Constellation Brands, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies

12 Months Ended

Feb. 29, 2020

Commitments and Contingencies Disclosure [Abstract]

Purchase commitments and contingencies

We have entered into various long-term contracts in the normal course of business for the purchase of (i) certain inventory components, (ii) property, plant, and equipment and related contractor and manufacturing services, (iii) processing and warehousing services, (iv) transportation services, and (v) certain energy requirements. As of February 29, 2020, the estimated aggregate minimum purchase commitments under these contracts are as follows:



	Type	Length of Commitment	Amount
(in millions)
Raw materials and supplies ⁽¹⁾	Packaging, grapes, hops, malts, and other raw materials	through December 2037	$	4,789.5
In-process inventories	Bulk wine and spirits	through April 2025	85.8
Contract services	Processing and warehousing services, transportation services, and energy contracts	through December 2030	657.2
Capital expenditures ⁽²⁾	Property, plant, and equipment and contractor and manufacturing services	through April 2022	459.6
Other	Finished wine case goods	through May 2029	32.6
			$	6,024.7

⁽¹⁾

Certain grape purchasing arrangements include the purchase of grape production yielded from specified blocks of a vineyard. The actual tonnage and price of grapes that we purchase will vary each year depending on certain factors, including weather, time of harvest, overall market conditions, and the agricultural practices and location of the vineyard. Amounts included herein for the estimated aggregate minimum grape purchase commitments consist of estimates for the purchase of the grapes and the implicit leases of the land. Upon adoption of the new lease guidance on March 1, 2019, certain grape purchasing arrangements classified as leases have not resulted in the recognition of right-of-use assets and lease liabilities on our balance sheet due to their variable nature.


⁽²⁾	Consists of purchase commitments entered into primarily in connection with the construction of the Mexicali Brewery, and the expansion project for the brewery located in Obregon, Sonora, Mexico (the “Obregon Brewery”).

Additionally, we have entered into various contractual arrangements with affiliates of Owens-Illinois primarily for the purchase of glass bottles used largely in our imported and craft beer portfolios. Amounts purchased under these arrangements for the years ended February 29, 2020, February 28, 2019, and February 28, 2018, were $166.6 million, $238.8 million, and $316.6 million, respectively.

Indemnification liabilities

In connection with prior divestitures, we have indemnified respective parties against certain liabilities that may arise subsequent to the divestiture. As of February 29, 2020, and February 28, 2019, these liabilities consist primarily of indemnifications related to certain income tax matters. During the year ended February 28, 2019, in connection with the sale of the Accolade Wine Investment, we were released from certain guarantees and we recognized a gain of $3.7 million as part of the net gain on the sale of this business. This net gain is included in income (loss) from unconsolidated investments. As of February 29, 2020, and February 28, 2019, the carrying amount of our indemnification liabilities was $9.1 million and $9.2 million, respectively, and is included in deferred income taxes and other liabilities. We do not expect to be required to make material payments under the indemnifications and we believe that the likelihood is remote that the indemnifications could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Legal matters

In the course of our business, we are subject to litigation from time to time. Although the amount of any liability with respect to such litigation cannot be determined, in the opinion of management, such

liability will not have a material adverse effect on our financial condition, results of operations, or cash flows.

Other

In connection with the write-down of certain bulk wine inventory as a result of smoke damage sustained during the Fall 2017 California wildfires, we have recognized total losses of $20.6 million, with $1.5 million recognized for the first quarter of fiscal 2019 and $19.1 million recognized for the fourth quarter of fiscal 2018. In the second quarter of fiscal 2020 we recovered $8.6 million from our insurance carriers and do not expect to receive any additional reimbursement.