Annual report pursuant to Section 13 and 15(d)

Acquisitions, Divestitures, and Business Transformation

v3.21.1
Acquisitions, Divestitures, and Business Transformation
 12 Months Ended
Feb. 28, 2021
Business Combinations [Abstract]  
ACQUISITIONS, DIVESTITURES, AND BUSINESS TRANSFORMATION ACQUISITIONS, DIVESTITURES, AND BUSINESS TRANSFORMATION
Acquisitions
Copper & Kings
In September 2020, we acquired the remaining ownership interest in Copper & Kings American Brandy Company. This acquisition included a collection of traditional and craft batch-distilled American brandies and other select spirits. The transaction primarily included the acquisition of inventory and property, plant, and equipment. The results of operations of Copper & Kings are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Empathy Wines
In June 2020, we acquired the Empathy Wines business, including the acquisition of a digitally-native wine brand which strengthens our position in the direct-to-consumer and eCommerce markets. This transaction primarily included the acquisition of goodwill, trademarks, and inventory. In addition, the purchase price for Empathy Wines includes an earn-out over five years based on performance. The results of operations of Empathy Wines are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Nelson’s Green Brier
In May 2019, we increased our ownership interest in Tennessee-based Nelson’s Green Brier to 75%, resulting in consolidation of the business and recognition of a 25% noncontrolling interest. This acquisition included a portfolio of craft bourbon and whiskey products. The fair value of the business combination was allocated primarily to goodwill, trademarks, inventory, and property, plant, and equipment. The results of operations of Nelson’s Green Brier are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

We recognized a gain of $11.8 million for the year ended February 29, 2020, related to the remeasurement of our previously held 20% equity interest in Nelson’s Green Brier to the acquisition-date fair value. This gain is included in selling, general, and administrative expenses within our consolidated results of operations.

Other acquisitions
During the year ended February 28, 2019, we completed the acquisitions of other businesses, including the Four Corners business, which included a portfolio of high-quality, dynamic, and bicultural, Texas-based craft beers, and a business in Italy, which provided additional processing and sourcing capabilities for our Italian wine portfolio. The purchase price for the Four Corners acquisition was primarily allocated to goodwill, property, plant, and equipment, and trademarks, plus an earn-out over five years based on the performance of the brands. The purchase price for the acquired business in Italy was primarily allocated to a production facility, vineyards, and inventory. The results of operations of these acquired businesses are reported in the respective segment and have been included in our consolidated results of operations from their respective date of acquisition.

Divestitures
Paul Masson Divestiture
On January 12, 2021, we sold the Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts. We received cash proceeds of $267.4 million, subject to certain post-closing adjustments. The net cash proceeds were used for general corporate purposes. Prior to the Paul Masson
Divestiture, we recorded the results of operations of our Paul Masson Grande Amber Brandy business in the Wine and Spirits segment. In connection with the Paul Masson Divestiture, we entered into a transition services agreement with Sazerac Company whereby our retained Mission Bell facility will provide certain bulk wine processing services at market rates for a period of up to three years. The following table summarizes the net gain recognized in connection with this divestiture for the year ended February 28, 2021:
(in millions)
Cash received from buyer $ 267.4 
Net assets sold (201.3)
Contract termination (4.0)
Direct costs to sell (3.2)
Gain on sale of business $ 58.9 

Wine and Spirits Divestitures
On January 5, 2021, we sold a portion of our wine and spirits business, including lower-margin, lower growth wine and spirits brands, related inventory, interests in certain contracts, wineries, vineyards, offices, and facilities. We received net cash proceeds of $538.4 million, from the Wine and Spirits Divestiture, subject to certain post-closing adjustments. In addition, we have the potential to earn an incremental $250 million of contingent consideration if certain brand performance targets are met over a two-year period after closing.

On January 5, 2021, in a separate, but related transaction with the same buyer, Gallo, we also sold the New Zealand-based Nobilo Wine brand and certain related assets. We received cash proceeds of $129.0 million, from the Nobilo Wine Divestiture, subject to certain post-closing adjustments.

In connection with the Wine and Spirits Divestitures, we entered into certain transition services agreements with Gallo whereby we provide certain cellar, package, and storage services primarily at Mission Bell. We recorded a $13.0 million liability related to the unfavorable transition services agreements, which was included in the net loss on sale of business and is being amortized over the expected term of the contracts to selling, general, and administrative expenses both within our consolidated results of operations.

