FISCAL YEAR 2017 ANNUAL REPORT
FISCAL 2017
HIGHLIGHTS
$1.7B
Record Operating
Cash Flow
$7.3B
Record Net Sales
24%
Record Comparable
Basis EPS Growth (1)
KNOW YOUR CONSUMERS.
BE BOLD & INNOVATIVE.
LIVE YOUR VALUES.
EXECUTE FLAWLESSLY.
SUSTAIN PROFITABLE GROWTH.
BUILD SHAREHOLDER VALUE.
Dear Fellow Shareholders,
REPEAT.
The good thing about a winning strategy
Our strategy is the framework for our
is that it never gets old. We are pleased
success, but it takes much more than
to share that fiscal 2017 was yet another
just a sound plan to consistently deliver
year of record-breaking performance and
exceptional results year after year. It
unsurpassed Total Beverage Alcohol (TBA)
takes a great team, “spot on” consumer
leadership – thanks to a fierce commitment
insights, top-to-bottom innovation,
to stay true to what works. And what
high-margin brands, the resources and
works at Constellation Brands is a
expertise to leverage TBA scope and
dynamic, yet disciplined, approach to
scale, and a culture that makes it fun
sustaining profitable growth and building
and rewarding to make a difference
shareholder value.
In fiscal 2017, we achieved impressive
double-digit growth in sales and
operating cash flow. Constellation was the
#1 provider of retail dollar sales growth in
TBA, propelled by our beer, wine and spirits
brands that are top industry performers.(2)
Our powerhouse portfolio was responsible
for over 25% of TBA growth in the U.S.
– at work and in our communities. At
Constellation, we’re proud and privileged
to have all of this and more. We have
a great story to tell, and you can read
all about it in our new company profile
available at www.cbrands.com. This is
a digital version of the printed Summary
Annual Report that we have provided to
shareholders in the past.
market last year.(2) This top-line growth
Thank you for your unwavering support
was matched by equally impressive
of our company and our brands. Our
profitability driven by commercial and
business has never been stronger, and
operational excellence realized across our
the prospects across our beer, wine
businesses. This best-in-class combination
and spirits portfolio are robust and
enabled us to achieve double-digit growth
compelling. It’s a great time to be a part
in our stock price in fiscal 2017. Most
of Constellation Brands, and we’re glad
importantly we, once again, achieved
you’ve joined us on our journey to elevate
outstanding total shareholder returns for
life with every glass raised.
you, our valued investors – marking a half-
decade of truly extraordinary results. In
fact, if you’ve had stock in Constellation
since 2012, your investments have grown
by more than 700%.(3)
Sincerely,
Richard Sands
Chairman of the Board
Rob Sands
President & CEO
(1) EPS growth on a reported basis is up 45% over fiscal 2016. The comparable basis EPS growth amount contained in this letter is a non-GAAP financial measure.
See the reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure in a table following the Form 10-K
incorporated in this Annual Report.
(2) IRI and NABCA Channels, 2016
(3)Yahoo Finance; price appreciation based on closing price as of 4/23/2012 to 4/20/2017, not assuming reinvestment of dividends
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2017
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
State or other jurisdiction of
incorporation or organization
207 High Point Drive, Building 100
Victor, New York
(Address of principal executive offices)
16-0716709
(I.R.S. Employer
Identification No.)
14564
(Zip Code)
Registrant’s telephone number, including area code (585) 678-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock (par value $.01 per share)
Class B Common Stock (par value $.01 per share)
Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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 and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted 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 and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
Non-accelerated filer
(Do not check if a smaller reporting company)
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
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing sales
prices of the registrant’s Class A and Class B Common Stock as reported on the New York Stock Exchange as of the last business day of the
registrant’s most recently completed second fiscal quarter was $28,045,135,841.
The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of April 21, 2017, is
set forth below:
Class
Class A Common Stock, par value $.01 per share
Class B Common Stock, par value $.01 per share
Class 1 Common Stock, par value $.01 per share
Number of Shares Outstanding
171,447,198
23,345,727
7,720
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement of Constellation Brands, Inc. to be issued for the Annual Meeting of Stockholders which is expected to be held July 18,
2017 is incorporated by reference in Part III to the extent described therein.
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
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This Annual Report on Form 10-K 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 our control, which could
cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. All
statements other than statements of historical fact included in this Annual Report on Form 10-K, including without
limitation (I) the statements under Item 1 “Business” and Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” regarding (i) our business strategy, future operations, future financial position,
expected effective tax rates and anticipated tax liabilities, prospects, plans and objectives of management, including the
duration of reinvestment of earnings of certain foreign subsidiaries, (ii) information concerning expected or potential
actions of third parties, including potential changes to international trade agreements, tariffs, taxes and other
governmental rules and regulations, (iii) information concerning the future expected balance of supply and demand
for our products, (iv) timing and source of funds for operating activities, (v) the manner, timing and duration of the
share repurchase program and source of funds for share repurchases, and (vi) the amount and timing of future
dividends, (II) the statements regarding our beer operations expansion activities, including Mexicali Brewery
construction, Obregon Brewery optimization, and the expansions of the Nava Brewery and glass plant, including
anticipated costs and timeframes for completion and (III) the projections regarding the Canadian Divestiture and the
Obregon Brewery acquisition are forward-looking statements. When used in this Annual Report on Form 10-K, the
words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. All forward-looking statements speak only
as of the date of this Annual Report on Form 10-K. We undertake no obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or otherwise. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to be correct. In addition to the risks and uncertainties of ordinary business operations and
conditions in the general economy and markets in which we compete, our forward-looking statements contained in this
Annual Report on Form 10-K are also subject to the risk and uncertainty that (i) the actual balance of supply and
demand for our products will vary from current expectations due to, among other reasons, actual raw material supply,
actual shipments to distributors and actual consumer demand, (ii) the actual demand for our products will vary from
current expectations due to, among other reasons, actual shipments to distributors and actual consumer demand,
(iii) the amount and timing of and source of funds for any share repurchases may vary due to market conditions, our
cash and debt position, the impact of the beer operations expansion activities, and other factors as determined by
management from time to time, (iv) the amount and timing of future dividends may differ from our current expectations
if our ability to use cash flow to fund dividends is affected by unanticipated increases in total net debt, we are unable to
generate cash flow at anticipated levels, or we fail to generate expected earnings, (v) the timeframe and actual costs
associated with the beer operations expansion activities may vary from management’s current expectations due to
market conditions, our cash and debt position, receipt of all required regulatory approvals by the expected dates and
on the expected terms and other factors as determined by management, and (vi) the actual net gain realized and
income taxes paid in connection with the Canadian Divestiture may vary from management’s estimates. Additional
important factors that could cause actual results to differ materially from those set forth in or implied by our forward-
looking statements contained in this Annual Report on Form 10-K are those described in Item 1A “Risk Factors” and
elsewhere in this report and in our other filings with the Securities and Exchange Commission.
Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to
Constellation Brands, Inc. and its subsidiaries. All references to “net sales” refer to gross sales less promotions,
returns and allowances, and excise taxes consistent with the Company’s method of classification. All references to
“Fiscal 2017,” “Fiscal 2016” and “Fiscal 2015” refer to the Company’s fiscal year ended the last day of February of
the indicated year. All references to “Fiscal 2018” refer to our fiscal year ending February 28, 2018. All references to
“$” are to U.S. dollars and all references to “C$” are to Canadian dollars. Unless otherwise defined herein, refer to
the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for the definition
of capitalized terms used herein.
Market positions and industry data discussed in this Annual Report on Form 10-K are as of calendar 2016 and
have been obtained or derived from industry and government publications and our estimates. The industry and
government publications include: Beer Marketers Insights; Beverage Information Group; Impact Databank Review
and Forecast; International Wine and Spirits Research (IWSR); IRI; and National Alcohol Beverage Control
Association. We have not independently verified the data from the industry and government publications. Unless
otherwise noted, all references to market positions are based on equivalent unit volume.
Item 1. Business.
Introduction
PART I
We are an international producer and marketer of beer, wine and spirits with operations in the U.S., Mexico,
New Zealand, Italy and Canada and more than 100 brands in our portfolio. In the U.S., we are the largest multi-
category supplier (beer, wine and spirits) (“Multi-category Supplier”) of beverage alcohol. We are the third-largest
beer company in the U.S. market and the world’s leading premium wine company. Many of our products are
recognized as leaders in their respective categories. This, combined with our strong market positions, makes us a
supplier of choice to many of our customers, who include wholesale distributors, retailers and on-premise locations.
Our vision is to elevate life with every glass raised and our mission is to build brands that people love. We
are committed to brand building, our trade partners, the environment, our investors and to consumers around the
world who choose our products when celebrating big moments or enjoying quiet ones.
Our key values are:
•
•
•
•
•
people;
customer focus;
entrepreneurship;
quality; and
integrity.
The Company is a Delaware corporation incorporated on December 4, 1972, as the successor to a business
founded in 1945. We have approximately 8,700 employees located primarily in the U.S. and Mexico, with our
corporate headquarters located in Victor, New York. We conduct our business through entities we wholly own as
well as through a variety of joint ventures and other entities.
Strategy
Our overall strategy is to sustain profitable growth and build shareholder value. We position our portfolio
to benefit from industry premiumization trends, which we believe will continue to result in faster growth rates in the
high-end of the beer, wine and spirits categories.
Certain key U.S. industry trends include:
•
•
•
high-end beer (led by imported and craft) growing faster than total beer;
growth in U.S. per capita consumption of wine and spirits and volume of premium and above wine and
spirits growing faster than value-priced wine and spirits; and
consolidation of suppliers, wholesalers and retailers.
To capitalize on these trends, become more competitive and grow our business, we have generally
employed a strategy focused on a combination of organic growth and acquisitions, with an increasing focus on the
higher-growth, higher-margin premium and above categories of the beverage alcohol industry. Key elements of our
strategy include:
•
•
•
•
•
•
leveraging our leading position in total beverage alcohol and our scale with wholesalers and retailers to
expand distribution of our product portfolio and cross promotional opportunities;
strengthening relationships with wholesalers and retailers by providing consumer and beverage alcohol
insights;
investing in brand building activities;
positioning ourselves for success with consumer-led innovation capabilities;
realizing operating efficiencies through expanding and enhancing production capabilities and
maximizing asset utilization; and
developing employees to enhance performance in the marketplace.
1
In the beer business, we completed the Beer Business Acquisition in June 2013, which solidified our
position in the U.S. beer market over the long-term; diversified our profit base and enhanced our margins, results of
operations and operating cash flow; and provided new avenues for growth. Since completing this transformational
acquisition, we have made capital investments and acquisitions to increase beer production capacity to secure
independence from a supply standpoint and to support the growth of the business. We enhanced our position in the
high-end beer segment with the acquisition of Ballast Point, a highly-awarded craft brewer, which provided us with
a high-growth premium platform to compete in the growing, emerging national craft beer category.
In our wine and spirits business, we have acquired higher-growth, higher-margin premium and above wine
brands including Meiomi, Prisoner and Charles Smith wine brands, and divested the lower-margin Canadian wine
business, as part of our efforts to increase our mix of premium and above brands, improve margins and create
operating efficiencies. In addition, we have added high-growth, high-end brands to our spirits portfolio through the
acquisitions of Casa Noble and High West.
For further information on our strategy, see Management’s Discussion and Analysis of Financial Condition
and Results of Operations under Item 7 of this Annual Report on Form 10-K (“MD&A”).
Acquisitions, Investments and Divestitures
As part of our strategy to improve margins, enhance production capabilities and keep an increased focus on
the higher-growth, higher-margin premium and above categories of the beverage alcohol industry, we have
completed the following acquisitions, investments and divestitures:
Transaction
Beer Segment
Obregon Brewery acquisition
Ballast Point acquisition
Glass production plant
acquisition through joint
venture with Owens-Illinois
Date
December
2016
December
2015
December
2014
Beer Business Acquisition
June 2013
Strategic Contribution
Provided immediate functioning brewery capacity to support our fast-
growing, high-end Mexican beer portfolio and flexibility for future
innovation initiatives; enabled us to become fully independent from an
interim supply agreement with Modelo.
Provided a high-growth premium platform to compete in the growing,
emerging national craft beer category; further strengthened our position in
the high-end of the U.S. beer market.
State-of-the-art glass production plant located adjacent to our Nava Brewery
in Mexico; solidified our long-term glass sourcing strategy under favorable
terms.
Provided complete, independent control of our U.S. commercial beer
business, the state-of-the-art Nava Brewery and the exclusive perpetual brand
rights to import, market and sell Corona and certain other Mexican beer
brands in the U.S. market; solidified our position in the U.S. beer market for
the long term; made us the third-largest brewer and seller of beer for the U.S.
market; combined with our strong position in wine and spirits, solidified us
as the largest Multi-category Supplier of beverage alcohol in the U.S.
Wine and Spirits Segment
Canadian Divestiture
Charles Smith acquisition
High West acquisition
Prisoner acquisition
Meiomi acquisition
Casa Noble acquisition
December
2016
October
2016
October
2016
April 2016
August
2015
September
2014
Divestiture of the lower-margin Canadian wine business.
Collection of five fast-growing, high-quality super and ultra-premium
Washington State wine brands; strong consumer affinity and demand.
Portfolio of distinctive, award-winning, fast-growing and high-end craft
whiskeys and other select spirits.
Portfolio of five fast-growing, higher-margin, super-luxury wine brands;
strengthened our position in the super-luxury wine category.
Higher-margin, luxury growth brand; further strengthened our position in the
U.S. pinot noir category.
Fast-growing, higher-margin, super-premium tequila business; complements
our Mexican beer portfolio; further strengthened both our on and off-premise
presence as tequila and Mexican beer share similar target consumers and
drinking occasions.
2
For further information about our Fiscal 2017, Fiscal 2016 and Fiscal 2015 transactions, refer to (i) MD&A
and (ii) Note 2 of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on
Form 10-K (“Notes to the Financial Statements”).
Business Segments
We report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate
Operations and Other. The business segments reflect how our operations are managed, how resources are allocated,
how operating performance is evaluated by senior management and the structure of our internal financial reporting.
We report net sales in two reportable segments, as follows:
For the Year
Ended
February 28,
2017
% of
Net Sales
For the Year
Ended
February 29,
2016
% of
Net Sales
For the Year
Ended
February 28,
2015
% of
Net Sales
$
4,229.3
57.7% $
3,622.6
55.3% $
3,188.6
52.9%
2,739.3
362.9
3,102.2
7,331.5
37.4%
4.9%
42.3%
$
2,591.4
334.4
2,925.8
6,548.4
39.6%
5.1%
44.7%
$
2,523.4
316.0
2,839.4
6,028.0
41.9%
5.2%
47.1%
(in millions)
Beer
Wine and Spirits:
Wine
Spirits
Total Wine and Spirits
Consolidated Net Sales
$
Beer Segment
We are the leader in the high-end segment of the U.S. beer market. We sell a number of brands in the
import and craft beer categories.
Within the imported beer category, we have the exclusive right to import, market and sell these Mexican
beer brands in all 50 states of the U.S.:
• Corona Extra
• Corona Light
• Modelo Especial
• Modelo Negra
• Modelo Chelada
• Pacifico
• Victoria
In the U.S., we are the leading imported beer company and have six of the 15 top-selling imported beer
brands. Corona Extra is the best-selling imported beer and the fifth best-selling beer overall in the U.S.; Corona
Light is the leading imported light beer; and Modelo Especial is the second-largest and the fastest-growing major
imported beer brand. During Fiscal 2017, we unified the Modelo brands under the Casa Modelo brand family as
part of our effort to drive more effective cross promotion and establish a platform for future product innovation.
Additionally, we are continuing efforts focused on increasing sales penetration of products in can and draft package
formats.
Our craft beer products are primarily sold under the Ballast Point brand, which is one of the fastest-growing
major craft brands in the U.S. beer market. Ballast Point produces more than 40 different styles of beer, led by its
popular Sculpin IPA.
Since the Beer Business Acquisition, we have expanded our Nava Brewery from 10 million to 25 million
hectoliters production capacity, with additional production capacity expansion activities underway. In addition, we
are constructing a new, state-of-the-art brewery in Mexicali, Baja California, Mexico (the “Mexicali Brewery”),
3
located near California, which is our largest beer market in the U.S., and we are investing in optimization to
increase the output from our Obregon Brewery, which we acquired in December 2016. Expansion, construction and
optimization efforts continue under our Mexico Beer Expansion Projects to align with our anticipated future growth
expectations.
Total spend related to the Mexico Beer Expansion Projects is estimated to be approximately $3.9 billion
through fiscal 2021. In total, we have invested approximately $2.1 billion for the Mexico Beer Expansion Projects,
with approximately $700 million during Fiscal 2017. The majority of the remaining investment is expected to occur
primarily during the next three fiscal year periods.
Prior to the Beer Business Acquisition, we and Modelo, indirectly, each had an equal interest in Crown
Imports, which had the exclusive right to import, market and sell the Mexican Beer Brands.
Wine and Spirits Segment
We are the world’s leading premium wine company. We sell a large number of wine brands across all
categories - table wine, sparkling wine and dessert wine - and across all price points - popular, premium and luxury
categories, primarily within the $5 to $25 price range at U.S. retail - and we have a leading market position in the
U.S. Our wine portfolio is supported by grapes purchased from independent growers, primarily in the U.S. and
New Zealand, and vineyard holdings in the U.S., New Zealand and Italy.
Our wine produced in the U.S., New Zealand and Italy is primarily marketed in the U.S. In addition, we
export our wine products to Canada and other major world markets.
In our spirits business, SVEDKA Vodka is imported from Sweden and is the largest imported vodka brand
in the U.S. Black Velvet Canadian Whisky is the second-largest Canadian whisky brand in the U.S. Our high-end
spirits brands include Casa Noble tequila and High West craft whiskeys.
In the U.S., we sell 18 of the 100 top-selling table wine brands and are the leading premium wine company.
Some of our well-known wine and spirits brands sold in the U.S., which comprised our Fiscal 2017 U.S. Focus
Brands (“Focus Brands”), included:
Black Box
Clos du Bois
Estancia
Wine Brands
Mark West
Meiomi
Saved
Simi
Mount Veeder
The Dreaming Tree
Franciscan Estate
Inniskillin
Nobilo
Robert Mondavi
The Prisoner
Wild Horse
Kim Crawford
Ruffino
Spirits Brands
SVEDKA Vodka
We dedicate a large share of sales and marketing resources to our Focus Brands as they represent a majority
of our U.S. wine and spirits revenue and profitability, and generally have strong positions in their respective price
categories.
We have been increasing resources in support of product innovation as we believe this is one of the key
drivers of overall beverage alcohol category growth. In wine, we have launched varietal line extensions behind
many of our Focus Brands and introduced newer brands like Ravage, 7 Moons and Cooper & Thief. In spirits, we
have been introducing flavor extensions for SVEDKA Vodka and Paul Masson Brandy.
Corporate Operations and Other
The Corporate Operations and Other segment includes traditional corporate-related items including
executive management, corporate development, corporate finance, human resources, internal audit, investor
relations, legal, public relations and information technology.
4
Further information regarding net sales, operating income and total assets of each of our business segments
and information regarding geographic areas is set forth in Note 20 of the Notes to the Financial Statements.
Marketing and Distribution
To focus on their respective product categories, build brand equity and increase sales, our segments employ
full-time, in-house marketing, sales and customer service functions. These functions engage in a range of marketing
activities and strategies, including market research, consumer and trade advertising, price promotions, point-of-sale
materials, event sponsorship, on-premise promotions and public relations. Where opportunities exist, particularly
with national accounts in the U.S., we leverage our sales and marketing skills across the organization.
In the U.S., our products are primarily distributed by wholesale distributors, with separate distribution
networks utilized for (i) our beer portfolio and (ii) our wine and spirits portfolio, as well as state alcohol beverage
control agencies. As is the case with all other beverage alcohol companies, products sold through these agencies are
subject to obtaining and maintaining listings to sell our products in that agency’s state. State governments can affect
prices paid by consumers of our products through the imposition of taxes or, in states in which the government acts
as the distributor of our products through an alcohol beverage control agency, by directly setting the retail prices.
Trademarks and Distribution Agreements
Trademarks are an important aspect of our business. We sell products under a number of trademarks, which
we own or use under license. Throughout our segments, we also have various licenses and distribution agreements
for the sale, or the production and sale, of our products and products of third parties. These licenses and distribution
agreements have varying terms and durations.
Within the Beer segment, we have an exclusive sub-license to use trademarks related to our Mexican beer
brands in the U.S. This sub-license agreement is perpetual. Prior to the Beer Business Acquisition, Crown Imports
had exclusive importation agreements with the suppliers of certain imported beer products and had an exclusive
renewable sub-license to use certain trademarks related to the imported beer brands in the U.S.
Competition
The beverage alcohol industry is highly competitive. We compete on the basis of quality, price, brand
recognition and distribution strength. Our beverage alcohol products compete with other alcoholic and non-
alcoholic beverages for consumer purchases, as well as shelf space in retail stores, restaurant presence and
wholesaler attention. We compete with numerous multinational producers and distributors of beverage alcohol
products, some of which have greater resources than we do. Our principal competitors include:
Beer
Wine
Anheuser-Busch InBev, Molson Coors, Heineken, Pabst Brewing Company, The Boston Beer Company
E&J Gallo Winery, The Wine Group, Trinchero Family Estates, Treasury Wine Estates, Ste. Michelle Wine
Estates, Deutsch Family Wine & Spirits, Jackson Family Wines
Spirits
Diageo, Beam Suntory, Brown-Forman, Sazerac Company, Pernod Ricard
Production
For Fiscal 2017, approximately 80% of our Mexican Beer Brands requirements were produced by our Nava
Brewery, which is located in Mexico, approximately 10 miles from the Texas border. The current capacity of the
Nava Brewery is 25 million hectoliters. We intend to expand the Nava Brewery’s capacity to 27.5 million
hectoliters production capacity. Additionally, the construction of the Mexicali Brewery, which will also be located
in Mexico, approximately 10 miles from the California border, will initially be built to provide 5 million hectoliters
production capacity with the ability to scale to 20 million hectoliters production capacity in the future.
5
Previously, to meet our beer supply requirements above the original 10 million hectoliter Nava Brewery
production capacity, we entered into a three-year interim supply agreement with Modelo in June 2013. This
agreement was initially extended for one additional year to June 2017. However, the purchase of the Obregon
Brewery enabled us to become fully independent from this interim supply agreement, which was terminated at the
time of this acquisition.
We currently operate five facilities in the greater San Diego, California area for the production of our
Ballast Point brand, including Miramar, which serves as the primary production site for the brand. This facility was
built in 2014 and may be expanded to accommodate future growth. Additionally, we are building a Ballast Point
brewery in Daleville, Virginia.
In the U.S., we operate 18 wineries using many varieties of grapes grown principally in the Napa, Sonoma,
Monterey and San Joaquin regions of California. We also operate four wineries in New Zealand and five wineries
in Italy. Grapes are crushed at most of our wineries and stored as wine until packaged for sale under our brand
names or sold in bulk. The inventories of wine are usually at their highest levels during and after the crush of each
year’s grape harvest, and are reduced prior to the subsequent year’s crush. Wine inventories are usually at their
highest levels in September through November in the U.S. and Italy, and in March through May in New Zealand.
Our Canadian whisky requirements are produced and aged at our Canadian distillery in Lethbridge, Alberta.
We currently operate two facilities in the U.S. for the production of our High West whiskey brand. The
requirements for grains and bulk spirits used in the production of our spirits are purchased from various suppliers.
Certain of our wines and spirits must be aged for more than one year up to multiple years. Therefore, our
inventories of wines and spirits may be larger in relation to sales and total assets than in many other businesses.
Sources and Availability of Production Materials
The principal components in the production of our craft and Mexican beer brands include water;
agricultural products, such as yeast and grains; and packaging materials, which include glass, aluminum and
cardboard.
For our Mexican beer brands, packaging materials represent the largest cost component of production, with
glass bottles representing the largest cost component of our packaging materials. In Fiscal 2017, the package format
mix of our Mexican beer volume sold in the U.S. was 72% glass bottles, 26% aluminum cans and 2% in stainless
steel kegs.
The Nava Brewery and the Obregon Brewery receive water originating from aquifers. We believe we have
adequate access to water to support the breweries’ on-going requirements, as well as future requirements after the
completion of planned expansion and optimization activities.
As part of our efforts to solidify our beer glass sourcing strategy over the long-term, we formed an equally-
owned joint venture with Owens-Illinois, the world’s largest glass container manufacturer. The joint venture
acquired a state-of-the-art glass production plant that is located adjacent to our Nava Brewery in Mexico, in
December 2014. The glass plant currently has two operational glass furnaces and the joint venture intends to
increase it to four furnaces by early calendar 2018. When fully operational with four furnaces, the glass plant is
expected to supply approximately 50% of our glass requirements for the Nava Brewery. We also have long-term
glass supply agreements with other glass producers.
The principal components in the production of our wine and spirits products are agricultural products, such
as grapes and grain, and packaging materials (primarily glass).
Most of our annual grape requirements are satisfied by purchases from each year’s harvest which normally
begins in August and runs through October in the U.S. and Italy, and begins in February and runs through May in
New Zealand. We receive grapes from approximately 950 independent growers in the U.S. and approximately 125
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independent growers located primarily in New Zealand. We enter into purchase agreements with a majority of these
growers with pricing that generally varies year-to-year and is generally based on then-current market prices.
As of February 28, 2017, we owned or leased approximately 20,900 acres of land and vineyards, either fully
bearing or under development, primarily in the U.S., New Zealand and Italy. This acreage supplies only a small
percentage of our overall total grape needs for wine production. However, most of this acreage is used to supply a
large portion of the grapes used for the production of certain of our higher-end wines. We continue to consider the
purchase or lease of additional vineyards, and additional land for vineyard plantings, to supplement our grape
supply.
We believe that we have adequate sources of grape supplies to meet our sales expectations. However, when
demand for certain wine products exceeds expectations, we look to source the extra requirements from the bulk
wine markets around the world.
The distilled spirits manufactured and imported by us require various agricultural products, neutral grain
spirits and bulk spirits which we fulfill through purchases from various sources by contractual arrangement and
through purchases on the open market. We believe that adequate supplies of the aforementioned products are
available at the present time.
We utilize glass and polyethylene terephthalate (“PET”) bottles and other materials such as caps, corks,
capsules, labels, wine bags and cardboard cartons in the bottling and packaging of our wine and spirits products.
After grape purchases, glass bottle costs are the largest component of our cost of product sold. In the U.S., the glass
bottle industry is highly concentrated with only a small number of producers. We have traditionally obtained, and
continue to obtain, our glass requirements from a limited number of producers under long-term supply
arrangements. Currently, one producer supplies most of our glass container requirements for our U.S. operations.
We have been able to satisfy our requirements with respect to the foregoing and consider our sources of supply to be
adequate at this time.
Government Regulation
We are subject to a range of laws and regulations in the countries in which we operate. Where we produce
products, we are subject to environmental laws and regulations, and may be required to obtain environmental and
alcohol beverage permits and licenses to operate our facilities. Where we market and sell products, we may be
subject to laws and regulations on brand registration, packaging and labeling, distribution methods and
relationships, pricing and price changes, sales promotions, advertising and public relations. We are also subject to
rules and regulations relating to changes in officers or directors, ownership or control.
We believe we are in compliance in all material respects with all applicable governmental laws and
regulations in the countries in which we operate. We also believe that the cost of administration and compliance
with, and liability under, such laws and regulations does not have, and is not expected to have, a material adverse
impact on our financial condition, results of operations or cash flows.
Seasonality
The beverage alcohol industry is subject to seasonality in each major category. As a result, in response to
wholesaler and retailer demand which precedes consumer purchases, our beer sales are typically highest during the
first and second quarters of our fiscal year, which correspond to the Spring and Summer periods in the U.S. Our
wine and spirits sales are typically highest during the third quarter of our fiscal year, primarily due to seasonal
holiday buying.
Employees
As of February 28, 2017, we had approximately 8,700 employees. Approximately 4,600 employees were in
the U.S. and approximately 4,100 employees were outside of the U.S., primarily in Mexico. We may employ
additional workers during the grape crushing seasons. Approximately 22% of our employees are covered by
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collective bargaining agreements. Collective bargaining agreements expiring within one year cover approximately
3% of our employees. We consider our employee relations generally to be good.
Executive Officers of the Company
Information with respect to our current executive officers is as follows:
NAME
Richard Sands
Robert Sands
William F. Hackett
F. Paul Hetterich
Thomas M. Kane
David Klein
Thomas J. Mullin
William A. Newlands
Christopher Stenzel
AGE
66
58
65
54
56
53
65
58
49
OFFICE OR POSITION HELD
Chairman of the Board
President and Chief Executive Officer
Executive Vice President and Chairman, Beer Division
Executive Vice President and President, Beer Division
Executive Vice President and Chief Human Resources Officer
Executive Vice President and Chief Financial Officer
Executive Vice President and General Counsel
Executive Vice President and Chief Operating Officer
Executive Vice President and President, Wine & Spirits Division
Richard Sands, Ph.D., is the Chairman of the Board of the Company. He has been employed by the
Company in various capacities since 1979. He has served as a director since 1982. In September 1999, Mr. Sands
was elected Chairman of the Board. He served as Chief Executive Officer from October 1993 to July 2007, as
Executive Vice President from 1982 to May 1986, as President from May 1986 to December 2002 and as Chief
Operating Officer from May 1986 to October 1993. He is the brother of Robert Sands.
Robert Sands is President and Chief Executive Officer of the Company. He was appointed Chief
Executive Officer in July 2007 and appointed as President in December 2002. He has served as a director since
January 1990. Mr. Sands also served as Chief Operating Officer from December 2002 to July 2007, as Group
President from April 2000 through December 2002, as Chief Executive Officer, International from December 1998
through April 2000, as Executive Vice President from October 1993 through April 2000, as General Counsel from
June 1986 through May 2000 and as Vice President from June 1990 through October 1993. He is the brother of
Richard Sands.
William F. Hackett has served as an Executive Vice President of the Company since June 2013. Since
January 2016 he has performed the role of Chairman, Beer Division and from June 2013 through January 2016 he
performed the role of President, Beer Division. Crown Imports LLC was previously owned 50% by the Company,
and as a result of the Beer Business Acquisition, it is now a wholly-owned indirect subsidiary of the Company.
Mr. Hackett is also Chairman of Crown Imports LLC since January 2016 and before that he served as President of
Crown Imports LLC from January 2007 through January 2016. Prior to that, he was President of Barton Beers, Ltd.
(a wholly-owned indirect subsidiary of the Company now known as Constellation Beers Ltd.) having served in that
role from 1993 until January 2007. Prior to that, Mr. Hackett held several increasingly senior positions in Barton
Beers, Ltd., having joined that company in 1984.
F. Paul Hetterich has been an Executive Vice President of the Company since June 2003. Since January
2016 Mr. Hetterich has performed the role of President, Beer Division and President of Crown Imports LLC, a
wholly-owned indirect subsidiary of the Company. From January 2015 through January 2016 he performed the role
of Executive Vice President, Corporate Development & Beer Operations. From June 2011 until January 2015 he
served as Executive Vice President, Business Development and Corporate Strategy, from July 2009 until June 2011
he served as Executive Vice President, Business Development, Corporate Strategy and International and from June
2003 until July 2009 he served as Executive Vice President, Business Development and Corporate Strategy. From
April 2001 to June 2003 Mr. Hetterich served as the Company’s Senior Vice President, Corporate Development.
Prior to that, Mr. Hetterich held several increasingly senior positions in the Company’s marketing and business
development groups. Mr. Hetterich has been with the Company since 1986.
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Thomas M. Kane joined the Company in May 2013 as Executive Vice President and Chief Human
Resources Officer. Mr. Kane previously served as Senior Vice President, Human Resources and Government
Relations of Armstrong World Industries, Inc., a global producer of flooring products and ceiling systems, from
February 2012 to May 2013, he served as its Senior Vice President, Human Resources from August 2010 to
February 2012 and served as its Chief Compliance Officer from February 2011 to February 2012. Prior to that,
Mr. Kane served as Global Vice President, Human Resources for Black & Decker Power Tools, a manufacturer of
power and hand tools, from 2002 to 2010. From 1999 to 2002 Mr. Kane served as Global HR leader of GE
Specialty Materials, a large manufacturer of silicone products.
David Klein has been the Company’s Executive Vice President and Chief Financial Officer since June
2015. Prior to that, Mr. Klein served as the Company’s Senior Vice President Finance, Beer Division, having held
that position from May 2014 until June 2015. He served as the Company’s Senior Vice President and Treasurer
from April 2009 to July 2014 and assumed the additional responsibilities of Controller in October 2013, also serving
in that role to July 2014. From March 2007 to March 2009 Mr. Klein served as chief financial officer for the
Company’s former United Kingdom operations. Mr. Klein joined the Company in 2004 as Vice President of
Business Development.
Thomas J. Mullin joined the Company as Executive Vice President and General Counsel in May 2000.
Prior to joining the Company, Mr. Mullin served as President and Chief Executive Officer of TD Waterhouse Bank,
NA, a national banking association, since February 2000, of CT USA, F.S.B. since September 1998 and of CT USA,
Inc. since March 1997. He also served as Executive Vice President, Business Development and Corporate Strategy
of C.T. Financial Services, Inc. from March 1997 through February 2000. From 1985 through 1997 Mr. Mullin
served as Vice Chairman and Senior Executive Vice President of First Federal Savings and Loan Association of
Rochester, New York and from 1982 through 1985 he was a partner in the law firm of Phillips Lytle LLP.
William A. Newlands has been an Executive Vice President of the Company since he joined in January
2015 and has been the Company’s Chief Operating Officer since January 2017. From January 2016 to January 2017
he performed the role of President, Wine & Spirits Division and from January 2015 through January 2016 he
performed the role of Chief Growth Officer. Mr. Newlands served from October 2011 until August 2014 as Senior
Vice President and President, North America of Beam Inc., as Senior Vice President and President, North America
of Beam Global Spirits & Wine, Inc. from December 2010 to October 2011 and as Senior Vice President and
President, USA of Beam Global Spirits & Wine, Inc. from February 2008 to December 2010. Beam Inc., a producer
and seller of branded distilled spirits products, merged with a subsidiary of Suntory Holding Limited, a Japanese
company, in 2014. Prior to October 2011, Beam Global Spirits & Wine, Inc. was the spirits operating segment of
Fortune Brands, Inc., which was a leading consumer products company that made and sold branded consumer
products worldwide in the distilled spirits, home and security, and golf markets.
Christopher Stenzel has been the Company’s Executive Vice President and President, Wine & Spirits
Division since January 2017. Prior to that, Mr. Stenzel was Senior Vice President of Finance in the Company’s Beer
Division, having performed that role from July 2015 through January 2017, and was the Company’s Senior Vice
President, Treasurer and Controller from July 2014 through July 2015. Mr. Stenzel joined the Company with the
Company’s acquisition of Beam Wine Estates, Inc. in December 2007, serving as a Senior Vice President of Finance
in the Company’s Wine Division until July 2014. Before that, he held various financial positions of increasing
responsibility with other beverage alcohol companies.
Executive officers of the Company are generally chosen or elected to their positions annually and hold
office until the earlier of their removal or resignation or until their successors are chosen and qualified.
Company Information
Our Internet website is http://www.cbrands.com. Our filings with the Securities and Exchange Commission
(“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, are accessible free of charge at http://www.cbrands.com as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site that contains
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reports, proxy and information statements, and other information regarding issuers, such as ourselves, that file
electronically with the SEC. The Internet address of the SEC’s site is http://www.sec.gov. Also, the public may
read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-732-0330.
We have adopted a Chief Executive Officer and Senior Financial Executive Code of Ethics that specifically
applies to our chief executive officer, our principal financial officer and our controller, and is available on our
Internet site. This Chief Executive Officer and Senior Financial Executive Code of Ethics meets the requirements
as set forth in the Securities Exchange Act of 1934, Item 406 of Regulation S-K.
We also have adopted a Code of Business Conduct and Ethics that applies to all employees, directors and
officers, including each person who is subject to the Chief Executive Officer and Senior Financial Executive Code
of Ethics. The Code of Business Conduct and Ethics is available on our Internet website, together with our Global
Code of Responsible Practices for Beverage Alcohol Advertising and Marketing, our Board of Directors Corporate
Governance Guidelines and the Charters of the Board’s Audit Committee, Human Resources Committee (which
serves as the Board’s compensation committee) and Corporate Governance Committee (which serves as the Board’s
nominating committee). All of these materials are accessible on our Internet website at http://www.cbrands.com/
investors/corporate-governance. Amendments to, and waivers granted to our directors and executive officers under
our codes of ethics, if any, will be posted in this area of our website. Copies of these materials are available in print
to any shareholder who requests them. Shareholders should direct such requests in writing to Investor Relations
Department, Constellation Brands, Inc., 207 High Point Drive, Building 100, Victor, New York 14564, or by
telephoning our Investor Center at 1-888-922-2150.
The information regarding our website and its content is for your convenience only. The content of our
website is not deemed to be incorporated by reference in this report or filed with the SEC.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the following
factors which could materially affect our business, financial condition or results of operations. The risks described
below are not the only risks we face. Additional factors not presently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, cash flows, financial condition or results of
operations in future periods.
International operations, currency rate fluctuations, interest rate fluctuations and geopolitical uncertainty
Our products are produced and sold in numerous countries throughout the world, we have employees in
various countries throughout the world and we have production facilities currently in the U.S., Mexico, New
Zealand, Italy and Canada.
Risks associated with international operations, any of which could have a material adverse effect on our
business, liquidity, financial condition and results of operations, include:
•
•
•
•
•
•
•
•
changes in local political, economic, social and labor conditions;
potential disruption from socio-economic violence, including terrorism and drug-related violence;
restrictions on foreign ownership and investments or on repatriation of cash earned in countries outside
the U.S.;
changes in laws, governmental regulations and policies in the U.S. and in many countries outside the
U.S., including changes in tax laws and regulations;
import and export requirements;
currency exchange rate fluctuations;
a less developed and less certain legal and regulatory environment in some countries, which among
other things can create uncertainty with regard to liability issues;
laws regarding the enforcement of contract and intellectual property rights;
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•
•
inadequate levels of compliance with applicable anti-bribery laws, including the Foreign Corrupt
Practices Act; and
other challenges caused by distance, language and cultural differences.
Our success will depend, in part, on our ability to overcome the challenges we encounter with respect to
these factors and other matters generally affecting U.S. companies with international operations. Although we have
implemented policies and procedures designed to ensure compliance with U.S. and foreign laws and regulations,
including anti-corruption and privacy laws and regulations, there can be no assurance that our employees, business
partners or agents will not violate our policies or take action determined to be in violation of the law. Any
determination that our operations or activities did not comply with applicable U.S. or foreign laws or regulations
could result in the imposition of fines and penalties, interruptions of business, terminations of necessary licenses
and permits, and other legal and equitable sanctions.
We are also exposed to risks associated with currency fluctuations and risks associated with interest rate
fluctuations. Currency exchange rates between the U.S. dollar and foreign currencies in the markets in which we do
business have fluctuated in recent years and are likely to continue to do so in the future. We manage our exposure
to foreign currency and interest rate risks utilizing derivative instruments and other means to reduce those risks. We
could experience changes in our ability to hedge against or manage fluctuations in foreign currency exchange rates
or interest rates and, accordingly, there can be no assurance that we will be successful in reducing those risks. We
could also be affected by nationalization of our international operations, unstable governments, unfamiliar or biased
legal systems or intergovernmental disputes. These currency, economic and political uncertainties may have a
material adverse effect on our results of operations and financial condition, especially to the extent these matters, or
the decisions, policies or economic strength of our suppliers and distributors, affect our international operations.
