1) | | | | | $ | 90.1 | |
| | | | | | |
For the Nine Months Ended November 30, 2023 | | | | | | |
Foreign currency contracts | | $ | 177.1 | | | Sales | | $ | (0.2) | |
| | | | Cost of product sold | | 102.3 | |
| | | | | | |
Pre-issuance hedge contracts | | 0.5 | | | Interest expense, net | | (0.4) | |
| | $ | 177.6 | | | | | $ | 101.7 | |
| | | | | | |
For the Three Months Ended November 30, 2024 | | | | | | |
Foreign currency contracts | | $ | (62.0) | | | Sales | | $ | 0.3 | |
| | | | Cost of product sold | | 18.9 | |
| | | | | | |
Pre-issuance hedge contracts | | 3.1 | | | Interest expense, net | | — | |
| | $ | (58.9) | | | | | $ | 19.2 | |
| | | | | | |
For the Three Months Ended November 30, 2023 | | | | | | |
Foreign currency contracts | | $ | 27.2 | | | Sales | | $ | — | |
| | | | Cost of product sold | | 36.6 | |
| | | | | | |
Pre-issuance hedge contracts | | (0.1) | | | Interest expense, net | | (0.1) | |
| | $ | 27.1 | | | | | $ | 36.5 | |
We expect $8.3 million of net gains, net of income tax effect, to be reclassified from AOCI to our results of operations within the next 12 months.
| | | | | |
Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 9 |
| | | | | | | | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
The effect of our undesignated derivative instruments on our results of operations is as follows:
| | | | | | | | | | | | | | | | | | | | |
Derivative Instruments Not Designated as Hedging Instruments | | | | Location of Net Gain (Loss) Recognized in Income (Loss) | | Net Gain (Loss) Recognized in Income (Loss) |
(in millions) | | | | | | |
For the Nine Months Ended November 30, 2024 | | | | | | |
Commodity derivative contracts | | | | Cost of product sold | | $ | (10.5) | |
Foreign currency contracts | | | | Selling, general, and administrative expenses | | (31.0) | |
| | | | | | |
| | | | | | $ | (41.5) | |
| | | | | | |
For the Nine Months Ended November 30, 2023 | | | | | | |
Commodity derivative contracts | | | | Cost of product sold | | $ | (28.9) | |
Foreign currency contracts | | | | Selling, general, and administrative expenses | | 12.7 | |
| | | | | | |
| | | | | | $ | (16.2) | |
| | | | | | |
For the Three Months Ended November 30, 2024 | | | | | | |
Commodity derivative contracts | | | | Cost of product sold | | $ | (0.8) | |
Foreign currency contracts | | | | Selling, general, and administrative expenses | | (4.3) | |
| | | | | | |
| | | | | | $ | (5.1) | |
| | | | | | |
For the Three Months Ended November 30, 2023 | | | | | | |
Commodity derivative contracts | | | | Cost of product sold | | $ | (13.3) | |
Foreign currency contracts | | | | Selling, general, and administrative expenses | | (9.8) | |
| | | | | | |
| | | | | | $ | (23.1) | |
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Authoritative guidance establishes a framework for measuring fair value, including a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy includes three levels:
•Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
•Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as volatility, interest rates, and yield curves that are observable for the asset or liability, either directly or indirectly; and
•Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
Fair value methodology
The following methods and assumptions are used to estimate the fair value of our financial instruments:
Foreign currency and commodity derivative contracts
The fair value is estimated using market-based inputs, obtained from independent pricing services, entered into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, market commodity prices, interest-rate yield curves, and currency volatilities, as applicable (Level 2 fair value measurement).
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 10 |
| | | | | | | | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
Interest rate swap and Pre-issuance hedge 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).
Short-term borrowings
Our short-term borrowings consist of our commercial paper program and the revolving credit facility under our senior credit facility. The revolving credit facility is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating (as defined in our senior credit facility). For these short-term borrowings, the carrying value approximates the fair value.
