WORTH REACHING FOR
F I S C A L Y E A R 2 0 1 9 S U M M A R Y A N N U A L R E P O R T
A constellation is, by definition, a group of
related things. At Constellation Brands,
that concept holds 100% true. We are made
up of many things, each contributing to the
strength, resilience, and betterment of the
whole. We’re made stronger by the diversity
of thinking and skill sets of our people, by
the breadth and depth of our brands, by the
strategies on which we execute, the innovations
we create, and by the investments we make.
No single thing makes us strong enough to
create the future we’ve imagined. We’re able
to reach for the stars because we are many,
acting as one.
DEAR SHAREHOLDERS:
The consumer-led premiumization trend continued to manifest across all beverage alcohol segments
last year. High-end beer, and higher-end wine and spirits brands significantly outperformed their
lower-end counterparts in total dollar growth. The numbers are clear and leave little doubt, the
higher-end is where consumers are migrating, and higher-end brands are driving most of the growth
in the beverage alcohol category.
Staying ahead of emerging consumer trends has been key to our success since our founding in 1945
– it’s just part of our DNA. We are relentlessly focused on the consumer and winning where today’s
consumer lives. This means not only building
a portfolio of brands consumers love today, but
pushing beyond to meet their evolving needs
well into the future.
TOTAL U.S. BEVERAGE ALCOHOL CATEGORY (1)
We’re always looking ahead and willing to make
smart, calculated and bold decisions that help
drive industry-leading growth and shareholder
value. We’re agile enough to adapt to changing
consumer preferences, and we’re not afraid to
disrupt the industry or ourselves to achieve our
long-term goals. This strategy has allowed
Constellation Brands to become the fastest-
growing large CPG company in the U.S. at retail
over the past two years(2).
CATEGORY
High-End Beer
Higher- End Spirits
Higher-End Wine
Lower-End Spirits
Lower-End Wine
Low-End Beer
DOLLAR GROWTH
IN 2018 VS. 2017
8%
10%
9%
2%
(-1%)
(-4%)
In keeping with our continuous drive for growth, we made some bold moves in fiscal 2019.
We agreed to divest approximately 30 lower-end wine and spirits brands and honed our portfolio’s
focus on a smaller set of higher-end, higher-margin power brands. The iconic brands remaining
in our reshaped portfolio — Kim Crawford, the Robert Mondavi brand family, The Prisoner Wine
Company brand family, Meiomi, SVEDKA Vodka, and High West Whiskey, among others — have
strong momentum and excellent runways for growth. With a more streamlined portfolio and tighter
organizational focus, we can double down on efforts to accelerate growth and profitability.
(1) Source: IRI, Total U.S. Multi-Outlet + Convenience for the 52 weeks ending December 2, 2018; High-end beer defined as >$25 per case at retail; higher-end wine defined as >$11 per bottle at retail,
and includes Premium Box; higher-end spirits defined as generally >$13-$17 per bottle at retail, ranges based on category; lower-end products considered below the price points listed for each category.
Dollar Sales of categories are based on company estimates.
(2) Source: IRI MULO+C POS data. IRI Consulting & BCG analysis.
We also continued our push into new market territory by substantially increasing our ownership stake
in Canopy Growth Corporation, a leading diversified cannabis company. The additional investment
strengthens Canopy’s first mover advantage as it builds a pathway to dominate the emerging cannabis
category, conservatively estimated to account for more than $200 billion in sales over the next 10
years(3). Backed by our investment, business discipline, and brand building expertise, we believe this
relationship will be a game changer for our company as consumer attitudes about cannabis continue
to evolve. Following approval of Canopy’s recently announced agreement with Acreage Holdings, a
leading multi-state cannabis operator in the U.S., Canopy Growth will be poised and ready to enter the
U.S. market with new products in a variety of formats when it is federally permissible.
LEADERSHIP TRANSITION
In March, 2019, Bill Newlands
succeeded Rob Sands as President
and CEO of the company. Rob Sands
assumed the role of Executive
Chairman and Richard Sands
became Executive Vice Chairman.