Competition
We are in a highly competitive industry and the dollar amount and unit volume of our sales could be
negatively affected by numerous factors including:
•
•
•
•
our inability to maintain or increase prices, particularly in our beer business;
new entrants in our market or categories;
a general decline in beverage alcohol consumption; or
the decision of wholesalers, retailers or consumers to purchase a competitor’s product instead of ours.
Unit volume and dollar amount of sales could also be affected by pricing, purchasing, financing,
operational, advertising or promotional decisions made by wholesalers, state and provincial agencies, and retailers
which could affect their supply of, or consumer demand for, our products. We could also experience higher than
expected selling, general and administrative expenses if we find it necessary to increase the number of our
personnel or our advertising or marketing expenditures to maintain our competitive position or for other reasons.
Worldwide and domestic economic trends and financial market conditions
We are subject to risks associated with adverse economic conditions, including economic slowdown,
inflation, and the disruption, volatility and tightening of credit and capital markets. Unfavorable global or regional
economic conditions could adversely impact our business, liquidity, financial condition and results of operations.
Unemployment, tax increases, governmental spending cuts or a return of high levels of inflation could affect
consumer spending patterns and purchases of our products. These could also create or exacerbate credit issues, cash
flow issues and other financial hardships for us and our suppliers, distributors, retailers and consumers. The
inability of suppliers, distributors and retailers to access liquidity could impact our ability to produce and distribute
our products. We have a committed credit facility and additional liquidity facilities available to us. While to date
we have not experienced problems with accessing these facilities, to the extent that the financial institutions that
participate in these facilities were to default on their obligation to fund, those funds would not be available to us.
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Dependence on sales of our Mexican beer brands
Sales of our Mexican beer brands in the U.S. are a significant portion of our business. Accordingly, a
decline in the growth rate, amount or profitability of our sales of the Mexican beer brands in the U.S. could
adversely affect our business. Further, consumer preferences and tastes may shift away from the Mexican beer
brands, the categories in which they compete, or beer generally due to, among other reasons, changing taste
preferences, demographics or perceived value. Consequently, any material shift in consumer preferences and taste
away from the Mexican beer brands, or from the categories in which they compete, could have a material adverse
effect on our business, our financial condition and results of operations.
Supply of Mexican beer brands
In order to fulfill our current and projected Mexican beer brands product requirements, we are currently
dependent on our Nava Brewery located in Nava, Coahuila, Mexico and our Obregon Brewery located in Obregon,
Sonora, Mexico. Although we are in the process of optimizing our Obregon Brewery and constructing an additional
brewery in Mexicali, Baja California, Mexico, our Nava Brewery and our Obregon Brewery are currently our sole
source of supply for our Mexican beer brands. The Nava Brewery currently has the capacity to fill approximately
80% of our current product requirements with the balance able to be filled by our Obregon Brewery.
Our supply of Mexican beer brands is also dependent upon an adequate supply of glass bottles. We formed
the Mexican glass plant joint venture which acquired and is expanding the glass plant adjacent to our Nava Brewery
in order to increase bottle output to support increased production at our Nava Brewery.
We may not be able to satisfy all of our product supply requirements for the Mexican beer brands in the
event of a significant partial destruction or the total destruction of the Nava Brewery or the Obregon Brewery. Also,
if the contemplated Nava Brewery and glass plant expansions, Obregon Brewery optimization and Mexicali
Brewery construction activities are not completed by their targeted completion dates, we may not be able to produce
sufficient Mexican beer brands to satisfy our needs. Under such circumstances, we may be unable to obtain
Mexican beer brands at a reasonable price from another source, if at all. A significant disruption at our Nava
Brewery or our Obregon Brewery, even on a short-term basis, could impair our ability to produce and ship products
to market on a timely basis. Alternative facilities with sufficient capacity or capabilities may not readily be
available, may cost substantially more or may take a significant time to start production, any of which could
negatively affect our business and financial performance. Similarly, although we have additional sources of supply
of glass bottles, a significant partial destruction or the total destruction of the Mexican glass plant or the failure of
the joint venture to complete the glass plant expansion could impair our ability to bottle and ship our Mexican beer
products to market. Additionally, our general insurance policies may not cover certain types of catastrophes that
might affect our supply of the Mexican beer brands. A major uninsured catastrophe could result in significant
unrecoverable losses.
Expansion issues, construction issues and operational disruptions
We are currently expanding our Nava Brewery, optimizing our Obregon Brewery and constructing our
Mexicali Brewery and our joint venture with Owens-Illinois is expanding the glass plant. While these multi-million
dollar expansion and construction activities are progressing consistent with our plans, there is always the potential
risk of completion delays and cost overruns.
Expansion and optimization of current production facilities and construction of new production facilities are
subject to various regulatory and developmental risks, including but not limited to: (i) our ability to obtain timely
certificate authorizations, necessary approvals and permits from regulatory agencies and on terms that are
acceptable to us; (ii) potential changes in federal, state and local statutes and regulations, including environmental
requirements, that prevent a project from proceeding or increase the anticipated cost of the project; (iii) inability to
acquire rights-of-way or land or water rights on a timely basis on terms that are acceptable to us; and (iv) inability
to acquire the necessary energy supplies, including electricity, natural gas and diesel fuel. Any of these events could
delay the expansion, construction or optimization of our production facilities.
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Many of our production facilities, such as our breweries, wineries, distilleries and the glass plant are asset
intensive. Our profitability could be affected by operational disruption of any of our production or bottling lines or
the glass furnace. In such event we may experience an adverse effect to our business operations and profitability
due to higher maintenance charges, unexpected capital spending or product supply constraints.
Supply of quality water, agricultural and other raw materials, certain raw materials and packaging materials
purchased under short-term supply contracts, limited group of suppliers of glass bottles
The quality and quantity of water available for use is important to the supply of our agricultural raw
materials and our ability to operate our business. Water is a limited resource in many parts of the world and if
climate patterns change and droughts become more severe, there may be a scarcity of water or poor water quality
which may affect our production costs or impose capacity constraints. We are dependent on sufficient amounts of
quality water for operation of our breweries, our wineries and our distilleries, as well as to irrigate our vineyards and
conduct our other operations. The suppliers of the agricultural raw materials we purchase are also dependent upon
sufficient supplies of quality water for their vineyards and fields.
We have substantial wine operations in the state of California. Although certain areas in California have
recently experienced flooding, the state had endured an extended period of drought and instituted restrictions on
water usage. While we have undertaken a number of water saving initiatives and we currently believe we have
sufficient water available for our California vineyards and wineries, a recurrence of severe drought conditions in
California could have an adverse effect upon those operations, which effect could become more significant
depending upon actual future drought conditions. Our Nava Brewery and the glass plant receive water originating
from a mountain aquifer. Our Obregon Brewery receives its allocation of water originating from an aquifer and we
expect our Mexicali Brewery will receive an allocation of water originating from an aquifer. Although we
anticipate our breweries and the glass plant will receive water adequate to support their on-going requirements,
including as a result of the anticipated optimization and expansions, there is no guarantee that the water available to
them, our expectations as to the source of water, methods of water delivery, or their water requirements will not
change materially in the future.
Growing agricultural raw materials also requires adequate water supplies. If water available to our
operations or the operations of our suppliers becomes scarcer or the quality of that water deteriorates, we may incur
increased production costs or face manufacturing constraints which could negatively affect our business and
financial performance. Even if quality water is widely available, including to our breweries, our wineries, our
distilleries and our vineyards, water purification and waste treatment infrastructure limitations could increase costs
or constrain operation of our production facilities and vineyards. A substantial reduction in water supplies could
result in material losses of grape crops and vines or other crops, which could lead to a shortage of our product
supply. Any of these factors could have a material and adverse effect on our financial condition and results of
operations.
Our breweries, the glass plant, our wineries and our distilleries also use a large volume of agricultural and
other raw materials to produce their products. As to the Nava Brewery and the Obregon Brewery, these include
corn starch, malt, hops and water; the glass plant uses large amounts of soda ash and silica sand; the Ballast Point
breweries use large amounts of malt, hops, yeast and water, as well as corn sugars, spices and fruits; the wineries
use large amounts of grapes and water; and the distilleries use large amounts of grain and water. Our breweries, our
wineries and our distilleries all use large amounts of various packaging materials, including glass, aluminum,
cardboard and other paper products. Our production facilities, including the glass plant, also use a significant
amount of energy in their operations, including electricity, natural gas and diesel fuel. Certain raw materials and
packaging materials are purchased under contracts of varying maturities. The supply and price of raw materials,
packaging materials and energy can be affected by a number of factors beyond our control, including market
demand, global geopolitical events (especially as to their impact on crude oil prices), droughts and other weather
conditions, economic factors affecting growth decisions, inflation, plant diseases and theft. To the extent any of the
foregoing factors, including supply of goods and energy, affect the prices of ingredients or packaging or we do not
effectively or completely hedge changes in commodity price risks, or are unable to recoup costs through increases in
the price of our finished products, our financial condition and results of operations could be materially and
adversely impacted.
13
Glass bottle costs are one of our largest components of cost of product sold. We currently have a small
number of suppliers of glass bottles for our Mexican beer brands. In the U.S., glass bottles have only a small
number of producers. Currently, one producer supplies most of our glass container requirements for our U.S. wine
and spirits operations and a different supplier supplies our glass bottles for our craft beer. The inability of any of
our glass bottle suppliers to satisfy our requirements could adversely affect our business.
Catastrophic loss to wineries, production facilities or distribution systems
Throughout the years, we have consolidated several of our winery and production facility operations.
Approximately 80% of our total annual wine and spirits product volume is produced in the U.S., and three of our
largest wineries are the Woodbridge Winery in Acampo, CA, the Canandaigua Winery in Canandaigua, NY, and the
Mission Bell Winery in Madera, CA. These three facilities produce approximately 40.6 million cases (or
approximately 75% of our U.S. production) which is approximately 60% of the total annual Constellation wine and
spirits product volume globally. Currently, our entire Mexican beer brands product supply is produced at our
breweries in Nava, Coahuila, Mexico and Obregon, Sonora, Mexico.
Additionally, many of our vineyards and production and distribution facilities, such as our California
wineries, our Lodi Distribution Center in Lodi, CA, certain of our Ballast Point operations, and our planned
Mexicali Brewery are located in areas which are prone to seismic activity. If any of these vineyards and facilities
were to experience a catastrophic loss, it could disrupt our operations, delay production, shipments and revenue, and
result in potentially significant expenses to repair or replace the vineyard or facility. If such a disruption were to
occur, we could breach agreements, our reputation could be harmed, and our business and operating results could be
adversely affected. In addition, since we have consolidated certain of our operations and various production and
distribution facilities, we are more likely to experience an interruption of our operations in the event of a
catastrophic event in any one location, such as through acts of war or terrorism, fires, floods, earthquakes,
hurricanes or other natural or man-made disasters. Although we carry insurance for property damage and business
interruption, certain catastrophes are not covered by our insurance policies as we believe this to be a prudent
financial decision. Economic conditions and uncertainties in global markets may adversely affect the cost and other
terms upon which we are able to obtain insurance. If our insurance coverage is adversely affected, or to the extent
we have elected to self-insure, we may be at greater risk that we may experience an adverse impact to our financial
results. We take steps to minimize the damage that would be caused by a catastrophic event, but there is no
certainty that our efforts would prove successful. If one or more significant uninsured events occur, we could suffer
a major financial loss.
Changes to international trade agreements and tariffs, changes to accounting standards, elections or
assertions, changes to tax laws, changes to import and excise duties or other taxes or other governmental
rules and regulations, including significant additional labeling or warning requirements or limitations in the
marketing or sale of our products, and accounting for tax positions and the resolution of tax disputes
The U.S. and other countries in which we operate impose import and excise duties, tariffs, and other taxes
on beverage alcohol products in varying amounts which are subject to change. Significant increases in import and
excise duties or other taxes on beverage alcohol products could materially and adversely affect our financial
condition or results of operations. The U.S. federal budget and individual state, provincial or local municipal
budget deficits could result in increased taxes on our products, business, customers or consumers. Various
proposals to increase taxes on beverage alcohol products have been made at the federal and state or provincial level
in recent years. Many U.S. states have considered proposals to increase, and some of these states have increased,
state alcohol excise taxes. There may be further consideration by federal, state, provincial, local and foreign
governmental entities to increase taxes upon beverage alcohol products as governmental entities explore available
alternatives for raising funds during the current macroeconomic climate.
Comments made during the course of the 2016 U.S. presidential campaign and subsequent to the election
indicate that the U.S. federal government may propose changes to international trade agreements, tariffs, taxes and
other government rules and regulations. The current U.S. administration has indicated that tax reform is among its
top priorities and the U.S. Congress is reviewing and may, in the future, review tax legislation proposals. While we
14
cannot predict what changes will actually occur with respect to any of these items, such changes could affect our
business and results of operations.
In addition, federal, state, provincial, local and foreign governmental agencies extensively regulate the
beverage alcohol products industry concerning such matters as licensing, warehousing, trade and pricing practices,
permitted and required labeling, advertising and relations with wholesalers and retailers. Certain federal, state or
provincial regulations also require warning labels and signage. New or revised regulations or increased licensing
fees, requirements or taxes could also have a material adverse effect on our financial condition or results of
operations. Additionally, various jurisdictions may seek to adopt significant additional product labeling or warning
requirements or limitations on the marketing or sale of our products as a result of what they contain or allegations
that they cause adverse health effects. If these types of requirements become applicable to one or more of our major
products under current or future environmental or health laws or regulations, they may inhibit sales of such
products.
We may also make various accounting elections or assertions or change accounting elections or assertions
that we have previously made. Our accounting elections or assertions or changes to our accounting elections or
assertions are affected by various business factors which, collectively, may have an impact on our financial results
or our effective tax rate.
Additionally, significant judgment is required to determine our effective tax rate and evaluate our tax
positions. We provide for uncertain tax positions when such tax positions do not meet the recognition thresholds or
measurement criteria prescribed by applicable accounting standards. Fluctuations in federal, state, local and foreign
taxes or a change to uncertain tax positions, including related interest and penalties, may impact our effective tax
rate and our financial results. When tax matters arise, a number of years may elapse before such matters are audited
and finally resolved. Unfavorable resolution of any tax matter could increase the effective tax rate, which could
have an adverse effect on our operating results. Any resolution of a tax issue may require the use of cash in the year
of resolution.
Indebtedness
In recent years, we have incurred substantial indebtedness to finance acquisitions such as our acquisition of
Ballast Point, The Prisoner Wine Company brand portfolio, the Charles Smith wines collection, High West, and the
Obregon Brewery, fund the Beer Business Acquisition, expand our Nava Brewery and begin construction of our
Mexicali Brewery, expand the glass plant, and repurchase shares of our common stock. In the future, we may
continue to incur substantial additional indebtedness to finance acquisitions, repurchase shares of our stock and fund
other general corporate purposes, including the Nava Brewery and glass plant expansions, Obregon Brewery
optimization and Mexicali Brewery construction. We cannot assure you that our business will generate sufficient
cash flow from operations to meet all our debt service requirements, to pay dividends, to repurchase shares of our
common stock, and to fund our general corporate and capital requirements.
Our ability to satisfy our debt obligations will depend upon our future operating performance. We do not
have complete control over our future operating performance because it is subject to prevailing economic
conditions, levels of interest rates and financial, business and other factors.
Our current and future debt service obligations and covenants could have important consequences. These
consequences include, or may include, the following:
•
•
•
•
our ability to obtain financing for future working capital needs or acquisitions or other purposes may be
limited;
our funds available for operations, expansions, dividends or other distributions, or stock repurchases
may be reduced because we dedicate a significant portion of our cash flow from operations to the
payment of principal and interest on our indebtedness;
our ability to conduct our business could be limited by restrictive covenants; and
our vulnerability to adverse economic conditions may be greater than less leveraged competitors and,
thus, our ability to withstand competitive pressures may be limited.
15
Restrictive covenants in our senior credit facility and in our indentures place limits on our ability to conduct
our business. Covenants in our senior credit facility include those that restrict our ability to make acquisitions, incur
debt, encumber or sell assets, pay dividends, engage in mergers and consolidations, enter into transactions with
affiliates, make investments and permit our subsidiaries to enter into certain restrictive agreements. It additionally
contains certain financial covenants, including a net debt coverage ratio test and an interest coverage ratio test.
Covenants in our indentures are generally less restrictive than those in our senior credit facility but nevertheless,
among other things, limit our ability under certain circumstances to create liens or enter into sale-leaseback
transactions and impose conditions on our ability to engage in mergers, consolidations and sales of all or
substantially all of our assets.
These agreements also contain certain change of control provisions which, if triggered, may result in an
acceleration of our obligation to repay the debt. If we fail to comply with the obligations contained in the senior
credit facility, our existing or future indentures or other loan agreements, we could be in default under such
agreements, which could require us to immediately repay the related debt and also debt under other agreements that
may contain cross-acceleration or cross-default provisions.
Potential decline in the consumption of products we sell
We rely on consumers’ demand for our products. Consumer preferences may shift due to a variety of
factors, including changes in demographic or social trends, public health policies, and changes in leisure, dining and
beverage consumption patterns. Our continued success will require us to anticipate and respond effectively to shifts
in consumer behavior and drinking tastes. If consumer preferences were to move away from our premium brands,
including our Mexican beer brands, in any of our major markets, our financial results might be adversely affected.
While over the past several years there have been modest increases in the overall consumption of beverage
alcohol and fluctuations in per capita consumption within categories of beverage alcohol, there have been periods in
the past in which there were sequential declines in the overall per capita consumption of certain beverage alcohol
product categories in the U.S. and other markets in which we participate. A limited or general decline in
consumption in one or more of our product categories could occur in the future due to a variety of factors,
including:
•
•
•
•
•
•
•
•
a general decline in economic or geopolitical conditions;
concern about the health consequences of consuming beverage alcohol products and about drinking and
driving;
a general decline in the consumption of beverage alcohol products in on-premise establishments, such
as may result from smoking bans and stricter laws relating to driving while under the influence of
alcohol;
a decline in the consumption of beverage alcohol products as a result of consumers substituting
legalized marijuana or other similar products in lieu of our products;
consumer dietary preferences favoring lighter, lower calorie beverages such as diet soft drinks, sports
drinks and water products;
the increased activity of anti-alcohol groups;
increased federal, state, provincial and foreign excise or other taxes on beverage alcohol products and
possible restrictions on beverage alcohol advertising and marketing;
increased regulation placing restrictions on the purchase or consumption of beverage alcohol products
or increasing prices due to the imposition of duties or excise tax or changes to international trade
agreements or tariffs;
inflation; and
•
• wars, pandemics, weather and natural or man-made disasters.
In addition, our continued success depends, in part, on our ability to develop new products. The launch and
ongoing success of new products are inherently uncertain especially with regard to their appeal to consumers. The
launch of a new product can give rise to a variety of costs and an unsuccessful launch, among other things, can
affect consumer perception of existing brands and our reputation. Unsuccessful implementation or short-lived
popularity of our product innovations may result in inventory write-offs and other costs.
16
Acquisition, divestiture and joint venture strategy
We have made a number of acquisitions and divestitures and may, from time to time, acquire additional
businesses, assets or securities of companies that we believe would provide a strategic fit with our business.
Recently, these have included the Meiomi wine brand, the Ballast Point craft beer business, The Prisoner Wine
Company brand portfolio, the Charles Smith Wines collection, High West, and the Obregon Brewery, as well as
various minority investments by our Constellation Ventures function. We will need to integrate acquired businesses
with our existing operations; our overall internal control over financial reporting processes; and our financial,
operations and information systems. If the financial performance of our business, as supplemented by the assets and
businesses acquired, does not meet our expectations, it may make it more difficult for us to service our debt
obligations and our results of operations may fail to meet market expectations. We may also divest ourselves of
businesses, assets or securities of companies that we believe no longer provide a strategic fit with our business. For
example, we recently sold our Canadian wine business. We may be obligated to provide certain services on a
transitional basis to divested operations. We cannot assure you that we will realize the expected benefits of
divestitures.
We cannot assure you that we will realize the expected benefits of acquisitions or joint ventures, such as
revenue, earnings or operating efficiency, and we may not effectively assimilate the business or product offerings of
acquired companies into our business successfully or within the anticipated costs or timeframes. Complications
with on-going integration of any acquisition or joint venture, including our Obregon Brewery acquisition or the
glass plant joint venture, could result from the following circumstances, among others:
•
•
•
•
•
•
•
•
•
•
failure to implement our business plan for the combined business;
unanticipated issues in integrating, migrating or changing manufacturing, logistics, information,
communications, financial, internal control and other systems;
failure to retain key customers and suppliers;
unanticipated changes in applicable laws and regulations;
failure to retain key employees;
operating risks inherent in the acquired businesses and assets and our business;
dependency upon the operational experience of employees who are relatively new to our organization;
unanticipated issues, expenses and liabilities;
failure to realize fully anticipated cost savings, growth opportunities and other potential synergies; and
unfamiliarity with operating new locations.
Our joint venture to operate a glass plant adjacent to our Nava Brewery is fully consolidated into our
financial results and the entire output of that facility is being utilized to support our Mexican beer business and the
production at our Nava Brewery. The integration of the Mexican glass plant can be further impacted by the
following circumstances:
• we share control of the joint venture with Owens-Illinois and while Owens-Illinois has deep experience
•
running glass plants, we are not as experienced in that particular business; and
the ability of the joint venture to expand the glass plant capacity as planned in order to support the
future growth of our beer business.
If any of these circumstances were to occur with respect to any of our acquisitions, including our Beer
Business Acquisition or the joint venture’s acquisition of the glass plant, our business, financial condition and
results of operations may be negatively impacted.
We may provide various indemnifications in connection with the sale of assets or portions of our business.
Additionally, our final determinations and appraisals of the estimated fair value of assets acquired and liabilities
assumed in our acquisitions may vary materially from earlier estimates. We cannot assure you that the fair value of
acquired businesses will remain constant.
We have entered into various joint ventures and we may enter into additional joint ventures for other
purposes and with other parties. We share control of our joint ventures. We have also acquired or retained
17
ownership interests in companies which we do not control, such as investments recently made through our
Constellation Ventures function, such as our minority interests in Nelson’s Green Brier Tennessee Whiskey, The
Bardstown Bourbon Company, Catoctin Creek Distilling Company, and Crafthouse Cocktails. Our joint venture
partners or the other parties that hold the remaining ownership interests in companies which we do not control may
at any time have economic, business or legal interests or goals that are inconsistent with our goals or the goals of the
joint ventures or those companies. Our joint venture arrangements and the arrangements through which we
acquired or hold our other equity or membership interests may require us, among other matters, to pay certain costs,
to make capital investments, to fulfill alone our joint venture partners’ obligations, or to purchase other parties’
interests. Even though we share control of our glass plant joint venture, that joint venture’s financial results are
consolidated into our financial results. Our failure to adequately manage the risks associated with any acquisition,
or the failure of an entity in which we have an equity or membership interest, could adversely affect our financial
condition or our valuation of these types of investments.
We cannot assure you that any of our acquisitions, investments or joint ventures will be profitable or that
forecasts regarding acquisition, divestiture, joint venture or investment activities will be accurate.
Reliance on wholesale distributors, major retailers and government agencies
Local market structures and distribution channels vary worldwide. Within our primary market in the U.S.,
we offer a range of beverage alcohol products across the imported beer, craft beer, branded wine and spirits
categories, with separate distribution networks utilized for our imported and craft beer portfolios and our wine and
spirits portfolio. In the U.S., we sell our products principally to wholesalers for resale to retail outlets including
grocery stores, club and discount stores, package liquor stores and restaurants and also directly to government
agencies and we have entered into exclusive arrangements with certain wholesalers that generate a large portion of
our U.S. wine and spirits sales. The replacement or poor performance of our major wholesalers, retailers or
government agencies could result in temporary or longer-term sales disruptions or could materially and adversely
affect our results of operations and financial condition for a particular period. Our inability to collect accounts
receivable from our major wholesalers, retailers or government agencies could also materially and adversely affect
our results of operations and financial condition.
Our industry is being affected by the trend toward consolidation in the wholesale and retail distribution
channels, particularly in the U.S. If we are unable to adapt successfully to this changing environment, our net
income, market share and volume growth could be negatively affected. In addition, wholesalers and retailers of our
products offer products which compete directly with our products for retail shelf space, promotional support and
consumer purchases. Accordingly, wholesalers or retailers may give higher priority to products of our competitors.
Reliance upon complex information systems and third party global networks
We depend on information technology to enable us to operate efficiently and interface with customers and
suppliers, as well as maintain financial accuracy and efficiency. If we do not allocate and effectively manage the
resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction
errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual
property through security breach. We recognize that many groups on a world-wide basis have experienced increases
in cyber attacks and other hacking activity. We have dedicated internal and external resources to review and address
such threats. However, as with all large information technology systems, our systems could be penetrated by
outside parties intent on extracting confidential or proprietary information, corrupting our information, disrupting
our business processes, or engaging in the unauthorized use of strategic information about us or our employees,
customers or consumers. Such unauthorized access could disrupt our business operations and could result in the
loss of assets or revenues, litigation, remediation costs, damage to our reputation, or the failure by us to retain or
attract customers following such an event. Such events could have a material adverse effect on our business,
financial condition or results of operations.
We have outsourced various functions to third-party service providers and may outsource other functions in
the future. We rely on those third-party service providers to provide services on a timely and effective basis.
Although we believe we have robust service level agreements with such third parties, closely monitor their
18
performance and maintain contingency plans in case they are unable to perform as agreed, we do not ultimately
control their performance. Their failure to perform as expected or as required by contract could result in significant
disruptions and costs to our operations, which could materially affect our business, financial condition, operating
results and cash flow, and could impair our ability to make required filings with various reporting agencies on a
timely or accurate basis.
Damage to our reputation
Maintaining a good reputation is critical to selling our branded products. Product contamination or
tampering or the failure to maintain our standards for product quality, safety and integrity, including with respect to
raw materials, naturally occurring compounds, packaging materials or product components obtained from suppliers,
may reduce demand for our products or cause production and delivery disruptions. Although we maintain standards
for the materials and product components we receive from our suppliers, and we also audit our suppliers’
compliance with our standards, it is possible that a supplier may not provide materials or product components which
meet our required standards or may falsify documentation associated with the fulfillment of those requirements. If
any of our products becomes unsafe or unfit for consumption, is misbranded or causes injury, we may have to
engage in a product recall and/or be subject to liability and incur additional costs. A widespread product recall,
multiple product recalls, or a significant product liability judgment could cause our products to be unavailable for a
period of time, which could further reduce consumer demand and brand equity. Our reputation could be impacted
negatively by public perception, adverse publicity (whether or not valid), negative comments in social media, or our
responses relating to:
•
•
•
•
a perceived failure to maintain high ethical, social and environmental standards for all of our operations
and activities;
a perceived failure to address concerns relating to the quality, safety or integrity of our products;
our environmental impact, including use of agricultural materials, packaging, water and energy use, and
waste management; or
effects that are perceived as insufficient to promote the responsible use of alcohol.
Failure to comply with local laws and regulations, to maintain an effective system of internal controls, to
provide accurate and timely financial statement information, or to protect our information systems against service
interruptions, misappropriation of data or breaches of security, could also hurt our reputation. Damage to our
reputation or loss of consumer confidence in our products for any of these or other reasons could result in decreased
demand for our products and could have a material adverse effect on our business, financial condition and results of
operations, as well as require additional resources to rebuild our reputation, competitive position and brand equity.
Contamination
The success of our brands depends upon the positive image that consumers have of those brands.
Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the
integrity or consumer support for our brands, could adversely affect their sales. Contaminants in raw materials,
packaging materials or product components purchased from third parties and used in the production of our beer,
wine or spirits products or defects in the fermentation or distillation process could lead to low beverage quality as
well as illness among, or injury to, consumers of our products and may result in reduced sales of the affected brand
or all of our brands.
Dependence upon trademarks and proprietary rights, failure to protect our intellectual property rights
Our future success depends significantly on our ability to protect our current and future brands and products
and to defend our intellectual property rights. We have been granted numerous trademark registrations covering our
brands and products and have filed, and expect to continue to file, trademark applications seeking to protect newly-
developed brands and products. We cannot be sure that trademark registrations will be issued with respect to any of
our trademark applications. There is also a risk that we could, by omission, fail to timely renew or protect a
trademark or that our competitors will challenge, invalidate or circumvent any existing or future trademarks issued
to, or licensed by, us.
19
Intangible assets, such as goodwill and trademarks
We continue to have a significant amount of intangible assets such as goodwill and trademarks and may
acquire more intangible assets in the future. Intangible assets are subject to a periodic impairment evaluation under
applicable accounting standards. The write-down of any of these intangible assets could materially and adversely
affect our net income.
Climate change, or legal, regulatory or market measures to address climate change
Our business depends upon agricultural activity and natural resources. There has been much public
discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere may have an
adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and
natural disasters. Severe weather events, such as drought or flooding in California or a prolonged cold winter in
New York, and climate change may negatively affect agricultural productivity in the regions from which we
presently source our various agricultural raw materials. Decreased availability of our raw materials may increase
the cost of goods for our products. Severe weather events or changes in the frequency or intensity of weather events
can also disrupt our supply chain, which may affect production operations, insurance cost and coverage, as well as
delivery of our products to wholesalers, retailers and consumers.
Various diseases, pests and certain weather conditions
Various diseases, pests, fungi, viruses, drought, frosts and certain other weather conditions could affect the
quality and quantity of barley, hops, grapes and other agricultural raw materials available, decreasing the supply of
our products and negatively impacting profitability. We cannot guarantee that our grape suppliers or our suppliers
of other agricultural raw materials will succeed in preventing contamination in existing vineyards or fields or that
we will succeed in preventing contamination in our existing vineyards or future vineyards we may acquire. Future
government restrictions regarding the use of certain materials used in growing grapes or other agricultural raw
materials may increase vineyard costs and/or reduce production of grapes or other crops.
Cost of energy or environmental regulatory compliance
We have experienced increases in energy costs in the past, and energy costs could rise in the future, which
would result in higher transportation, freight and other operating costs. We may experience significant future
increases in the costs associated with environmental regulatory compliance, including fees, licenses, and the cost of
capital improvements to our operating facilities in order to meet environmental regulatory requirements. Our future
operating expenses and margins will be dependent on our ability to manage the impact of cost increases. We cannot
guarantee that we will be able to pass along increased energy costs or increased costs associated with environmental
regulatory compliance to our customers through increased prices.
In addition, we may be party to various environmental remediation obligations arising in the normal course
of our business or in connection with historical activities of businesses we acquire. Due to regulatory complexities,
uncertainties inherent in litigation and the risk of unidentified contaminants in our current and former properties, the
potential exists for remediation, liability and indemnification costs to differ materially from the costs that we have
estimated. We may incur cost associated with environmental compliance arising from events we cannot control,
such as unusually severe floods, hurricanes or earthquakes. We cannot assure you that our costs in relation to these
matters will not exceed our projections or otherwise have an adverse effect upon our business reputation, financial
condition or results of operations.
Control by the Sands Family
Our Class B Common Stock is principally held by members of the Sands family, either directly or through
entities controlled by members of the Sands family. Holders of Class A Common Stock are entitled to one vote per
share and holders of Class B Common Stock are entitled to 10 votes per share. Holders of Class 1 Common Stock
generally do not have voting rights. The stock ownership of the Sands family and entities controlled by members of
20
the Sands family represents a majority of the combined voting power of all classes of our common stock as of
April 21, 2017, voting as a single class. Consequently, the Sands family has the power to elect a majority of our
directors and approve actions requiring the approval of the stockholders of the Company voting as a single class.
Benefit cost increases and labor relations
Our profitability is affected by employee medical costs and other employee benefits. In recent years,
employee medical costs have increased due to factors such as the increase in health care costs in the U.S. These
factors are expected to continue to put pressure on our business and financial performance due to higher employee
benefit costs. Although we actively seek to control increases in employee benefit costs and encourage employees to
maintain healthy lifestyles to reduce future potential medical costs, there can be no assurance that we will succeed
in limiting future cost increases. Continued employee benefit cost increases could have an adverse effect on our
results of operations and financial condition.
We believe our subsidiaries have good working relations with their employees. However, if their
employees were to engage in a strike or other work stoppage, they could experience an operational disruption and/or
experience higher on-going labor costs which may have a material adverse effect on our results of operations and
financial condition.
Class action or other litigation relating to alcohol abuse, the misuse of alcohol, product liability, or marketing
or sales practices
There has been public attention directed at the beverage alcohol industry, which we believe is due to
concern over problems related to harmful use of alcohol, including drinking and driving, underage drinking and
health consequences from the misuse of alcohol. We also could be exposed to lawsuits relating to product liability
or marketing or sales practices. Adverse developments in lawsuits concerning these types of matters or a significant
decline in the social acceptability of beverage alcohol products that may result from lawsuits could have a material
adverse effect on our business.
Item 1B. Unresolved Staff Comments.
Not Applicable.
Item 2. Properties.
We operate breweries, wineries, distilling plants and bottling plants, many of which include warehousing
and distribution facilities on the premises, and through a joint venture, we operate a glass production plant. In
addition to our properties described below, certain of our businesses maintain office space for sales and similar
activities and offsite warehouse and distribution facilities in a variety of geographic locations.
Our corporate headquarters are located in leased offices in Victor, New York. Our segments also maintain
leased office spaces in other locations in the U.S. and internationally.
We believe that our facilities, taken as a whole, are in good condition and working order. Within the Wine
and Spirits segment, we have adequate capacity to meet our needs for the foreseeable future. Within the Beer
segment, we have adequate capacity to meet our current needs and we have undertaken activities to increase our
production capacity to address our anticipated future needs. As of February 28, 2017, our properties include the
following:
21
Beer Segment
Breweries
U.S.
Mexico
Total breweries
Glass production plant (1)
Mexico
Warehouse, distribution and other production facilities
U.S.
Mexico
Total warehouse, distribution and other production facilities
Total Beer Segment
Wine and Spirits Segment
Wineries
U.S.
California
New York
Washington
New Zealand
Italy
Total wineries
Distilleries
U.S.
Canada
Total distilleries
Warehouse, distribution and other production facilities
U.S.
Italy
Total warehouse, distribution and other production facilities
Total Wine and Spirits Segment
Owned
Leased
2
2
1
1
1
4
15
1
1
3
20
1
1
2
1
1
23
5
5
29
29
34
1
1
5
7
1
1
6
8
14
22
(1) The glass production plant in Nava, Coahuila, Mexico is owned and operated by an equally-owned joint venture
with Owens-Illinois and is located adjacent to our Nava Brewery.
Within our Wine and Spirits segment, as of February 28, 2017, we owned, leased or had interests in
approximately 13,600 acres of vineyards in California (U.S.), 6,400 acres of vineyards in New Zealand and 900
acres of vineyards in Italy.
As of February 28, 2017, our principal facilities, all of which are owned, consist of:
•
•
•
•
•
•
the Nava Brewery in Nava, Coahuila, Mexico;
the Obregon Brewery in Obregon, Sonora, Mexico;
the glass production plant in Nava, Coahuila, Mexico;
two wineries in California: the Woodbridge Winery in Acampo and the Mission Bell winery in Madera;
the Canandaigua winery in Canandaigua, New York; and
the distillery in Lethbridge, Alberta, Canada.
22
Item 3. Legal Proceedings.
In the ordinary course of their business, the Company and its subsidiaries are subject to lawsuits,
arbitrations, claims and other legal proceedings in connection with their business. Some of the legal actions include
claims for substantial or unspecified compensatory and/or punitive damages. A substantial adverse judgment or
other unfavorable resolution of these matters could have a material adverse effect on the Company’s financial
condition, results of operations and cash flows. Management believes that the Company has adequate legal
defenses with respect to the legal proceedings to which it is a defendant or respondent and that the outcome of these
pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations
or cash flows of the Company. However, the Company is unable to predict the outcome of these matters.
Regulatory Matters – The Company and its subsidiaries are in discussions with various governmental
agencies concerning matters raised during regulatory examinations or otherwise subject to such agencies’ inquiry.
These matters could result in censures, fines or other sanctions. Management believes the outcome of any pending
regulatory matters will not have a material adverse effect on the Company’s financial condition, results of
operations or cash flows. However, the Company is unable to predict the outcome of these matters.
As previously reported in the Company’s Form 10-K for the fiscal year ended February 28, 2014, the
United States District Court for the District of Columbia (“District Court”) signed the Stipulation and Order filed by
the Antitrust Division of the United States Department of Justice (“DOJ”), permitting the Company and Anheuser-
Busch InBev SA/NV (“ABI”) to consummate the Beer Business Acquisition. After expiration of the 60-day public
comment period as required under the Antitrust Procedures and Penalties Act, the DOJ moved the District Court for
entry of the Final Judgment. The Final Judgment was signed on October 21, 2013, and entered into the District
Court’s docket on October 24, 2013, without modification to the terms included in the Proposed Final Judgment.
The Company is operating in accordance with the requirements of the Final Judgment.
Item 4. Mine Safety Disclosures.
Not Applicable.
23
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Our Class A Common Stock and Class B Common Stock trade on the New York Stock Exchange®
(“NYSE”) under the symbols STZ and STZ.B, respectively. There is no public trading market for our Class 1
Common Stock. The following table sets forth, for the periods indicated, the high and low sales prices of our
Class A Common Stock and Class B Common Stock as reported on the NYSE, and cash dividends declared for
those classes of common stock. For all periods presented, the cash dividends declared for our Class 1 Common
Stock are the same as those declared for our Class B Common Stock.
Class A Common Stock
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Class B Common Stock
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal 2017
Fiscal 2016
High
Low
Dividends
High
Low
Dividends
$
$
$
$
$
$
$
$
165.81
168.68
173.55
162.48
162.68
171.00
175.50
161.91
$
$
$
$
$
$
$
$
137.85
149.26
146.90
144.00
140.00
151.60
150.91
147.95
$
$
$
$
$
$
$
$
0.40
0.40
0.40
0.40
0.36
0.36
0.36
0.36
$
$
$
$
$
$
$
$
121.92
130.42
144.60
155.68
121.57
129.84
144.36
156.00
$
$
$
$
$
$
$
$
110.45
114.49
122.35
130.23
109.24
116.22
126.32
134.76
$
$
$
$
$
$
$
$
0.31
0.31
0.31
0.31
0.28
0.28
0.28
0.28
At April 21, 2017, the number of holders of record of our Class A Common Stock, Class B Common Stock
and Class 1 Common Stock were 582, 105 and 3, respectively.
In April 2015, our Board of Directors approved the initiation of a dividend program under which we paid
quarterly cash dividends during Fiscal 2017 and Fiscal 2016. Prior to Fiscal 2016, we had not paid any cash
dividends on our common stock since our initial public offering in 1973 as we had retained all earning to finance the
development and expansion of our business. On April 5, 2017, we declared an increased regular quarterly cash
dividend of $0.52 per share of Class A Common Stock, $0.47 per share of Class B Convertible Common Stock and
$0.47 per share of Class 1 Common Stock payable on May 24, 2017, to stockholders of record of each class on
May 10, 2017.