The cash proceeds from the Wine and Spirits Divestitures were utilized to repay the 3.75% May 2013 Senior Notes (as defined in Note 12) and for other general corporate purposes. Prior to the Wine and Spirits Divestitures, we recorded the results of operations for this portion of our business in the Wine and Spirits segment. The following table summarizes the net loss recognized in connection with these divestitures for the year ended February 28, 2021:
(in millions)
Cash received from buyer $ 667.4 
Net assets sold (671.7)
Transition services agreements (13.0)
Direct costs to sell (8.1)
AOCI reclassification adjustments, primarily foreign currency translation (5.1)
Other (5.2)
Loss on sale of business $ (35.7)

Concentrate Business Divestiture
On December 29, 2020, we sold certain brands used in our concentrates and high-color concentrate business, and certain intellectual property, inventory, goodwill, interests in certain contracts, and assets of our concentrates and high-color concentrate business. Prior to the Concentrate Business Divestiture, we recorded the results of operations of our concentrates and high-color concentrate business in the Wine and Spirits segment.

Ballast Point Divestiture
On March 2, 2020, we sold the Ballast Point craft beer business, including a number of its associated production facilities and brewpubs. Prior to the Ballast Point Divestiture, we recorded the results of operations of
the Ballast Point craft beer business in the Beer segment. We received cash proceeds of $41.1 million, which were primarily utilized to reduce outstanding borrowings.

Black Velvet Divestiture
On November 1, 2019, we sold the Black Velvet Canadian Whisky business and the brand’s associated production facility, along with a subset of Canadian whisky brands produced at that facility, and related inventory. We received cash proceeds of $266.7 million, net of post-closing adjustments which were utilized to partially repay the 2.00% November 2017 Senior Notes (as defined in Note 12). In total, we recognized a $70.5 million net gain associated with the Black Velvet Divestiture, with $(3.6) million and $74.1 million recognized for the years ended February 28, 2021, and February 29, 2020, respectively. Prior to the Black Velvet Divestiture, we recorded the results of operations of our Black Velvet Canadian Whisky business in the Wine and Spirits segment. The following table summarizes the net gain recognized in connection with this divestiture:
(in millions)
Cash received from buyer $ 266.7 
Net assets sold (213.3)
AOCI reclassification adjustments, primarily foreign currency translation 20.9 
Direct costs to sell (3.8)
Gain on sale of business $ 70.5 

Sale of Accolade Wine Investment
In May 2018, we completed the sale of our Accolade Wine Investment. We received cash proceeds, net of direct costs to sell, of $111.7 million. This interest consisted of an investment accounted for under the cost method and AFS debt securities. We recognized net gains of $0.4 million and $99.8 million in connection with this transaction for the years ended February 29, 2020, and February 28,2019, respectively. These net gains are included in income (loss) from unconsolidated investments.

Business transformation
We have committed to a business transformation strategy which aligns our portfolio with consumer-led premiumization trends and growing segments of the Wine and Spirits and Beer markets. For the years ended February 28, 2021, and February 29, 2020, long-lived asset impairments of $24.0 million and $449.7 million were recognized, respectively. For additional information refer to Note 7.

Assets held for sale
Primarily in contemplation of the Paul Masson Divestiture, the Wine and Spirits Divestitures, the Concentrate Business Divestiture, and the Ballast Point Divestiture noted above, certain net assets met the held for sale criteria as of February 29, 2020. The carrying value of assets held for sale consisted of the following:
February 29, 2020
Beer Wine and Spirits Consolidated
(in millions)
Assets
Accounts receivable $ 2.4  $ —  $ 2.4 
Inventories 13.7  576.9  590.6 
Prepaid expenses and other 2.8  32.7  35.5 
Assets held for sale - current 18.9  609.6  628.5 
February 29, 2020
Beer Wine and Spirits Consolidated
(in millions)
Property, plant, and equipment 55.9  172.6  228.5 
Goodwill 4.7  304.3  309.0 
Intangible assets 28.2  384.0  412.2 
Equity method investments —  1.0  1.0 
Other assets 24.8  26.3  51.1 
Less: Reserve for assets held for sale (42.7) (407.0) (449.7)
Assets held for sale 70.9  481.2  552.1 
Liabilities
Accounts payable 0.2  0.6  0.8 
Other accrued expenses and liabilities 11.0  17.8  28.8 
Deferred income taxes and other liabilities 33.3  —  33.3 
Liabilities held for sale (1)
44.5  18.4  62.9 
Net assets held for sale $ 45.3  $ 1,072.4  $ 1,117.7 
(1)Liabilities held for sale are included in the Consolidated Balance Sheet as of February 29, 2020, within the respective liability line items noted above.

Wine and spirits optimization
We recognized restructuring and other strategic business development costs in connection with our business transformation strategy which aligns our portfolio with consumer-led premiumization trends within the Wine and Spirits segment as follows:
For the Years Ended
Results of Operations Location February 28,
2021		 February 29, 2020
(in millions)
Contract termination costs Cost of product sold $ 20.9  $ 20.1 
Loss on inventory write-downs Cost of product sold 4.7  102.9 
Employee termination costs Selling, general, and administrative expenses 4.1  12.5 
Other costs Selling, general, and administrative expenses 9.7  8.4 
Impairment of long-lived assets Impairment of assets held for sale 24.0  407.0 
$ 63.4  $ 550.9