Long-term debt
The fair value of our fixed interest rate long-term debt is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement). As of November 30, 2024, the carrying amount of long-term debt, including the current portion, was $10,689.0 million, compared with an estimated fair value of $10,075.5 million. As of February 29, 2024, the carrying amount of long-term debt, including the current portion, was $11,637.9 million, compared with an estimated fair value of $10,775.8 million.
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value as of November 30, 2024, and February 29, 2024, due to the relatively short maturity of these instruments.
Recurring basis measurements
The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using | | |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
(in millions) | | | | | | | |
November 30, 2024 | | | | | | | |
Assets: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 88.6 | | | $ | — | | | $ | 88.6 | |
Commodity derivative contracts | $ | — | | | $ | 8.9 | | | $ | — | | | $ | 8.9 | |
Pre-issuance hedge contracts | $ | — | | | $ | 3.1 | | | $ | — | | | $ | 3.1 | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 113.6 | | | $ | — | | | $ | 113.6 | |
Commodity derivative contracts | $ | — | | | $ | 24.8 | | | $ | — | | | $ | 24.8 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
February 29, 2024 | | | | | | | |
Assets: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 311.2 | | | $ | — | | | $ | 311.2 | |
Commodity derivative contracts | $ | — | | | $ | 6.2 | | | $ | — | | | $ | 6.2 | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 5.4 | | | $ | — | | | $ | 5.4 | |
Commodity derivative contracts | $ | — | | | $ | 36.0 | | | $ | — | | | $ | 36.0 | |
| | | | | | | |
| | | | | | | |
| | | | | |
Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 11 |
| | | | | | | | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
Nonrecurring basis measurements
The following table presents our assets and liabilities measured at estimated fair value on a nonrecurring basis for which an impairment assessment was performed for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using | | | | |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Losses | | |
(in millions) | | | | | | | | | |
For the Nine Months Ended November 30, 2024 | | | | | | | | | |
Goodwill (1) | $ | — | | | $ | — | | | $ | 491.3 | | | $ | 2,250.0 | | | |
Equity method investments (2) | — | | | — | | | — | | | 2.4 | | | |
Total | $ | — | | | $ | — | | | $ | 491.3 | | | $ | 2,252.4 | | | |
| | | | | | | | | |
For the Nine Months Ended November 30, 2023 | | | | | | | | | |
Equity method investments (2) | $ | 94.8 | | | $ | 0.6 | | | $ | 0.6 | | | $ | 136.1 | | | |
| | | | | | | | | |
(1)Fair value determined during our interim quantitative assessment, excluding goodwill reclassified to held for sale. See Notes 5 and 7 for further discussion.
(2)Included in other assets within our consolidated balance sheets.
Goodwill
As of August 31, 2024, in connection with negative trends within our Wine and Spirits business primarily attributable to our U.S. wholesale market, driven by declines in both the overall wine market and in our mainstream and premium wine brands, management updated its Fiscal 2025 outlook for this reporting unit. The updated forecast indicated it was more likely than not the fair value of the Wine and Spirits reporting unit might be below its carrying value. Accordingly, we performed an interim quantitative assessment for goodwill impairment. This assessment indicated that the carrying value of the Wine and Spirits reporting unit exceeded its estimated fair value, resulting in a $2,250.0 million goodwill impairment. This loss from impairment was included in goodwill impairment within our consolidated results for the nine months ended November 30, 2024. See Notes 5, 6, and 9 for further discussion.
When performing a quantitative assessment for impairment of goodwill, we measure the amount of impairment by calculating the amount by which the carrying value exceeds its estimated fair value. The estimated fair value is determined based on the discounted cash flow calculation. The most significant assumptions used in the discounted cash flow calculation were: (i) a 9% discount rate, (ii) a 1.5% expected long-term growth rate, and (iii) the annual cash flow projections. If there are adverse deviations from our expectations about our Wine and Spirits business or the macroeconomic environment, which could be influenced by a variety of factors including if broader industry and market conditions continue to decline and/or our expectations of future performance as reflected in our current strategic operating plans are not fully realized, a future impairment of the Wine and Spirits goodwill is reasonably possible.