We currently expect to continue to pay a regular quarterly cash dividend to stockholders of our common
stock in the future, but such payments are subject to approval of our Board of Directors and are dependent upon our
financial condition, results of operations, capital requirements and other factors, including those set forth under
Item 1A “Risk Factors” of this Annual Report on Form 10-K. In addition, the terms of our 2016 Credit Agreement
may restrict the payment of cash dividends on our common stock under certain circumstances. Any indentures for
debt securities issued in the future, the terms of any preferred stock issued in the future and any credit agreements
entered into in the future may also restrict or prohibit the payment of cash dividends on our common stock.
24
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
2,982,453
2,012,405
$
$
— $
150.88
149.08
—
Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Program
2,982,453
2,012,405
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Program (1) (2)
$ 846,879,288 (3)
$ 546,879,397
— $ 546,879,397
4,994,858
$
150.15
4,994,858
In April 2012, we announced that our Board of Directors authorized the repurchase of up to an aggregate amount
of $1.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2013
Authorization. The Board of Directors did not specify a date upon which the 2013 Authorization would expire. In
December 2016, we utilized the remaining $296.9 million available under the 2013 Authorization to repurchase
1,988,311 shares of Class A Common Stock at an average cost of $149.31 per share, through open market
transactions, thereby completing the 2013 Authorization. (3)
In November 2016, we announced that our Board of Directors authorized the repurchase of up to an aggregate
amount of $1.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the
2017 Authorization. The Board of Directors did not specify a date upon which the 2017 Authorization would
expire.
Period
December 1 – 31, 2016
January 1 – 31, 2017
February 1 – 28, 2017
Total
(1)
(2)
(3) Repurchases were made pursuant to a Rule 10b5-1 trading plan.
25
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with MD&A and our consolidated
financial statements and notes thereto under Item 8 of this Annual Report on Form 10-K (the “Financial
Statements”).
February 28,
2017 (1)
February 29,
2016
February 28,
2015
February 28,
2014 (2)
February 28,
2013
For the Years Ended
(in millions, except per share data)
Sales
Less – excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative
expenses (3)
Gain on sale of business
Gain on remeasurement to fair value of
equity method investment
Operating income
Earnings from unconsolidated
investments
Interest expense
Loss on write-off of debt issuance costs
Income before income taxes
Provision for income taxes
Net income
Net (income) loss attributable to
noncontrolling interests
Net income attributable to CBI
Net income per common share
attributable to CBI:
Basic – Class A Common Stock
Basic – Class B Convertible Common
Stock
Diluted – Class A Common Stock
Diluted – Class B Convertible
Common Stock
Cash dividends declared per common
share:
Class A Common Stock
Class B Convertible Common Stock
Total assets
Long-term debt, including current
maturities
$
$
$
$
$
$
$
$
$
$
8,061.6
$
(730.1)
7,331.5
(3,802.1)
3,529.4
(1,392.4)
262.4
—
2,399.4
27.3
(333.3)
—
2,093.4
(554.2)
1,539.2
(4.1)
1,535.1
7.79
7.07
7.52
6.93
1.60
1.44
18,602.4
$
$
$
$
$
$
$
$
7,223.8
(675.4)
6,548.4
(3,606.1)
2,942.3
(1,177.2)
—
—
1,765.1
51.1
(313.9)
(1.1)
1,501.2
(440.6)
1,060.6
(5.7)
1,054.9
5.42
4.92
5.18
4.79
1.24
1.12
16,965.0
$
$
$
$
$
$
$
$
$
6,672.1
(644.1)
6,028.0
(3,449.4)
2,578.6
(1,078.4)
—
—
1,500.2
21.5
(337.7)
(4.4)
1,179.6
(343.4)
836.2
3.1
839.3
4.40
4.00
4.17
3.83
$
$
$
$
$
$
5,411.0
(543.3)
4,867.7
(2,876.0)
1,991.7
(1,196.0)
—
1,642.0
2,437.7
87.8
(323.2)
—
2,202.3
(259.2)
1,943.1
—
1,943.1
10.45
9.50
9.83
9.04
$
$
$
$
$
$
— $
— $
— $
— $
3,171.4
(375.3)
2,796.1
(1,687.8)
1,108.3
(585.4)
—
—
522.9
233.1
(227.1)
(12.5)
516.4
(128.6)
387.8
—
387.8
2.15
1.96
2.04
1.87
—
—
15,093.0
$
14,302.1
$
7,638.1
8,631.6
$
7,672.9
$
7,244.1
$
6,963.3
$
3,305.4
(1)
In December 2016, we completed the Canadian Divestiture. For a detailed discussion of this transaction,
including the gain on sale of business, refer to Note 2 of the Notes to the Financial Statements.
26
(2)
(3)
In June 2013, we completed the Beer Business Acquisition. In connection with this acquisition, our preexisting
50% equity interest in Crown Imports was remeasured to its estimated fair value based upon the estimated fair
value of the acquired 50% equity interest, and a gain was recognized.
Includes impairment of intangible assets of $46.0 million for the year ended February 28, 2017, and impairment of
goodwill and intangible assets of $300.9 million for the year ended February 28, 2014. For a detailed discussion
of impairment of intangible assets for the year ended February 28, 2017, refer to Note 7 of the Notes to the
Financial Statements. For the year ended February 28, 2014, impairment of goodwill and intangible assets
represents impairment losses recorded for certain goodwill and trademarks associated with our Wine and Spirits
segment.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
This MD&A, which should be read in conjunction with our Financial Statements, provides additional
information on our businesses, current developments, financial condition, cash flows and results of operations. It is
organized as follows:
• Overview. This section provides a general description of our business, which we believe is important
in understanding the results of our operations, financial condition and potential future trends.
•
Strategy. This section provides a description of our strategy and a discussion of acquisitions and
divestitures.
• Results of operations. This section provides an analysis of our results of operations presented on a
business segment basis. In addition, a brief description of transactions and other items that affect the
comparability of the results is provided.
• Financial liquidity and capital resources. This section provides an analysis of our cash flows and our
outstanding debt and commitments. Included in the analysis of outstanding debt is a discussion of the
amount of financial capacity available to fund our ongoing operations and future commitments, as well
as a discussion of other financing arrangements.
• Critical accounting estimates. This section identifies those accounting policies that are considered
important to our results of operations and financial condition, require significant judgment and involve
significant management estimates. Our significant accounting policies, including those considered to
be critical accounting policies, are summarized in Note 1 of the Notes to the Financial Statements.
Overview
We are an international beverage alcohol company with a broad portfolio of consumer-preferred high-end
imported and craft beer brands, and premium wine and spirits brands. We are the third-largest producer and
marketer of beer for the U.S. market and the world’s leading premium wine company. We are the largest multi-
category supplier (beer, wine and spirits) of beverage alcohol in the U.S., and a leading supplier of wine from New
Zealand and Italy to North America.
Our internal management financial reporting consists of two business divisions: (i) Beer and (ii) Wine and
Spirits, and we report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate
Operations and Other. In the Beer segment, our portfolio consists of high-end imported and craft beer brands. We
have an exclusive perpetual brand license to import, market and sell in the U.S. our Mexican beer portfolio. In the
Wine and Spirits segment, we sell a large number of wine brands across all categories – table wine, sparkling wine
and dessert wine – and across all price points – popular, premium and luxury categories, primarily within the
$5 to $25 price range at U.S. retail – complemented by certain premium spirits brands. Amounts included in the
Corporate Operations and Other segment consist of costs of executive management, corporate development,
27
corporate finance, human resources, internal audit, investor relations, legal, public relations and information
technology. The amounts included in the Corporate Operations and Other segment are general costs that are
applicable to the consolidated group and are therefore not allocated to the other reportable segments. All costs
reported within the Corporate Operations and Other segment are not included in our chief operating decision
maker’s evaluation of the operating income performance of the other reportable segments. The business segments
reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by
senior management and the structure of our internal financial reporting.
Strategy
Our overall strategy is to sustain profitable growth and build shareholder value. We position our portfolio
to benefit from industry premiumization trends, which we believe will continue to result in faster growth rates in the
high-end of the beer, wine and spirits categories. We focus on developing our expertise in consumer insights and
category management as well as our strong distributor network, which provides an effective route-to-market.
Additionally, we leverage our scale across the total beverage alcohol market and our level of diversification hedges
our portfolio risk. In addition to growing our existing business, we seek targeted acquisitions of businesses that are
premium, growing, high-margin, consumer-led, have a low integration risk and/or fill a gap in our portfolio.
We strive to strengthen our portfolio of premium beer, wine and spirits brands and differentiate ourselves
through:
•
•
•
•
•
•
leveraging our leading position in total beverage alcohol and our scale with wholesalers and retailers to
expand distribution of our product portfolio and cross promotional opportunities;
strengthening relationships with wholesalers and retailers by providing consumer and beverage alcohol
insights;
investing in brand building activities;
positioning ourselves for success with consumer-led innovation capabilities;
realizing operating efficiencies through expanding and enhancing production capabilities and
maximizing asset utilization; and
developing employees to enhance performance in the marketplace.
Our business strategy in the Beer segment focuses on leading the high-end of the U.S. beer market and
includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands,
as well as new product development and innovation within the existing portfolio of brands, and continued
construction, expansion and optimization activities for our Mexico beer operations.
In connection with this strategy, we have expanded our Nava Brewery from 10 million to 25 million
hectoliters production capacity since the acquisition of the Nava Brewery. Expansion, construction and
optimization efforts continue under our Mexico Beer Expansion Projects to align with our anticipated future growth
expectations. See “Capital Expenditures” below for additional discussion.
Our business strategy in the Wine and Spirits segment is to be the leader in the premium wine category and
build a portfolio of premium spirits brands. We are investing to meet the evolving needs of consumers and building
brands through consumer insights, sensory expertise, innovation and refreshing existing brands. In this segment, we
continue to focus on the premiumization of our branded wine and spirits portfolio. We dedicate a large share of our
sales and marketing resources to our U.S. Focus Brands as they represent a majority of our U.S. wine and spirits
revenue and profitability, and generally have strong positions in their respective price categories. In markets where
it is feasible, we have a consolidated U.S. distribution network in order to obtain dedicated distributor selling
resources which focus on our U.S. wine and spirits portfolio to drive organic growth. This consolidated U.S.
distribution network currently represents about 70% of our branded wine and spirits volume in the U.S. Throughout
the terms of these contracts, we generally expect shipments on an annual basis to these distributors to essentially
equal the distributors’ shipments to retailers.
28
Marketing, sales and distribution of our products are managed on a geographic basis in order to fully
leverage leading market positions. In addition, market dynamics and consumer trends vary across each of our
markets. Within our primary market in the U.S., we offer a range of beverage alcohol products across the imported
beer, craft beer, branded wine and spirits categories, with separate distribution networks utilized for (i) our beer
portfolio and (ii) our wine and spirits portfolio. The environment for our products is competitive in each of our
markets.
We remain committed to our long-term financial model of growing sales, expanding margins and increasing
cash flow in order to achieve earnings per share growth, reduce borrowings and pay quarterly cash dividends.
Acquisitions and Divestitures
Beer Segment
Obregon Brewery
In December 2016, we acquired the Obregon Brewery for cash paid of $568.7 million, net of cash acquired,
subject to estimated working capital adjustments due to seller of $3.1 million. The transaction primarily included
the acquisition of operations; goodwill; property, plant and equipment; and inventories. This acquisition provided
us with immediate functioning brewery capacity to support our fast-growing, high-end Mexican beer portfolio and
flexibility for future innovation initiatives. It also enabled us to become fully independent from an interim supply
agreement with Modelo, which was terminated at the time of this acquisition. The results of operations of the
Obregon Brewery are reported in the Beer segment and have been included in our consolidated results of operations
from the date of acquisition.
Ballast Point Acquisition
In December 2015, we acquired Ballast Point for $998.5 million, net of cash acquired. The transaction
primarily included the acquisition of operations, goodwill, trademarks and property, plant and equipment. This
acquisition provided us with a high-growth premium platform that enables us to compete in the growing, emerging
national craft beer category and further strengthened our position in the high-end U.S. beer market. The results of
operations of Ballast Point are reported in the Beer segment and have been included in our consolidated results of
operations from the date of acquisition.
Wine and Spirits Segment
Canadian Divestiture
In December 2016, we sold our Canadian wine business, which included Canadian wine brands such as
Jackson-Triggs and Inniskillin, wineries, vineyards, offices, facilities and Wine Rack retail stores, at a transaction
value of C$1.03 billion, or $775.2 million. Accordingly, our consolidated results of operations include the results of
operations of our Canadian wine business through the date of divestiture. We received cash proceeds of $575.3
million, net of outstanding debt and direct costs to sell, subject to working capital adjustments. We will continue to
export certain of our brands into the Canadian market, which remains our largest export market. This transaction is
consistent with our strategic focus on premium, high-margin and high-growth brands. We recognized a net gain on
the sale of the business in the fourth quarter of fiscal 2017 of $262.4 million. Additionally, our current estimate of
the income taxes we expect to pay is approximately $77 million in total during Fiscal 2017 and Fiscal 2018 in
connection with the Canadian Divestiture.
29
The following table presents selected financial information included in our historical consolidated financial
statements that will no longer be part of our consolidated results after the Canadian Divestiture.
(in millions)
Net sales
Gross profit
Depreciation and amortization
Operating income
Income before income taxes
Cash flow from operating activities
Fiscal 2017
Fiscal 2016
$
$
$
$
$
$
311.2
131.2
9.1
49.8
46.6
47.2
$
$
$
$
$
$
365.1
152.9
11.1
62.5
61.9
80.0
Additionally, the impact on our historical wine and spirits segment results are the same as the impact on the
historical consolidated results for net sales, gross profit, and depreciation and amortization. However, as segment
results do not include the impact of Comparable Adjustments, amounts reported for our historical wine and spirits
segment operating income that will no longer be part of the segment’s results after the Canadian Divestiture are
$50.1 million and $63.3 million for Fiscal 2017 and Fiscal 2016, respectively.
High West Acquisition
In October 2016, we acquired High West, which primarily included the acquisition of operations, goodwill,
trademarks, inventories and property, plant and equipment. This acquisition included a portfolio of distinctive,
award-winning, fast-growing and high-end craft whiskeys and other select spirits. The results of operations of High
West are reported in the Wine and Spirits segment and have been included in our consolidated results of operations
from the date of acquisition.
Charles Smith Acquisition
In October 2016, we acquired Charles Smith, which primarily included the acquisition of goodwill,
trademarks, inventories and certain grape supply contracts. This acquisition included a collection of five super and
ultra-premium wine brands and solidified our position as the second leading supplier of Washington State wines
with this collection of fast-growing, high quality wines that have strong consumer affinity and demand. The results
of operations of Charles Smith are reported in the Wine and Spirits segment and have been included in our
consolidated results of operations from the date of acquisition.
Prisoner Acquisition
In April 2016, we acquired Prisoner, which primarily included the acquisition of goodwill, inventories,
trademarks and certain grape supply contracts. This acquisition, which included a portfolio of five fast-growing,
higher-margin, super-luxury wine brands, aligned with our portfolio premiumization strategy and strengthened our
position in the super-luxury wine category. The results of operations of Prisoner are reported in the Wine and
Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
Meiomi Acquisition
In August 2015, we acquired Meiomi, which primarily included the acquisition of goodwill, inventories, the
trademark and certain grape supply contracts. The acquisition of this higher-margin, luxury growth brand has
complemented our existing portfolio and further strengthened our position in the U.S. pinot noir category. The
results of operations of Meiomi are reported in the Wine and Spirits segment and have been included in our
consolidated results of operations from the date of acquisition.
For additional information on these acquisitions, refer to Note 2 of the Notes to the Financial Statements.
30
Results of Operations
Financial Highlights
References to organic throughout the following discussion exclude the impact of acquired brand activity in
connection with the acquisitions of Meiomi, Prisoner, High West and Charles Smith (wine and spirits), and the
acquisition of Ballast Point (beer), and divested brand activity in connection with the Canadian Divestiture, as
appropriate.
Financial Highlights for Fiscal 2017:
• Our results of operations benefited from improvements in both the Beer and Wine and Spirits
segments.
• Net sales increased 12% primarily due to strong consumer demand across both segments and net sales
from the acquired Ballast Point, Meiomi and Prisoner brands.
• Operating income increased 36% primarily due to a gain on sale of business recognized in connection
with the Canadian Divestiture, the strong consumer demand and the benefits from the acquired brands.
• Net income attributable to CBI and diluted net income per common share attributable to CBI increased
46% and 45%, respectively, primarily due to the items discussed above and an income tax benefit
driven largely by a change in our assertion regarding the indefinite reinvestment of certain foreign
earnings in the third quarter of fiscal 2017.
Comparable Adjustments
Management excludes items that affect comparability from its evaluation of the results of each operating
segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment
operating performance and segment management compensation are evaluated based on core segment operating
income (loss). As such, the performance measures for incentive compensation purposes for segment management
do not include the impact of these Comparable Adjustments.
As more fully described herein and in the related Notes to the Financial Statements, the Comparable
Adjustments that impacted comparability in our results for each period are as follows:
Fiscal 2017
Fiscal 2016
Fiscal 2015
(in millions)
Cost of product sold
Settlements of undesignated commodity derivative contracts
Net gain (loss) on undesignated commodity derivative contracts
Flow through of inventory step-up
Amortization of favorable interim supply agreement
Other losses
Total cost of product sold
$
$
23.4
16.3
(20.1)
(2.2)
—
17.4
$
29.5
(48.1)
(18.4)
(31.7)
—
(68.7)
4.4
(32.7)
—
(28.4)
(2.8)
(59.5)
31
(in millions)
Selling, general and administrative expenses
Impairment of intangible assets
Costs associated with the Canadian Divestiture and related activities
Transaction, integration and other acquisition-related costs
Restructuring and related charges
Other gains (losses)
Total selling, general and administrative expenses
Gain on sale of business
Earnings (losses) from unconsolidated investments
Loss on write-off of debt issuance costs
Comparable Adjustments
Cost of Product Sold
Undesignated Commodity Derivative Contracts
Fiscal 2017
Fiscal 2016
Fiscal 2015
(37.6)
(20.4)
(14.2)
(0.9)
(2.6)
(75.7)
262.4
(1.7)
—
$
202.4
$
—
—
(15.4)
(16.4)
—
(31.8)
—
24.5
(1.1)
(77.1) $
—
—
(30.5)
—
7.2
(23.3)
—
—
(4.4)
(87.2)
Net gain (loss) on undesignated commodity derivative contracts represents a net gain (loss) from the
changes in fair value of undesignated commodity derivative contracts. The net gain (loss) is reported outside of
segment operating results until such time that the underlying exposure is recognized in the segment operating
results. At settlement, the net gain (loss) from the changes in fair value of the undesignated commodity derivative
contracts is reported in the appropriate operating segment, allowing the results of our operating segments to reflect
the economic effects of the commodity derivative contracts without the resulting unrealized mark to fair value
volatility.
Inventory Step-Up
In connection with acquisitions, the allocation of purchase price in excess of book value for certain
inventories on hand at the date of acquisition is referred to as inventory step-up. Inventory step-up represents an
assumed manufacturing profit attributable to the acquired business prior to acquisition. Flow through of inventory
step-up was primarily associated with the Prisoner acquisition (Fiscal 2017) and Meiomi acquisition (Fiscal 2017
and Fiscal 2016).
Favorable Interim Supply Agreement
In connection with the Beer Business Acquisition, a temporary supply agreement was negotiated under a
favorable pricing arrangement for the required volume of beer needed to fulfill expected U.S. demand in excess of
the Nava Brewery’s capacity. Amortization of favorable interim supply agreement reflects amounts associated
with non-Nava Brewery product purchased from the date of acquisition which has been sold to our U.S. customers
during the respective period.
Selling, General and Administrative Expenses
Impairment of Intangible Assets
In connection with our continued focus on the premiumization of our branded wine and spirits portfolio, a
decision was made to discontinue certain small-scale, low-margin U.S. brands within our Wine and Spirits’
portfolio. As a result, trademarks with a carrying value of $37.6 million were written down to their estimated fair
value, resulting in an impairment of $37.6 million. In addition, see “Costs Associated With The Canadian
32
Divestiture and Related Activities” below for information about an additional impairment of intangible assets
recognized in connection with the Canadian Divestiture.
Costs Associated With The Canadian Divestiture and Related Activities
Costs associated with the Canadian Divestiture and related activities represent costs incurred in connection
with the evaluation of the merits of executing an initial public offering for a portion of our Canadian wine business
and net other costs incurred in connection with the sale of the Canadian wine business.
In addition, in connection with the Canadian Divestiture, trademarks with a carrying value of $8.4 million
were written down to their estimated fair value, resulting in an impairment of $8.4 million. These trademarks were
associated with certain U.S. brands within our Wine and Spirits’ portfolio sold exclusively through the Canadian
wine business, for which we expect future sales of these brands to be minimal subsequent to the Canadian
Divestiture.
Transaction, Integration and Other Acquisition-Related Costs
Transaction, integration and other acquisition-related costs consist of costs associated with our
acquisitions.
Restructuring and Related Charges
Restructuring and related charges consist primarily of employee termination benefit costs recognized in
connection with our plan initiated in May 2015 to streamline and simplify processes, and shift resources and
investment to long-term, profitable growth opportunities across the business.
Other Gains (Losses)
Other gains (losses) consist primarily of a gain from an adjustment to a certain guarantee originally
recorded in connection with a prior divestiture (Fiscal 2015) and a net gain on the sale of and the write-down of
certain property, plant and equipment (Fiscal 2015).
Gain on Sale of Business
Gain on sale of business consists of the net gain recognized in connection with the Canadian Divestiture.
Earnings (Losses) from Unconsolidated Investments
Earnings (losses) from unconsolidated investments consist primarily of dividend income from a retained
interest in a previously divested business (Fiscal 2016).
33
Fiscal 2017 Compared to Fiscal 2016
Net Sales
(in millions)
Beer
Wine and Spirits:
Wine
Spirits
Total Wine and Spirits
Consolidated net sales
Fiscal 2017
Fiscal 2016
% Increase
$
4,229.3
$
3,622.6
2,739.3
362.9
3,102.2
$
7,331.5
$
2,591.4
334.4
2,925.8
6,548.4
17%
6%
9%
6%
12%
Net sales increased $783.1 million due to increases in Beer’s net sales of $606.7 million driven
predominately by volume growth within our Mexican beer portfolio, and Wine and Spirits’ net sales of $176.4
million due largely to net sales from acquired brands and organic volume growth, partially offset by a decrease in
net sales due to the Canadian Divestiture.
Beer Segment
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales
$
4,229.3
$
3,622.6
17%
Fiscal 2017
Fiscal 2016
% Increase
Shipment volume (1)
Total
Organic
Depletion volume (1) (2)
246.4
242.3
218.0
218.0
13.0%
11.1%
10.4%
(1) Previously reported Beer shipment and depletion volumes were restated in the fourth quarter of fiscal 2017 for
an immaterial error associated with the conversion of 7-ounce Coronita case equivalents to 12-ounce case
equivalents.
(2) Depletions represent distributor shipments of our respective branded products to retail customers, based on third-
party data, including acquired brands from the date of acquisition and for the comparable prior year period.
The increase in Beer’s net sales is primarily due to (i) the volume growth within our Mexican beer
portfolio of $404.4 million, which benefited from continued consumer demand and increased marketing spend;
(ii) net sales from the acquired Ballast Point brand of $124.9 million and (iii) a favorable impact from pricing in
select markets within our Mexican beer portfolio of $92.2 million.
34
Wine and Spirits Segment
(in millions, branded product, 9-liter case equivalents)
Net sales
Fiscal 2017
Fiscal 2016
% Increase
$
3,102.2
$
2,925.8
6%
Shipment volume
Total
Organic
U.S. Domestic
Organic U.S. Domestic
U.S. Domestic Focus Brands
Organic U.S. Domestic Focus Brands
Depletion volume (2)
U.S. Domestic
U.S. Domestic Focus Brands
69.2
68.4
55.0
54.2
32.0
31.4
68.2
66.2
51.9
51.9
28.4
28.4
1.5%
3.3%
6.0%
4.4%
12.7%
10.6%
2.9%
8.9%
The increase in Wine and Spirits’ net sales is primarily due to net sales from acquired brands, primarily the
Meiomi and Prisoner brands, of $124.0 million and organic branded wine and spirits volume growth of $95.9
million, partially offset by a decrease in net sales due to the Canadian Divestiture of $62.6 million.
Gross Profit
(in millions)
Beer
Wine and Spirits
Comparable Adjustments
Consolidated gross profit
NM = Not meaningful
Fiscal 2017
Fiscal 2016
% Increase
$
$
2,151.3
$
1,360.7
17.4
3,529.4
$
1,776.0
1,235.0
(68.7)
2,942.3
21%
10%
NM
20%
Gross profit increased $587.1 million primarily due to increases in Beer of $375.3 million and Wine and
Spirits of $125.7 million. In addition, the change in Comparable Adjustments resulted in an increase in gross
profit of $86.1 million.
The increase in Beer is primarily due to (i) the volume growth and the favorable impact from pricing in
select markets within our Mexican beer portfolio of $192.9 million and $92.2 million, respectively; (ii) gross
profit from the acquired Ballast Point brand of $53.4 million and (iii) lower cost of product sold for our Mexican
beer business of $41.7 million. The lower cost of product sold is primarily due to foreign currency transactional
benefits within our Mexican beer portfolio of $54.6 million and brewery sourcing benefits of $35.3 million,
partially offset by higher depreciation expense of $46.9 million.
The increase in Wine and Spirits is primarily due to gross profit from the acquired brands of $69.4 million
and growth from the organic wine and spirits business driven primarily by branded wine and spirits volume growth
and favorable product mix shift of $48.8 million and $33.1 million, respectively; partially offset by a decrease in
gross profit due to the Canadian Divestiture of $27.2 million.
Gross profit as a percent of net sales increased to 48.1% for Fiscal 2017 compared with 44.9% for Fiscal
2016 primarily due to (i) a favorable impact from the change in Comparable Adjustments of approximately 120
35
basis points, (ii) lower cost of product sold across both segments which contributed approximately 75 basis points,
(iii) the favorable impact from Beer pricing in select markets of approximately 65 basis points and (iv) the
favorable impact from the acquired higher-margin wine and spirits brands and divestiture of the lower-margin
Canadian wine business of approximately 25 basis points.
Selling, General and Administrative Expenses
Fiscal 2017
Fiscal 2016
% Increase
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
Comparable Adjustments
$
616.9
$
559.9
139.9
75.7
511.9
508.0
125.5
31.8
Consolidated selling, general and administrative expenses
$
1,392.4
$
1,177.2
21%
10%
11%
138%
18%
Selling, general and administrative expenses increased $215.2 million due to increases in Beer of $105.0
million, Wine and Spirits of $51.9 million, Comparable Adjustments of $43.9 million and Corporate Operations
and Other of $14.4 million.
The increase in Beer is due to increases in marketing spend of $58.8 million and general and
administrative expenses of $46.2 million. The increase in marketing spend is due largely to planned investment to
support the growth of our Mexican beer portfolio. The increase in general and administrative expenses is
predominantly driven by higher compensation and benefits supporting the organic growth of the business of $22.2
million and general and administrative expenses associated with the acquired Ballast Point business of $19.7
million.
The increase in Wine and Spirits is primarily due to an increase in marketing spend of $25.7 million and
general and administrative expenses of $25.0 million. The increase in marketing spend is due largely to planned
investment to support the growth of our branded wine and spirits portfolio. The increase in general and
administrative expenses is predominantly driven by (i) higher compensation and benefits of $24.5 million and
higher consulting expenses supporting the growth of the business and (ii) an unfavorable overlap of prior year
foreign currency transaction gains with current year foreign currency transaction losses, partially offset by a
decrease in general and administrative expenses due to the Canadian Divestiture of $16.4 million.
The increase in Corporate Operations and Other is due to higher general and administrative expenses
primarily attributable to (i) higher consulting and information technology expenses, (ii) higher travel and
entertainment expenses and (iii) an unfavorable overlap of prior year foreign currency transaction gains with
current year foreign currency transaction losses. The increases in consulting, information technology and travel
and entertainment expenses are all largely attributable to supporting the growth of the business.
Selling, general and administrative expenses as a percent of net sales increased to 19.0% for Fiscal 2017 as
compared with 18.0% for Fiscal 2016. The increase is primarily attributable to the growth in Comparable
Adjustments and Corporate Operations and Other selling, general and administrative expenses, which resulted in
approximately 70 basis points of rate growth. Additionally, the growth in Wine and Spirits selling, general and
administrative expenses having exceeded the growth in Wine and Spirits net sales resulted in approximately 25
basis points to the rate growth.
36
Operating Income
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
Comparable Adjustments
Consolidated operating income
Fiscal 2017
Fiscal 2016
% Increase
(Decrease)
$
1,534.4
$
800.8
(139.9)
204.1
$
2,399.4
$
1,264.1
727.0
(125.5)
(100.5)
1,765.1
21%
10%
(11%)
NM
36%
Operating income increased $634.3 million primarily due to a favorable impact from the change in
Comparable Adjustments of $304.6 million and increases in Beer and Wine and Spirits of $270.3 million and $73.8
million, respectively. The increase for Beer is primarily attributable to growth in the Mexican beer business of
$238.9 million driven largely by the factors discussed above. The increase for Wine and Spirits is due to operating
income from the acquired brands of $63.0 million and growth from the organic wine and spirits business driven
primarily by the factors discussed above.
Earnings from Unconsolidated Investments
Earnings from unconsolidated investments decreased to $27.3 million for Fiscal 2017 from $51.1 million
for Fiscal 2016, a decrease of $23.8 million. This decrease is primarily attributable to an unfavorable impact from
the change in Comparable Adjustments for Fiscal 2017.
Interest Expense
Interest expense increased to $333.3 million for Fiscal 2017 from $313.9 million for Fiscal 2016, an
increase of $19.4 million, or 6%. This increase is primarily due to higher average borrowings of $1.0 billion and
lower average interest rates of 25 basis points, both driven largely by the $1.1 billion in new term loan facilities
under our senior credit facility for Fiscal 2017 and issuance of the December 2015 Senior Notes and December
2016 Senior Notes, partially offset by the repayment of the August 2006 Senior Notes.
Provision for Income Taxes
Our effective tax rate for Fiscal 2017 and Fiscal 2016 was 26.5% and 29.3%, respectively. For Fiscal
2017, our effective tax rate was lower than the federal statutory rate of 35% primarily due to lower effective tax
rates applicable to our foreign businesses, including a change in our assertion regarding indefinitely reinvesting
earnings of certain foreign subsidiaries and the tax effects of the Canadian Divestiture. For Fiscal 2016, our
effective tax rate was lower than the federal statutory rate primarily due to a decrease in uncertain tax positions and
lower effective tax rates applicable to our foreign businesses.
We have historically provided deferred income taxes for the repatriation to the U.S. of earnings from our
foreign subsidiaries. During the third quarter of fiscal 2017, in connection with the agreement to divest the
Canadian wine business and the ongoing Beer capacity expansion activities in Mexico, including the agreement to
acquire the Obregon Brewery, we changed our assertion regarding our ability and intent to indefinitely reinvest
undistributed earnings of certain foreign subsidiaries. Approximately $420 million of our Fiscal 2017 earnings and
all future earnings for these foreign subsidiaries are expected to be indefinitely reinvested. Accordingly, no
deferred income taxes have been provided or will be provided, respectively, on the applicable undistributed
earnings.
Because we intend to use our historical unremitted earnings generated from our existing foreign
subsidiaries to continue to support our U.S. investments in the future, our intent to repatriate those historical
37
foreign earnings remains unchanged and accordingly, we continue to provide for anticipated tax liabilities on these
amounts that are expected to be repatriated.
For additional information, refer to Note 12 of the Notes to the Financial Statements.
We expect our effective tax rate for the next fiscal year to be in the range of 21% to 23%. This includes
the assertion of our intent for certain foreign earnings to be indefinitely reinvested and a favorable benefit from our
March 1, 2017, adoption of the FASB’s amended guidance requiring the recognition of the income tax effect of
stock based compensation awards in the income statement when the awards vest or are settled. Through February
28, 2017, this amount was recognized in additional paid-in capital at the time of vesting or settlement.
For Fiscal 2017, Fiscal 2016 and Fiscal 2015, we recognized excess tax benefits of $131.4 million, $203.4
million and $78.0 million, respectively, in additional paid-in capital. These amounts may not necessarily be
indicative of future amounts that may be recognized subsequent to the adoption of this new standard, as any excess
tax benefits recognized will be dependent upon future stock prices, employee exercise behavior and applicable tax
rates. Our current range for next year’s effective tax rate includes an estimated 3% benefit related to the adoption
of this guidance. Since this new standard requires recognition of these excess tax benefits in the income statement
on a discrete basis, we anticipate that our effective tax rate will vary from quarter to quarter depending upon the
amount of excess tax benefits realized.
Net Income Attributable to CBI
As a result of the above factors, net income attributable to CBI increased to $1,535.1 million for Fiscal
2017 from $1,054.9 million for Fiscal 2016, an increase of $480.2 million, or 46%.
Fiscal 2016 Compared to Fiscal 2015
Net Sales
(in millions)
Beer
Wine and Spirits:
Wine
Spirits
Total Wine and Spirits
Consolidated net sales
Fiscal 2016
Fiscal 2015
% Increase
$
3,622.6
$
3,188.6
14%
2,591.4
334.4
2,925.8
$
6,548.4
$
2,523.4
316.0
2,839.4
6,028.0
3%
6%
3%
9%
Net sales increased $520.4 million due to increases in Beer’s net sales of $434.0 million (driven
predominately by volume growth within our Mexican beer portfolio) and Wine and Spirits’ net sales of $86.4
million (due largely to net sales from the acquired Meiomi brand).
Beer Segment
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales
$
3,622.6
$
3,188.6
14%
Fiscal 2016
Fiscal 2015
% Increase
Shipment volume (1)
Total
Organic
Depletion volume (1) (2)
218.0
217.1
195.8
195.8
11.3%
10.9%
12.3%
38
(1) Previously reported Beer shipment and depletion volumes were restated in the fourth quarter of fiscal 2017 for an
immaterial error associated with the conversion of 7-ounce Coronita case equivalents to 12-ounce case
equivalents.
(2) Depletions represent distributor shipments of our respective branded products to retail customers, based on third-
party data, including acquired brands from the date of acquisition and for the comparable prior year period.
The increase in Beer’s net sales is primarily due to (i) the volume growth within our Mexican beer
portfolio, which benefited from continued consumer demand and increased marketing spend; (ii) a favorable
impact from pricing in select markets and (iii) net sales from the acquired Ballast Point brand of $27.2 million.
Wine and Spirits Segment
(in millions, branded product, 9-liter case equivalents)
Net sales
Shipment volume
Total
Organic
U.S. Domestic
Organic U.S. Domestic
U.S. Domestic Focus Brands
Organic U.S. Domestic Focus Brands
Depletion volume (2)
U.S. Domestic
U.S. Domestic Focus Brands
Fiscal 2016
Fiscal 2015
% Increase
$
2,925.8
$
2,839.4
3%
68.2
67.6
51.9
51.3
27.8
27.2
66.0
66.0
50.5
50.5
25.6
25.6
3.3%
2.4%
2.8%
1.6%
8.6%
6.3%
1.1%
5.0%
The increase in Wine and Spirits’ net sales is primarily due to (i) net sales from the acquired Meiomi brand
of $73.8 million, (ii) organic branded wine and spirits volume growth (due partly to the overlap of a planned
reduction in inventory levels by one of our exclusive distributors in the U.S. for Fiscal 2015); and (iii) favorable
product mix shift (predominantly within the U.S. organic branded wine portfolio); partially offset by (i) an
unfavorable year-over-year foreign currency translation impact and (ii) the unfavorable overlap of the recognition
of a contractually required payment for Fiscal 2015 from the distributor noted above equal to the approximate profit
lost on the reduced sales associated with the inventory reduction.
Gross Profit
(in millions)
Beer
Wine and Spirits
Comparable Adjustments
Consolidated gross profit
Fiscal 2016
Fiscal 2015
% Increase
(Decrease)
$
$
1,776.0
1,235.0
(68.7)
2,942.3
$
$
1,465.8
1,172.3
(59.5)
2,578.6
21%
5%
(15%)
14%
Gross profit increased $363.7 million primarily due to increases in Beer of $310.2 million and Wine and
Spirits of $62.7 million. The increase in Beer is primarily due to (i) the volume growth within our Mexican beer
portfolio, (ii) the favorable impact from pricing in select markets and (iii) lower organic cost of product sold. The
increase in Wine and Spirits is primarily due to (i) gross profit from the acquired Meiomi brand, (ii) lower organic
cost of product sold and (iii) higher organic branded wine volume; partially offset by the unfavorable year-over-
year foreign currency translation impact.
39
Gross profit as a percent of net sales increased to 44.9% for Fiscal 2016 compared with 42.8% for Fiscal
2015 primarily due to (i) lower Beer and Wine and Spirits’ cost of product sold, (ii) the favorable impact from Beer
pricing in select markets and (iii) the acquisitions of Meiomi and Ballast Point.
Selling, General and Administrative Expenses
Fiscal 2016
Fiscal 2015
% Increase
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
Comparable Adjustments
$
511.9
$
508.0
125.5
31.8
448.0
498.0
109.1
23.3
Consolidated selling, general and administrative expenses
$
1,177.2
$
1,078.4
14%
2%
15%
36%
9%
Selling, general and administrative expenses increased $98.8 million primarily due to increases in Beer of
$63.9 million, Corporate Operations and Other of $16.4 million and Wine and Spirits of $10.0 million.
The increases in Beer and Wine and Spirits are both primarily attributable to an increase in marketing spend
due largely to planned investment behind our Mexican beer and branded wine and spirits portfolios. The increase in
Corporate Operations and Other is due to higher general and administrative expenses primarily attributable to (i) an
increase in compensation and benefits driven primarily by higher annual management incentive compensation
expense and an increase in employer payroll taxes related to employee equity award exercise activity during Fiscal
2016, and (ii) higher consulting and information technology expenses supporting the growth of the business.
Selling, general and administrative expenses as a percent of net sales remained relatively flat at 18.0% for
Fiscal 2016 as compared to 17.9% for Fiscal 2015.
Operating Income
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
Comparable Adjustments
Consolidated operating income
Fiscal 2016
Fiscal 2015
% Increase
(Decrease)
$
1,264.1
$
727.0
(125.5)
(100.5)
1,765.1
$
$
1,017.8
674.3
(109.1)
(82.8)
1,500.2
24%
8%
(15%)
(21%)
18%
Operating income increased $264.9 million primarily due to increases in Beer and Wine and Spirits of
$246.3 million and $52.7 million, respectively. The increases for both segments are primarily attributable to
(i) organic volume growth and lower cost of product sold and (ii) benefits from the acquisitions of Meiomi (Wine
and Spirits) and Ballast Point (Beer), partially offset by increased marketing spend supporting the growth of the
businesses.
Earnings from Unconsolidated Investments
Earnings from unconsolidated investments increased to $51.1 million for Fiscal 2016 from $21.5 million for
Fiscal 2015, an increase of $29.6 million. This increase is primarily attributable to a favorable impact from the
change in Comparable Adjustments for Fiscal 2016.
40
Interest Expense
Interest expense decreased to $313.9 million for Fiscal 2016 from $337.7 million for Fiscal 2015, a
decrease of $23.8 million, or (7%). This decrease was primarily due to lower average interest rates.
Provision for Income Taxes
Our effective tax rate for Fiscal 2016 and Fiscal 2015 was 29.3% and 29.1%, respectively. For Fiscal 2016,
our effective tax rate was lower than the federal statutory rate of 35% primarily due to a decrease in uncertain tax
positions and lower effective tax rates applicable to our foreign businesses. For Fiscal 2015, our effective tax rate
was lower than the federal statutory rate primarily due to lower effective tax rates applicable to our foreign
businesses.
Net Income Attributable to CBI
As a result of the above factors, net income attributable to CBI increased to $1,054.9 million for Fiscal 2016
from $839.3 million for Fiscal 2015, an increase of $215.6 million, or 26%.
Financial Liquidity and Capital Resources
General
Our ability to consistently generate cash flow from operating activities is one of our most significant
financial strengths. Our strong cash flows enable us to invest in our people and our brands, make appropriate
capital investments, provide a quarterly cash dividend program, and from time-to-time, repurchase shares of our
common stock and make strategic acquisitions that we believe will enhance shareholder value. Our primary source
of liquidity has been cash flow from operating activities. Our principal use of cash in our operating activities is for
purchasing and carrying inventories and carrying seasonal accounts receivable. Historically, we have used cash
flow from operating activities to repay our short-term borrowings and fund capital expenditures. We will continue
to use our short-term borrowings, including our accounts receivable securitization facilities, to support our working
capital requirements and capital expenditures.
We have maintained adequate liquidity to meet working capital requirements, fund capital expenditures and
repay scheduled principal and interest payments on debt. Absent deterioration of market conditions, we believe that
cash flows from operating activities and financing activities, primarily short-term borrowings, will provide adequate
resources to satisfy our working capital, scheduled principal and interest payments on debt, anticipated dividend
payments and anticipated capital expenditure requirements for both our short-term and long-term capital needs,
including (i) our Nava Brewery and glass production plant expansions, (ii) our Mexicali Brewery construction and
(iii) our Obregon Brewery optimization (collectively, the “Mexico Beer Expansion Projects”).
Cash Flows
(in millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Fiscal 2017
Fiscal 2016
Fiscal 2015
$
$
1,696.0
(1,461.8)
(134.8)
(5.1)
94.3
$
$
$
1,413.7
(2,207.4)
776.0
(9.3)
(27.0) $
1,081.0
(1,015.9)
(16.4)
(2.5)
46.2
41
Operating Activities
Fiscal 2017 Compared to Fiscal 2016
Net cash provided by operating activities increased $282.3 million for Fiscal 2017 driven largely by strong
cash flow from the Beer and Wine and Spirits segments. The increase in Beer was primarily due to the strong
volume growth and the favorable pricing in the Mexican beer portfolio, partially offset by (i) the timing of
collections for recoverable value-added taxes and (ii) an increase in beer inventory levels to support the continuing
growth within the Mexican beer portfolio. The increase in Wine and Spirits resulted primarily from (i) cash
collections from strong net sales in the fourth quarter of fiscal 2016, (ii) a benefit from accounts payable due
largely to timing of payments and (iii) a benefit from the timing of receipt of distributor payments for Fiscal 2017;
partially offset by an increase in wine and spirits’ inventory levels due predominantly to a larger calendar year grape
harvest for Fiscal 2017 compared with Fiscal 2016.
Fiscal 2016 Compared to Fiscal 2015
Net cash provided by operating activities increased $332.7 million for Fiscal 2016. This increase resulted
primarily from (i) higher cash provided by Beer (largely due to strong volume growth in the Mexican beer portfolio
as well as a reduction in prepaid value-added taxes predominantly attributable to timing) and (ii) lower income tax
payments. The lower income tax payments within cash flows from operating activities are primarily due to an
increase in tax benefits on employee equity award exercise and vesting activity, partially offset by an increase in
income taxes payable largely attributable to higher taxable income driven by Beer.
Investing Activities
Fiscal 2017 Compared to Fiscal 2016
Net cash used in investing activities decreased $745.6 million for Fiscal 2017. This decrease resulted
primarily from proceeds from the sale of the Canadian wine business in December 2016 of $575.3 million and
lower payments for purchases of businesses for Fiscal 2017 of $205.4 million. Fiscal 2017 acquisitions consist of
Prisoner (April 2016), High West and Charles Smith (October 2016), and the Obregon Brewery (December 2016)
compared with Fiscal 2016 acquisitions of Meiomi (August 2015) and Ballast Point (December 2015).
Fiscal 2016 Compared to Fiscal 2015
Net cash used in investing activities increased $1,191.5 million for Fiscal 2016, primarily due to the Fiscal
2016 acquisitions of Meiomi and Ballast Point.
Financing Activities
Fiscal 2017 Compared to Fiscal 2016
Net cash used in financing activities increased $910.8 million for Fiscal 2017, primarily from the following:
• Fiscal 2017 share repurchases under the 2013 Authorization and 2017 Authorization of $1,122.7
million;
• Fiscal 2017 principal payments of long-term debt driven largely by the repayment of the August 2006
Senior Notes of $700.0 million;
• Lower net proceeds from notes payable of $163.5 million for Fiscal 2017 compared with Fiscal 2016;
• Higher cash dividend payments of $73.5 million for Fiscal 2017 compared with Fiscal 2016; and
• Lower excess tax benefits from stock-based payment awards of $72.0 million for Fiscal 2017 compared
with Fiscal 2016 due to decreased Fiscal 2017 employee equity award exercise activity;
42
partially offset by:
• Fiscal 2017 proceeds from issuance of long-term debt of $1,965.6 million, including (i) term loan
borrowings under our senior credit facility of $700.0 million in March 2016 (used to refinance
borrowings under our then-existing senior credit facility and accounts receivable securitization
facilities, and for other general corporate purposes) and $400.0 million in October 2016 (used to finance
the purchase price for the acquisitions of High West and Charles Smith, and for other general corporate
purposes); (ii) proceeds from issuance of the December 2016 Senior Notes of $600.0 million (used for
general corporate purposes) and (iii) term loan borrowings under the Canadian Credit Agreement of
C$275.0 million ($214.1 million at issuance) (used for general corporate purposes); compared with
• Fiscal 2016 proceeds from issuance of long-term debt of $610.0 million primarily from the issuance of
the December 2015 Senior Notes of $400.0 million (used to fund a portion of the purchase price for the
acquisition of Ballast Point) and from term loan borrowings under our senior credit facility of $200.0
million (used to fund a portion of the purchase price for the acquisition of Meiomi).
Fiscal 2016 Compared to Fiscal 2015
Net cash provided by financing activities increased $792.4 million for Fiscal 2016, primarily from the
following:
• Higher net proceeds from notes payable of $347.5 million for Fiscal 2016 compared with Fiscal 2015;
• Higher excess tax benefits from stock-based payment awards of $125.4 million for Fiscal 2016
compared with Fiscal 2015 due to increased Fiscal 2016 employee equity award exercise and vesting
activity;
• Fiscal 2015 payment of delayed purchase price arrangement of $543.3 million in connection with the
June 2013 Beer Business Acquisition; and
• Fiscal 2015 principal payments of long-term debt for the repayment of our December 2007 senior notes
of $500.0 million;
partially offset by:
• Fiscal 2016 proceeds from issuance of long-term debt of $610.0 million primarily from the issuance of
the December 2015 Senior Notes of $400.0 million (used to fund a portion of the purchase price for the
acquisition of Ballast Point) and from term loan borrowings under the 2015 Credit Agreement of $200.0
million (used to fund a portion of the purchase price for the acquisition of Meiomi) compared with
Fiscal 2015 proceeds from issuance of long-term debt of $905.0 million primarily from the issuance of
the November 2014 Senior Notes (used primarily to redeem our December 2007 senior notes); and
• Payment of quarterly cash dividends.
Debt
Total debt outstanding as of February 28, 2017, amounted to $9,238.1 million, an increase of $1,156.9
million from February 29, 2016. This increase was largely due to proceeds from the issuance of the European
Term A-1 and European Term A-2 term loan borrowings under our senior credit facility and the December 2016
Senior Notes, partially offset by the repayment of the August 2006 Senior Notes.
Senior Credit Facility
In October 2016, we entered into the 2016 Restatement Agreement that amended and restated our
March 2016 Credit Agreement. Among other things, the 2016 Restatement Agreement created a new $400.0 million
European Term A-2 loan facility maturing on March 10, 2021. Proceeds from the October 2016 borrowings under
the 2016 Credit Agreement were primarily used to finance the purchase price for the acquisitions of High West and
Charles Smith, and for other general corporate purposes.
In March 2016, we entered into the March 2016 Restatement Agreement that amended and restated our
then-existing senior credit facility. Among other things, the March 2016 Restatement Agreement created a new
43
$700.0 million European Term A-1 loan facility maturing on March 10, 2021. Proceeds from the March 2016
borrowings under the March 2016 Credit Agreement were used to refinance outstanding obligations under our then-
existing senior credit facility and short-term borrowings under our accounts receivable securitization facilities, and
for other general corporate purposes.
Senior Notes
In December 2016, we issued the December 2016 Senior Notes. Proceeds from this offering, net of
discount and debt issuance costs, of $594.4 million were used for general corporate purposes, including the
repayment of short-term borrowings and the repurchase of shares of our Class A Common Stock.
In August 2016, we repaid the August 2006 Senior Notes primarily with cash flows from operating
activities.
General
The majority of our outstanding borrowings as of February 28, 2017, consisted of fixed-rate senior
unsecured notes, with maturities ranging from calendar 2017 to calendar 2026, and variable-rate senior unsecured
term loan facilities under our 2016 Credit Agreement, with maturities ranging from calendar 2020 to calendar 2021.
We had the following borrowing capacity available under our 2016 Credit Agreement and our accounts
receivable securitization facilities:
(in millions)
Revolving Credit Facility
CBI Facility
Crown Facility
Remaining Borrowing Capacity
February 28,
2017
April 21,
2017
$
$
$
902.3
88.9
13.0
$
$
$
1,032.5
89.7
70.4
The financial institutions participating in our 2016 Credit Agreement and our accounts receivable
securitization facilities have complied with prior funding requests and we believe such financial institutions will
comply with any future funding requests. However, there can be no assurances that any particular financial
institution will continue to do so.
As of February 28, 2017, we also have additional credit arrangements totaling $442.8 million, with $269.5
million outstanding under these arrangements. These arrangements primarily support the financing needs of our
domestic and foreign subsidiary operations, as well as our glass production plant joint venture.
We have entered into various interest rate swap agreements to manage our exposure to the volatility of the
interest rates associated with our variable-rate senior unsecured term loan facilities. As a result of these hedges, we
have fixed our interest rates on $250.0 million of our floating LIBOR rate debt at an average rate of 1.1% (exclusive
of borrowing margins) from September 1, 2016, through July 1, 2020.
We and our subsidiaries are subject to covenants that are contained in the 2016 Credit Agreement, including
those restricting the incurrence of additional indebtedness (including guarantees of indebtedness), additional liens,
mergers and consolidations, the payment of dividends, the making of certain investments, prepayments of certain
debt, transactions with affiliates, agreements that restrict our non-guarantor subsidiaries from paying dividends, and
dispositions of property, 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 debt coverage ratio, both as defined
in the 2016 Credit Agreement. As of February 28, 2017, the minimum interest coverage ratio was 2.5x and the
maximum net debt coverage ratio was 4.0x.
44
Our indentures relating to our outstanding senior notes contain certain covenants, including, but not limited
to: (i) a limitation on liens on certain assets, (ii) a limitation on certain sale and leaseback transactions and
(iii) restrictions on mergers, consolidations and the transfer of all or substantially all of our assets to another person.
As of February 28, 2017, we were in compliance with all of our covenants under both our 2016 Credit
Agreement and our indentures, and have met all debt payment obligations.
For a complete discussion and presentation of all borrowings and available sources of borrowing, refer to
Note 11 of the Notes to the Financial Statements.
Common Stock Dividends
On April 5, 2017, our Board of Directors declared a quarterly cash dividend of $0.52 per share of Class A
Common Stock, $0.47 per share of Class B Convertible Common Stock and $0.47 per share of Class 1 Common
Stock payable on May 24, 2017, to stockholders of record of each class on May 10, 2017. We expect to return
approximately $400 million to stockholders in Fiscal 2018 through cash dividends.
We currently expect to continue to pay a regular quarterly cash dividend to stockholders of our common
stock in the future, but such payments are subject to approval of our Board of Directors and are dependent upon our
financial condition, results of operations, capital requirements and other factors, including those set forth under
Item 1A “Risk Factors” of this Annual Report on Form 10-K.
Share Repurchase Program
Our Board of Directors authorized the repurchase of up to $1.0 billion of our Class A Common Stock and
Class B Convertible Common Stock under the 2017 Authorization. Shares repurchased under this authorization
have become treasury shares.
As of February 28, 2017, total shares repurchased under this authorization are as follows:
(in millions, except share data)
2017 Authorization
Class A Common Shares
Dollar Value
of Shares
Repurchased
Number of
Shares
Repurchased
Repurchase
Authorization
$
1,000.0
$
453.1
3,006,547
Share repurchases under the 2017 Authorization may be accomplished at management’s discretion from
time to time based on market conditions, our cash and debt position, and other factors as determined by
management. Shares may be repurchased through open market or privately negotiated transactions. We may fund
future share repurchases with cash generated from operations and/or proceeds from borrowings. Any repurchased
shares will become treasury shares.
For additional information, refer to Note 14 of the Notes to the Financial Statements.
Contractual Obligations and Commitments
The following table sets forth information about our contractual obligations outstanding at February 28,
2017. It brings together data for easy reference from our balance sheet and Notes to the Financial Statements. For a
detailed discussion of the items noted in the following table, refer to Notes 10, 11, 12 and 13 of the Notes to the
Financial Statements.
45
PAYMENTS DUE BY PERIOD
Total
Less than
1 year
1-3 years
3-5 years
After
5 years
(in millions)
Notes payable to banks
$
606.5
$
606.5
$
— $
— $
—
Long-term debt (excluding unamortized
debt issuance costs and unamortized
discount)
Interest payments on long-term debt (1)
Operating leases
Other long-term liabilities (2)
Purchase obligations (3)
Total contractual obligations
8,683.2
1,423.3
497.7
200.8
6,443.4
911.0
271.1
41.6
58.6
807.3
499.8
92.0
94.7
3,731.4
364.5
78.6
12.5
1,624.6
2,458.3
1,360.4
$
17,854.9
$
3,513.4
$
3,952.1
$
5,547.4
$
3,233.5
287.9
285.5
35.0
1,000.1
4,842.0
(1)
Interest rates on long-term debt obligations range from 2.3% to 7.3% as of February 28, 2017. Interest payments
on long-term debt obligations include amounts associated with our outstanding interest rate swap agreements to
fix LIBOR interest rates on $250.0 million of our floating LIBOR rate debt. Interest payments on long-term debt
do not include interest related to capital lease obligations or certain foreign credit arrangements, which represent
approximately 2.6% of our total long-term debt, as amounts are not material.
(2) Other long-term liabilities include $32.8 million associated with expected payments for unrecognized tax benefit
liabilities as of February 28, 2017, $0.5 million of which is expected to be paid in the less than one year period.
The payments are reflected in the period in which we believe they will ultimately be settled based on our
experience in these matters. Other long-term liabilities do not include payments for unrecognized tax benefit
liabilities of $6.7 million due to the uncertainty of the timing of future cash flows associated with these
unrecognized tax benefit liabilities. In addition, other long-term liabilities do not include expected payments for
interest and penalties associated with unrecognized tax benefit liabilities as amounts are not material. For a
detailed discussion of these items, refer to Note 12 of the Notes to the Financial Statements.
(3) Total purchase obligations consist primarily of $5,508.1 million for contracts to purchase certain raw materials
and supplies over the next thirteen fiscal years and $610.1 million for contracts to purchase equipment and
services over the next three fiscal years. For a detailed discussion of our purchase obligations, refer to Note 13 of
the Notes to the Financial Statements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that either have, or are reasonably likely to have, a
current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is material to investors.
Capital Expenditures
During Fiscal 2017, we incurred $907.4 million for capital expenditures, including $759.2 million for the
Beer segment primarily for the Mexico Beer Expansion Projects. Management reviews the capital expenditure
program periodically and modifies it as required to meet current business needs. We plan to spend from $1.2 billion
to $1.3 billion for capital expenditures for Fiscal 2018, including from $1.0 billion to $1.1 billion for the Beer
segment associated primarily with the Mexico Beer Expansion Projects. The remaining Fiscal 2018 capital
expenditures consist of improvements of existing operating facilities and replacements of existing equipment and/or
buildings. We expect to spend the remaining amounts under the previously announced Mexico Beer Expansion
Projects primarily during fiscal 2019 and fiscal 2020. Upon completion, the total spend from fiscal 2014 through
fiscal 2021 for the Mexico Beer Expansion Projects is estimated to approximate $3.9 billion.
Effects of Inflation and Changing Prices
Our results of operations and financial condition have not been significantly affected by inflation and
changing prices. We intend to pass along rising costs through increased selling prices, subject to normal
46
competitive conditions. There can be no assurances, however, that we will be able to pass along rising costs
through increased selling prices. In addition, we continue to identify on-going cost savings initiatives.
Critical Accounting Estimates
Our significant accounting policies are more fully described in Note 1 of our Notes to the Financial
Statements. However, certain of our accounting policies are particularly important to the portrayal of our financial
position and results of operations and require the application of significant judgment by management; as a result,
they are subject to an inherent degree of uncertainty. In applying those policies, management uses its judgment to
determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are
based on our historical experience, our observance of trends in the industry, information provided by our customers
and information available from other outside sources, as appropriate. On an ongoing basis, we review our estimates
to ensure that they appropriately reflect changes in our business. Our critical accounting estimates include:
• Goodwill and other intangible assets. We account for goodwill and other intangible assets by
classifying intangible assets into three categories: (i) intangible assets with definite lives subject to
amortization, (ii) intangible assets with indefinite lives not subject to amortization and (iii) goodwill.
For intangible assets with definite lives, impairment testing is required if conditions exist that indicate
the carrying value may not be recoverable. For intangible assets with indefinite lives and for goodwill,
impairment testing is required at least annually or more frequently if events or circumstances indicate
that these assets might be impaired. We perform annual impairment tests and re-evaluate the useful
lives of other intangible assets with indefinite lives at the annual impairment test measurement date of
January 1 or when circumstances arise that indicate a possible impairment or change in useful life might
exist. The guidance for goodwill impairment testing allows an entity to assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is more
likely than not that the estimated fair value of a reporting unit is less than its carrying amount or to
proceed directly to performing the two-step impairment test. In the first step, the estimated fair value of
each reporting unit is compared to the carrying value of the reporting unit, including goodwill. The
estimate of fair value of the reporting unit is generally calculated based on an income approach using
the discounted cash flow method supplemented by the market approach. If the estimated fair value of
the reporting unit is less than the carrying value of the reporting unit, a second step is performed to
determine the amount of goodwill impairment we should record. In the second step, an implied fair
value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of
its assets and liabilities other than goodwill (including any unrecognized intangible assets). The
resulting implied fair value of the goodwill is compared to the carrying value of the goodwill. The
amount of impairment charge for goodwill is equal to the excess of the carrying value of the goodwill
over the implied fair value of the goodwill. Our reporting units include the Beer segment and U.S.,
New Zealand and Italy for the Wine and Spirits segment. In estimating the fair value of the reporting
units, management must make assumptions and projections regarding such items as future cash flows,
future revenues, future earnings and other factors. The assumptions used in the estimate of fair value
are based on historical trends and the projections and assumptions that are used in current strategic
operating plans. These assumptions reflect management’s estimates of future economic and
competitive conditions and are, therefore, subject to change as a result of changing market conditions.
If these estimates or their related assumptions change in the future, we may be required to record an
impairment loss for these assets. The recording of any resulting impairment loss could have a material
adverse impact on our financial statements.
In the fourth quarter of fiscal 2017, we performed our annual goodwill impairment analysis. No
indication of impairment was noted for any of our reporting units, as the estimated fair value of each of
our reporting units with goodwill exceeded their carrying value. Based on this analysis, of all of our
reporting units, the reporting unit with the lowest amount of estimated fair value in excess of its
carrying value was the Wine and Spirits’ U.S. reporting unit with approximately 81% excess fair value.
In Fiscal 2016 and Fiscal 2015, as a result of our annual goodwill impairment analyses, we concluded
that there were no indications of impairment for any of our reporting units.
47
The most significant assumptions used in the discounted cash flows calculation to determine the
estimated fair value of our reporting units in connection with impairment testing are: (i) the discount
rate, (ii) the expected long-term growth rate and (iii) the annual cash flow projections. As of
January 1, 2017, if we used a discount rate that was 50 basis points higher or used an expected long-
term growth rate that was 50 basis points lower or used annual cash flow projections that were 100
basis points lower in our impairment testing of goodwill, then the changes individually would not have
resulted in the carrying value of the respective reporting unit’s net assets, including its goodwill,
exceeding its estimated fair value, which would indicate the potential for impairment and the
requirement to measure the amount of impairment, if any.
Our other intangible assets consist primarily of customer relationships and trademarks obtained through
business acquisitions. Customer relationships are amortized over their estimated useful lives. The
trademarks that were determined to have indefinite useful lives are not amortized. The guidance for
indefinite lived intangible asset impairment testing allows an entity to assess qualitative factors to
determine whether the existence of events or circumstances indicates that it is more likely than not that
the indefinite lived intangible asset is impaired or to proceed directly to performing the quantitative
impairment test. Our trademarks are evaluated for impairment by comparing the carrying value of the
trademarks to their estimated fair value. The estimated fair value of trademarks is calculated based on
an income approach using the relief from royalty method. The estimate of fair value is then compared
to the carrying value of each trademark. If the estimated fair value is less than the carrying value of the
trademark, then an impairment charge is recorded by us to reduce the carrying value of the trademark to
its estimated fair value. In estimating the fair value of the trademarks, management must make
assumptions and projections regarding future cash flows based upon future revenues and other factors.
The assumptions used in the estimate of fair value are consistent with historical trends and the
projections and assumptions that are used in current strategic operating plans. These assumptions
reflect management’s estimates of future economic and competitive conditions and are, therefore,
subject to change as a result of changing market conditions. If these estimates or their related
assumptions change in the future, we may be required to record an impairment loss for these assets.
The recording of any resulting impairment loss could have a material adverse impact on our financial
statements.
In the fourth quarter of fiscal 2017, the Wine and Spirits’ U.S. business recognized a trademark
impairment loss of $37.6 million in connection with our decision to discontinue certain small-scale,
low-margin U.S. brands. Additionally, in the fourth quarter of fiscal 2017, the Wine and Spirits’ U.S.
business recognized a trademark impairment loss of $8.4 million in connection with certain U.S. brands
sold exclusively through the Canadian wine business, for which we expect future sales of these brands
to be minimal subsequent to the Canadian Divestiture. No indication of impairment was noted for any
of our indefinite lived intangible assets for Fiscal 2016 or Fiscal 2015.
The most significant assumptions used in the relief from royalty method to determine the estimated fair
value of intangible assets with indefinite lives in connection with impairment testing are: (i) the
estimated royalty rate, (ii) the discount rate, (iii) the expected long-term growth rate and (iv) the
annual revenue projections. As of January 1, 2017, if we used a royalty rate that was 50 basis points
lower or used a discount rate that was 50 basis points higher or used an expected long-term growth rate
that was 50 basis points lower or used annual revenue projections that were 100 basis points lower in
our impairment testing of intangible assets with indefinite lives, then each change individually would
not have resulted in any unit of accounting’s carrying value exceeding its estimated fair value.
• Accounting for promotional activities. Sales reflect reductions attributable to consideration given to
customers in various customer incentive programs, including pricing discounts on single transactions,
volume discounts, promotional and advertising allowances, coupons and rebates. Certain customer
incentive programs require management to estimate the cost of those programs. The accrued liability
for these programs is determined through analysis of programs offered, historical trends, expectations
regarding customer and consumer participation, sales and payment trends, and experience with payment
48
patterns associated with similar programs that have been offered previously. If assumptions included in
our estimates were to change or market conditions were to change, then material incremental reductions
to revenue could be required, which could have a material adverse impact on our financial statements.
• Accounting for income taxes. We estimate our income tax expense, deferred tax assets and liabilities
and reserves for unrecognized tax benefits based upon various factors including, but not limited to,
historical pretax operating income, future estimates of pretax operating income, differences between
book and tax treatment of items of income and expense, and tax planning strategies. We are subject to
income taxes in Canada, Luxembourg, Mexico, New Zealand, the U.S. and other jurisdictions. We
recognize our deferred tax assets and liabilities based upon the expected future tax outcome of amounts
recognized in our results of operations. If necessary, we record a valuation allowance on deferred tax
assets when it is more likely than not that they will not be realized. We believe that all tax positions are
fully supported; however, we record tax liabilities in accordance with the FASB’s guidance for income
tax accounting. We recognize a tax benefit from an uncertain tax position when it is more likely than
not that the position will be sustained upon examination. Due to the complexity of some of these
uncertainties, the ultimate resolution may result in a payment that is materially different from our
current estimate of the tax liabilities. In addition, changes in existing tax laws or rates could
significantly change our current estimate of our tax liabilities. These differences will be reflected as
increases or decreases to income tax expense in the period in which they are determined. Changes in
current estimates, if significant, could have a material adverse impact on our financial statements.
Accounting Guidance Not Yet Adopted
Accounting guidance adopted for Fiscal 2017 did not have a material impact on our consolidated financial
statements. For further information on accounting guidance not yet adopted, refer to Note 21 in our Notes to the
Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a result of our global operating, acquisition and financing activities, we are exposed to market risk
associated with changes in foreign currency exchange rates, commodity prices and interest rates. To manage the
volatility relating to these risks, we periodically purchase and/or sell derivative instruments including foreign
currency forward and option contracts, commodity swap agreements and interest rate swap agreements. We use
derivative instruments to reduce earnings and cash flow volatility resulting from shifts in market rates, as well as to
hedge economic exposures. We do not enter into derivative instruments for trading or speculative purposes.
Foreign Currency and Commodity Price Risk
Foreign currency derivative instruments are or may be used to hedge existing foreign currency denominated
assets and liabilities, forecasted foreign currency denominated sales/purchases to/from third parties as well as
intercompany sales/purchases, intercompany principal and interest payments, and in connection with acquisitions,
divestitures or joint venture investments outside the U.S. As of February 28, 2017, we had exposures to foreign
currency risk primarily related to the Mexican peso, euro, New Zealand dollar and Canadian dollar. Approximately
54% of our balance sheet exposures and forecasted transactional exposures for the year ending February 28, 2018,
were hedged as of February 28, 2017.
Commodity derivative instruments are or may be used to hedge forecasted commodity purchases from third
parties as either economic hedges or accounting hedges. As of February 28, 2017, exposures to commodity price
risk which we are currently hedging primarily include heating oil, diesel fuel, aluminum, natural gas and corn
prices. Approximately 56% of our forecasted transactional exposures for the year ending February 28, 2018, were
hedged as of February 28, 2017.
We have performed a sensitivity analysis to estimate our exposure to market risk of foreign exchange rates
and commodity prices reflecting the impact of a hypothetical 10% adverse change in the applicable market. The
49
volatility of the applicable rates and prices is dependent on many factors which cannot be forecasted with reliable
accuracy. Losses or gains from the revaluation or settlement of the related underlying positions would substantially
offset such gains or losses on the derivative instruments. The aggregate notional value, estimated fair value and
sensitivity analysis for our open foreign currency and commodity derivative instruments are summarized as follows:
Aggregate
Notional Value
Fair Value,
Net Liability
Increase
in Fair Value –
Hypothetical
10% Adverse Change
February 28,
2017
February 29,
2016
February 28,
2017
February 29,
2016
February 28,
2017
February 29,
2016
(in millions)
Foreign currency contracts
Commodity derivative contracts
$
$
1,371.6
153.2
$
$
1,707.2
198.7
$
$
57.2
5.8
$
$
57.5
45.2
$
$
88.6
13.1
$
$
73.5
13.7
Interest Rate Risk
The estimated fair value of our fixed interest rate debt is subject to interest rate risk, credit risk and foreign
currency risk. In addition, we also have variable interest rate debt outstanding (primarily LIBOR-based), certain of
which includes a fixed margin subject to the same risks identified for our fixed interest rate debt.
As of February 28, 2017, and February 29, 2016, we had outstanding cash flow designated interest rate
swap agreements which fixed LIBOR interest rates (to minimize interest rate volatility) on $250.0 million and
$600.0 million, respectively, of our floating LIBOR rate debt. In addition, as of February 29, 2016, we had
outstanding offsetting undesignated interest rate swap agreements. There were no undesignated interest rate swap
agreements outstanding as of February 28, 2017.
We have performed a sensitivity analysis to estimate our exposure to market risk of interest rates reflecting
the impact of a hypothetical 1% increase in the prevailing interest rates. The volatility of the applicable rates is
dependent on many factors which cannot be forecasted with reliable accuracy. The aggregate notional value,
estimated fair value and sensitivity analysis for our outstanding fixed and variable interest rate debt, including
current maturities, and open interest rate derivative instruments are summarized as follows:
Aggregate
Notional Value
Fair Value,
Net Asset (Liability)
Increase (Decrease)
in Fair Value –
Hypothetical
1% Rate Increase
February 28,
2017
February 29,
2016
February 28,
2017
February 29,
2016
February 28,
2017
February 29,
2016
(in millions)
Fixed interest rate debt
Variable interest rate debt
Interest rate swap contracts
$
$
$
4,693.6
4,596.1
250.0
$
$
$
4,796.1
3,336.8
1,600.0
$
$
$
(4,933.8) $
(4,515.6) $
$
4.4
(5,016.6) $
(2,643.7) $
(6.6) $
(234.8) $
(124.4) $
$
7.7
(218.1)
(81.5)
(5.1)
For additional discussion on our market risk, refer to Notes 6 and 7 of the Notes to the Financial Statements.
50
Item 8. Financial Statements and Supplementary Data.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2017
The following information is presented in this Annual Report on Form 10-K:
Management’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm – KPMG LLP
Report of Independent Registered Public Accounting Firm – KPMG LLP
Consolidated Balance Sheets - February 28, 2017, and February 29, 2016
Consolidated Statements of Comprehensive Income for the years ended February 28, 2017, February 29, 2016,
and February 28, 2015
Consolidated Statements of Changes in Stockholders’ Equity for the years ended February 28, 2017,
February 29, 2016, and February 28, 2015
Consolidated Statements of Cash Flows for the years ended February 28, 2017, February 29, 2016, and
February 28, 2015
Notes to Consolidated Financial Statements
Selected Quarterly Financial Information (unaudited)
Page
52
53
54
55
56
57
58
60
104
51
Management’s Annual Report on Internal Control Over Financial Reporting
Management of Constellation Brands, Inc. and subsidiaries (the “Company”) is responsible for establishing and
maintaining an adequate system of internal control over financial reporting. This system is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable
assurance and may not prevent or detect misstatements. Further, because of changes in conditions, effectiveness of
internal controls over financial reporting may vary over time.
Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting
based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. Based on that evaluation, management concluded that the
Company’s internal control over financial reporting was effective as of February 28, 2017.
The effectiveness of the Company’s internal control over financial reporting has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
52
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Constellation Brands, Inc.:
We have audited Constellation Brands, Inc.’s (the Company) internal control over financial reporting as of
February 28, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Constellation Brands, Inc.’s
management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, Constellation Brands, Inc. maintained, in all material respects, effective internal control over
financial reporting as of February 28, 2017, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Constellation Brands, Inc. and subsidiaries as of February 28, 2017 and
February 29, 2016, and the related consolidated statements of comprehensive income, changes in stockholders’
equity, and cash flows for each of the years in the three-year period ended February 28, 2017, and our report dated
April 27, 2017 expressed an unqualified opinion on those consolidated financial statements.
Rochester, New York
April 27, 2017
/s/ KPMG LLP
53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Constellation Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Constellation Brands, Inc. and subsidiaries (the
Company) as of February 28, 2017 and February 29, 2016, and the related consolidated statements of
comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year
period ended February 28, 2017. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Constellation Brands, Inc. and subsidiaries as of February 28, 2017 and February 29, 2016, and
the results of their operations and their cash flows for each of the years in the three-year period ended February 28,
2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Constellation Brands, Inc.’s internal control over financial reporting as of February 28, 2017, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated April 27, 2017 expressed an unqualified
opinion on the effectiveness of Constellation Brands, Inc.’s internal control over financial reporting.
Rochester, New York
April 27, 2017
/s/ KPMG LLP
54
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
ASSETS
February 28,
2017
February 29,
2016
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment
Goodwill
Intangible assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable to banks
Current maturities of long-term debt
Accounts payable
Accrued excise taxes
Other accrued expenses and liabilities
Total current liabilities
Long-term debt, less current maturities
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
CBI stockholders’ equity:
Preferred Stock, $.01 par value – Authorized, 1,000,000 shares; Issued, none
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued,
257,506,184 shares and 255,558,026 shares, respectively
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares;
Issued, 28,358,527 shares and 28,358,529 shares, respectively
Class 1 Common Stock, $.01 par value – Authorized, 25,000,000 shares; Issued, 2,080
shares and 2,000 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Treasury stock –
Class A Common Stock, at cost, 86,262,971 shares and 79,454,011 shares, respectively
Class B Convertible Common Stock, at cost, 5,005,800 shares
Total CBI stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
177.4
737.0
1,955.1
360.5
3,230.0
3,932.8
7,920.5
3,377.7
141.4
18,602.4
606.5
910.9
559.8
44.6
575.8
2,697.6
7,720.7
1,133.6
165.7
11,717.6
—
2.6
0.3
—
2,755.8
7,310.0
(399.8)
9,668.9
(2,775.5)
(2.2)
(2,777.7)
6,891.2
(6.4)
6,884.8
18,602.4
$
$
$
$
83.1
732.5
1,851.6
310.4
2,977.6
3,333.4
7,138.6
3,403.8
111.6
16,965.0
408.3
856.7
429.3
33.6
544.4
2,272.3
6,816.2
1,022.2
162.5
10,273.2
—
2.6
0.3
—
2,589.0
6,090.5
(452.5)
8,229.9
(1,668.1)
(2.2)
(1,670.3)
6,559.6
132.2
6,691.8
16,965.0
The accompanying notes are an integral part of these statements.
55
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
Sales
Less – excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative expenses
Gain on sale of business
Operating income
Earnings from unconsolidated investments
Interest expense
Loss on write-off of debt issuance costs
Income before income taxes
Provision for income taxes
Net income
Net (income) loss attributable to noncontrolling interests
Net income attributable to CBI
Net income per common share attributable to CBI:
Basic – Class A Common Stock
Basic – Class B Convertible Common Stock
Diluted – Class A Common Stock
Diluted – Class B Convertible Common Stock
Weighted average common shares outstanding:
Basic – Class A Common Stock
Basic – Class B Convertible Common Stock
Diluted – Class A Common Stock
Diluted – Class B Convertible Common Stock
Cash dividends declared per common share:
Class A Common Stock
Class B Convertible Common Stock
Comprehensive income:
Net income
Other comprehensive income (loss), net of income tax effect:
Foreign currency translation adjustments
Unrealized gain (loss) on cash flow hedges
Unrealized gain (loss) on available-for-sale debt securities
Pension/postretirement adjustments
Other comprehensive income (loss), net of income tax effect
Comprehensive income
Comprehensive loss attributable to noncontrolling interests
Comprehensive income attributable to CBI
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
8,061.6
(730.1)
7,331.5
(3,802.1)
3,529.4
(1,392.4)
262.4
2,399.4
27.3
(333.3)
—
2,093.4
(554.2)
1,539.2
(4.1)
1,535.1
7.79
7.07
7.52
6.93
175.934
23.353
204.099
23.353
$
$
$
$
$
$
7,223.8
(675.4)
6,548.4
(3,606.1)
2,942.3
(1,177.2)
—
1,765.1
51.1
(313.9)
(1.1)
1,501.2
(440.6)
1,060.6
(5.7)
1,054.9
5.42
4.92
5.18
4.79
173.383
23.363
203.821
23.363
6,672.1
(644.1)
6,028.0
(3,449.4)
2,578.6
(1,078.4)
—
1,500.2
21.5
(337.7)
(4.4)
1,179.6
(343.4)
836.2
3.1
839.3
4.40
4.00
4.17
3.83
169.325
23.397
201.224
23.397
1.60
1.44
$
$
1.24
1.12
$
$
—
—
1,539.2
$
1,060.6
$
836.2
22.1
7.8
0.5
11.6
42.0
1,581.2
6.6
1,587.8
$
(323.3)
(17.2)
(0.3)
0.1
(340.7)
719.9
13.4
733.3
$
(191.0)
(20.2)
(1.0)
(6.0)
(218.2)
618.0
4.4
622.4
The accompanying notes are an integral part of these statements.
56
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
Common Stock
Class A
Class B
Additional
Paid-in
Capital
Retained
Earnings
Balance at February 28, 2014
$
2.5
$
0.3
$ 2,116.6
$ 4,438.2
Accumulated
Other
Comprehensive
Income (Loss)
86.0
$
Treasury
Stock
Non-
controlling
Interests
Total
$ (1,662.3) $
— $ 4,981.3
Comprehensive income:
Net income (loss)
Other comprehensive loss, net
of income tax effect
Comprehensive income
Contributions from
noncontrolling interests
Shares issued under equity
compensation plans
Stock-based compensation
Tax benefit on stock-based
compensation
Balance at February 28, 2015
Comprehensive income:
Net income
Other comprehensive loss, net
of income tax effect
Comprehensive income
Repurchase of shares
Dividends declared
Contributions from
noncontrolling interests
Shares issued under equity
compensation plans
Stock-based compensation
Tax benefit on stock-based
compensation
Balance at February 29, 2016
Comprehensive income:
Net income
Other comprehensive income
(loss), net of income tax effect
Comprehensive income
Repurchase of shares
Dividends declared
Conversion of noncontrolling
equity interest to long-term debt
Shares issued under equity
compensation plans
Stock-based compensation
Tax benefit on stock-based
compensation
Balance at February 28, 2017
$
—
—
—
—
—
—
2.5
—
—
—
—
—
0.1
—
—
2.6
—
—
—
—
—
—
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
—
2.6
$
—
0.3
—
—
—
21.5
54.3
77.4
839.3
—
—
—
—
—
—
(216.9)
—
—
—
—
—
—
—
13.8
—
—
(3.1)
(1.3)
836.2
(218.2)
618.0
115.0
115.0
—
—
—
35.3
54.3
77.4
2,269.8
5,277.5
(130.9)
(1,648.5)
110.6
5,881.3
—
—
—
—
—
62.3
53.5
203.4
1,054.9
—
—
—
(241.9)
—
—
—
—
(321.6)
—
—
—
—
—
—
—
—
(33.8)
—
—
12.0
—
—
5.7
1,060.6
(19.1)
—
—
35.0
—
—
—
(340.7)
719.9
(33.8)
(241.9)
35.0
74.4
53.5
203.4
6,691.8
2,589.0
6,090.5
(452.5)
(1,670.3)
132.2
—
—
—
—
—
(20.1)
55.5
131.4
1,535.1
—
—
(315.6)
—
—
—
—
—
52.7
—
—
— (1,122.7)
—
—
—
—
—
—
—
15.3
—
—
4.1
1,539.2
(10.7)
42.0
1,581.2
(1,122.7)
(315.6)
—
—
(132.0)
(132.0)
—
—
—
(4.8)
55.5
131.4
$ 2,755.8
$ 7,310.0
$
(399.8) $ (2,777.7) $
(6.4) $ 6,884.8
The accompanying notes are an integral part of these statements.