Equity method investments
As of August 31, 2024, and November 30, 2023, we evaluated certain equity method investments, made through our corporate venture capital function within the Corporate Operations and Other segment, and determined there were other-than-temporary impairments due to business underperformance. These losses from impairment were included in income (loss) from unconsolidated investments within our consolidated results for the respective periods. The estimated fair values were based largely on the cash flows expected to be generated by the investment using unobservable data points.
As of August 31, 2023, we evaluated certain equity method investments, made through our corporate venture capital function, and determined there were other-than-temporary impairments due to business
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 12 |
| | | | | | | | |
FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
underperformance. Investments with a $14.9 million carrying value were written down to $2.6 million, their estimated fair value, resulting in a $12.3 million impairment. These investments are part of the Corporate Operations and Other segment. This loss from impairment was included in income (loss) from unconsolidated investments within our consolidated results for the nine months ended November 30, 2023. The estimated fair value was based largely on observable prices for similar assets. In October 2023, we exited one of these equity method investments in exchange for a note receivable.
We evaluated the Canopy Equity Method Investment as of May 31, 2023, and determined there was an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) the fair value being less than the carrying value and the uncertainty surrounding Canopy’s stock price recovering in the near-term, (ii) Canopy recorded significant costs in its fourth quarter of fiscal 2023 results designed to align its Canadian cannabis operations and resources in response to continued unfavorable market trends, (iii) the substantial doubt about Canopy’s ability to continue as a going concern, as disclosed by Canopy, and (iv) Canopy’s identification of material misstatements in certain of its previously reported financial results related to sales in its BioSteel Sports Nutrition Inc. reporting unit that were accounted for incorrectly, including the recording of a goodwill impairment during its restated second quarter of fiscal 2023. As a result, the Canopy Equity Method Investment with a $266.2 million carrying value was written down to $142.7 million, its estimated fair value, resulting in a $123.5 million impairment. This loss from impairment was included in income (loss) from unconsolidated investments within our consolidated results for the nine months ended November 30, 2023. The estimated fair value was determined based on the closing price of the underlying equity security as of May 31, 2023. We no longer apply the equity method to our investment in Canopy following the April 2024 conversion of our Canopy common shares to Exchangeable Shares. See Note 7 for further discussion.
5. GOODWILL
The changes in the carrying amount of goodwill are as follows:
| | | | | | | | | | | | | | | | | | | | | |
| Beer | | Wine and Spirits | | | | | | Consolidated |
(in millions) | | | | | | | | | |
Balance, February 28, 2023 | $ | 5,188.9 | | | $ | 2,736.5 | | | | | | | $ | 7,925.4 | |
Purchase accounting allocations (1) | — | | | 6.5 | | | | | | | 6.5 | |
| | | | | | | | | |
Foreign currency translation adjustments | 49.3 | | | (0.9) | | | | | | | 48.4 | |
| | | | | | | | | |
Balance, February 29, 2024 | 5,238.2 | | | 2,742.1 | | | | | | | 7,980.3 | |
Purchase accounting allocations (2) | — | | | 71.1 | | | | | | | 71.1 | |
| | | | | | | | | |
Foreign currency translation adjustments | (117.1) | | | 1.3 | | | | | | | (115.8) | |
| | | | | | | | | |
Goodwill impairment | — | | | (2,250.0) | | | | | | | (2,250.0) | |
Reclassified to assets held for sale (3) | — | | | (73.2) | | | | | | | (73.2) | |
Balance, November 30, 2024 | $ | 5,121.1 | | | $ | 491.3 | | | | | | | $ | 5,612.4 | |
(1)Purchase accounting allocations associated with the June 2023 acquisition of the Domaine Curry wine business.
(2)Preliminary purchase accounting allocations associated with the Sea Smoke acquisition.
(3)In connection with the SVEDKA Divestiture, goodwill associated with the business being sold was reclassified to assets held for sale based on the relative fair value of the portion of the business being sold and the remaining wine and spirits portfolio. The relative fair values were determined using the transaction price and the income approach based on assumptions, including projected revenue growth, terminal growth, and discount rates and other projected financial information. See “Subsequent event” below.