57
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation
Deferred tax provision
Amortization and impairment of intangible assets
Stock-based compensation
Amortization of debt issuance costs
Gain on sale of business
Change in operating assets and liabilities, net of effects from
purchases of businesses:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued excise taxes
Other accrued expenses and liabilities
Other
Total adjustments
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
$
1,539.2
$
1,060.6
$
836.2
237.5
128.7
56.4
56.1
12.7
(262.4)
(49.4)
(151.0)
(71.6)
115.9
16.2
106.0
(38.3)
156.8
180.3
251.0
40.7
54.0
12.0
—
(129.8)
10.1
45.9
24.7
5.1
(116.8)
(24.1)
353.1
162.0
79.3
40.0
55.0
12.2
—
16.1
(132.5)
(71.2)
(0.8)
1.6
44.7
38.4
244.8
Net cash provided by operating activities
1,696.0
1,413.7
1,081.0
Cash flows from investing activities:
Purchases of businesses, net of cash acquired
Purchases of property, plant and equipment
Proceeds from sale of business
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Purchases of treasury stock
Principal payments of long-term debt
Dividends paid
Payments of minimum tax withholdings on stock-based payment awards
Payments of debt issuance and other financing costs
Proceeds from issuance of long-term debt
Net proceeds from notes payable
Excess tax benefits from stock-based payment awards
Proceeds from shares issued under equity compensation plans
Proceeds from noncontrolling interests
Payment of delayed purchase price arrangement
Net cash provided by (used in) financing activities
(1,111.0)
(907.4)
575.3
(18.7)
(1,461.8)
(1,122.7)
(971.8)
(315.1)
(64.9)
(14.1)
1,965.6
197.1
131.4
59.7
—
—
(134.8)
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
(5.1)
94.3
83.1
177.4
$
$
58
(1,316.4)
(891.3)
—
0.3
(2,207.4)
(310.3)
(719.4)
—
13.8
(1,015.9)
(33.8)
(208.7)
(241.6)
(38.6)
(13.3)
610.0
360.6
203.4
113.0
25.0
—
776.0
(9.3)
(27.0)
110.1
83.1
$
—
(605.7)
—
(28.4)
(13.8)
905.0
13.1
78.0
63.7
115.0
(543.3)
(16.4)
(2.5)
46.2
63.9
110.1
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest
Income taxes, net of refunds received
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
$
$
300.4
219.6
$
$
310.4
80.2
$
$
325.4
169.5
The accompanying notes are an integral part of these statements.
59
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2017
1.
DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of business –
Constellation Brands, Inc. and its subsidiaries operate primarily in the beverage alcohol industry. Unless
the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands,
Inc. and its subsidiaries. We are an international beverage alcohol company with a broad portfolio of consumer-
preferred high-end imported and craft beer brands, and premium wine and spirits brands.
Basis of presentation –
Principles of consolidation:
Our consolidated financial statements include our accounts and our majority-owned and controlled
domestic and foreign subsidiaries, as well as a certain variable interest entity (“VIE”) for which we are the primary
beneficiary (see Note 2). All intercompany accounts and transactions are eliminated in consolidation.
Equity method investments:
If we are not required to consolidate our investment in another entity, we use the equity method when we
(i) can exercise significant influence over the other entity and (ii) hold common stock and/or in-substance common
stock of the other entity. Under the equity method, investments are carried at cost, plus or minus our equity in the
increases and decreases in the investee’s net assets after the date of acquisition. Dividends received from the
investee reduce the carrying amount of the investment.
Management’s use of estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Summary of significant accounting policies –
Revenue recognition:
We record revenue (referred to in our financial statements as “sales”) when persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably
assured. Delivery is not considered to have occurred until risk of loss passes to the customer according to the terms
of the contract between us and our customer. Risk of loss is usually transferred upon shipment to or receipt at our
customers’ locations, as determined by the specific sales terms of the transactions. Our sales terms do not allow for
a right of return except for matters related to any manufacturing defects on our part. Amounts billed to customers
for shipping and handling are included in sales. Sales reflect reductions attributable to consideration given to
customers in various customer incentive programs, including pricing discounts on single transactions, volume
discounts, promotional and advertising allowances, coupons and rebates.
Excise taxes remitted to governmental tax authorities are shown on a separate line item as a reduction of
sales. Excise taxes are recognized in our results of operations when the related sale is recorded.
Cost of product sold:
The types of costs included in cost of product sold are raw materials, packaging materials, manufacturing
costs, plant administrative support and overheads, and freight and warehouse costs (including distribution network
costs). Distribution network costs include inbound freight charges and outbound shipping and handling costs,
purchasing and receiving costs, inspection costs, warehousing and internal transfer costs.
60
Selling, general and administrative expenses:
The types of costs included in selling, general and administrative expenses consist predominately of
advertising and non-manufacturing administrative and overhead costs. Distribution network costs are included in
cost of product sold. We expense advertising costs as incurred, shown or distributed. Advertising expense for the
years ended February 28, 2017, February 29, 2016, and February 28, 2015, was $552.8 million, $468.3 million and
$406.1 million, respectively.
Foreign currency translation:
The functional currency of our foreign subsidiaries is generally the respective local currency. The
translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using
exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average
exchange rate for the period. The resulting translation adjustments are recorded as a component of Accumulated
Other Comprehensive Income (“AOCI”). Gains or losses resulting from foreign currency denominated transactions
are included in selling, general and administrative expenses.
Cash and cash equivalents:
Cash equivalents consist of highly liquid investments with an original maturity when purchased of three
months or less and are stated at cost, which approximates fair value.
Fair value of financial instruments:
We calculate the estimated fair value of financial instruments using quoted market prices whenever
available. When quoted market prices are not available, we use standard pricing models for various types of
financial instruments (such as forwards, options and swaps) which take into account the present value of estimated
future cash flows (see Note 7).
Derivative instruments:
We enter into derivative instruments to manage our exposure to fluctuations in foreign currency exchange
rates, commodity prices and interest rates. We enter into derivatives for risk management purposes only, including
derivatives designated in hedge accounting relationships as well as those derivatives utilized as economic hedges.
We do not enter into derivatives for trading or speculative purposes. We recognize all derivatives as either assets or
liabilities and measure those instruments at estimated fair value (see Note 6, Note 7). We present our derivative
positions gross on our balance sheets.
Changes in fair values (to the extent of hedge effectiveness) of outstanding cash flow hedges are deferred in
stockholders’ equity as a component of AOCI. These deferred gains or losses are recognized in our results of
operations in the same period in which the hedged items are recognized and on the same financial statement line
item as the hedged items. Any ineffectiveness associated with these derivative instruments is recognized
immediately in our results of operations.
Changes in fair values for derivative instruments not designated in a hedge accounting relationship are
recognized directly in our results of operations each period and on the same financial statement line item as the
hedged item. For purposes of measuring segment operating performance, the net gain (loss) from the changes in
fair value of our undesignated commodity derivative contracts, prior to settlement, is reported outside of segment
operating results until such time that the underlying exposure is recognized in the segment operating results. Upon
settlement, the net gain (loss) from the changes in fair value of the undesignated commodity derivative contracts is
reported in the appropriate operating segment, allowing our operating segment results to reflect the economic effects
of the commodity derivative contracts without the resulting unrealized mark to fair value volatility.
Cash flows from the settlement of derivatives, including both economic hedges and those designated in
hedge accounting relationships, appear on our statements of cash flows in the same categories as the cash flows of
the hedged items.
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.
61
Bulk wine inventories are included as in-process inventories within current assets, in accordance with the
general practices of the wine industry, although a portion of such inventories may be aged for periods greater than
one year. A substantial portion of barreled whiskey and brandy will not be sold within one year because of the
duration of the aging process. All barreled whiskey and brandy are classified as in-process inventories and are
included in current assets, in accordance with industry practice. Warehousing, insurance, ad valorem taxes and
other carrying charges applicable to barreled whiskey and brandy held for aging are included in inventory costs.
We assess the valuation of our inventories and reduce the carrying value of those inventories that are
obsolete or in excess of our forecasted usage to their estimated net realizable value based on analyses and
assumptions including, but not limited to, historical usage, future demand and market requirements.
Property, plant and equipment:
Property, plant and equipment is stated at cost. Major additions and improvements are recorded as an
increase to the property accounts, while maintenance and repairs are expensed as incurred. The cost of properties
sold or otherwise disposed of and the related accumulated depreciation are eliminated from the balance sheet
accounts at the time of disposal and resulting gains and losses are included as a component of operating income.
Depreciation:
Depreciation is computed primarily using the straight-line method over the following estimated useful lives:
Land improvements
Vineyards
Buildings and improvements
Machinery and equipment
Motor vehicles
Years
15 to 32
16 to 26
10 to 50
3 to 35
3 to 7
Goodwill and other intangible assets:
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A
reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete
financial information is prepared and regularly reviewed by segment management. We review our goodwill and
indefinite lived intangible assets annually for impairment, or sooner, if events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. We use January 1 as our annual impairment test
measurement date. Indefinite lived intangible assets consist principally of trademarks. Intangible assets determined
to have a finite life, primarily customer relationships, are amortized over their estimated useful lives and are subject
to review for impairment in accordance with authoritative guidance for long-lived assets. Note 9 provides a
summary of intangible assets segregated between amortizable and nonamortizable amounts.
Indemnification liabilities:
We have indemnified respective parties against certain liabilities that may arise in connection with certain
acquisitions and divestitures. Indemnification liabilities are recognized when probable and estimable and included
in other liabilities (see Note 13).
Income taxes:
We use the asset and liability method of accounting for income taxes. This method accounts for deferred
income taxes by applying statutory rates in effect at the balance sheet date to the difference between the financial
reporting and tax bases of assets and liabilities. We provide for taxes that may be payable if undistributed earnings
of foreign subsidiaries were to be remitted to the U.S., except for those earnings that we consider to be indefinitely
reinvested. Interest and penalties are recognized as a component of provision for income taxes.
Net income per common share attributable to CBI:
We have two classes of common stock with a material number of shares outstanding: Class A Common
Stock and Class B Convertible Common Stock (see Note 14). In addition, we have another class of common stock
62
with an immaterial number of shares outstanding: Class 1 Common Stock (See Note 14). If we pay a cash dividend
on Class B Convertible Common Stock, each share of Class A Common Stock will receive an amount at least ten
percent greater than the amount of the cash dividend per share paid on Class B Convertible Common Stock. Class
B Convertible Common Stock shares are convertible into shares of Class A Common Stock on a one-to-one basis at
any time at the option of the holder.
We use the two-class method for the computation and presentation of net income per common share
attributable to CBI (hereafter referred to as “net income per common share”) (see Note 16). The two-class method
is an earnings allocation formula that calculates basic and diluted net income per common share for each class of
common stock separately based on dividends declared and participation rights in undistributed earnings as if all
such earnings had been distributed during the period. Under the two-class method, Class A Common Stock is
assumed to receive a ten percent greater participation in undistributed earnings than Class B Convertible Common
Stock, in accordance with the respective minimum dividend rights of each class of stock.
Net income per common share – basic excludes the effect of common stock equivalents and is computed
using the two-class method. Net income per common share – diluted for Class A Common Stock reflects the
potential dilution that could result if securities or other contracts to issue common stock were exercised or converted
into common stock. Net income per common share – diluted for Class A Common Stock is computed using the
more dilutive of the if-converted or two-class method. Net income per common share – diluted for Class A
Common Stock is computed using the if-converted method and assumes the exercise of stock options using the
treasury stock method and the conversion of Class B Convertible Common Stock as this method is more dilutive
than the two-class method. Net income per common share – diluted for Class B Convertible Common Stock is
computed using the two-class method and does not assume conversion of Class B Convertible Common Stock into
shares of Class A Common Stock.
Stock-based employee compensation:
We have two stock-based employee compensation plans (see Note 15). We apply a grant date fair-value-
based measurement method in accounting for our stock-based payment arrangements and record all costs resulting
from stock-based payment transactions ratably over the requisite service period. Stock-based awards are subject to
specific vesting conditions, generally time vesting, or upon retirement, disability or death of the employee (as
defined by the plan), if earlier. For awards granted to retirement-eligible employees, we recognize compensation
expense ratably over the period from the date of grant to the date of retirement-eligibility.
2.
ACQUISITIONS AND DIVESTITURE:
Acquisitions –
Obregon Brewery:
In December 2016, we acquired a brewery operation business in Obregon, Sonora, Mexico from Grupo
Modelo, S. de R.L. de C.V., formerly known as Grupo Modelo, S.A.B. de C.V., (“Modelo”), a subsidiary of
Anheuser-Busch InBev SA/NV for cash paid of $568.7 million, net of cash acquired, subject to estimated working
capital adjustments due to seller of $3.1 million (the “Obregon Brewery”). The transaction primarily included the
acquisition of operations; goodwill; property, plant and equipment; and inventories. The purchase accounting has
not yet been finalized due primarily to an incomplete valuation of property, plant and equipment as a result of the
recency of the date of the transaction. Further changes to the preliminary purchase price allocation will be
recognized as valuations are finalized. This acquisition provided us with immediate functioning brewery capacity to
support our fast-growing, high-end Mexican beer portfolio and flexibility for future innovation initiatives. It also
enabled us to become fully independent from an interim supply agreement with Modelo, which was terminated at
the time of this acquisition. The results of operations of the Obregon Brewery are reported in the Beer segment and
have been included in our consolidated results of operations from the date of acquisition.
High West:
In October 2016, we acquired all of the issued and outstanding common and preferred membership interests
of High West Holdings, LLC for $136.6 million, net of cash acquired (“High West”). This transaction primarily
included the acquisition of operations, goodwill, trademarks, inventories and property, plant and equipment. This
acquisition included a portfolio of craft whiskeys and other select spirits. The results of operations of High West are
63
reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the
date of acquisition.
Charles Smith:
In October 2016, we acquired the Charles Smith Wines, LLC business, a collection of five super and ultra-
premium wine brands, for $120.8 million (“Charles Smith”). This transaction primarily included the acquisition of
goodwill, trademarks, inventories and certain grape supply contracts, plus an earn-out over three years based on the
performance of the brands. The results of operations of Charles Smith are reported in the Wine and Spirits segment
and have been included in our consolidated results of operations from the date of acquisition.
Prisoner:
In April 2016, we acquired The Prisoner Wine Company business, including a portfolio of five super-luxury
wine brands, for $284.9 million (“Prisoner”). This transaction primarily included the acquisition of goodwill,
inventories, trademarks and certain grape supply contracts. The results of operations of Prisoner are reported in the
Wine and Spirits segment and have been included in our consolidated results of operations from the date of
acquisition.
Ballast Point:
In December 2015, we acquired all of the issued and outstanding common and preferred stock of Home
Brew Mart, Inc. d/b/a/ Ballast Point Brewing & Spirits (“Ballast Point”). The following table summarizes the
allocation of the estimated fair value for the significant assets acquired:
(in millions)
Goodwill
Trademarks
Other
Total estimated fair value
Less – cash acquired
Purchase price
$
$
763.2
222.8
14.0
1,000.0
(1.5)
998.5
Goodwill associated with the acquisition is primarily attributable to the future growth opportunities
associated with the acquisition of a high-growth premium platform that enables us to compete in the growing craft
beer category and further strengthened our position in the high-end U.S. beer market. None of the goodwill
recognized is expected to be deductible for income tax purposes. The results of operations of Ballast Point are
reported in the Beer segment and have been included in our consolidated results of operations from the date of
acquisition.
Meiomi:
In August 2015, we acquired the Meiomi wine business, including the acquisition of a higher-margin,
luxury growth pinot noir brand, for $316.2 million (“Meiomi”). This transaction primarily included the acquisition
of goodwill, inventories, the trademark and certain grape supply contracts. The results of operations of Meiomi are
reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the
date of acquisition.
Glass production plant:
In December 2014, we completed the formation of an equally-owned joint venture with Owens-Illinois and
the acquisition of a state-of-the-art glass production plant that is located adjacent to our brewery located in Nava,
Coahuila, Mexico (the “Nava Brewery”). The joint venture owns and operates the glass production plant which
provides bottles exclusively for our Nava Brewery. We have determined that we are the primary beneficiary of this
VIE and accordingly, the results of operations of the joint venture are reported in the Beer segment and have been
included in our consolidated results of operations from the date of acquisition. In addition, we also purchased a
high-density warehouse, land and rail infrastructure at the same site. The aggregate purchase price for all of these
assets was $290.6 million, net of cash acquired, consisting primarily of property, plant and equipment and goodwill.
64
Casa Noble:
In September 2014, we acquired the Casa Noble super-premium tequila business, consisting primarily of
goodwill and the trademark, plus an earn-out over five years based on the performance of the brands (“Casa
Noble”). The results of operations of Casa Noble are reported in the Wine and Spirits segment and have been
included in our consolidated results of operations from the date of acquisition.
Other:
In June 2013, we acquired (i) the remaining 50% equity interest in Crown Imports LLC (“Crown Imports”)
that we did not previously own (the “Crown Acquisition”); and (ii)(a) all of the issued and outstanding equity
interests of a company which owns and operates the Nava Brewery, (ii)(b) all of the issued and outstanding equity
interests of a company which provides personnel and services for the operation and maintenance of the Nava
Brewery, and (ii)(c) an irrevocable, fully-paid license to produce in Mexico (or worldwide under certain
circumstances) and exclusively import, market and sell primarily Modelo’s Mexican beer portfolio sold in the U.S.
and Guam as of the date of acquisition (the “Mexican Beer Brands”), and certain extensions (all collectively
referred to as the “Brewery Purchase”). The Crown Acquisition and the Brewery Purchase are collectively referred
to as the “Beer Business Acquisition.”
For the year ended February 28, 2015, we made a final payment of $558.0 million, consisting of an
additional purchase price payment of $543.3 million plus imputed interest of $14.7 million, in connection with the
Beer Business Acquisition. We used $150.0 million of proceeds from borrowings under the revolving credit facility
under our then-existing senior credit facility, $100.0 million of proceeds from borrowings under our then-existing
accounts receivable securitization facilities and $308.0 million of cash on hand.
Divestiture –
Canadian Divestiture:
In December 2016, we sold the Wine and Spirits’ Canadian wine business, which included Canadian wine
brands such as Jackson-Triggs and Inniskillin, wineries, vineyards, offices, facilities and Wine Rack retail stores, at
a transaction value of C$1.03 billion, or $775.2 million, (the “Canadian Divestiture”). We received cash proceeds
of $575.3 million, net of outstanding debt and direct costs to sell of $194.9 million and $9.9 million, respectively,
subject to estimated working capital adjustments due to buyer of $4.9 million. The following table summarizes the
net gain recognized in connection with this divestiture for the year ended February 28, 2017:
(in millions)
Cash received from buyer
Net assets sold
AOCI reclassification adjustments, primarily foreign currency translation
Direct costs to sell
Estimated working capital adjustments to be paid
Other
Gain on sale of business
$
$
585.2
(175.4)
(122.5)
(9.9)
(4.9)
(10.1)
262.4
Additionally, our Wine and Spirits’ U.S. business recognized an impairment of $8.4 million for the fourth
quarter of fiscal 2017 for trademarks associated with certain U.S. brands sold exclusively through the Canadian
wine business for which we expect future sales of these brands to be minimal subsequent to the Canadian
Divestiture. We also recognized $12.0 million of other costs associated with the Canadian Divestiture for the year
ended February 28, 2017, primarily in connection with the evaluation of the merits of executing an initial public
offering for a portion of our Canadian wine business. These amounts are included in selling, general and
administrative expenses. In total, for the year ended February 28, 2017, we recognized a net gain associated with
the Canadian Divestiture as follows:
(in millions)
Gain on sale of business
Impairment of trademarks
Other net costs
Net gain associated with the Canadian Divestiture and related activities
65
$
$
262.4
(8.4)
(12.0)
242.0
3.
INVENTORIES:
The components of inventories are as follows:
(in millions)
Raw materials and supplies
In-process inventories
Finished case goods
4.
PREPAID EXPENSES AND OTHER:
The major components of prepaid expenses and other are as follows:
(in millions)
Prepaid excise, sales and value added taxes
Income taxes receivable
Other
5.
PROPERTY, PLANT AND EQUIPMENT:
The major components of property, plant and equipment are as follows:
(in millions)
Land and land improvements
Vineyards
Buildings and improvements
Machinery and equipment
Motor vehicles
Construction in progress
Less – Accumulated depreciation
February 28,
2017
February 29,
2016
$
$
149.7
1,260.1
545.3
1,955.1
$
$
107.2
1,218.7
525.7
1,851.6
February 28,
2017
February 29,
2016
$
$
136.1
100.4
124.0
360.5
$
$
82.6
124.5
103.3
310.4
February 28,
2017
February 29,
2016
$
400.4
$
232.6
736.1
3,079.6
124.2
636.9
5,209.8
(1,277.0)
3,932.8
$
$
338.7
244.4
809.1
2,253.8
74.3
792.4
4,512.7
(1,179.3)
3,333.4
For the years ended February 28, 2017, and February 29, 2016, we had noncash additions of $190.3 million
and $158.0 million, respectively, to property, plant and equipment associated primarily with the expansion projects
for our Nava Brewery. These amounts are recorded primarily in accounts payable as of February 28, 2017, and
February 29, 2016.
6.
DERIVATIVE INSTRUMENTS:
Overview –
We are exposed to market risk from changes in foreign currency exchange rates, commodity prices and
interest rates that could affect our results of operations and financial condition. The impact on our results and
financial position and the amounts reported in our financial statements will vary based upon the currency,
66
commodity and interest rate market movements during the period, the effectiveness and level of derivative
instruments outstanding and whether they are designated and qualify for hedge accounting.
The estimated fair values of our derivative instruments change with fluctuations in currency rates,
commodity prices and/or interest rates and are expected to offset changes in the values of the underlying exposures.
Our derivative instruments are held solely to manage our exposures to the aforementioned market risks as part of
our normal business operations. We follow strict policies to manage these risks and do not enter into derivative
instruments for trading or speculative purposes. The aggregate notional value of outstanding derivative instruments
is as follows:
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts
Interest rate swap contracts
Derivative instruments not designated as hedging instruments
Foreign currency contracts
Commodity derivative contracts
Interest rate swap contracts (see Note 11)
February 28,
2017
February 29,
2016
$
$
$
$
$
981.7
250.0
389.9
153.2
$
$
$
$
731.6
600.0
975.6
198.7
— $
1,000.0
Cash flow hedges –
Our derivative instruments designated in hedge accounting relationships are designated as cash flow
hedges. We are exposed to foreign denominated cash flow fluctuations primarily in connection with third party and
intercompany sales and purchases. We primarily use foreign currency forward contracts to hedge certain of these
risks. In addition, we utilize interest rate swap contracts to manage our exposure to changes in interest rates.
Derivatives managing our cash flow exposures generally mature within three years or less, with a maximum
maturity of five years.
To qualify for hedge accounting treatment, the details of the hedging relationship must be formally
documented at inception of the arrangement, including the risk management objective, hedging strategy, hedged
item, specific risk that is being hedged, the derivative instrument, how effectiveness is being assessed and how
ineffectiveness will be measured. The derivative must be highly effective in offsetting changes in the cash flows of
the risk being hedged. Throughout the term of the designated cash flow hedge relationship on at least a quarterly
basis, a retrospective evaluation and prospective assessment of hedge effectiveness is performed based on
quantitative and qualitative measures. All components of our derivative instruments’ gains or losses are included in
the assessment of hedge effectiveness. Resulting ineffectiveness, if any, is recognized immediately in our results of
operations.
When we determine that a derivative instrument which qualified for hedge accounting treatment has ceased
to be highly effective as a hedge, we discontinue hedge accounting prospectively. In the event the relationship is no
longer effective, we recognize the change in the fair value of the hedging derivative instrument from the date the
hedging derivative instrument became no longer effective immediately in our results of operations. We also
discontinue hedge accounting prospectively when (i) a derivative expires or is sold, terminated, or exercised; (ii) it
is no longer probable that the forecasted transaction will occur; or (iii) we determine that designating the derivative
as a hedging instrument is no longer appropriate. When we discontinue hedge accounting prospectively, but the
original forecasted transaction continues to be probable of occurring, the existing gain or loss of the derivative
instrument remains in AOCI and is reclassified into earnings when the forecasted transaction occurs. When it
becomes probable that the forecasted transaction will not occur, any remaining gain or loss in AOCI is recognized
immediately in our results of operations.
We expect $17.1 million of net losses, net of income tax effect, to be reclassified from AOCI to our results
of operations within the next 12 months.
67
Undesignated hedges –
Certain of our derivative instruments do not qualify for hedge accounting treatment; for others, we choose
not to maintain the required documentation to apply hedge accounting treatment. These undesignated instruments
are primarily used to economically hedge our exposure to fluctuations in the value of foreign currency denominated
receivables and payables; foreign currency investments, primarily consisting of loans to subsidiaries, and cash flows
related primarily to the repatriation of those loans or investments; and commodity prices, primarily consisting of
heating oil, diesel fuel, aluminum, natural gas and corn prices. We primarily use foreign currency forward and
option contracts, generally less than 12 months in duration, and commodity derivative contracts, generally less than
36 months in duration, with a maximum maturity of five years, to hedge some of these risks. Our derivative policy
permits the use of undesignated derivatives as approved by senior management.
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 February 28, 2017, the estimated fair value of derivative instruments in a net liability position
due to counterparties was $61.4 million. If we were required to settle the net liability position under these
derivative instruments on February 28, 2017, we would have had sufficient availability under our 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 7):
Assets
February 28,
2017
February 29,
2016
Liabilities
February 28,
2017
February 29,
2016
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and
other
Other assets
5.2
6.0
$
$
$
$
Interest rate swap contracts:
Prepaid expenses and
other
Other assets
$
$
0.3
4.4
$
$
5.5
1.2
—
0.3
Other accrued expenses
and liabilities
Other liabilities
Other accrued expenses
and liabilities
Other liabilities
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and
other
2.0
$
4.8
$
Commodity derivative contracts:
Prepaid expenses and
other
Other assets
Interest rate swap contracts:
Prepaid expenses and
other
$
$
$
4.3
1.5
$
$
— $
0.6
0.3
0.7
68
Other accrued expenses
and liabilities
Other accrued expenses
and liabilities
Other liabilities
Other accrued expenses
and liabilities
$
$
$
$
$
$
$
$
30.4
37.4
$
$
0.3
$
— $
33.0
26.2
1.5
0.4
2.6
$
9.8
6.9
4.7
$
$
29.3
16.8
— $
5.7
The principal effect of our derivative instruments designated in cash flow hedging relationships on our
results of operations, as well as Other Comprehensive Income (“OCI”), net of income tax effect, is as follows:
Derivative Instruments in
Designated Cash Flow
Hedging Relationships
(in millions)
For the Year Ended February 28, 2017
Foreign currency contracts
Interest rate swap contracts
For the Year Ended February 29, 2016
Foreign currency contracts
Interest rate swap contracts
For the Year Ended February 28, 2015
Foreign currency contracts
Interest rate swap contracts
Net
Gain (Loss)
Recognized
in OCI
(Effective
portion)
Location of Net Gain (Loss)
Reclassified from AOCI to
Income (Effective portion)
Net
Gain (Loss)
Reclassified
from AOCI to
Income
(Effective
portion)
$
$
$
$
$
$
(25.8) Sales
Cost of product sold
2.8
Interest expense
(23.0)
(41.7) Sales
Cost of product sold
(1.6)
Interest expense
(43.3)
(22.9) Sales
Cost of product sold
Interest expense
(1.1)
(24.0)
$
$
$
$
$
$
1.1
(28.3)
(4.0)
(31.2)
2.1
(20.0)
(8.1)
(26.0)
1.8
2.6
(8.3)
(3.9)
The effect of our undesignated derivative instruments on our results of operations is as follows:
Derivative Instruments not
Designated as Hedging Instruments
(in millions)
For the Year Ended February 28, 2017
Commodity derivative contracts
Foreign currency contracts
For the Year Ended February 29, 2016
Commodity derivative contracts
Foreign currency contracts
Interest rate swap contracts
For the Year Ended February 28, 2015
Commodity derivative contracts
Foreign currency contracts
Interest rate swap contracts
Location of Net Gain (Loss)
Recognized in Income
Net
Gain (Loss)
Recognized
in Income
Cost of product sold
Selling, general and administrative expenses
Cost of product sold
Selling, general and administrative expenses
Interest expense
Cost of product sold
Selling, general and administrative expenses
Interest expense
$
$
$
$
$
$
16.3
(26.1)
(9.8)
(48.1)
(21.1)
(0.1)
(69.3)
(32.7)
(2.5)
(0.1)
(35.3)
69
7.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Authoritative guidance establishes a framework for measuring fair value and requires disclosures about fair
value measurements for financial instruments. This guidance emphasizes that fair value is a market-based
measurement, not an entity-specific measurement, and states that a fair value measurement should be determined
based on assumptions that market participants would use in pricing an asset or liability. It establishes 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 interest rates and yield curves that are
observable for the asset and 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 and assumptions –
The following methods and assumptions are used to estimate the fair value for each class of our financial
instruments:
Foreign currency and commodity derivative contracts: Our foreign currency contracts consist of foreign
currency forward and option contracts and our commodity derivative contracts consist of swap contracts. The fair
value is estimated using market-based inputs, obtained from independent pricing services, 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).
Interest rate swap 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).
Available-for-sale (“AFS”) debt securities: The fair value is estimated by discounting cash flows using
market-based inputs (Level 3 fair value measurement).
Notes payable to banks: The revolving credit facility under our senior credit facility is a variable interest
rate bearing note which includes a fixed margin which is adjustable based upon our debt ratio (as defined in our
senior credit facility). Its fair value is estimated by discounting cash flows using LIBOR plus a margin reflecting
current market conditions obtained from participating member financial institutions (Level 2 fair value
measurement). The remaining instruments are variable interest rate bearing notes for which the carrying value
approximates the fair value.
Long-term debt: The term loans under our senior credit facility are variable interest rate bearing notes
which include a fixed margin which is adjustable based upon our debt ratio. The fair value of the term loans is
estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from
participating member financial institutions (Level 2 fair value measurement). The fair value of the remaining long-
term debt, which is primarily fixed interest rate, is estimated by discounting cash flows using interest rates currently
available for debt with similar terms and maturities (Level 2 fair value measurement).
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and notes payable to banks, approximate fair value as of February 28, 2017, and
February 29, 2016, due to the relatively short maturity of these instruments. As of February 28, 2017, the carrying
amount of long-term debt, including the current portion, was $8,631.6 million, compared with an estimated fair
value of $8,845.5 million. As of February 29, 2016, the carrying amount of long-term debt, including the current
portion, was $7,672.9 million, compared with an estimated fair value of $7,252.0 million.
70
Recurring basis measurements –
The following table presents our financial assets and liabilities measured at estimated fair value on a
recurring basis:
(in millions)
February 28, 2017
Assets:
Foreign currency contracts
Commodity derivative contracts
Interest rate swap contracts
AFS debt securities
Liabilities:
Foreign currency contracts
Commodity derivative contracts
Interest rate swap contracts
February 29, 2016
Assets:
Foreign currency contracts
Commodity derivative contracts
Interest rate swap contracts
AFS debt securities
Liabilities:
Foreign currency contracts
Commodity derivative contracts
Interest rate swap contracts
Fair Value Measurements Using
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
13.2
5.8
4.7
$
$
$
— $
70.4
11.6
0.3
11.5
0.9
1.0
$
$
$
$
$
$
— $
69.0
46.1
7.6
$
$
$
— $
— $
— $
9.5
$
— $
— $
— $
— $
— $
— $
4.6
$
— $
— $
— $
13.2
5.8
4.7
9.5
70.4
11.6
0.3
11.5
0.9
1.0
4.6
69.0
46.1
7.6
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 period presented:
Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Unobservable
Inputs
(Level 3)
Total Losses
(in millions)
For the Year Ended February 28, 2017
Trademarks
$
— $
— $
— $
46.0
Trademarks:
For the fourth quarter of fiscal 2017, in connection with our continued focus on the premiumization of our
branded wine and spirits portfolio, a decision was made to discontinue certain small-scale, low-margin U.S. brands
within our Wine and Spirits’ portfolio. As a result, trademarks with a carrying value of $37.6 million were written
down to their estimated fair value, resulting in an impairment of $37.6 million.
71
In addition, in connection with the Canadian Divestiture in the fourth quarter of fiscal 2017, trademarks
with a carrying value of $8.4 million were written down to their estimated fair value, resulting in an impairment of
$8.4 million. These trademarks were associated with certain U.S. brands within our Wine and Spirits’ portfolio sold
exclusively through the Canadian wine business, for which we expect future sales of these brands to be minimal
subsequent to the Canadian Divestiture.
We measured the amount of impairment by calculating the amount by which the carrying value of these
assets exceeded their estimated fair values. The estimated fair value was determined based on an income approach
using the relief from royalty method, which assumes that, in lieu of ownership, a third party would be willing to pay
a royalty in order to exploit the related benefits of trademark assets. The cash flow projections we use to estimate
the fair values of our trademarks involve several assumptions, including (i) projected revenue growth rates,
(ii) estimated royalty rates, (iii) after-tax royalty savings expected from ownership of the trademarks and
(iv) discount rates used to derive the estimated fair value of the trademarks.
8.
GOODWILL:
The changes in the carrying amount of goodwill are as follows:
(in millions)
Balance, February 28, 2015
Purchase accounting allocations (1)
Foreign currency translation adjustments
Balance, February 29, 2016
Purchase accounting allocations (2)
Canadian Divestiture (3)
Foreign currency translation adjustments
Balance, February 28, 2017
Beer
Wine and
Spirits
Consolidated
$
3,776.2
$
2,432.0
$
761.8
(7.9)
4,530.1
510.8
—
12.1
203.3
(26.8)
2,608.5
373.7
(126.1)
11.4
6,208.2
965.1
(34.7)
7,138.6
884.5
(126.1)
23.5
$
5,053.0
$
2,867.5
$
7,920.5
(1) Purchase accounting allocations associated with the acquisitions of Ballast Point (Beer) and Meiomi (Wine and
Spirits) (see Note 2).
(2) Preliminary purchase accounting allocations primarily associated with the acquisitions of the Obregon Brewery
(Beer), and Prisoner, High West and Charles Smith (Wine and Spirits) (see Note 2).
(3)
Includes accumulated impairment losses associated with goodwill assigned to our Wine and Spirits’ Canadian
reporting unit of C$289.1 million, or $216.8 million (see Note 2).
72
9.
INTANGIBLE ASSETS:
The major components of intangible assets are as follows:
(in millions)
Amortizable intangible assets
Customer relationships
Favorable interim supply agreement
Other
Total
Nonamortizable intangible assets
Trademarks
Other
Total
Total intangible assets
February 28, 2017
February 29, 2016
Gross
Carrying
Amount
Net
Carrying
Amount
Gross
Carrying
Amount
Net
Carrying
Amount
$
$
89.1
$
48.6
$
102.5
$
—
19.9
109.0
—
1.7
50.3
$
68.3
22.3
193.1
3,327.4
—
3,327.4
3,377.7
$
$
60.2
2.2
3.5
65.9
3,333.8
4.1
3,337.9
3,403.8
We did not incur costs to renew or extend the term of acquired intangible assets for the years ended
February 28, 2017, and February 29, 2016. Net carrying amount represents the gross carrying value net of
accumulated amortization. Amortization expense for intangible assets was $10.4 million, $40.7 million and $40.0
million for the years ended February 28, 2017, February 29, 2016, and February 28, 2015, respectively. Estimated
amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
(in millions)
2018
2019
2020
2021
2022
Thereafter
$
$
$
$
$
$
5.7
5.7
5.5
5.2
4.9
23.3
10.
OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as follows:
(in millions)
Salaries, commissions, and payroll benefits and withholdings
Promotions and advertising
Accrued interest
Income taxes payable
Derivative liabilities
Other
73
February 28,
2017
February 29,
2016
$
$
148.5
116.9
87.5
60.2
40.2
122.5
575.8
$
$
142.3
109.4
64.1
25.0
79.3
124.3
544.4
11.
BORROWINGS:
Borrowings consist of the following:
(in millions)
Notes payable to banks
Senior Credit Facility – Revolving Credit Loans
Other
Long-term debt
Senior Credit Facility – Term Loans
Senior Notes
Other
Current
February 28, 2017
Long-term
Total
February 29,
2016
Total
$
$
$
$
231.0
375.5
606.5
192.5
699.9
18.5
910.9
$
$
$
$
— $
—
— $
3,595.0
3,917.1
208.6
7,720.7
$
$
231.0
375.5
606.5
3,787.5
4,617.0
227.1
8,631.6
$
$
$
$
92.0
316.3
408.3
2,856.8
4,716.3
99.8
7,672.9
Senior credit facility –
In July 2015, the Company, CIH International S.à r.l., a wholly-owned indirect subsidiary of ours (“CIH”),
Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders entered into
an Amendment (“Amendment”) that amended our then existing senior credit facility (as amended, the “2015 Credit
Agreement”). The principal changes effected by the Amendment were:
• The creation of a new $1.27 billion U.S. Term A loan facility into which the existing U.S. Term A and
Term A-2 loan facilities were combined and increased by $200.0 million;
• The refinance of the existing U.S. Term A-1 loan facility and extension of its maturity to July 16, 2021;
• The creation of a new $1.43 billion European Term A loan facility into which the existing European
Term A and Term B-1 loan facilities were combined;
• The extension of the maturity date of all tranches, other than the new U.S. Term A-1 loan facility, to
July 16, 2020; and
• The increase of the revolving credit facility by $300.0 million to $1.15 billion.
In March 2016, the Company, CIH, CIH Holdings S.à r.l., a wholly-owned indirect subsidiary of ours
(“CIHH”), the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “March
2016 Restatement Agreement”) that amended and restated the 2015 Credit Agreement (as amended and restated by
the March 2016 Restatement Agreement, the “March 2016 Credit Agreement”). The principal changes effected by
the March 2016 Restatement Agreement were:
• The creation of a new $700.0 million European Term A-1 loan facility maturing on March 10, 2021;
• An increase of the European revolving commitment under the revolving credit facility by $425.0
million to $1.0 billion;
• The addition of CIHH as a new borrower under the new European Term A-1 loan facility and the
European revolving commitment; and
• The entry into a cross-guarantee agreement by CIH and CIHH whereby each guarantees the other’s
obligations under the March 2016 Credit Agreement.
In October 2016, the Company, CIH, CIHH, CB International Finance S.à r.l., a wholly-owned indirect
subsidiary of ours (“CB International” and together with CIH and CIHH, the “European Borrowers”), the
Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2016 Restatement
Agreement”) that amended and restated the March 2016 Credit Agreement (as amended and restated by the 2016
Restatement Agreement, the “2016 Credit Agreement”). The principal changes effected by the 2016 Restatement
Agreement were:
• The creation of a new $400.0 million European Term A-2 loan facility with CIH as the borrower,
maturing on March 10, 2021;
74
• An adjustment of the Incremental Facilities (as defined below) from a fixed amount to a flexible
amount;
• The addition of CB International as a new borrower under the European revolving commitment; and
• The entry into an amended and restated cross-guarantee agreement by the European Borrowers whereby
each guarantees the others’ obligations under the 2016 Credit Agreement.
The 2016 Credit Agreement provides for aggregate credit facilities of $5,004.2 million, consisting of the
following:
(in millions)
Revolving Credit Facility (1) (2)
U.S. Term A Facility (1) (3)
U.S. Term A-1 Facility (1) (3)
European Term A Facility (1) (3)
European Term A-1 Facility (1) (3)
European Term A-2 Facility (1) (3)
Amount
Maturity
$
1,150.0
1,192.1
July 16, 2020
July 16, 2020
238.9
July 16, 2021
1,340.7
July 16, 2020
682.5 March 10, 2021
400.0 March 10, 2021
$
5,004.2
(1) Contractual interest rate varies based on our debt ratio (as defined in the 2016 Credit Agreement) and is a function
of LIBOR plus a margin, or the base rate plus a margin.
(2) Provides for credit facilities consisting of a $150.0 million U.S. Revolving Credit Facility and a $1,000.0 million
European Revolving Credit Facility. Includes two sub-facilities for letters of credit of up to $200.0 million in the
aggregate. We are the borrower under the U.S. Revolving Credit Facility and we and/or CIH and/or CIHH and/or
CB International are the borrowers under the European Revolving Credit Facility.
(3) We are the borrower under the U.S. Term A and the U.S. Term A-1 loan facilities. CIH is the borrower under the
European Term A and the European Term A-2 loan facilities. CIHH is the borrower under the European Term A-1
loan facility.
The 2016 Credit Agreement also permits us to elect, subject to the willingness of existing or new lenders to
fund such increase or term loans and other customary conditions, to increase the revolving credit commitments or
add one or more tranches of additional term loans (the “Incremental Facilities”). The Incremental Facilities may be
an unlimited amount so long as our leverage ratio, as defined and computed pursuant to the 2016 Credit Agreement,
is no greater than 4.00 to 1.00 for the period defined pursuant to the 2016 Credit Agreement.
The U.S. obligations under the 2016 Credit Agreement are guaranteed by certain of our U.S. subsidiaries.
The European obligations under the 2016 Credit Agreement are guaranteed by us and certain of our U.S.
subsidiaries. In addition, the European obligations are cross-guaranteed by the European Borrowers whereby each
guarantees the others’ obligations.
We and our subsidiaries are subject to covenants that are contained in the 2016 Credit Agreement, including
those restricting the incurrence of additional indebtedness (including guarantees of indebtedness), additional liens,
mergers and consolidations, the payment of dividends, the making of certain investments, prepayments of certain
debt, transactions with affiliates, agreements that restrict our non-guarantor subsidiaries from paying dividends, and
dispositions of property, 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 debt coverage ratio.
75
As of February 28, 2017, information with respect to borrowings under the 2016 Credit Agreement is as
follows:
(in millions)
Outstanding borrowings
Interest rate
LIBOR margin
Outstanding letters of credit
$
$
Remaining borrowing capacity $
Revolving
Credit
Facility
U.S.
Term A
Facility (1)
U.S.
Term A-1
Facility (1)
European
Term A
Facility (1)
European
Term A-1
Facility (1)
European
Term A-2
Facility (1)
231.0
$
1,169.1
$
237.9
$
1,316.7
$
671.0
$
392.8
2.3%
1.5%
2.5%
1.75%
2.3%
1.5%
2.3%
1.5%
2.3%
1.5%
2.3%
1.5%
16.7
902.3
(1) Outstanding term loan facility borrowings are net of unamortized debt issuance costs.
As of February 28, 2017, the required principal repayments of the term loans under the 2016 Credit
Agreement (excluding unamortized debt issuance costs of $18.6 million) for each of the five succeeding fiscal years
and thereafter are as follows:
(in millions)
2018
2019
2020
2021
2022
Thereafter
U.S.
Term A
Facility
U.S.
Term A-1
Facility
European
Term A
Facility
European
Term A-1
Facility
European
Term A-2
Facility
Total
$
$
63.6
63.6
63.6
985.4
—
—
1,176.2
$
$
2.4
2.4
2.4
2.4
228.7
—
238.3
$
$
71.5
71.5
71.5
1,108.3
—
—
1,322.8
$
$
35.0
35.0
35.0
35.0
533.8
—
673.8
$
$
20.0
20.0
20.0
20.0
315.0
—
395.0
$
$
192.5
192.5
192.5
2,151.1
1,077.5
—
3,806.1
Interest rate swap contracts –
In April 2012, we transitioned our then existing interest rate swap agreement to a one-month LIBOR base
rate versus the existing three-month LIBOR base rate by entering into a new interest rate swap agreement which
was designated as a cash flow hedge for $500.0 million of our floating LIBOR rate debt. In addition, our existing
interest rate swap agreement was dedesignated as a hedge. We also entered into an additional interest rate swap
agreement for $500.0 million that was not designated as a hedge to offset the prospective impact of the newly
undesignated interest rate swap agreement. As a result of these hedges, we fixed our interest rates on $500.0 million
of our floating LIBOR rate debt at an average rate of 2.8% (exclusive of borrowing margins) through September 1,
2016. The losses in AOCI related to the dedesignated interest rate swap agreement have been reclassified from
AOCI ratably into earnings in the same period in which the original hedged item was recorded in our results of
operations.
We have entered into additional interest rate swap agreements, which are designated as cash flow hedges for
$250.0 million of our floating LIBOR rate debt. As a result of these hedges, we have fixed our interest rates on
$250.0 million of our floating LIBOR rate debt at an average rate of 1.1% (exclusive of borrowing margins) from
September 1, 2016, through July 1, 2020.
For the years ended February 28, 2017, February 29, 2016, and February 28, 2015, we reclassified net
losses of $4.0 million, $8.1 million and $8.3 million, net of income tax effect, respectively, from AOCI to interest
expense.
76
Senior notes –
Our outstanding senior notes are as follows:
Date of
Outstanding Balance (1)
Issuance
Maturity
Interest
Payments
Principal
February 28,
2017
February 29,
2016
May 2017
April 2012
August 2006
January 2008
September 2016 Mar/Sept
(in millions)
7.25% Senior Notes (2) (3)
7.25% Senior Notes (2) (3) (4)
6% Senior Notes (2) (3)
3.75% Senior Notes (2) (3)
4.25% Senior Notes (2) (3)
May/Nov
3.875% Senior Notes (2) (3) November 2014 November 2019 May/Nov
4.75% Senior Notes (2) (3)
November 2014 November 2024 May/Nov
4.75% Senior Notes (2) (3)
3.70% Senior Notes (2) (5)
December 2015 December 2025
December 2016 December 2026
May 2023
May 2022
May 2021
May 2013
May 2013
May/Nov
May/Nov
May/Nov
June/Dec
June/Dec
$
$
$
$
$
$
$
$
$
700.0
700.0
600.0
500.0
1,050.0
400.0
400.0
400.0
600.0
$
$
$
$
$
$
$
$
$
— $
699.9
594.9
497.4
1,043.4
396.8
395.4
394.8
594.4
$
$
$
$
$
$
$
$
699.0
699.0
594.1
496.8
1,042.5
395.7
394.9
394.3
—
(1) Amounts are net of unamortized discounts, where applicable, and debt issuance costs.
(2) Senior unsecured obligations which rank equally in right of payment to all of our existing and future senior
unsecured indebtedness. Guaranteed by certain of our U.S. subsidiaries on a senior unsecured basis.
(3) Redeemable, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding
principal amount plus a make whole payment based on the present value of the future payments at the adjusted
Treasury Rate plus 50 basis points.
(4)
Issued in exchange for notes originally issued in May 2007.
(5) Redeemable, in whole or in part, at our option at any time prior to September 6, 2026, at a redemption price equal
to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment based
on the present value of the future payments at the adjusted Treasury Rate plus 25 basis points. On or after
September 6, 2026, redeemable, in whole or in part, at our option at any time at a redemption price equal to 100%
of the outstanding principal amount, plus accrued and unpaid interest.
Indentures –
Our Indentures relating to our outstanding senior notes contain certain covenants, including, but not limited
to: (i) a limitation on liens on certain assets, (ii) a limitation on certain sale and leaseback transactions, and
(iii) restrictions on mergers, consolidations and the transfer of all or substantially all of our assets to another person.
Subsidiary credit facilities –
General:
We have additional credit arrangements totaling $442.8 million and $424.1 million as of February 28, 2017,
and February 29, 2016, respectively. As of February 28, 2017, and February 29, 2016, amounts outstanding under
these arrangements were $269.5 million and $157.1 million, respectively, the majority of which is classified as
long-term as of the respective date. These arrangements primarily support the financing needs of our domestic and
foreign subsidiary operations, as well as our glass production plant joint venture (see “other long-term debt” below).
Interest rates and other terms of these borrowings vary from country to country, depending on local market
conditions.
Canadian credit agreement:
In June 2016, through a wholly-owned indirect subsidiary of ours, we entered into a new secured Canadian
credit agreement which provided for a C$275.0 million term loan facility ($214.1 million at issuance) and a C$50.0
million revolving credit facility which was undrawn at issuance (the “Canadian Credit Agreement”). In connection
with the Canadian Divestiture in December 2016, our obligations associated with the Canadian Credit Agreement
terminated.
77
Other long-term debt:
During the year ended February 28, 2017, we recorded an immaterial adjustment related to the prior period
for the noncash conversion of $132.0 million from noncontrolling equity interests to long-term debt associated with
our glass production plant joint venture partner, Owens-Illinois. Additionally, we had incremental borrowings from
Owens-Illinois under the contractual agreement for the year ended February 28, 2017. As of February 28, 2017,
amounts outstanding under the contractual agreement are included in our consolidated balance sheet in accordance
with our consolidation of this VIE. These borrowings have a maturity date of December 2064 with both a fixed and
variable interest rate component. The variable interest rate is based upon certain performance measures as defined
in the contractual agreement. As of February 28, 2017, amounts outstanding under the contractual agreement were
$183.5 million with a weighted average interest rate of 5.1%.
Debt payments –
As of February 28, 2017, the required principal repayments under long-term debt obligations (excluding
unamortized debt issuance costs and unamortized discount of $51.1 million and $0.5 million, respectively) for each
of the five succeeding fiscal years and thereafter are as follows:
(in millions)
2018
2019
2020
2021
2022
Thereafter
$
$
911.0
207.6
599.7
2,153.9
1,577.5
3,233.5
8,683.2
Accounts receivable securitization facilities –
On September 28, 2015, we entered into an amended 364-day revolving trade accounts receivable
securitization facility (the “2015 CBI Facility”). Under the 2015 CBI Facility, trade accounts receivable generated
by us and certain of our subsidiaries are sold by us to our wholly-owned bankruptcy remote single purpose
subsidiary (the “CBI SPV”), which is consolidated by us for financial reporting purposes. Such receivables have
been pledged by the CBI SPV to secure borrowings under the 2015 CBI Facility. We service the receivables for the
2015 CBI Facility. The receivable balances related to the 2015 CBI Facility are reported as accounts receivable on
our balance sheets, but the receivables are at all times owned by the CBI SPV and are included on our financial
statements as required by generally accepted accounting principles. On September 27, 2016, we and the CBI SPV
amended the 2015 CBI Facility (as amended, the “CBI Facility”) for an additional 364-day term. Under the CBI
Facility, there are two lenders, one holding 60% of the aggregate facility and the other holding 40% of the aggregate
facility. Any borrowings under the CBI Facility are recorded as secured borrowings and bear interest as follows:
(i) 60% of the borrowings are charged at that lender’s cost of funds plus a margin of 80 basis points and (ii) 40% of
the borrowings are charged at one-month LIBOR plus a margin of 80 basis points. The CBI Facility provides
borrowing capacity of $235.0 million up to $340.0 million structured to account for the seasonality of our business,
subject to further limitations based upon various pre-agreed formulas.
Also, on September 28, 2015, Crown Imports, a wholly-owned indirect subsidiary of ours, entered into an
amended 364-day revolving trade accounts receivable securitization facility (the “2015 Crown Facility”). Under the
2015 Crown Facility, trade accounts receivable generated by Crown Imports are sold by Crown Imports to its
wholly-owned bankruptcy remote single purpose subsidiary (the “Crown SPV”), which is consolidated by us for
financial reporting purposes. Such receivables have been pledged by the Crown SPV to secure borrowings under
the 2015 Crown Facility. Crown Imports services the receivables for the 2015 Crown Facility. The receivable
balances related to the 2015 Crown Facility are reported as accounts receivable on our balance sheets, but the
receivables are at all times owned by the Crown SPV and are included on our financial statements to comply with
generally accepted accounting principles. On September 27, 2016, Crown Imports and the Crown SPV amended
the 2015 Crown Facility (as amended, the “Crown Facility”) for an additional 364-day term. Under the Crown
Facility, there are two lenders, one holding 60% of the aggregate facility and the other holding 40% of the aggregate
facility. Any borrowings under the Crown Facility are recorded as secured borrowings and bear interest as follows:
78
(i) 60% of the borrowings are charged at that lender’s cost of funds plus a margin of 80 basis points and (ii) 40% of
the borrowings are charged at one-month LIBOR plus a margin of 80 basis points. The Crown Facility provides
borrowing capacity of $120.0 million up to $210.0 million structured to account for the seasonality of Crown
Imports’ business.
As of February 28, 2017, our accounts receivable securitization facilities are as follows:
(in millions)
CBI Facility
Crown Facility
12.
INCOME TAXES:
Income before income taxes was generated as follows:
(in millions)
Domestic
Foreign
The income tax provision consisted of the following:
(in millions)
Current
Federal
State
Foreign
Total current
Deferred
Federal
State
Foreign
Total deferred
Income tax provision
Outstanding
Borrowings
Weighted
Average
Interest Rate
Remaining
Borrowing
Capacity
$
$
206.1
127.0
1.7% $
1.7% $
88.9
13.0
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
$
$
788.0
1,305.4
2,093.4
$
$
599.3
901.9
1,501.2
$
$
481.6
698.0
1,179.6
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
$
$
270.8
28.5
126.2
425.5
113.4
7.5
7.8
128.7
554.2
$
$
126.2
19.9
43.5
189.6
232.4
15.6
3.0
251.0
440.6
$
$
195.0
20.1
49.0
264.1
84.6
4.8
(10.1)
79.3
343.4
The foreign provision (benefit) for income taxes is based on foreign pretax earnings. Earnings of foreign
subsidiaries would be subject to U.S. income taxation on repatriation to the U.S. We provide for taxes that may be
payable if undistributed earnings of foreign subsidiaries were to be remitted to the U.S., except for those earnings
that we consider to be indefinitely reinvested.
During the third quarter of fiscal 2017, in connection with the agreement to divest the Canadian wine
business and the ongoing Beer capacity expansion activities in Mexico, including the agreement to acquire the
Obregon Brewery, we changed our assertion regarding our ability and intent to indefinitely reinvest undistributed
earnings of certain foreign subsidiaries. Approximately $420 million of our earnings for the year ended
February 28, 2017, and all future earnings for these foreign subsidiaries are expected to be indefinitely reinvested.
79
Our current U.S. cash flow estimates and available borrowing capacity are expected to be sufficient to meet future
domestic cash needs. Because we intend to use our historical unremitted earnings generated from our existing
foreign subsidiaries to continue to support our U.S. investments in the future, our intent to repatriate those historical
foreign earnings remains unchanged. Therefore, we continue to provide for anticipated tax liabilities on these
amounts that are expected to be repatriated.
We have not provided for incremental U.S. income taxes on the indefinitely reinvested earnings. If at some
future date these earnings cease to be indefinitely reinvested and are repatriated, we may be subject to additional
U.S. income and other taxes on such amounts of approximately $110 million.
Deferred tax assets and liabilities reflect the future income tax effects of temporary differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are
measured using enacted tax rates that apply to taxable income.
Significant components of deferred tax assets (liabilities) consist of the following:
(in millions)
Deferred tax assets
Loss carryforwards
Stock-based compensation
Inventory
Derivative instruments
Insurance accruals
Employee benefits
Unrealized foreign exchange
Other accruals
Gross deferred tax assets
Valuation allowances
Deferred tax assets, net
Deferred tax liabilities
Intangible assets
Property, plant and equipment
Provision for unremitted earnings
Investments in equity method investees
Unrealized foreign exchange
Derivative instruments
Total deferred tax liabilities
Deferred tax liabilities, net
February 28,
2017
February 29,
2016
$
144.0
$
43.2
12.5
—
5.2
2.5
—
28.4
235.8
(134.1)
101.7
74.2
50.1
14.1
5.1
3.8
2.8
1.3
39.4
190.8
(35.7)
155.1
(720.6)
(255.0)
(229.3)
(24.2)
(4.1)
(0.9)
(1,234.1)
(1,132.4) $
(688.1)
(264.2)
(199.9)
(24.3)
—
—
(1,176.5)
(1,021.4)
$
In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some
or all of the deferred tax assets will not be realized. In making this assessment, we consider the projected reversal
of deferred tax liabilities and projected future taxable income. Based upon this assessment, we believe it is more
likely than not that we will realize the benefits of these deductible differences, net of any valuation allowances.
As of February 28, 2017, operating loss carryforwards totaling $321.2 million are being carried forward in a
number of jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future
taxable income. Of these operating loss carryforwards, $301.6 million will expire in fiscal 2018 through fiscal 2037
and $19.6 million of operating losses in certain jurisdictions may be carried forward indefinitely. Additionally, as of
February 28, 2017, federal capital losses totaling $262.9 million are being carried forward and will expire in fiscal
2022.
80
We have recognized valuation allowances for operating loss carryforwards, capital loss carryforwards and
other deferred tax assets when we believe it is more likely than not that these items will not be realized. The
increase in our valuation allowances as of February 28, 2017, primarily relates to the recognition of a full valuation
allowance for the federal capital losses generated for the year ended February 28, 2017.
A reconciliation of the total tax provision (benefit) to the amount computed by applying the statutory U.S.
Federal income tax rate to income before provision for (benefit from) income taxes is as follows:
For the Years Ended
February 28, 2017
February 29, 2016
February 28, 2015
% of
Pretax
Income
Amount
% of
Pretax
Income
Amount
% of
Pretax
Income
Amount
(in millions, except % of pretax income data)
Income tax provision at statutory rate
$
732.7
35.0% $
525.4
35.0% $
412.8
35.0%
State and local income taxes, net of federal
income tax benefit
Earnings of subsidiaries taxed at other than
U.S. statutory rate
Canadian Divestiture
Miscellaneous items, net
Income tax provision at effective rate
$
23.4
1.1%
23.1
1.5%
16.1
1.4%
(160.4)
(25.5)
(16.0)
554.2
(7.6%)
(1.2%)
(0.8%)
26.5% $
(101.2)
—
(6.7)
440.6
(6.7%)
—%
(0.5%)
29.3% $
(75.3)
—
(10.2)
343.4
(6.4%)
—%
(0.9%)
29.1%
For the years ended February 28, 2017, February 29, 2016, and February 28, 2015, the state and local
income taxes, net of federal income tax benefit, includes benefits resulting from adjustments to the current and
deferred state effective tax rates. These benefits include the recognition of prior period income tax refunds,
decreases in uncertain tax positions and adjustments to the current and deferred state effective tax rates. The effect
of earnings of foreign subsidiaries includes the difference between the U.S. statutory rate and local jurisdiction tax
rates, as well as the provision for incremental U.S. taxes on unremitted earnings of certain foreign subsidiaries offset
by foreign tax credits and other foreign adjustments.
The liability for income taxes associated with uncertain tax positions, excluding interest and penalties, and a
reconciliation of the beginning and ending unrecognized tax benefit liabilities is as follows:
(in millions)
Balance as of March 1
Increases as a result of tax positions taken during a prior period
Decreases as a result of tax positions taken during a prior period
Increases as a result of tax positions taken during the current period
Decreases related to settlements with tax authorities
Decreases related to lapse of applicable statute of limitations
Balance as of last day of February
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
$
$
30.4
—
(11.5)
21.3
—
(0.7)
39.5
$
$
85.5
0.1
(1.2)
3.7
(54.7)
(3.0)
30.4
$
$
101.5
0.1
(4.0)
7.7
(13.9)
(5.9)
85.5
As of February 28, 2017, and February 29, 2016, we had $42.7 million and $32.3 million, respectively, of
non-current unrecognized tax benefit liabilities, including interest and penalties, recorded on our balance sheets.
These liabilities are recorded as non-current as payment of cash is not anticipated within one year of the balance
sheet date.
As of February 28, 2017, and February 29, 2016, we had $39.5 million and $30.4 million, respectively, of
unrecognized tax benefit liabilities that, if recognized, would decrease the effective tax rate.
81
We file U.S. Federal income tax returns and various state, local and foreign income tax returns. Major tax
jurisdictions where we are subject to examination by tax authorities include Canada, Luxembourg, Mexico, New
Zealand and the U.S. Various U.S. Federal, state and foreign income tax examinations are currently in progress. It
is reasonably possible that the liability associated with our unrecognized tax benefit liabilities will increase or
decrease within the next twelve months as a result of these examinations or the expiration of statutes of limitation.
As of February 28, 2017, we estimate that unrecognized tax benefit liabilities could change by a range of $1 million
to $20 million. With few exceptions, we are no longer subject to U.S. Federal, state, local or foreign income tax
examinations for fiscal years prior to February 28, 2009.
We provide for additional tax expense based on probable outcomes of ongoing tax examinations and
assessments in various jurisdictions. While it is often difficult to predict the outcome or the timing of resolution of
any tax matter, we believe the reserves reflect the probable outcome of known tax contingencies. Unfavorable
settlement of any particular issue would require the use of cash. Favorable resolution would be recognized as a
reduction to the effective tax rate in the year of resolution.
The Internal Revenue Service (“IRS”) concluded its examination of our fiscal years ended February 28,
2010, and February 28, 2011. We received a Revenue Agent’s Report (“RAR”) from the IRS proposing tax
assessments for those years. We disagree with certain assessments in this report and are continuing to address these
matters through the IRS Appeals process. We believe that our position will be successfully sustained. For other
items that were effectively settled, we reduced our liability for uncertain tax positions and recorded a tax benefit of
$31.9 million for the year ended February 29, 2016. In addition, during the year ended February 29, 2016, various
U.S. state and international examinations were finalized. In total, tax benefits of $51.0 million were recorded for
the year ended February 29, 2016, related to the resolution of certain tax positions in connection with those
examinations and the expiration of statutes of limitation.
13.
COMMITMENTS AND CONTINGENCIES:
Operating leases –
The minimum lease payments for our operating leases are recognized on a straight-line basis over the
minimum lease term. Step rent provisions, escalation clauses, capital improvement funding and other lease
concessions, when present in our leases, are taken into account in computing the minimum lease payments.
Future payments under noncancelable operating leases having initial or remaining terms of one year or
more are as follows for each of the five succeeding fiscal years and thereafter:
(in millions)
2018
2019
2020
2021
2022
Thereafter
$
$
41.6
46.8
45.2
43.2
35.4
285.5
497.7
Rental expense was $59.2 million, $56.1 million and $58.9 million for the years ended February 28, 2017,
February 29, 2016, and February 28, 2015, respectively.
82
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 and (iv) certain energy requirements. As of February 28, 2017,
the estimated aggregate minimum purchase obligations under these contracts are as follows:
Type
Length of Commitment
Amount
(in millions)
Raw materials and supplies (1)
In-process inventories
Capital expenditures (2)
Packaging, grapes and other raw materials
through December 2029
$
5,508.1
Bulk wine
through February 2022
Property, plant and equipment, and contractor
and manufacturing services
through February 2020
57.6
610.1
Other
Processing and warehousing services, energy
contracts
through May 2029
267.6
6,443.4
$
(1) Grape purchase contracts require the purchase of grape production yielded from a specified number of acres. The
actual tonnage and price of grapes that we must 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
growers and suppliers under contract.
(2) Consists of purchase commitments entered into primarily in connection with the construction of a brewery located
in Mexicali, Baja California, Mexico, and the expansion projects for the Nava Brewery and the adjacent glass
production plant.
Indemnification liabilities –
In connection with a prior divestiture as well as with the Canadian Divestiture, we have indemnified
respective parties against certain liabilities that may arise, including those related to certain income tax matters,
certain contracts with certain investees of one of the divested businesses and a certain facility in the U.K. During
the year ended February 28, 2015, we were released from one of our guarantees, resulting in a gain of $7.5 million.
This gain is included in selling, general and administrative expenses. As of February 28, 2017, and February 29,
2016, the carrying amount of these indemnification liabilities was $9.6 million and $3.7 million, respectively, and is
included in other liabilities. If the indemnified party were to incur a liability, pursuant to the terms of the
indemnification, we would be required to reimburse the indemnified party. As of February 28, 2017, we estimate
that these indemnifications could require us to make potential future payments of up to $81.2 million under these
indemnifications with $57.6 million of this amount able to be recovered by us from third parties under recourse
provisions. 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 financial position,
results of operations, cash flows or liquidity.
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.
14.
STOCKHOLDERS’ EQUITY:
Common stock –
We have two classes of common stock with a material number of shares outstanding: Class A Common
Stock and Class B Convertible Common Stock. Class B Convertible Common Stock shares are convertible into
shares of Class A Common Stock on a one-to-one basis at any time at the option of the holder. Holders of Class B
Convertible Common Stock are entitled to ten votes per share. Holders of Class A Common Stock are entitled to
one vote per share and a cash dividend premium. If we pay a cash dividend on Class B Convertible Common Stock,
each share of Class A Common Stock will receive an amount at least ten percent greater than the amount of the cash
dividend per share paid on Class B Convertible Common Stock. In addition, the Board of Directors may declare
and pay a dividend on Class A Common Stock without paying any dividend on Class B Convertible Common
83
Stock. However, our senior credit facility limits the cash dividends that we can pay on our common stock to a fixed
amount per quarter but the fixed amount may be exceeded subject to various conditions set forth in the senior credit
facility.
In addition, we have a class of common stock with an immaterial number of shares outstanding: Class 1
Common Stock. Shares of Class 1 Common Stock generally have no voting rights. Class 1 Common Stock shares
are convertible into shares of Class A Common Stock on a one-to-one basis at any time at the option of the holder,
provided that the holder immediately sells the Class A Common Stock acquired upon conversion. Because shares of
Class 1 Common Stock are convertible into shares of Class A Common Stock, for each share of Class 1 Common
Stock issued, we must reserve one share of Class A Common Stock for issuance upon the conversion of the share of
Class 1 Common Stock. Holders of Class 1 Common Stock do not have any preference as to dividends, but may
participate in any dividend if and when declared by the Board of Directors. If we pay a cash dividend on Class 1
Common Stock, each share of Class A Common Stock will receive an amount at least ten percent greater than the
amount of cash dividend per share paid on Class 1 Common Stock. In addition, the Board of Directors may declare
and pay a dividend on Class A Common Stock without paying a dividend on Class 1 Common Stock. The cash
dividends declared and paid on Class B Convertible Common Stock and Class 1 Common Stock must always be the
same.
The number of shares of common stock issued and treasury stock, and associated share activity, are as
follows:
Balance at February 28, 2014
Conversion of shares
Exercise of stock options
Employee stock purchases
Grant of restricted stock awards
Vesting of restricted stock units (1)
Vesting of performance share units (2)
Cancellation of restricted shares
Balance at February 28, 2015
Share repurchases
Conversion of shares
Exercise of stock options
Employee stock purchases
Grant of restricted stock awards
Vesting of restricted stock units (1)
Vesting of performance share units (2)
Cancellation of restricted shares
Balance at February 29, 2016
Share repurchases
Conversion of shares
Exercise of stock options
Employee stock purchases
Grant of restricted stock awards
Vesting of restricted stock units (1)
Vesting of performance share units (2)
Balance at February 28, 2017
Class A
248,264,944
46,957
2,527,458
Common Stock
Class B
28,436,565
(46,957)
—
—
—
—
—
—
250,839,359
—
31,079
4,687,588
—
—
—
—
—
255,558,026
—
2
1,948,156
—
—
—
—
—
—
—
—
—
28,389,608
—
(31,079)
—
—
—
—
—
—
28,358,529
—
(2)
—
—
—
—
—
257,506,184
28,358,527
Treasury Stock
Class 1
Class A
Class B
—
—
—
—
—
—
—
—
—
—
—
2,000
—
—
—
—
—
2,000
—
—
80
—
—
—
—
2,080
80,225,575
5,005,800
—
—
(117,301)
(6,424)
(140,396)
(288,021)
8,426
79,681,859
246,143
—
—
(89,155)
(4,984)
(157,052)
(223,044)
244
79,454,011
7,407,051
—
—
(77,671)
(4,088)
(325,773)
(190,559)
86,262,971
—
—
—
—
—
—
—
5,005,800
—
—
—
—
—
—
—
—
5,005,800
—
—
—
—
—
—
—
5,005,800
(1) Net of 241,870 shares, 112,851 shares and 101,499 shares withheld for the years ended February 28, 2017,
February 29, 2016, and February 28, 2015, respectively, to satisfy tax withholding requirements.
84
(2) Net of 168,811 shares, 216,396 shares and 248,499 shares withheld for the years ended February 28, 2017,
February 29, 2016, and February 28, 2015, respectively, to satisfy tax withholding requirements.
Stock repurchases –
In April 2012, our Board of Directors authorized the repurchase of up to $1.0 billion of our Class A
Common Stock and Class B Convertible Common Stock (the “2013 Authorization”), which was fully utilized
during the year ended February 28, 2017. Shares repurchased under the 2013 Authorization have become treasury
shares.
Additionally, in November 2016, our Board of Directors authorized the repurchase of up to $1.0 billion of
our Class A Common Stock and Class B Convertible Common Stock (the “2017 Authorization”). The Board of
Directors did not specify a date upon which this authorization would expire. Shares repurchased under the
2017 Authorization have become treasury shares.
For the year ended February 28, 2017, we repurchased 4,400,504 shares of Class A Common Stock
pursuant to the 2013 Authorization at an aggregate cost of $669.6 million and 3,006,547 shares of Class A Common
Stock pursuant to the 2017 Authorization at an aggregate cost of $453.1 million through open market transactions.
As of February 28, 2017, total shares repurchased under these authorizations are as follows:
(in millions, except share data)
2013 Authorization
2017 Authorization
Class A Common Shares
Dollar Value
of Shares
Repurchased
Number of
Shares
Repurchased
Repurchase
Authorization
$
$
1,000.0
1,000.0
$
$
1,000.0
453.1
18,670,632
3,006,547
Common stock dividends –
In April 2017, our Board of Directors declared a quarterly cash dividend of $0.52 per share of Class A
Common Stock, $0.47 per share of Class B Convertible Common Stock and $0.47 per share of Class 1 Common
Stock payable in the first quarter of fiscal 2018.
15.
STOCK-BASED EMPLOYEE COMPENSATION:
We have two stock-based employee compensation plans (as further discussed below). Total compensation
cost and income tax benefits recognized for our stock-based awards are as follows:
(in millions)
Total compensation cost recognized in our results of operations
Total income tax benefit recognized in our results of operations
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
$
$
56.1
18.5
$
$
54.0
17.8
$
$
55.0
18.7
Long-term stock incentive plan –
Under our Long-Term Stock Incentive Plan, nonqualified stock options, restricted stock, restricted stock
units, performance share units and other stock-based awards may be granted to our employees, officers and
directors. The aggregate number of shares of our Class A Common Stock and Class 1 Common Stock available for
awards under our Long-Term Stock Incentive Plan is 108,000,000 shares.
The exercise price, vesting period and term of nonqualified stock options granted are established by the
committee administering the plan (the “Committee”). The exercise price of any nonqualified stock option may not
be less than the fair market value of our Class A Common Stock on the date of grant. Nonqualified stock options
generally vest and become exercisable over a four-year period from the date of grant and expire as established by
the Committee, but not later than ten years after the grant date.
85
Grants of restricted stock, restricted stock units, performance share units and other stock-based awards may
contain such vesting periods, terms, conditions and other requirements as the Committee may establish. Restricted
stock and restricted stock unit awards are based on service and generally vest over one to four years from the date of
grant. Performance share unit awards are based on service and the satisfaction of certain performance conditions,
and vest over a required employee service period, generally from one to three years from the date of grant, which
closely matches the performance period. The performance conditions include the achievement of specified financial
or operational performance metrics, or market conditions which require the achievement of specified levels of
shareholder return relative to other companies as defined in the applicable performance share unit agreement. The
actual number of shares to be awarded upon vesting of a performance share unit award will range between 0% and
200% of the target award, based upon the measure of performance as certified by the Committee.
A summary of stock option activity, primarily under our Long-Term Stock Incentive Plan, is as follows:
February 28, 2017
Number
of
Options
9,541,393
648,147
$
$
(1,948,236) $
(170,711) $
(338) $
8,070,255
6,456,382
$
$
Weighted
Average
Exercise
Price
34.03
157.01
25.79
109.23
31.92
44.31
26.66
Outstanding as of March 1
Granted
Exercised
Forfeited
Expired
Outstanding as of last day of
February
Exercisable
For the Years Ended
February 29, 2016
Number
of
Options
13,613,615
$
838,996
$
(4,689,588) $
(220,433) $
(1,197) $
Weighted
Average
Exercise
Price
25.46
117.17
22.25
71.75
21.02
February 28, 2015
Number
of
Options
15,314,074
$
$
881,584
(2,527,458) $
(52,779) $
(1,806) $
Weighted
Average
Exercise
Price
21.82
79.86
22.02
42.79
19.55
25.46
19.45
9,541,393
7,348,309
$
$
34.03
21.37
13,613,615
10,499,030
$
$
As of February 28, 2017, the aggregate intrinsic value of our options outstanding and exercisable was
$924.1 million and $853.3 million, respectively. In addition, the weighted average remaining contractual life for
our options outstanding and exercisable was 4.7 years and 3.8 years, respectively.
The fair value of stock options vested, and the intrinsic value of and tax benefit realized from the exercise
of stock options, are as follows:
(in millions)
Fair value of stock options vested
Intrinsic value of stock options exercised
Tax benefit realized from stock options exercised
For the Years Ended
February 28,
2017
February 29,
2016
February 28,
2015
$
$
$
20.3
260.4
106.0
$
$
$
20.1
514.9
193.5
$
$
$
19.6
185.8
62.2
86
The weighted average grant-date fair value of stock options granted and the weighted average assumptions
used to estimate the fair value on the date of grant using the Black-Scholes option-pricing model are as follows:
Grant-date fair value
Expected life (1)
Expected volatility (2)
Risk-free interest rate (3)
Expected dividend yield (4)
For the Years Ended
February 28,
2017
February 29,
2016
February 28,
2015
$
40.09
$
31.14
$
27.77
5.9 years
5.9 years
5.9 years
27.1%
1.6%
1.0%
28.5%
1.6%
1.1%
32.4%
2.1%
0.0%
(1) Based on historical experience of employees’ exercise behavior for similar type awards.
(2) Based primarily on historical volatility levels of our Class A Common Stock.
(3) Based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to
the expected life.
(4) Based on the calculated yield on our Class A Common Stock at date of grant using the current fiscal year
projected annualized dividend distribution rate.
A summary of restricted Class A Common Stock activity under our Long-Term Stock Incentive Plan is as
follows:
February 28, 2017
For the Years Ended
February 29, 2016
February 28, 2015
Weighted
Average
Grant-Date
Fair Value
Number
Weighted
Average
Grant-Date
Fair Value
Number
Weighted
Average
Grant-Date
Fair Value
Number
4,984
4,088
$
$
(4,984) $
— $
119.37
166.34
119.37
—
117,054
$
4,984
$
(116,810) $
(244) $
25.15
119.37
25.16
20.60
408,744
$
6,424
$
(289,688) $
(8,426) $
20.18
87.13
20.90
20.43
4,088
$
166.34
4,984
$
119.37
117,054
$
25.15
$
917,009
$
174,187
(567,643) $
(67,854) $
70.23
156.74
54.29
108.56
$
1,063,726
$
230,742
(269,903) $
(107,556) $
51.16
122.60
44.48
58.65
$
1,104,580
$
250,923
(241,895) $
(49,882) $
39.87
80.72
32.34
41.05
455,699
$
117.44
917,009
$
70.23
1,063,726
$
51.16
Restricted Stock Awards
Outstanding balance as of
March 1, Nonvested
Granted
Vested
Forfeited
Outstanding balance as of last
day of February, Nonvested
Restricted Stock Units
Outstanding balance as of
March 1, Nonvested
Granted
Vested
Forfeited
Outstanding balance as of last
day of February, Nonvested
87
February 28, 2017
For the Years Ended
February 29, 2016
February 28, 2015
Weighted
Average
Grant-Date
Fair Value
Number
Weighted
Average
Grant-Date
Fair Value
Number
Weighted
Average
Grant-Date
Fair Value
Number
501,261
75,765
105,330
$
$
$
(359,370) $
92.41
190.33
66.50
60.50
(72,653) $
144.26
617,684
155,671
$
$
$
219,720
(439,440) $
(52,374) $
58.21
146.25
38.47
38.47
75.42
798,600
108,290
$
$
$
268,260
(536,520) $
(20,946) $
39.67
99.64
21.65
21.65
47.21
250,333
$
141.91
501,261
$
92.41
617,684
$
58.21
Performance Share Units
Outstanding balance as of
March 1, Nonvested
Granted
Performance achievement (1)
Vested
Forfeited
Outstanding balance as of last
day of February, Nonvested
(1) Reflects the number of awards achieved above target levels based on actual performance measured at the end of
the performance period.
The fair value of shares vested for our restricted Class A Common Stock awards is as follows:
(in millions)
Restricted stock awards
Restricted stock units
Performance share units
For the Years Ended
February 28,
2017
February 29,
2016
February 28,
2015
$
$
$
0.8
89.4
57.2
$
$
$
13.7
31.7
51.5
$
$
$
23.6
19.7
43.6
The weighted average grant-date fair value of performance share units granted with a market condition and
the weighted average assumptions used to estimate the fair value on the date of grant using the Monte Carlo
Simulation model are as follows:
Grant-date fair value
Grant-date price
Performance period
Expected volatility (1)
Risk-free interest rate (2)
Expected dividend yield (3)
For the Years Ended
February 28,
2017
February 29,
2016
February 28,
2015
$
$
204.53
157.33
$
$
153.64
117.08
$
$
101.05
79.61
2.8 years
20.6%
1.0%
0.0%
3.0 years
33.5%
0.9%
0.0%
3.0 years
38.2%
0.8%
0.0%
(1) Based primarily on historical volatility levels of our Class A Common Stock.
(2) Based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to
the performance period.
(3) No expected dividend yield for the years ended February 28, 2017, and February 29, 2016, as units granted earn
dividend equivalents.
Employee stock purchase plan –
We have a stock purchase plan (the “Employee Stock Purchase Plan”) under which 9,000,000 shares of
Class A Common Stock may be issued. Under the terms of the plan, eligible employees may purchase shares of our
Class A Common Stock through payroll deductions. The purchase price is the lower of 85% of the fair market value
of the stock on the first or last day of the purchase period. For the years ended February 28, 2017, February 29,
88
2016, and February 28, 2015, employees purchased 77,671 shares, 89,155 shares and 117,301 shares, respectively,
under this plan.