Acquisition
Sea Smoke
In June 2024, we acquired the Sea Smoke business, including a California-based luxury wine brand, vineyards, and a production facility for $158.7 million, net of closing and post-closing adjustments. This transaction
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 13 |
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
also included the acquisition of goodwill, inventory, and a trademark. The results of operations of Sea Smoke are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
Divestitures
Craft Beer Divestitures
In June 2023, we completed the Craft Beer Divestitures. Prior to the Craft Beer Divestitures, we recorded the results of operations of such craft beer brands in the Beer segment.
Subsequent event
SVEDKA Divestiture
On January 6, 2025, we sold the SVEDKA brand and related assets, primarily including inventory and equipment. We received $409.2 million of cash proceeds, subject to certain post-closing adjustments, which will be used primarily for general corporate purposes. Prior to the completion of the SVEDKA Divestiture, we recorded the results of operations of the SVEDKA brand in the Wine and Spirits segment. We expect to recognize a gain of $250 million to $275 million in connection with this divestiture. This gain will be included within our consolidated results of operations for the year ended February 28, 2025. See Note 7 for further discussion.
6. INTANGIBLE ASSETS
The major components of intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| November 30, 2024 | | February 29, 2024 |
| Gross Carrying Amount | | Net Carrying Amount | | Gross Carrying Amount | | Net Carrying Amount |
(in millions) | | | | | | | |
Amortizable intangible assets | | | | | | | |
Customer relationships | $ | 85.3 | | | $ | 15.2 | | | $ | 85.3 | | | $ | 16.2 | |
Other | 20.7 | | | 0.3 | | | 20.8 | | | 0.3 | |
Total | $ | 106.0 | | | 15.5 | | | $ | 106.1 | | | 16.5 | |
| | | | | | | |
Nonamortizable intangible assets | | | | | | | |
Trademarks | | | 2,702.7 | | | | | 2,715.2 | |
Total intangible assets | | | $ | 2,718.2 | | | | | $ | 2,731.7 | |
The intangible assets balance at November 30, 2024, exclude trademarks reclassified to assets held for sale. 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, 2024, and November 30, 2023. Net carrying amount represents the gross carrying value net of accumulated amortization.
Additionally, as of August 31, 2024, in connection with the assessment of the same events and circumstances triggering the interim goodwill impairment test for the Wine and Spirits reporting unit, we completed an interim impairment test of our wine and spirits trademarks. We performed qualitative evaluations considering the results of the most recent fair value measurements as of January 1, 2024, and the likely impact of the negative trends for our Wine and Spirits business on the fair values of the trademarks and concluded it is more likely than not that the fair values of these intangible assets exceeded their carrying amounts.
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 14 |
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
7. OTHER ASSETS
The major components of other assets are as follows:
| | | | | | | | | | | |
| November 30, 2024 | | February 29, 2024 |
(in millions) | | | |
| | | |
Operating lease right-of-use asset | $ | 545.0 | | | $ | 615.3 | |
Equity method investments | 151.0 | | | 170.6 | |
Assets held for sale | 110.5 | | | 25.7 | |
Other investments in debt and equity securities | 100.9 | | | 73.0 | |
Exchangeable Shares | 58.7 | | | — | |
Derivative assets | 46.6 | | | 154.9 | |
Other | 133.4 | | | 100.5 | |
| $ | 1,146.1 | | | $ | 1,140.0 | |
Equity method investments
The carrying value of our equity method investments are as follows:
| | | | | | | | | | | |
| November 30, 2024 | | February 29, 2024 |
(in millions) | | | |
Canopy Equity Method Investment (1) | $ | — | | | $ | 42.5 | |
Other equity method investments | 151.0 | | | 128.1 | |
| $ | 151.0 | | | $ | 170.6 | |
(1)Following the April 2024 conversion to Exchangeable Shares we no longer apply the equity method.
Assets held for sale
Mexicali Brewery
In July 2024, we sold the remaining assets classified as held for sale at the canceled Mexicali Brewery. These net assets had met held for sale criteria as of February 29, 2024, and through the date of sale.
SVEDKA Divestiture
In January 2025, we completed the SVEDKA Divestiture and sold the related assets classified as held for sale. The SVEDKA net assets had met held for sale criteria as of November 30, 2024, and through the date of sale.