Other –
As of February 28, 2017, there was $76.2 million of total unrecognized compensation cost related to
nonvested stock-based compensation arrangements granted under our stock-based employee compensation plans.
This cost is expected to be recognized in our results of operations over a weighted-average period of 2.2 years.
With respect to the issuance of shares under any of our stock-based compensation plans, we have the option to issue
authorized but unissued shares or treasury shares.
16.
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO CBI:
The computation of basic and diluted net income per common share is as follows:
For the Years Ended
February 28, 2017
February 29, 2016
February 28, 2015
Common Stock
Common Stock
Common Stock
Class A
Class B
Class A
Class B
Class A
Class B
$
1,370.1
$
165.0
$
940.0
$
114.9
$
745.6
$
93.7
165.0
—
114.9
—
(3.1)
—
—
(3.1)
93.7
—
—
(4.0)
$
1,535.1
$
161.9
$
1,054.9
$
111.8
$
839.3
$
89.7
175.934
23.353
173.383
23.363
169.325
23.397
23.353
4.812
—
—
23.363
7.075
—
—
23.397
8.502
—
—
204.099
23.353
203.821
23.363
201.224
23.397
$
$
7.79
7.52
$
$
7.07
6.93
$
$
5.42
5.18
$
$
4.92
4.79
$
$
4.40
4.17
$
$
4.00
3.83
(in millions, except per share data)
Net income attributable to CBI
allocated – basic
Conversion of Class B common
shares into Class A common shares
Effect of stock-based awards on
allocated net income
Net income attributable to CBI
allocated – diluted
Weighted average common shares
outstanding – basic
Conversion of Class B common
shares into Class A common shares
Stock-based awards, primarily
stock options
Weighted average common shares
outstanding – diluted
Net income per common share
attributable to CBI – basic
Net income per common share
attributable to CBI – diluted
89
17.
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Other comprehensive loss attributable to CBI includes the following components:
Before Tax
Amount
Tax (Expense)
Benefit
Net of Tax
Amount
$
$
$
$
(203.3) $
—
(203.3)
13.6
$
—
13.6
(33.6)
6.8
(26.8)
(1.0)
—
(1.0)
(8.1)
—
(8.1)
(239.2) $
(310.7) $
—
(310.7)
(59.8)
37.3
(22.5)
(0.4)
0.1
(0.3)
9.6
(3.0)
6.6
—
—
—
2.1
—
2.1
22.3
6.3
—
6.3
16.5
(11.0)
5.5
—
—
—
$
$
(0.1)
0.5
0.4
(333.1) $
—
(0.3)
(0.3)
11.5
$
(189.7)
—
(189.7)
(24.0)
3.8
(20.2)
(1.0)
—
(1.0)
(6.0)
—
(6.0)
(216.9)
(304.4)
—
(304.4)
(43.3)
26.3
(17.0)
(0.4)
0.1
(0.3)
(0.1)
0.2
0.1
(321.6)
(in millions)
For the Year Ended February 28, 2015
Other comprehensive loss attributable to CBI:
Foreign currency translation adjustments:
Net losses
Reclassification adjustments
Net loss recognized in other comprehensive loss
Unrealized loss on cash flow hedges:
Net derivative losses
Reclassification adjustments
Net loss recognized in other comprehensive loss
Unrealized loss on AFS debt securities:
Net AFS debt securities losses
Reclassification adjustments
Net loss recognized in other comprehensive loss
Pension/postretirement adjustments:
Net actuarial losses
Reclassification adjustments
Net loss recognized in other comprehensive loss
Other comprehensive loss attributable to CBI
For the Year Ended February 29, 2016
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net losses
Reclassification adjustments
Net loss recognized in other comprehensive loss
Unrealized loss on cash flow hedges:
Net derivative losses
Reclassification adjustments
Net loss recognized in other comprehensive loss
Unrealized loss on AFS debt securities:
Net AFS debt securities losses
Reclassification adjustments
Net loss recognized in other comprehensive loss
Pension/postretirement adjustments:
Net actuarial losses
Reclassification adjustments
Net gain recognized in other comprehensive loss
Other comprehensive loss attributable to CBI
90
(in millions)
For the Year Ended February 28, 2017
Other comprehensive income attributable to CBI:
Foreign currency translation adjustments:
Net losses
Reclassification adjustments
Net gain recognized in other comprehensive income
Unrealized loss on cash flow hedges:
Net derivative losses
Reclassification adjustments
Net gain recognized in other comprehensive income
Unrealized gain on AFS debt securities:
Net AFS debt securities gains
Reclassification adjustments
Net gain recognized in other comprehensive income
Pension/postretirement adjustments:
Net actuarial gains
Reclassification adjustments
Net gain recognized in other comprehensive income
Other comprehensive income attributable to CBI
Before Tax
Amount
Tax (Expense)
Benefit
Net of Tax
Amount
$
$
(78.3) $
111.5
33.2
(0.7) $
—
(0.7)
(34.7)
45.2
10.5
0.4
—
0.4
0.3
11.5
11.8
55.9
$
11.7
(14.1)
(2.4)
0.1
—
0.1
(0.1)
(0.1)
(0.2)
(3.2) $
(79.0)
111.5
32.5
(23.0)
31.1
8.1
0.5
—
0.5
0.2
11.4
11.6
52.7
Accumulated other comprehensive loss, net of income tax effect, includes the following components:
Foreign
Currency
Translation
Adjustments
Net
Unrealized
Losses on
Derivative
Instruments
Net
Unrealized
Gains (Losses)
on AFS Debt
Securities
Pension/
Postretirement
Adjustments
Accumulated
Other
Comprehensive
Loss
$
(390.5) $
(46.1) $
(2.8) $
(13.1) $
(452.5)
(in millions)
Balance, February 29, 2016
Other comprehensive income:
Other comprehensive income (loss)
before reclassification adjustments
Amounts reclassified from
accumulated other comprehensive
income
Other comprehensive income
Balance, February 28, 2017
$
(79.0)
(23.0)
0.5
0.2
(101.3)
111.5
32.5
(358.0) $
31.1
8.1
(38.0) $
—
0.5
(2.3) $
11.4
11.6
(1.5) $
154.0
52.7
(399.8)
91
18.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Net sales to our five largest customers represented 32.6%, 31.7% and 33.7% of our net sales for the years
ended February 28, 2017, February 29, 2016, and February 28, 2015, respectively. Net sales to our five largest
customers are expected to continue to represent a significant portion of our revenues. Net sales to an individual
customer which amount to 10% or more of our net sales, and the associated amounts receivable from this customer
as a percentage of our accounts receivable, are as follows:
Southern Glazer’s Wine and Spirits
Net sales
Accounts receivable
For the Years Ended
February 28,
2017
February 29,
2016
February 28,
2015
14.1%
32.1%
13.4%
32.0%
15.4%
24.4%
Net sales for the above customer are primarily reported within the Wine and Spirits segment. Our
arrangements with certain of our customers may, generally, be terminated by either party with prior notice. The
majority of our accounts receivable balance is generated from sales to independent distributors with whom we have
a predetermined collection date arranged through electronic funds transfer. We perform ongoing credit evaluations
of our customers’ financial position, and management is of the opinion that any risk of significant loss is reduced
due to the diversity of our customers and geographic sales area.
19.
CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
The following information sets forth the condensed consolidating balance sheets as of February 28, 2017,
and February 29, 2016, the condensed consolidating statements of comprehensive income for the years ended
February 28, 2017, February 29, 2016, and February 28, 2015, and the condensed consolidating statements of cash
flows for the years ended February 28, 2017, February 29, 2016, and February 28, 2015, for the parent company,
our combined subsidiaries which guarantee our senior notes (“Subsidiary Guarantors”), our combined subsidiaries
which are not Subsidiary Guarantors (primarily foreign subsidiaries) (“Subsidiary Nonguarantors”) and the
Company. The Subsidiary Guarantors are 100% owned, directly or indirectly, by the parent company and the
guarantees are joint and several obligations of each of the Subsidiary Guarantors. The guarantees are full and
unconditional, as those terms are used in Rule 3-10 of Regulation S-X, except that a Subsidiary Guarantor can be
automatically released and relieved of its obligations under certain customary circumstances contained in the
indentures governing our senior notes. These customary circumstances include, so long as other applicable
provisions of the indentures are adhered to, the termination or release of a Subsidiary Guarantor’s guarantee of other
indebtedness or upon the legal defeasance or covenant defeasance or satisfaction and discharge of our senior notes.
Separate financial statements for our Subsidiary Guarantors are not presented because we have determined that such
financial statements would not be material to investors. The accounting policies of the parent company, the
Subsidiary Guarantors and the Subsidiary Nonguarantors are the same as those described for the Company in the
Summary of Significant Accounting Policies in Note 1. There are no restrictions on the ability of the Subsidiary
Guarantors to transfer funds to us in the form of cash dividends, loans or advances.
92
(in millions)
Condensed Consolidating Balance Sheet at February 28, 2017
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Current assets:
Cash and cash equivalents
$
Accounts receivable
Inventories
Intercompany receivable
Prepaid expenses and other
Total current assets
Property, plant and equipment
Investments in subsidiaries
Goodwill
Intangible assets
Intercompany notes receivable
Other assets
Total assets
Current liabilities:
Notes payable to banks
$
$
5.8
$
162.0
$
— $
$
9.6
2.4
162.3
21,927.8
40.4
18.5
1,628.5
28,384.7
74.8
22,142.5
30,112.3
69.5
13,884.2
—
—
5,074.5
17.9
951.1
125.0
6,589.9
955.1
188.3
77.2
716.1
330.9
12,410.6
169.0
13,788.6
2,912.2
—
1,330.6
2,422.6
100.6
46.3
—
(166.6)
(62,723.1)
76.3
(62,813.4)
—
(14,009.2)
—
—
(5,363.4)
—
41,188.6
$
38,998.9
$
20,600.9
$
(82,186.0) $
18,602.4
231.0
$
— $
375.5
$
— $
Current maturities of long-term debt
Accounts payable
Accrued excise taxes
Intercompany payable
Other accrued expenses and liabilities
Total current liabilities
Long-term debt, less current maturities
Deferred income taxes
Intercompany notes payable
Other liabilities
Total liabilities
Total CBI stockholders’ equity
Noncontrolling interests
767.9
47.6
17.8
27,675.4
252.4
28,992.1
5,260.2
13.3
—
31.8
34,297.4
6,891.2
—
16.3
146.2
26.0
22,786.3
138.8
23,113.6
23.0
823.2
5,334.0
18.9
29,312.7
9,686.2
—
Total stockholders’ equity
Total liabilities and stockholders’ equity $
6,891.2
41,188.6
$
9,686.2
38,998.9
$
126.7
366.0
0.8
12,261.4
153.0
13,283.4
2,437.5
297.1
29.4
115.0
16,162.4
4,444.9
(6.4)
4,438.5
20,600.9
$
—
—
—
(62,723.1)
31.6
(62,691.5)
—
—
(5,363.4)
—
(68,054.9)
(14,131.1)
—
(14,131.1)
(82,186.0) $
93
177.4
737.0
1,955.1
—
360.5
3,230.0
3,932.8
—
7,920.5
3,377.7
—
141.4
606.5
910.9
559.8
44.6
—
575.8
2,697.6
7,720.7
1,133.6
—
165.7
11,717.6
6,891.2
(6.4)
6,884.8
18,602.4
(in millions)
Condensed Consolidating Balance Sheet at February 29, 2016
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Current assets:
Cash and cash equivalents
$
Accounts receivable
Inventories
Intercompany receivable
Prepaid expenses and other
Total current assets
Property, plant and equipment
Investments in subsidiaries
Goodwill
Intangible assets
Intercompany notes receivable
Other assets
Total assets
Current liabilities:
Notes payable to banks
Current maturities of long-term debt
Accounts payable
Accrued excise taxes
Intercompany payable
Other accrued expenses and liabilities
Total current liabilities
Long-term debt, less current maturities
Deferred income taxes
Intercompany notes payable
Other liabilities
Total liabilities
Total CBI stockholders’ equity
Noncontrolling interests
$
$
4.2
$
72.9
$
— $
$
6.0
0.4
151.6
17,459.3
29.6
22.3
1,483.5
23,758.9
67.8
17,646.9
25,336.7
63.2
13,047.2
—
—
4,705.9
20.0
879.8
19.0
6,376.4
970.9
86.6
69.6
709.8
344.0
9,393.5
281.1
10,801.3
2,390.4
—
762.2
2,430.8
—
22.0
—
(127.5)
(50,611.7)
(68.1)
(50,807.3)
—
(13,066.2)
—
2.1
(4,792.5)
—
83.1
732.5
1,851.6
—
310.4
2,977.6
3,333.4
—
7,138.6
3,403.8
—
111.6
35,483.2
$
33,739.0
$
16,406.7
$
(68,663.9) $
16,965.0
— $
— $
765.6
37.7
14.7
22,293.3
349.1
23,460.4
5,421.4
11.9
—
29.9
28,923.6
6,559.6
—
18.0
100.7
14.7
19,018.6
185.1
19,337.1
26.3
734.8
4,776.6
39.1
24,913.9
8,825.1
—
$
408.3
73.1
290.9
4.2
9,299.8
119.4
10,195.7
1,368.5
275.5
15.9
93.5
11,949.1
4,325.4
132.2
4,457.6
16,406.7
$
— $
—
—
—
(50,611.7)
(109.2)
(50,720.9)
—
—
(4,792.5)
—
(55,513.4)
(13,150.5)
—
(13,150.5)
(68,663.9) $
408.3
856.7
429.3
33.6
—
544.4
2,272.3
6,816.2
1,022.2
—
162.5
10,273.2
6,559.6
132.2
6,691.8
16,965.0
Total stockholders’ equity
Total liabilities and stockholders’ equity $
6,559.6
35,483.2
$
8,825.1
33,739.0
$
94
(in millions)
Condensed Consolidating Statement of Comprehensive Income for the Year Ended February 28, 2017
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Sales
Less – excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative
expenses
Gain on sale of business
Operating income
Equity in earnings (losses) of equity
method investees and subsidiaries
Interest income
Intercompany interest income
Interest expense
Intercompany interest expense
Income before income taxes
(Provision for) benefit from income
taxes
Net income
Net income attributable to
noncontrolling interests
Net income attributable to CBI
Comprehensive income attributable to
CBI
$
$
$
2,832.6
$
(351.9)
2,480.7
(1,974.5)
506.2
(417.2)
(23.4)
65.6
1,657.4
0.4
227.1
(280.0)
(311.1)
1,359.4
175.7
1,535.1
$
6,453.2
(321.1)
6,132.1
(4,433.1)
1,699.0
$
3,125.0
(57.1)
3,067.9
(1,653.8)
1,414.1
(4,349.2) $
—
(4,349.2)
4,259.3
(89.9)
(800.8)
(4.3)
893.9
33.3
—
311.5
(1.5)
(226.7)
1,010.5
(396.2)
614.3
(222.8)
290.1
1,481.4
(0.8)
1.4
—
(53.6)
(0.8)
1,427.6
(337.2)
1,090.4
48.4
—
(41.5)
(1,662.6)
—
(538.6)
—
538.6
(1,704.1)
3.5
(1,700.6)
—
1,535.1
$
—
614.3
$
(4.1)
1,086.3
$
—
(1,700.6) $
8,061.6
(730.1)
7,331.5
(3,802.1)
3,529.4
(1,392.4)
262.4
2,399.4
27.3
1.8
—
(335.1)
—
2,093.4
(554.2)
1,539.2
(4.1)
1,535.1
1,587.8
$
614.1
$
1,108.7
$
(1,722.8) $
1,587.8
95
(in millions)
Condensed Consolidating Statement of Comprehensive Income for the Year Ended February 29, 2016
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
$
2,522.8
$
Sales
Less – excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative
expenses
Operating income
Equity in earnings of equity method
investees and subsidiaries
Dividend income
Interest income
Intercompany interest income
Interest expense
Intercompany interest expense
Loss on write-off of debt issuance costs
Income before income taxes
(Provision for) benefit from income
taxes
Net income
Net income attributable to
noncontrolling interests
Net income attributable to CBI
Comprehensive income attributable to
CBI
$
$
(332.6)
2,190.2
(1,759.6)
430.6
(378.4)
52.2
1,224.2
—
0.2
191.4
(290.1)
(267.4)
(0.4)
910.1
144.8
1,054.9
$
5,614.9
(281.1)
5,333.8
(3,906.2)
1,427.6
(652.6)
775.0
31.2
—
—
268.0
(0.2)
(191.3)
—
882.7
(346.3)
536.4
$
3,024.5
(61.7)
2,962.8
(1,823.8)
1,139.0
(176.5)
962.5
0.5
24.5
0.6
0.1
(24.4)
(0.8)
(0.7)
962.3
(247.4)
714.9
(3,938.4) $
—
(3,938.4)
3,883.5
(54.9)
30.3
(24.6)
(1,229.3)
—
—
(459.5)
—
459.5
—
(1,253.9)
8.3
(1,245.6)
—
—
1,054.9
$
536.4
$
(5.7)
709.2
$
—
(1,245.6) $
7,223.8
(675.4)
6,548.4
(3,606.1)
2,942.3
(1,177.2)
1,765.1
26.6
24.5
0.8
—
(314.7)
—
(1.1)
1,501.2
(440.6)
1,060.6
(5.7)
1,054.9
733.3
$
531.9
$
383.7
$
(915.6) $
733.3
96
(in millions)
Condensed Consolidating Statement of Comprehensive Income for the Year Ended February 28, 2015
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
$
2,406.4
$
Sales
Less – excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative
expenses
Operating income
Equity in earnings of equity method
investees and subsidiaries
Interest income
Intercompany interest income
Interest expense
Intercompany interest expense
Loss on write-off of debt issuance costs
Income before income taxes
(Provision for) benefit from income
taxes
Net income
Net loss attributable to noncontrolling
interests
Net income attributable to CBI
Comprehensive income attributable to
CBI
$
$
(324.8)
2,081.6
(1,678.4)
403.2
(388.2)
15.0
828.0
0.1
177.8
(296.4)
(222.0)
—
502.5
336.8
839.3
—
$
5,078.3
(251.6)
4,826.7
(3,629.0)
1,197.7
(470.1)
727.6
24.6
—
222.7
(1.4)
(177.6)
—
795.9
(295.5)
500.4
$
3,004.1
(67.7)
2,936.4
(1,870.3)
1,066.1
(273.4)
792.7
1.2
1.3
—
(41.3)
(0.9)
(4.4)
748.6
(395.7)
352.9
—
3.1
(3,816.7) $
—
(3,816.7)
3,728.3
(88.4)
53.3
(35.1)
(832.3)
—
(400.5)
—
400.5
—
(867.4)
11.0
(856.4)
—
(856.4) $
6,672.1
(644.1)
6,028.0
(3,449.4)
2,578.6
(1,078.4)
1,500.2
21.5
1.4
—
(339.1)
—
(4.4)
1,179.6
(343.4)
836.2
3.1
839.3
839.3
$
500.4
$
356.0
$
622.4
$
503.7
$
132.2
$
(635.9) $
622.4
97
(in millions)
Condensed Consolidating Statement of Cash Flows for the Year Ended February 28, 2017
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
$
171.9
$
1,152.1
$
1,027.4
$
(655.4) $
1,696.0
Net cash provided by operating
activities
Cash flows from investing activities:
Purchases of businesses, net of cash
acquired
Purchases of property, plant and
equipment
Proceeds from sale of business
Net proceeds from intercompany
notes
Net returns of capital from equity
affiliates
Other investing activities
Net cash provided by (used in) investing
activities
Cash flows from financing activities:
Dividends paid to parent company
Net returns of capital to equity
affiliates
Net proceeds from (repayments of)
intercompany notes
Purchases of treasury stock
Principal payments of long-term debt
Dividends paid
Payments of minimum tax
withholdings on stock-based payment
awards
Payments of debt issuance costs and
other financing costs
Proceeds from issuance of long-term
debt
Net proceeds from (repayments of)
notes payable
Excess tax benefits from stock-based
payment awards
Proceeds from shares issued under
equity compensation plans
—
(284.9)
(826.1)
(12.8)
(9.9)
430.1
470.7
0.7
878.8
—
—
141.2
(1,122.7)
(767.6)
(315.1)
—
(5.0)
600.0
231.0
131.4
59.7
—
—
—
(733.8)
585.2
—
(447.8)
—
(19.3)
(470.7)
—
(1,111.0)
(907.4)
575.3
—
—
(18.7)
(160.8)
—
17.7
—
(0.1)
(428.1)
(994.0)
(918.5)
(1,461.8)
—
(868.7)
(31.2)
(226.2)
(608.7)
—
(20.6)
—
(61.9)
—
—
—
—
—
19.7
—
(183.6)
—
(3.0)
(9.1)
1,365.6
(33.9)
—
—
868.7
257.4
447.8
—
—
—
—
—
—
—
—
—
—
—
—
(1,122.7)
(971.8)
(315.1)
(64.9)
(14.1)
1,965.6
197.1
131.4
59.7
Net cash provided by (used in) financing
activities
Effect of exchange rate changes on cash
and cash equivalents
Net increase in cash and cash
equivalents
Cash and cash equivalents, beginning of
year
Cash and cash equivalents, end of year
$
(1,047.1)
(722.4)
60.8
1,573.9
(134.8)
(5.1)
89.1
72.9
—
—
—
$
162.0
$
— $
(5.1)
94.3
83.1
177.4
—
1.6
4.2
5.8
—
3.6
6.0
9.6
$
98
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
(in millions)
Condensed Consolidating Statement of Cash Flows for the Year Ended February 29, 2016
Net cash provided by (used in) operating
activities
$
(476.2) $
1,249.6
$
667.8
$
(27.5) $
1,413.7
Cash flows from investing activities:
Purchases of businesses, net of cash
acquired
Purchases of property, plant and
equipment
Net proceeds from intercompany
notes
Net investments in equity affiliates
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Dividends paid to parent company
Net contributions from equity
affiliates
Net proceeds from (repayments of)
intercompany notes
Purchases of treasury stock
Principal payments of long-term debt
Dividends paid
Payments of minimum tax
withholdings on stock-based payment
awards
Payments of debt issuance costs and
other financing costs
Proceeds from issuance of long-term
debt
Net proceeds from notes payable
Excess tax benefits from stock-based
payment awards
Proceeds from shares issued under
equity compensation plans
Proceeds from noncontrolling
interests
Net cash provided by financing
activities
Effect of exchange rate changes on cash
and cash equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of
year
Cash and cash equivalents, end of year
$
—
(1,314.7)
(1.7)
(14.1)
(61.6)
(815.6)
—
—
(188.8)
550.1
—
361.3
(1,316.4)
(891.3)
—
—
0.3
(2,207.4)
—
—
(3.4)
(820.7)
143.9
(550.1)
3.5
(416.8)
—
60.9
250.4
(33.8)
(64.5)
(241.6)
44.9
—
0.2
(1,331.2)
—
266.8
(106.4)
—
(39.4)
—
—
(35.9)
—
—
—
—
—
—
85.1
—
3.5
0.7
4.2
(13.3)
600.0
—
203.4
113.0
—
874.5
—
(18.5)
24.5
6.0
$
99
(88.8)
88.8
283.7
(611.4)
(332.8)
—
(104.8)
—
(2.7)
—
10.0
360.6
—
—
25.0
150.2
(9.3)
(12.0)
84.9
72.9
$
$
188.8
—
—
—
—
—
—
—
—
—
—
(333.8)
—
—
—
— $
—
—
—
(33.8)
(208.7)
(241.6)
(38.6)
(13.3)
610.0
360.6
203.4
113.0
25.0
776.0
(9.3)
(27.0)
110.1
83.1
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
(in millions)
Condensed Consolidating Statement of Cash Flows for the Year Ended February 28, 2015
Net cash provided by (used in) operating
activities
$
(553.6) $
784.5
$
850.1
$
— $
1,081.0
—
(310.3)
(83.7)
(612.6)
—
—
(5.6)
—
—
19.5
—
—
(485.4)
2.6
—
(310.3)
(719.4)
—
—
13.8
(89.3)
(903.4)
(482.8)
(1,015.9)
—
(23.1)
485.4
(2.6)
(0.1)
459.6
—
—
(262.8)
(549.2)
—
(31.5)
(618.1)
(19.6)
—
(26.1)
(11.7)
800.0
—
78.0
63.7
—
—
—
—
—
—
—
—
—
Cash flows from investing activities:
Purchase of businesses, net of cash
acquired
Purchases of property, plant and
equipment
Net proceeds from intercompany
notes
Net investments in equity affiliates
Other investing activities
Net cash provided by (used in) investing
activities
Cash flows from financing activities:
Dividends paid to parent company
Net contributions from (returns of
capital to) equity affiliates
Net proceeds from (repayments of)
intercompany notes
Principal payments of long-term debt
Payments of minimum tax
withholdings on stock-based payment
awards
Payments of debt issuance costs and
other financing costs
Proceeds from issuance of long-term
debt
Net proceeds from notes payable
Excess tax benefits from stock-based
payment awards
Proceeds from shares issued under
equity compensation plans
Proceeds from noncontrolling
interests
Payment of delayed purchase price
arrangement
Net cash provided by (used in) financing
activities
Effect of exchange rate changes on cash
and cash equivalents
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of
year
Cash and cash equivalents, end of year
$
(38.8)
72.9
395.5
(36.9)
(2.3)
(2.1)
105.0
13.1
—
—
115.0
(543.3)
38.8
(41.4)
485.4
—
—
—
—
—
—
—
—
—
—
—
—
(605.7)
(28.4)
(13.8)
905.0
13.1
78.0
63.7
115.0
(543.3)
(16.4)
(2.5)
46.2
63.9
110.1
118.0
(695.3)
78.1
482.8
—
24.0
0.5
24.5
$
—
(0.1)
0.8
0.7
$
(2.5)
22.3
62.6
84.9
$
—
—
—
— $
100
20.
BUSINESS SEGMENT INFORMATION:
Our internal management financial reporting consists of two business divisions: (i) Beer and (ii) Wine and
Spirits, and we report our operating results in three segments: (i) Beer, (ii) Wine and Spirits, and (iii) Corporate
Operations and Other. In the Beer segment, our portfolio consists of high-end imported and craft beer brands. We
have an exclusive perpetual brand license to import, market and sell in the U.S. our Mexican beer portfolio. In the
Wine and Spirits segment, we sell a large number of wine brands across all categories – table wine, sparkling wine
and dessert wine – and across all price points – popular, premium and luxury categories, primarily within the
$5 to $25 price range at U.S. retail – complemented by certain premium spirits brands. Amounts included in the
Corporate Operations and Other segment consist of costs of executive management, corporate development,
corporate finance, human resources, internal audit, investor relations, legal, public relations and information
technology. The amounts included in the Corporate Operations and Other segment are general costs that are
applicable to the consolidated group and are therefore not allocated to the other reportable segments. All costs
reported within the Corporate Operations and Other segment are not included in our chief operating decision
maker’s evaluation of the operating income performance of the other reportable segments. The business segments
reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by
senior management and the structure of our internal financial reporting.
In addition, management excludes items that affect comparability (“Comparable Adjustments”) from its
evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core
operations of the segments. Segment operating performance and segment management compensation are evaluated
based upon core segment operating income (loss). As such, the performance measures for incentive compensation
purposes for segment management do not include the impact of these Comparable Adjustments.
We evaluate segment operating performance based on operating income (loss) of the respective business
units. Comparable Adjustments that impacted comparability in our segment operating income (loss) for each period
are as follows:
February 28,
2017
For the Years Ended
February 29,
2016
February 28,
2015
(in millions)
Cost of product sold
Settlements of undesignated commodity derivative contracts
$
23.4
$
Net gain (loss) on undesignated commodity derivative contracts
Flow through of inventory step-up
Amortization of favorable interim supply agreement
Other losses
Total cost of product sold
Selling, general and administrative expenses
Impairment of intangible assets
Costs associated with the Canadian Divestiture and related activities
Transaction, integration and other acquisition-related costs
Restructuring and related charges
Other gains (losses)
Total selling, general and administrative expenses
Gain on sale of business
16.3
(20.1)
(2.2)
—
17.4
(37.6)
(20.4)
(14.2)
(0.9)
(2.6)
(75.7)
262.4
$
29.5
(48.1)
(18.4)
(31.7)
—
(68.7)
—
—
(15.4)
(16.4)
—
(31.8)
—
4.4
(32.7)
—
(28.4)
(2.8)
(59.5)
—
—
(30.5)
—
7.2
(23.3)
—
Comparable Adjustments, Operating income (loss)
$
204.1
$
(100.5) $
(82.8)
101
The accounting policies of the segments are the same as those described for the Company in the Summary
of Significant Accounting Policies in Note 1. Segment information is as follows:
(in millions)
Beer
Net sales
Segment operating income
Long-lived tangible assets
Total assets
Capital expenditures
Depreciation and amortization
Wine and Spirits
Net sales:
Wine
Spirits
Net sales
Segment operating income
Earnings from unconsolidated investments
Long-lived tangible assets
Investments in equity method investees
Total assets
Capital expenditures
Depreciation and amortization
Corporate Operations and Other
Segment operating loss
Losses from unconsolidated investments
Long-lived tangible assets
Investments in equity method investees
Total assets
Capital expenditures
Depreciation and amortization
Comparable Adjustments
Operating income (loss)
Earnings (losses) from unconsolidated investments
Depreciation and amortization
Consolidated
Net sales
Operating income
Earnings from unconsolidated investments
Long-lived tangible assets
Investments in equity method investees
Total assets
Capital expenditures
Depreciation and amortization
For the Years Ended
February 28,
2017
February 29,
2016
February 28,
2015
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,229.3
1,534.4
2,810.0
11,325.3
759.2
114.9
2,739.3
362.9
3,102.2
800.8
29.2
992.9
77.6
6,976.6
100.0
99.4
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,622.6
1,264.1
2,187.8
9,900.7
800.3
61.5
2,591.4
334.4
2,925.8
727.0
26.6
1,039.8
76.2
6,770.4
81.7
100.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(139.9) $
(0.2) $
$
129.9
21.1
300.5
48.2
31.4
$
$
$
$
(125.5) $
— $
$
105.8
6.0
293.9
9.3
27.6
$
$
$
$
204.1
$
(1.7) $
$
2.2
(100.5) $
$
24.5
$
31.7
3,188.6
1,017.8
1,485.6
8,281.0
587.3
45.4
2,523.4
316.0
2,839.4
674.3
21.5
1,071.8
73.5
6,508.2
96.8
100.0
(109.1)
—
124.2
—
303.8
35.3
28.2
(82.8)
—
28.4
7,331.5
2,399.4
27.3
3,932.8
98.7
18,602.4
907.4
247.9
$
$
$
$
$
$
$
$
6,548.4
1,765.1
51.1
3,333.4
82.2
16,965.0
891.3
221.0
$
$
$
$
$
$
$
$
6,028.0
1,500.2
21.5
2,681.6
73.5
15,093.0
719.4
202.0
102
Earnings from unconsolidated investments consist of equity in earnings from equity method investees of
$27.3 million, $26.6 million and $21.5 million for the years ended February 28, 2017, February 29, 2016, and
February 28, 2015, respectively, and dividend income from a retained interest in a previously divested business of
$24.5 million for the year ended February 29, 2016.
Our principal area of operation is in the U.S. Current operations outside the U.S. are in Mexico for the Beer
segment and primarily in New Zealand, Italy and Canada for the Wine and Spirits segment. Revenues are attributed
to countries based on the location of the customer.
Geographic data is as follows:
(in millions)
Net sales
U.S.
Non-U.S. (primarily Canada)
(in millions)
Long-lived tangible assets
U.S.
Non-U.S. (primarily Mexico)
For the Years Ended
February 28,
2017
February 29,
2016
February 28,
2015
$
$
6,807.7
523.8
7,331.5
$
$
5,960.9
587.5
6,548.4
$
$
5,360.0
668.0
6,028.0
February 28,
2017
February 29,
2016
$
$
1,037.6
2,895.2
3,932.8
$
$
933.3
2,400.1
3,333.4
21.
ACCOUNTING GUIDANCE NOT YET ADOPTED:
Revenue recognition –
In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with
customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. A five step process will be utilized to recognize revenue, as follows: (i) identify the
contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. Additionally, this guidance requires improved disclosures
regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with
customers. We are required to adopt this guidance for our annual and interim periods beginning March 1, 2018,
utilizing one of two methods: retrospective restatement for each reporting period presented at time of adoption, or a
modified retrospective approach with the cumulative effect of initially applying this guidance recognized at the date
of initial application.
We intend to implement this guidance under the retrospective approach. Based on our preliminary review,
we expect that the broad definition of variable consideration under this guidance will require us to estimate and
record certain variable payments resulting from various sales incentives earlier than we currently record them. We
do not expect this change to have a material impact on our consolidated financial statements. We are currently
preparing to implement changes to our accounting policies, systems and controls to support the new revenue
recognition and disclosure requirements.
103
Leases –
In February 2016, the FASB issued guidance for the accounting for leases. Under this guidance, a lessee
will recognize assets and liabilities for most leases, but will recognize expense similar to current lease accounting
guidance. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election
not to recognize lease assets and lease liabilities. We are required to adopt this guidance for our annual and interim
periods beginning March 1, 2019, using a modified retrospective approach. We are currently assessing the financial
impact of this guidance on our consolidated financial statements.
Stock compensation –
In March 2016, the FASB issued guidance which amends, among other items, the accounting for income
taxes related to share-based compensation and the related classification in the statement of cash flows. This
guidance requires the recognition of excess tax benefits and deficiencies (resulting from an increase or decrease in
the fair value of an award from grant date to the vesting or settlement date) in the provision for income taxes as a
discrete item in the quarterly period in which they occur. Through February 28, 2017, these amounts were
recognized in additional paid-in capital at the time of vesting or settlement. In addition, these amounts will be
classified as an operating activity in the statement of cash flows instead of as a financing activity where they are
currently recorded. This guidance will also impact our calculation of diluted earnings per share under the treasury
stock method, as excess tax benefits and deficiencies resulting from share-based compensation are no longer
included in the assumed proceeds calculation.
For the years ended February 28, 2017, February 29, 2016, and February 28, 2015, we recognized excess
tax benefits of $131.4 million, $203.4 million and $78.0 million, respectively, in additional paid-in capital. These
amounts may not necessarily be indicative of future amounts that may be recognized subsequent to the adoption of
the amended standard, as any excess tax benefits recognized will be dependent upon future stock prices, employee
exercise behavior and applicable tax rates. We adopted this guidance on March 1, 2017, on a prospective basis.
22.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
A summary of selected quarterly financial information is as follows:
QUARTER ENDED
May 31,
2016
August 31,
2016
November 30,
2016
February 28,
2017
Full Year
(in millions, except per share data)
Fiscal 2017
Net sales
Gross profit
Net income attributable to CBI (1)
Net income per common share
attributable to CBI (1) (2):
Basic – Class A Common Stock
Basic – Class B Convertible Common
Stock
Diluted – Class A Common Stock
Diluted – Class B Convertible
Common Stock
$
$
$
$
$
$
$
1,871.8
881.3
318.3
1.61
1.46
1.55
1.43
$
$
$
$
$
$
$
2,021.2
969.0
358.9
1.81
1.64
1.75
1.61
$
$
$
$
$
$
$
1,810.5
891.4
405.9
2.04
1.85
1.98
1.82
$
$
$
$
$
$
$
1,628.0
787.7
452.0
2.34
2.12
2.26
2.09
$
$
$
$
$
$
$
7,331.5
3,529.4
1,535.1
7.79
7.07
7.52
6.93
104
QUARTER ENDED
May 31,
2015
August 31,
2015
November 30,
2015
February 29,
2016
Full Year
(in millions, except per share data)
Fiscal 2016
Net sales
Gross profit
Net income attributable to CBI
Net income per common share
attributable to CBI (2):
Basic – Class A Common Stock
Basic – Class B Convertible Common
Stock
Diluted – Class A Common Stock
Diluted – Class B Convertible
Common Stock
$
$
$
$
$
$
$
1,631.3
737.1
238.6
1.24
1.12
1.18
1.09
$
$
$
$
$
$
$
1,733.4
775.6
302.4
1.56
1.42
1.49
1.38
$
$
$
$
$
$
$
1,640.5
733.5
270.5
1.39
1.26
1.33
1.22
$
$
$
$
$
$
$
1,543.2
696.1
243.4
1.23
1.12
1.19
1.10
$
$
$
$
$
$
$
6,548.4
2,942.3
1,054.9
5.42
4.92
5.18
4.79
(1)
Includes gain on sale of business, net of income tax effect, of $196.1 million for the fourth quarter of fiscal 2017
in connection with the Canadian Divestiture.
(2) The sum of the quarterly net income per common share for Fiscal 2017 and Fiscal 2016 may not equal the total
computed for the respective years as the net income per common share is computed independently for each of the
quarters presented and for the full year.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not Applicable.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer have concluded, based on their evaluation as
of the end of the period covered by this report, that the Company’s “disclosure controls and procedures” (as defined
in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information
required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (i) is
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and (ii) is accumulated and communicated to our management, including our Chief
Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Internal Control over Financial Reporting
(a) See page 52 of this Annual Report on Form 10-K for Management’s Annual Report on Internal Control over
Financial Reporting, which is incorporated herein by reference.
(b) See page 53 of this Annual Report on Form 10-K for the attestation report of KPMG LLP, our independent
registered public accounting firm, which is incorporated herein by reference.
(c) In connection with management’s quarterly evaluation of “internal control over financial reporting” (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)), no changes were identified in
our internal control over financial reporting during our fiscal quarter ended February 28, 2017 (our fourth
105
fiscal quarter) that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Item 9B. Other Information.
Not Applicable.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item (except for the information regarding executive officers required by
Item 401 of Regulation S-K which is included in Part I hereof in accordance with General Instruction G(3)) is
incorporated herein by reference to the Proxy Statement to be issued in connection with the Annual Meeting of
Stockholders of our Company which is expected to be held on July 18, 2017, under those sections of the Proxy
Statement to be titled “Director Nominees,” “The Board of Directors and Committees of the Board” and “Section
16(a) Beneficial Ownership Reporting Compliance.” That Proxy Statement will be filed within 120 days after the
end of our fiscal year.