Other investments in debt and equity securities
We have multiple investments through our corporate venture capital function in debt and equity securities.
Exchangeable Shares
As of November 30, 2024, we evaluated the Exchangeable Shares for impairment primarily due to the business and industry factors that led to the decline in Canopy’s common share price since the date of conversion and exchange. We concluded that an impairment did exist, and accordingly, the Exchangeable Shares with a $97.3 million carrying value were written down to $58.7 million, their estimated fair value, resulting in a $38.6 million impairment. The estimated fair value was determined using the same valuation model as of the date of conversion and exchange as noted below. This loss from impairment was included in income (loss) from unconsolidated investments within our consolidated results for the nine months and three months ended November 30, 2024. Future impairments, if any, will also be reported in income (loss) from unconsolidated investments within our consolidated results.
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 15 |
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
In April 2024, we elected to convert our 17.1 million Canopy common shares into Exchangeable Shares on a one-for-one basis. Additionally, in April 2024, we exchanged C$81.2 million of the principal amount of the C$100.0 million 4.25% promissory note issued to us by Canopy for 9.1 million Exchangeable Shares and forgave all accrued but unpaid interest together with the remaining principal amount of the note. As a result of these transactions, we (i) have 26.3 million Exchangeable Shares and (ii) recognized an $83.3 million net gain in income (loss) from unconsolidated investments within our consolidated results for the nine months ended November 30, 2024. The fair value of Exchangeable Shares on the date of the conversion and exchange was estimated using a valuation model based primarily on the following inputs: (i) Canopy’s common share price, (ii) the expected volatility of Canopy’s common shares, and (iii) the probability and timing of U.S. federal legalization of recreational cannabis. As the Exchangeable Shares are an equity security without a readily determinable fair value, we elected to account for the Exchangeable Shares under the measurement alternative method.
8. BORROWINGS
Borrowings consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| November 30, 2024 | | February 29, 2024 |
| Current | | Long-term | | Total | | Total |
(in millions) | | | | | | | |
Short-term borrowings | | | | | | | |
| | | | | | | |
Commercial paper | $ | 890.1 | | | | | | | $ | 241.4 | |
| | | | | | | |
| $ | 890.1 | | | | | | | $ | 241.4 | |
| | | | | | | |
Long-term debt | | | | | | | |
| | | | | | | |
| | | | | | | |
Senior notes | $ | 499.3 | | | $ | 10,180.1 | | | $ | 10,679.4 | | | $ | 11,620.1 | |
Other | 4.0 | | | 5.6 | | | 9.6 | | | 17.8 | |
| $ | 503.3 | | | $ | 10,185.7 | | | $ | 10,689.0 | | | $ | 11,637.9 | |
Bank facilities
The Company, CB International, the Administrative Agent, and certain other lenders are parties to the 2022 Credit Agreement. The October 2022 Credit Agreement Amendment revised certain defined terms and covenants in the 2022 Credit Agreement and became effective in April 2024 following the (i) amendment by Canopy of its Articles of Incorporation, (ii) conversion of our Canopy common shares into Exchangeable Shares, and (iii) resignation of our nominees from the board of directors of Canopy.
Information with respect to borrowings under the 2022 Credit Agreement is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding borrowings | | Interest rate | | SOFR margin | | Outstanding letters of credit | | Remaining borrowing capacity (1) |
(in millions) | | | | | | | | | |
November 30, 2024 | | | | | | | | | |
Revolving credit facility (2) (3) | $ | — | | | — | % | | — | % | | $ | 11.3 | | | $ | 1,347.2 | |
| | | | | | | | | |
February 29, 2024 | | | | | | | | | |
Revolving credit facility (2) (3) | $ | — | | | — | % | | — | % | | $ | 11.5 | | | $ | 1,997.0 | |
(1)Net of outstanding revolving credit facility borrowings and outstanding letters of credit under the 2022 Credit Agreement and outstanding borrowings under our commercial paper program of $891.5 million and $241.5 million (excluding unamortized discount) as of November 30, 2024 and February 29, 2024, respectively (see “Commercial paper program” below).
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 16 |
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
(2)Contractual interest rate varies based on our debt rating (as defined in the agreement) and is a function of SOFR plus a margin and a credit spread adjustment, or the base rate plus a margin, or, in certain circumstances where SOFR cannot be adequately ascertained or available, an alternative benchmark rate plus a margin.
(3)We and/or CB International are the borrower under the $2,250.0 million revolving credit facility with a maturity date of April 14, 2027. Includes a sub-facility for letters of credit of up to $200.0 million.
We and our subsidiaries are subject to covenants that are contained in the 2022 Credit Agreement, including those restricting the incurrence of additional subsidiary indebtedness, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions, and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net leverage ratio.
Commercial paper program
We have a commercial paper program which provides for the issuance of up to an aggregate principal amount of $2.25 billion of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under our 2022 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility. Information with respect to our outstanding commercial paper borrowings is as follows:
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| November 30, 2024 | | February 29, 2024 |
(in millions) | | | |
Outstanding borrowings (1) | $ | 890.1 | | | $ | 241.4 | |
Weighted average annual interest rate | 5.0 | % | | 5.7 | % |
Weighted average remaining term | 13 days | | 4 days |
(1)Outstanding commercial paper borrowings are net of unamortized discount.
Debt payments
As of November 30, 2024, the required principal repayments under long-term debt obligations (excluding unamortized debt issuance costs and unamortized discounts of $49.2 million and $21.4 million, respectively) for the remaining three months of Fiscal 2025 and for each of the five succeeding fiscal years and thereafter are as follows:
| | | | | |
(in millions) | |
Fiscal 2025 | $ | 1.0 | |
Fiscal 2026 | 1,404.1 | |
Fiscal 2027 | 603.1 | |
Fiscal 2028 | 1,801.3 | |
Fiscal 2029 | 900.0 | |
Fiscal 2030 | 800.0 | |
Thereafter | 5,250.1 | |
| $ | 10,759.6 | |
9. INCOME TAXES
Our effective tax rate for the nine months ended November 30, 2024, was 30.7% of tax benefit compared with 21.3% of tax expense for the nine months ended November 30, 2023. Our effective tax rate for the three months ended November 30, 2024, and November 30, 2023, was 6.6% and 20.0%, respectively.
For the nine months ended November 30, 2024, our effective tax rate did not approximate the federal statutory rate of 21% largely due to (i) the benefit of lower effective tax rates applicable for foreign businesses, (ii) a net income tax benefit recognized as a result of the resolution of various tax examinations and assessments
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Constellation Brands, Inc. Q3 FY 2025 Form 10-Q | #WORTHREACHINGFOR I 17 |
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FINANCIAL STATEMENTS | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | |
related to prior periods, and (iii) a net income tax benefit following the reversal of valuation allowances for capital loss carryforwards in connection with the SVEDKA Divestiture, partially offset by a net income tax impact resulting from the non-deductible portion of the Wine and Spirits goodwill impairment.
For the three months ended November 30, 2024, our effective tax rate did not approximate the federal statutory rate of 21% largely due to (i) a net income tax benefit following the reversal of valuation allowances for capital loss carryforwards in connection with the SVEDKA Divestiture and (ii) the benefit of lower effective tax rates applicable for foreign businesses.
For the nine months and three months ended November 30, 2023, our effective tax rate approximated the federal statutory rate of 21% as the increase in the valuation allowance related to our investment in Canopy was largely offset by the benefit of lower effective tax rates applicable to our foreign businesses.
The Organization for Economic Cooperation and Development introduced a framework under Pillar Two which includes a 15% global minimum tax rate. Many jurisdictions in which we do business have started to enact laws implementing Pillar Two. We are monitoring these developments and currently do not believe these rules will have a material impact on our financial condition and/or consolidated results.
10. DEFERRED INCOME TAXES AND OTHER LIABILITIES
The major components of deferred income taxes and other liabilities are as follows:
| | | | | | | | | | | |
| November 30, 2024 | | February 29, 2024 |
(in millions) | | | |
Operating lease liability | $ | 540.4 | | | $ | 588.7 | |
Unrecognized tax benefit liabilities | |