We have adopted the Chief Executive Officer and Senior Financial Executive Code of Ethics which is a
code of ethics that applies to our chief executive officer and our senior financial officers. The Chief Executive
Officer and Senior Financial Executive Code of Ethics is located on our Internet website at http://
www.cbrands.com/investors/corporate-governance. Amendments to, and waivers granted under, our Chief
Executive Officer and Senior Financial Executive Code of Ethics, if any, will be posted to our website as well. We
will provide to anyone, without charge, upon request, a copy of such Code of Ethics. Such requests should be
directed in writing to Investor Relations Department, Constellation Brands, Inc., 207 High Point Drive, Building
100, Victor, New York 14564 or by telephoning our Investor Center at 1-888-922-2150.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference to the Proxy Statement to be
issued in connection with the Annual Meeting of Stockholders of our Company which is expected to be held on
July 18, 2017, under those sections of the Proxy Statement to be titled “Executive Compensation,” “Compensation
Committee Interlocks and Insider Participation” and “Director Compensation.” That Proxy Statement will be filed
within 120 days after the end of our fiscal year. Notwithstanding the foregoing, the Compensation Committee
Report included within the section of the Proxy Statement to be titled “Executive Compensation” is only being
“furnished” hereunder and shall not be deemed “filed” with the Securities and Exchange Commission or subject to
the liabilities of Section 18 of the Securities Exchange Act of 1934.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this Item is incorporated herein by reference to the Proxy Statement to be
issued in connection with the Annual Meeting of Stockholders of our Company which is expected to be held on
July 18, 2017, under that section of the Proxy Statement to be titled “Beneficial Ownership.” That Proxy Statement
will be filed within 120 days after the end of our fiscal year. Additional information required by this item is as
follows:
106
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information with respect to our compensation plans under which our equity
securities may be issued, as of February 28, 2017. The equity compensation plans approved by security holders
include our Long-Term Stock Incentive Plan and our 1989 Employee Stock Purchase Plan.
Equity Compensation Plan Information
(a)
(b)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
Weighted average
exercise price of
outstanding
options, warrants
and rights
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
8,973,565 (1)
—
8,973,565
$
$
$
44.31 (2)
14,901,443 (3)
—
44.31
—
14,901,443
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
(1)
(2)
(3)
Includes 447,611 shares of unvested performance share units and 455,699 shares of unvested restricted stock
units under our Long-Term Stock Incentive Plan. The unvested performance share units represent the maximum
number of shares to be awarded, which ranges from 100% to 200% of the target shares granted. We currently
estimate that 113,740 of the target shares granted will be awarded at 200% of target; 95,057 of the target shares
granted will be awarded at 100% of target and 41,536 of the target shares granted will be awarded at less than
100% of target based upon our expectations as of February 28, 2017, regarding the achievement of specified
performance targets.
Excludes unvested performance share units and unvested restricted stock units under our Long-Term Stock
Incentive Plan that can be exercised for no consideration.
Includes 1,574,880 shares of Class A Common Stock under our Employee Stock Purchase Plan remaining
available for purchase, of which approximately 42,500 shares are subject to purchase during the current offering
period.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated herein by reference to the Proxy Statement to be
issued in connection with the Annual Meeting of Stockholders of our Company which is expected to be held on
July 18, 2017, under those sections of the Proxy Statement to be titled “Director Nominees,” “The Board of
Directors and Committees of the Board” and “Certain Relationships and Related Transactions.” That Proxy
Statement will be filed within 120 days after the end of our fiscal year.
Item 14. Principal Accounting Fees and Services.
The information required by this Item is incorporated herein by reference to the Proxy Statement to be
issued in connection with the Annual Meeting of Stockholders of our Company which is expected to be held on
July 18, 2017, under that section of the Proxy Statement to be titled “Proposal 2 – Ratification of the Selection of
KPMG LLP as Independent Registered Public Accounting Firm.” That Proxy Statement will be filed within 120
days after the end of our fiscal year.
107
PART IV
Item 15. Exhibits, Financial Statement Schedules.
1. Financial Statements
The following consolidated financial statements of the Company are submitted herewith:
Management’s Annual Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm – KPMG LLP
Report of Independent Registered Public Accounting Firm – KPMG LLP
Consolidated Balance Sheets – February 28, 2017, and February 29, 2016
Consolidated Statements of Comprehensive Income for the years ended February 28,
2017, February 29, 2016, and February 28, 2015
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
February 28, 2017, February 29, 2016, and February 28, 2015
Consolidated Statements of Cash Flows for the years ended February 28, 2017,
February 29, 2016, and February 28, 2015
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedules are not submitted because they are not applicable or not required under Regulation S-X
or because the required information is included in the financial statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulations S-K
For the exhibits that are filed herewith or incorporated herein by reference, see the Index to Exhibits
located on page 110 of this Report. The Index to Exhibits is incorporated herein by reference.
Item 16. Form 10-K Summary.
None.
108
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
April 27, 2017
CONSTELLATION BRANDS, INC.
By:
/s/ Robert Sands
Robert Sands, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Robert Sands
Robert Sands, Director, President and
Chief Executive Officer (principal
executive officer)
April 27, 2017
/s/ Richard Sands
Richard Sands, Director and
Chairman of the Board
April 27, 2017
/s/ Jerry Fowden
Jerry Fowden, Director
April 27, 2017
/s/ Robert L. Hanson
Robert L. Hanson, Director
April 27, 2017
/s/ James A. Locke III
James A. Locke III, Director
April 27, 2017
/s/ Judy A. Schmeling
Judy A. Schmeling, Director
April 27, 2017
/s/ David Klein
David Klein, Executive Vice
President and Chief Financial Officer
(principal financial officer and
principal accounting officer)
April 27, 2017
/s/ Frederic Cumenal
Frederic Cumenal, Director
April 27, 2017
/s/ Barry Fromberg
Barry Fromberg, Director
April 27, 2017
/s/ Ernesto M. Hernández
Ernesto M. Hernández, Director
April 27, 2017
/s/ Daniel J. McCarthy
Daniel J. McCarthy, Director
April 27, 2017
/s/ Keith E. Wandell
Keith E. Wandell, Director
April 27, 2017
109
Exhibit
No.
2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
INDEX TO EXHIBITS
Membership Interest Purchase Agreement, dated as of June 28, 2012, among Constellation Beers Ltd.,
Constellation Brands Beach Holdings, Inc., Constellation Brands, Inc. and Anheuser-Busch InBev SA/NV (filed
as Exhibit 2.1 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A dated June 28, 2012, filed
November 9, 2012 and incorporated herein by reference). +#
Amended and Restated Membership Interest Purchase Agreement, dated as of February 13, 2013, among
Constellation Beers Ltd., Constellation Brands Beach Holdings, Inc., Constellation Brands, Inc. and Anheuser-
Busch InBev SA/NV (filed as Exhibit 2.1 to the Company’s Amendment No. 1 to Current Report on Form 8-K/A
dated February 13, 2013, filed February 25, 2013 and incorporated herein by reference). +
First Amendment dated as of April 19, 2013, to the Amended and Restated Membership Interest Purchase
Agreement, dated as of February 13, 2013, among Constellation Beers Ltd., Constellation Brands Beach
Holdings, Inc., Constellation Brands, Inc. and Anheuser-Busch InBev SA/NV (filed as Exhibit 2.1 to the
Company’s Current Report on Form 8-K dated April 19, 2013, filed April 19, 2013 and incorporated herein by
reference). +
Stock Purchase Agreement dated as of February 13, 2013, between Anheuser-Busch InBev SA/NV and
Constellation Brands, Inc. (filed as Exhibit 2.2 to the Company’s Amendment No. 1 to Current Report on
Form 8-K/A dated February 13, 2013, filed February 25, 2013 and incorporated herein by reference). +
First Amendment dated as of April 19, 2013, to the Stock Purchase Agreement dated as of February 13, 2013,
between Anheuser-Busch InBev SA/NV and Constellation Brands, Inc. (filed as Exhibit 2.2 to the Company’s
Current Report on Form 8-K dated April 19, 2013, filed April 19, 2013 and incorporated herein by reference). +
Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein by reference). #
Certificate of Amendment to the Certificate of Incorporation of the Company (filed as Exhibit 3.2 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein
by reference). #
Amended and Restated By-Laws of the Company, amended as of October 4, 2016 (filed as Exhibit 3.3 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2016 and incorporated
herein by reference).
Indenture, dated as of August 15, 2006, by and among the Company, as Issuer, certain subsidiaries, as Guarantors
and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-
K dated August 15, 2006, filed August 18, 2006 and incorporated herein by reference). #
Supplemental Indenture No. 1, with respect to 7.25% Senior Notes due 2016 (no longer outstanding), dated as of
August 15, 2006, among the Company, as Issuer, certain subsidiaries, as Guarantors, and BNY Midwest Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated August 15, 2006,
filed August 18, 2006 and incorporated herein by reference). #
Supplemental Indenture No. 2, dated as of November 30, 2006, by and among the Company, Vincor International
Partnership, Vincor International II, LLC, Vincor Holdings, Inc., R.H. Phillips, Inc., The Hogue Cellars, Ltd.,
Vincor Finance, LLC, and BNY Midwest Trust Company, as Trustee (filed as Exhibit 4.28 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2006 and incorporated herein by
reference). #
Supplemental Indenture No. 3, dated as of May 4, 2007, by and among the Company, Barton SMO Holdings
LLC, ALCOFI INC., and Spirits Marque One LLC, and BNY Midwest Trust Company, as Trustee (filed as
Exhibit 4.32 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2007 and
incorporated herein by reference). #
Supplemental Indenture No. 4, with respect to 8 3/8% Senior Notes due 2014 (no longer outstanding), dated as
of December 5, 2007, by and among the Company, as Issuer, certain subsidiaries, as Guarantors, and The Bank
of New York Trust Company, N.A., (as successor to BNY Midwest Trust Company), as Trustee (filed as Exhibit
4.1 to the Company’s Current Report on Form 8-K dated December 5, 2007, filed December 11, 2007 and
incorporated herein by reference). #
Supplemental Indenture No. 5, dated as of January 22, 2008, by and among the Company, BWE, Inc., Atlas Peak
Vineyards, Inc., Buena Vista Winery, Inc., Clos du Bois Wines, Inc., Gary Farrell Wines, Inc., Peak Wines
International, Inc., and Planet 10 Spirits, LLC, and The Bank of New York Trust Company, N.A. (successor
trustee to BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.37 to the Company’s Annual Report on
Form 10-K for the fiscal year ended February 29, 2008 and incorporated herein by reference). #
110
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
Supplemental Indenture No. 6, dated as of February 27, 2009, by and among the Company, Constellation
Services LLC, and The Bank of New York Mellon Trust Company National Association (successor trustee to
BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.31 to the Company’s Annual Report on Form 10-K
for the fiscal year ended February 28, 2009 and incorporated herein by reference). #
Supplemental Indenture No. 7, dated as of June 7, 2013, among the Company, Constellation Brands Beach
Holdings, Inc., Crown Imports LLC, and The Bank of New York Mellon Trust Company, National Association,
as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated June 7, 2013, filed June 11,
2013 and incorporated herein by reference).
Supplemental Indenture No. 8, dated as of May 28, 2014, among the Company, Constellation Marketing
Services, Inc., and The Bank of New York Mellon Trust Company, National Association, as trustee (filed as
Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2014 and
incorporated herein by reference).
Supplemental Indenture No. 9, dated as of January 15, 2016, among the Company, Home Brew Mart, Inc., and
The Bank of New York Mellon Trust Company, N.A. (successor trustee to BNY Midwest Trust Company), as
Trustee (filed as Exhibit 4.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended
February 29, 2016 and incorporated herein by reference).
Indenture, with respect to 7.25% Senior Notes due May 2017, dated May 14, 2007, by and among the Company,
as Issuer, certain subsidiaries, as Guarantors, and The Bank of New York Trust Company, N.A., as Trustee (filed
as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 9, 2007, filed May 14, 2007 and
incorporated herein by reference). #
Supplemental Indenture No. 1, dated as of January 22, 2008, by and among the Company, BWE, Inc., Atlas Peak
Vineyards, Inc., Buena Vista Winery, Inc., Clos du Bois Wines, Inc., Gary Farrell Wines, Inc., Peak Wines
International, Inc., and Planet 10 Spirits, LLC, and The Bank of New York Trust Company, N.A. (successor
trustee to BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.39 to the Company’s Annual Report on
Form 10-K for the fiscal year ended February 29, 2008 and incorporated herein by reference). #
Supplemental Indenture No. 2, dated as of February 27, 2009, by and among the Company, Constellation
Services LLC, and The Bank of New York Mellon Trust Company National Association (successor trustee to
BNY Midwest Trust Company), as Trustee (filed as Exhibit 4.34 to the Company’s Annual Report on Form 10-K
for the fiscal year ended February 28, 2009 and incorporated herein by reference). #
Supplemental Indenture No. 3, dated as of June 7, 2013, among the Company, Constellation Brands Beach
Holdings, Inc., Crown Imports LLC, and The Bank of New York Mellon Trust Company, National Association,
as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated June 7, 2013, filed June 11,
2013 and incorporated herein by reference).
Supplemental Indenture No. 4, dated as of May 28, 2014, among the Company, Constellation Marketing
Services, Inc., and The Bank of New York Mellon Trust Company, National Association, as trustee (filed as
Exhibit 4.14 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2014 and
incorporated herein by reference).
Supplemental Indenture No. 5, dated as of January 15, 2016, among the Company, Home Brew Mart, Inc. and
The Bank of New York Mellon Trust Company, N.A. (successor trustee to BNY Midwest Trust Company), as
Trustee (filed as Exhibit 4.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended
February 29, 2016 and incorporated herein by reference).
Indenture, dated as of April 17, 2012, by and among the Company, as Issuer, certain subsidiaries, as Guarantors
and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report
on Form 8-K dated April 17, 2012, filed April 23, 2012 and incorporated herein by reference). #
Supplemental Indenture No. 1, with respect to 6.0% Senior Notes due May 2022, dated as of April 17, 2012,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.1.1 to the Company’s Current Report on Form 8-K dated April 17, 2012,
filed April 23, 2012 and incorporated herein by reference). #
Supplemental Indenture No. 3, with respect to 3.75% Senior Notes due May 2021, dated as of May 14, 2013,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 14, 2013,
filed May 16, 2013 and incorporated herein by reference).
Supplemental Indenture No. 4, with respect to 4.25% Senior Notes due May 2023, dated as of May 14, 2013,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 14, 2013,
filed May 16, 2013 and incorporated herein by reference).
Supplemental Indenture No. 5, dated as of June 7, 2013, among the Company, Constellation Brands Beach
Holdings, Inc., Crown Imports LLC, and Manufacturers and Traders Trust Company, as Trustee (filed as
Exhibit 4.4 to the Company’s Current Report on Form 8-K dated June 7, 2013, filed June 11, 2013 and
incorporated herein by reference).
111
4.22
4.23
4.24
4.25
4.26
4.27
4.28
4.29
4.30
10.1
10.2
10.3
10.4
10.5
Supplemental Indenture No. 6 dated as of May 28, 2014, among the Company, Constellation Marketing Services,
Inc., and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.21 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2014 and incorporated herein by reference).
Supplemental Indenture No. 7, with respect to 3.875% Senior Notes due 2019, dated as of November 3, 2014,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 3,
2014, filed November 7, 2014 and incorporated herein by reference).
Supplemental Indenture No. 8, with respect to 4.750% Senior Notes due 2024, dated as of November 3, 2014,
among the Company as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on form 8-K dated November 3,
2014, filed November 7, 2014 and incorporated herein by reference).
Supplemental Indenture No. 9, with respect to 4.750% Senior Notes due 2025, dated December 4, 2015, among
the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturer’s and Traders Trust Company, as
Trustee (filed as Exhibit 4.1 to the Company’s Current report on Form 8-K, dated December 4, 2015, filed
December 8, 2015 and incorporated herein by reference).
Supplemental Indenture No. 10, dated as of January 15, 2016, among the Company, Home Brew Mart, Inc., and
Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.26 to the Company’s Annual Report on
Form 10-K for the fiscal year ended February 29, 2016 and incorporated by reference).
Supplemental Indenture No. 11 with respect to 3.700% Senior Notes due 2026, dated as of December 6, 2016,
among the Company, as Issuer, certain subsidiaries, as Guarantors and Manufacturers and Traders Trust
Company, as Trustee, (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 6,
2016, filed December 6, 2016 and incorporated herein by reference).
Restatement Agreement, dated as of March 10, 2016, by and among the Company, CIH International S.à r.l., CIH
Holdings S.à r.l., CI Cerveza S.à r.l., the Guarantors, Bank of America, N.A., as administrative agent, and the
Lenders party thereto, including the Fourth Amended and Restated Credit Agreement dated as of March 10,
2016, by and among the Company, CIH International S.à r.l., CIH Holdings S.à r.l., Bank of America, N.A., as
administrative agent, and the Lenders party thereto (filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated March 10, 2016, filed March 15, 2016 and incorporated herein by reference).
Restatement Agreement, dated as of October 13, 2016, by and among the Company, CIH International S.à r.l.,
CIH Holdings S.à r.l., CB International Finance S.à r.l., CI Cerveza S.à r.l., the Guarantors, Bank of America,
N.A., as administrative agent, and the Lenders thereto, including the Fifth Amended and Restated Credit
Agreement dated as of October 13, 2016, by and among the Company, CIH International S.à r.l., CIH Holdings
S.à r.l., CB International Finance S.à r.l., Bank of America, N.A., as administrative agent, and the Lenders party
thereto (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 13, 2016, filed
October 18, 2016 and incorporated herein by reference).
Joinder Agreement, dated as of June 7, 2013, between CIH International S.à r.l., and Bank of America, N.A., as
administrative agent and lender (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 7,
2013, filed June 11, 2013 and incorporated herein by reference).
Constellation Brands, Inc. Long-Term Stock Incentive Plan, amended and restated as of July 27, 2012 (filed as
Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 27, 2012, filed July 31, 2012 and
incorporated herein by reference). *#
Form of Stock Option Amendment pursuant to the Company’s Long-Term Stock Incentive Plan (filed as
Exhibit 99.2 to the Company’s Current Report on Form 8-K dated December 6, 2007, filed December 12, 2007
and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase
Class A Common Stock pursuant to the Company’s Long-Term Stock Incentive Plan (filed as Exhibit 99.2 to the
Company’s Current Report on Form 8-K dated July 26, 2007, filed July 31, 2007 and incorporated herein by
reference). *#
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants before July 26, 2007) (filed as
Exhibit 99.3 to the Company’s Current Report on Form 8-K dated December 6, 2007, filed December 12, 2007
and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 26, 2007 and
before April 1, 2008) (filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K dated December 6,
2007, filed December 12, 2007 and incorporated herein by reference). *#
112
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 1, 2008 and
before April 6, 2009) (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 2008 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 6, 2009 and
before April 5, 2010) (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated April 6, 2009,
filed April 9, 2009 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 5, 2010 and
before April 3, 2012) (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated April 5, 2010,
filed April 9, 2010 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class
1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 3, 2012 and before
April 28, 2014) (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated April 3, 2012, filed
April 5, 2012 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class
1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 28, 2014 and before
April 25, 2016) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 28, 2014, filed
May 1, 2014 and incorporated herein by reference). *
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class
1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 25, 2016 and before
April 21, 2017) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 25, 2016, filed
April 28, 2016 and incorporated herein by reference). *
Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class
1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 21, 2017) (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 21, 2017, filed April 25, 2017 and
incorporated herein by reference). *
Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(grants on or after April 26, 2013 and before April 28, 2014) (filed as Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated April 26, 2013, filed May 1, 2013 and incorporated herein by reference). *
Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(grants on or after April 28, 2014 and before April 28, 2015) (filed as Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated April 28, 2014, filed May 1, 2014 and incorporated herein by reference). *
Form of Restricted Stock Unit Agreement with respect to Company’s Long-Term Stock Incentive Plan (awards
on or after April 28, 2015 and before April 25, 2016) (filed as Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated April 28, 2015, filed May 1, 2015 and incorporated herein by reference). *
Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 25, 2016 and before April 21, 2017) (filed as Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated April 25, 2016, filed April 28, 2016 and incorporated herein by reference). *
Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 21, 2017) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
April 21, 2017, filed April 25, 2017 and incorporated herein by reference). *
Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(relating to cliff vested awards) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
July 24, 2013, filed July 26, 2013 and incorporated herein by reference). *
Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(providing for ratable vesting over three years) (filed as Exhibit 10.20 to the Company’s Annual Report on Form
10-K for the fiscal year ended February 28, 2015 and incorporated herein by reference). *
Form of Performance Share Unit Agreement for Executives with respect to the Company’s Long-Term Stock
Incentive Plan (awards on or after April 28, 2014 and before April 28, 2015) (filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated April 28, 2014, filed May 1, 2014 and incorporated herein by
reference). *
Form of Performance Share Unit Agreement for Executives with respect to the Company’s Long-Term Stock
Incentive Plan (awards on or after April 28, 2015 and before April 25, 2016) (filed as Exhibit 10.2 to the
Company’s Current Report on Form 8-K dated April 28, 2015, filed May 1, 2015 and incorporated herein by
reference). *
113
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
Form of Performance Share Unit Agreement for Non-Executive Employees with respect to the Company’s Long-
Term Stock Incentive Plan (awards on or after April 28, 2014 and before April 28, 2015) (filed as Exhibit 10.26
to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 and incorporated
herein by reference). *
Form of Performance Share Unit Agreement for Non-Executive Employees with respect to the Company’s Long-
Term Stock Incentive Plan (awards on or after April 28, 2015 and before April 25, 2016) (filed as Exhibit 10.4 to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2015 and incorporated
herein by reference). *
Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 25, 2016 and before April 21, 2017) (filed as Exhibit 10.3 to the Company’s Current
Report on Form 8-K dated April 25, 2016, filed April 28, 2016 and incorporated herein by reference). *
Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 21, 2017) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated
April 21, 2017, filed April 25, 2017 and incorporated herein by reference). *
Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(relating to specified performance criteria) (filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-
K for the fiscal year ended February 28, 2015 and incorporated herein by reference). *
Form of Terms and Conditions Memorandum for Directors with respect to options to purchase Class A Common
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (filed as Exhibit 99.3 to the Company’s
Current Report on Form 8-K dated July 26, 2007, filed July 31, 2007 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants before July 17, 2008) (filed as
Exhibit 99.5 to the Company’s Current Report on Form 8-K dated December 6, 2007, filed December 12, 2007
and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 17, 2008 and before
July 22, 2010) (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2008 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Directors with respect to a pro rata grant of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (filed as Exhibit 99.1 to the
Company’s Current Report on Form 8-K dated April 20, 2010, filed April 22, 2010 and incorporated herein by
reference). *#
Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 22, 2010 and before
July 27, 2012) (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2010 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 27, 2012 and before
July 23, 2014) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated July 27, 2012, filed
July 31, 2012 and incorporated herein by reference). *#
Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 23, 2014 and before
July 20, 2016) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 23, 2014, filed
July 25, 2014 and incorporated herein by reference). *
Form of Terms and Conditions Memorandum for Directors with respect to options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 20, 2016) (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K dated July 20, 2016, filed July 22, 2016 and incorporated
herein by reference). *
Form of Restricted Stock Award Agreement for Directors with respect to awards of restricted stock pursuant to
the Company’s Long-Term Stock Incentive Plan (awards on or after July 20, 2016) (filed as Exhibit 10.2 to the
Company’s Current Report on Form 8-K dated July 20, 2016, filed July 22, 2016 and incorporated herein by
reference). *
Form of Restricted Stock Unit Agreement for Directors with respect to awards of restricted stock units pursuant
to the Company’s Long-Term Stock Incentive Plan (awards on or after July 20, 2016) (filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated July 20, 2016, filed July 22, 2016 and incorporated herein by
reference). *
114
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
Constellation Brands, Inc. Annual Management Incentive Plan, amended and restated as of July 27, 2012 (filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 27, 2012, filed July 31, 2012 and
incorporated herein by reference). *#
Supplemental Executive Retirement Plan of the Company (filed as Exhibit 10.14 to the Company’s Annual
Report on Form 10-K for the fiscal year ended February 28, 1999 and incorporated herein by reference). *#
First Amendment to the Company’s Supplemental Executive Retirement Plan (filed as Exhibit 10 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1999 and incorporated herein
by reference). *#
Second Amendment to the Company’s Supplemental Executive Retirement Plan (filed as Exhibit 10.20 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2001 and incorporated herein by
reference). *#
Third Amendment to the Company’s Supplemental Executive Retirement Plan (filed as Exhibit 99.2 to the
Company’s Current Report on Form 8-K dated April 7, 2005, filed April 13, 2005 and incorporated herein by
reference). *#
2005 Supplemental Executive Retirement Plan of the Company (filed as Exhibit 99.3 to the Company’s Current
Report on Form 8-K dated April 7, 2005, filed April 13, 2005 and incorporated herein by reference). *#
First Amendment to the Company’s 2005 Supplemental Executive Retirement Plan (filed as Exhibit 10.7 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2007 and incorporated herein
by reference). *#
Second Amendment to the Company’s 2005 Supplemental Executive Retirement Plan (filed as Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2013 and incorporated
herein by reference). *
Amended and Restated Guarantee Agreement, dated as of June 7, 2013, made by the subsidiaries of the
Company from time to time party thereto and Constellation Brands, Inc., in favor of Bank of America, N.A., as
Administrative Agent, for the ratable benefit of the Lenders party to the Credit Agreement (filed as Exhibit 10.4
to the Company’s Current Report on Form 8-K dated June 7, 2013, filed June 11, 2013 and incorporated herein
by reference).
Cross-Guarantee Agreement, dated as of March 10, 2016, by and among CIH International S.à r.l., CIH Holdings
S.à r.l., and Bank of America, N.A., as administrative agent (filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated March 10, 2016, filed March 15, 2016 and incorporated herein by reference).
Amended and Restated Cross-Guarantee Agreement, dated as of October 13, 2016, by and among CIH
International S.à r.l., CIH Holdings S.à r.l., CB International Finance S.à r.l., and Bank of America, N.A., as
administrative agent (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 13,
2016, filed October 18, 2016 and incorporated herein by reference).
Form of U.S. Pledge Agreement (filed as Exhibit D-1 to Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated May 2, 2013, filed May 7, 2013 and incorporated herein by reference).
Form of Luxembourg Equity Pledge Agreement (filed as Exhibit D-2 to Exhibit 4.1 to the Company’s Current
Report on Form 8-K dated May 2, 2013, filed May 7, 2013 and incorporated herein by reference).
Form of Luxembourg PEC Pledge Agreement (filed as Exhibit D-3 to Exhibit 4.1 to the Company’s Current
Report on Form 8-K dated May 2, 2013, filed May 7, 2013 and incorporated herein by reference).
Form of Barbados Charge Over Shares (filed as Exhibit D-4 to Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated May 2, 2013, filed May 7, 2013 and incorporated herein by reference).
Form of Mexican Pledge Agreement (filed as Exhibit 10.60 to the Company’s Annual Report on Form 10-K for
the fiscal year ended February 29, 2016 and incorporated herein by reference).
Form of Executive Employment Agreement between Constellation Brands, Inc. and its Chairman of the Board
and its President and Chief Executive Officer (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-
K dated and filed May 21, 2008, and incorporated herein by reference). *#
Form of Executive Employment Agreement between Constellation Brands, Inc. and its Other Executive Officers
(other than Messrs. Wright, Hackett, Kane, Newlands and Klein) (filed as Exhibit 99.2 to the Company’s Current
Report on Form 8-K dated and filed May 21, 2008 and incorporated herein by reference). *#
Executive Employment Agreement dated November 19, 2010, between Constellation Brands, Inc. and John
Ashforth Wright (filed as Exhibit 10.54 to the Company’s Annual Report on Form 10-K for the fiscal year ended
February 29, 2012 and incorporated herein by reference). *#
115
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
12.1
21.1
23.1
31.1
31.2
32.1
32.2
99.1
99.2
99.3
99.4
101.1
Executive Employment Agreement effective as of August 1, 2016, between Constellation Brands Canada, Inc.
and John A. Wright (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 14, 2016,
filed June 15, 2016 and incorporated herein by reference). *
Retention Bonus Agreement dated November 24, 2016 between Constellation Brands Canada, Inc. and John A.
(Jay) Wright (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 24, 2016,
filed November 28, 2016 and incorporated herein by reference). *
Executive Employment Agreement made as of June 17, 2013, among Crown Imports LLC, Constellation Brands,
Inc., and William F. Hackett (filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended August 31, 2013 and incorporated herein by reference). *
Executive Employment Agreement dated February 27, 2017, among Crown Imports LLC, Constellation Brands,
Inc., and William F. Hackett (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February
25, 2017, filed February 28, 2017 and incorporated herein by reference). *
Executive Employment Agreement made as of June 17, 2013, between Constellation Brands, Inc. and
Thomas M. Kane (filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter
ended August 31, 2013 and incorporated herein by reference). *
Executive Employment Agreement made as of January 26, 2015, between Constellation Brands, Inc. and
William A. Newlands (filed as Exhibit 10.57 to the Company’s Annual Report on Form 10-K for the fiscal year
ended February 28, 2015 and incorporated herein by reference). *
Executive Employment Agreement made as of June 29, 2015, between Constellation Brands, Inc. and David
Klein (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 29, 2015, filed July 2,
2015 and incorporated herein by reference). *
Amended and Restated Sub-license Agreement, dated as of June 7, 2013, between Marcas Modelo, S. de R.L. de
C.V. and Constellation Beers Ltd. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
June 7, 2013, filed June 11, 2013 and incorporated herein by reference). +
Statements re computation of ratios (filed herewith).
Subsidiaries of Company (filed herewith).
Consent of KPMG LLP (filed herewith).
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934, as amended (filed herewith).
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
Constellation Brands, Inc. 1989 Employee Stock Purchase Plan (amended and restated as of July 24, 2013) (filed
as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated July 24, 2013, filed July 26, 2013 and
incorporated herein by reference). *
First Amendment, dated and effective April 25, 2016, to the Company’s 1989 Employee Stock Purchase Plan
(filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated April 25, 2016, filed April 28, 2016
and incorporated herein by reference). *
Stipulation and Order dated April 19, 2013, among Constellation Brands, Inc. Anheuser-Busch InBev SA/NV,
Grupo Modelo, S.A.B. de C.V., and the Antitrust Division of the United States Department of Justice (filed as
Exhibit 99.1 to the Company’s Current Report on Form 8-K dated April 19, 2013, filed April 19, 2013 and
incorporated herein by reference).
Final Judgment filed with the United States District Court for the District of Columbia on October 24, 2013,
together with Exhibits B and C (filed as Exhibit 99.1 to the Company’s Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 2013 and incorporated herein by reference).
The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended
February 28, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance
Sheets as of February 28, 2017 and February 29, 2016; (ii) Consolidated Statements of Comprehensive Income
for the years ended February 28, 2017, February 29, 2016 and February 28, 2015; (iii) Consolidated Statements
of Changes in Stockholders’ Equity for the years ended February 28, 2017, February 29, 2016 and February 28,
2015; (iv) Consolidated Statements of Cash Flows for the years ended February 28, 2017, February 29, 2016 and
February 28, 2015; and (v) Notes to Consolidated Financial Statements.
116
* Designates management contract or compensatory plan or arrangement.
# Company’s Commission File No. 001-08495. For filings prior to October 4, 1999, use Commission
File No. 000-07570.
+ Portions of this exhibit were redacted pursuant to a confidential treatment request filed with and
approved by the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
We agree, upon request of the Securities and Exchange Commission, to furnish copies of each instrument
that defines the rights of holders of long-term debt of the Company or its subsidiaries that is not filed herewith
pursuant to Item 601(b)(4)(iii)(A) because the total amount of long-term debt authorized under such instrument does
not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
117
Performance Graph
Set forth below is a line graph comparing, for the fiscal years ended the last day of February 2013, 2014, 2015, 2016
and 2017, the cumulative total stockholder return of the Company’s Class A Common Stock and Class B Common Stock
with the cumulative total return of the S&P 500® Index, the S&P 500 Food & Beverage Index and a peer group index.(1)
We have selected the S&P 500 Food & Beverage Index to replace the peer group index that we used last year because we
believe the diversified companies in this index provides a more relevant comparison. The Peer Group Index consists of the
publicly traded companies which comprised the Company’s executive compensation peer group for compensation decisions
effective for the fiscal year ended February 28, 2017. The graph assumes the investment of $100.00 on February 29, 2012
in the Company’s Class A Common Stock, the Company’s Class B Common Stock, the S&P 500® Index, the S&P 500®
Food & Beverage Index and the Peer Group Index, and also assumes the reinvestment of all dividends.
Comparison of Five-Year Cumulative Total Return
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
The Company neither makes nor endorses any predictions as to future stock performance.
$800
$700
$600
$500
$400
$300
$200
$100
$0
2/12
2/13
2/14
2/15
2/16
2/17
Constellation
Brands, Inc.
Class A
Constellation
Brands, Inc.
Class B
S&P 500®
S&P 500® Food
& Beverage Index
Peer Group(1)
2/12
2/13
2/14
2/15
2/16
2/17
Constellation Brands, Inc. Class A
$ 100.00
$ 202.56
$ 371.02
$ 525.27
$ 653.93
$ 741.73
Constellation Brands, Inc. Class B
100.00
203.11
373.28
528.82
659.09
735.57
S&P 500®
100.00
113.46
142.25
164.30
154.13
192.63
S&P 500® Food & Beverage Index
100.00
118.37
132.42
160.02
170.21
187.11
Peer Group(1)
100.00
115.09
129.57
150.42
157.49
175.51
(1) The Peer Group Index is weighted according to the respective issuer’s stock market capitalization and is comprised of the following companies: Brown-
Forman Corporation (Class B Shares); Campbell Soup Company; Clorox Company (The); Coach, Inc.; Diageo plc; Dr Pepper Snapple Group, Inc.; Estée
Lauder Companies Inc. (The); General Mills, Inc.; Harley-Davidson, Inc.; Hershey Company (The); J. M. Smucker Company (The); Kellogg Company;
Keurig Green Mountain, Inc.; McCormick & Company, Inc.; Mead Johnson Nutrition Company; Molson Coors Brewing Company (Class B Shares); Monster
Beverage Corporation; Ralph Lauren Corporation; Reynolds American Inc.
Reconciliation of GAAP to
Non-GAAP Financial Measure
Directors and Executive Officers
(As of May 1, 2017)
For the Years Ended
2/28/17 2/29/16 Growth
EPS, reported basis
$ 7.52
$ 5.18
45%
Acquisitions,
divestitures
and related costs
Restructuring and
related charges
Other
EPS, comparable
basis (1)
(0.77)
0.22
–
0.05
0.01
(0.01)
6.76
5.43
24%
(1)May not sum due to rounding as each item is computed
independently
Diluted earnings per share (EPS) growth on
a comparable basis is provided because we
believe this information provides investors
better insight into underlying business trends
and results in order to evaluate year-over-
year financial performance. Management
uses this information in evaluating the
results of our core operations and internal
goal setting.
Comparable basis EPS reflects the exclusion
of the following items:
• Acquisitions, divestitures and related
costs, consisting primarily of gain on sale
of the Canadian wine business and
transaction and associated costs in
connection with completed acquisitions
and divestitures, including flow through
of inventory step-up, amortization of
favorable interim supply agreement, and
impairment of certain intangible assets;
• Restructuring and related charges,
consisting primarily of employee
termination benefit costs; and
• Other, consisting primarily of settlements
of undesignated commodity derivative
contracts, net gain (loss) on the mark to
fair value of undesignated commodity
derivative contracts, impairment of certain
intangible and other assets, certain other
selling, general and administrative costs,
dividend income from a retained interest
in a previously divested business and loss
on write-off of financing costs.
Directors
Richard Sands
Chairman of the Board,
Constellation Brands, Inc.
Robert Sands
President and Chief
Executive Officer,
Constellation Brands, Inc.
Frederic Cumenal (2)
Former Chief Executive Officer,
Tiffany & Co.
Jerry Fowden (1) (3)
Chief Executive Officer,
Cott Corporation
Barry A. Fromberg (2) (3)
Chief Financial Officer,
HNI Healthcare
Robert L. Hanson (1)
Chief Executive Officer,
John Hardy Global Limited
Executive Officers
Richard Sands
Chairman of the Board,
Constellation Brands, Inc.
Robert Sands
President and Chief
Executive Officer,
Constellation Brands, Inc.
William F. Hackett
Executive Vice President
and Chairman, Beer Division,
Constellation Brands, Inc.
F. Paul Hetterich
Executive Vice President
and President, Beer Division,
Constellation Brands, Inc.
Thomas M. Kane
Executive Vice President
and Chief Human
Resources Officer,
Constellation Brands, Inc.
Ernesto M. Hernández (1)
President and Managing Director,
General Motors de Mexico,
S. de R.L. de C.V.
David Klein
Executive Vice President
and Chief Financial Officer,
Constellation Brands, Inc.
Thomas J. Mullin
Executive Vice President
and General Counsel,
Constellation Brands, Inc.
William A. Newlands
Executive Vice President
and Chief Operating Officer,
Constellation Brands, Inc.
Christopher Stenzel
Executive Vice President
and President,
Wine & Spirits Division,
Constellation Brands, Inc.
James A. Locke III (3)
Senior Counsel to the law firm
of Nixon Peabody LLP
Daniel J. McCarthy (2)
President and Chief Executive
Officer,
Frontier Communications
Corporation
Judy A. Schmeling (2)
President of Cornerstone Brands
and Chief Operating Officer,
HSN, Inc.
Keith E. Wandell (1)
Retired Chairman of
the Board, President and
Chief Executive Officer,
Harley-Davidson, Inc.
(1) Member of Human Resources Committee
(2) Member of Audit Committee
(3) Member of Corporate Governance Committee
Additional biographical information about the Directors is included in the Proxy Statement
relating to the Company’s 2017 annual meeting distributed with this Fiscal Year 2017
Annual Report and posted on www.cbrands.com/investors.
Investor Information
Headquarters
Common Stock Trading
Copies of Form 10-K
The Company’s Class A and Class
B Common Stock trade on the New
York Stock Exchange (NYSE) under
the ticker symbols STZ and STZ.B,
respectively. There is no public
market for the Company’s Class
1 Common Stock. As of April 30,
2017, there were 582 and 105 holders
of record of Class A and Class B
Common Stock, respectively, and
three holders of record of Class 1
Common Stock.
Information Regarding
Forward-Looking Statements
The statements set forth in this
report, which are not historical facts,
are forward-looking statements that
involve risks and uncertainties that
could cause actual results to differ
materially from those set forth in,
or implied by, the forward-looking
statements. For risk factors associated
with the Company and its business,
please refer to the Company’s Annual
Report on Form 10-K for the fiscal
year ended February 28, 2017.
A copy of our Annual Report on
Form 10-K for the fiscal year ended
February 28, 2017, filed with the
U.S. Securities and Exchange
Commission, will be furnished
without charge to any stockholder
upon written request to Constellation
Brands, Inc.’s Investor Relations
department at our corporate
headquarters address provided on
this page. Alternatively, a copy is
available on our Constellation
Brands website at www.cbrands.
com, as well as on the Securities
and Exchange Commission’s
internet site at www.sec.gov.
Annual Stockholders’ Meeting
The annual meeting is scheduled to
be held at 11:00 a.m., Eastern Time,
on Tuesday, July 18, 2017, at the
Callahan Theater at the Nazareth
College Arts Center, 4245 East
Avenue, Rochester, New York.
The Nazareth College Arts Center
is located in the Town of Pittsford,
New York.
Constellation Brands, Inc.
207 High Point Drive
Building 100
Victor, New York 14564
585.678.7100
888.724.2169
www.cbrands.com
Investor Center: 888.922.2150
Stock Transfer Agent
and Registrar
Computershare
877.810.2237
(toll free, U.S. and Canada)
201.680.6578
(outside U.S. and Canada)
Stockholder Website
www.computershare.com/investor
Stockholder Online Inquiries
https://www-us.computershare.com/
investor/Contact
Regular Delivery
Computershare
P.O. Box 505000
Louisville, KY 40233
Overnight Delivery
Computershare
462 South 4th Street,
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Louisville, KY 40202