We’re restless to deliver what’s next so we’re
building a strong pipeline of new, innovative
products leveraging the power of existing brands
to fill the gaps in our portfolio and complement
our core franchise. Last year was a monumental
shift for the Corona brand family as we expanded
beyond Corona Extra and Corona Light with the
successful national launch of Corona Premier,
the first new Corona in over 25 years, and
introduced new packaging for Corona Familiar.
Both Premier and Familiar have significantly
exceeded our expectations. And the innovation
doesn’t stop there. This year we plan to extend
the Corona Masterbrand to take advantage of
consumer trends with the national launch of
Corona Refresca, a brand extension that brings a completely new drinker to the Corona franchise and
allows us to carve out a space within the large and growing FMB (flavored malt beverage) category that’s
anchored in Corona’s carefree lifestyle. Innovation has become an important part of our growth profile.
Constellation Ventures, our venture capital arm, launched an exciting new initiative that will help fuel
our long-term success. The group committed to invest $100 million over the next 10 years in female-
founded or female-led businesses. Women are currently an underserved part of our consumer base and
have an estimated purchasing power between $5-$15 trillion annually in the U.S.(4). We believe investing
in women-led businesses is critical to the future success of Constellation and the industry, and we’re
excited about this opportunity to increase our pipeline for ideas and talent, drive incremental revenue,
and increase our knowledge about this important demographic.
(3) Constellation estimates, Marijuana Business Daily Factbook 2017
Note: THC cannabis remains illegal at a federal level in the United States
(4) Source: Nielsen Consumer, 2013
While our focus on the future drives our business strategy, our people truly enable us to succeed.
Through various talent development initiatives including our Executive Development, Emerging
Executives and Women’s Leadership Development Programs, as well as Diversity & Inclusion initiatives
including recently established business resource groups supporting women, Hispanic/Latino employees,
LGBTQ employees and early career professionals, we are committed to developing and empowering
employees to drive impactful change within Constellation Brands, for our consumers, and in the diverse
communities where we live and work. We believe this is critical to our business and future growth.
Bottom line - we will never be complacent about our business. Our ability to adapt to shifting market
trends and our willingness to constantly reach for new heights, fuel our success now and will continue
to do so in the future.
I’m extremely thankful for the hard work,
passion, and dedication of our talented
employees, and for the efforts and commitment
of our valued business partners. As always, they
are the energy, intelligence, and inspiration
behind everything we’ve been able to accomplish,
and the real drivers of our success.
On behalf of our executive team, I want to thank
you, our valued shareholders, for your confidence
in us, and for believing in our vision to deliver
what’s next. We ask that you join us in
discovering why Constellation Brands is a
company worth reaching for by exploring our
interactive company profile at https://companyprofile.cbrands.com/2019.
Cheers,
Bill Newlands
PRESIDENT & CEO
CONSTELLATION BRANDS
FISCAL 2019 HIGHLIGHTS
#1
U.S. RETAIL DOLLAR SALES GROWTH OF BEVERAGE ALCOHOL SUPPLIERS
Constellation is #1 in retail dollar sales growth
contributing almost 30% of TBA growth.
CONSTELLATION BRANDS
COMPETITORS
$4.5B
$3.9B
$2.2B
EXPECTED RETURN TO SHAREHOLDERS
RETURNED TO SHAREHOLDERS
OVER THE NEXT THREE YEARS
Constellation Brands committed to
return $4.5 billion in the form of
dividends and share repurchases over
the next three years to shareholders.
OVER THE LAST THREE YEARS
Constellation brands returned $3.9
billion in the form of dividends and
share repurchases to shareholders
over the last three years.
OPERATING CASH FLOW
Constellation Brands reported
record operating cash flow of more
than $2.2 billion for fiscal 2019.
Source: IRI, Total U.S. Multi-Outlet + Convenience; reflects growth for the 52 weeks ending February 24, 2019 against the comparable prior year period;
National Alcohol Beverage Control Association (NABCA), 12 months ending February 2019; TBA = Total Beverage Alcohol
FPO
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, 2019
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 every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes
No
Indicate by check mark 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
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 $33,122,314,698.
The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of April 17, 2019, 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
166,883,483
23,316,614
1,149,714
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 16,
2019 is incorporated by reference in Part III to the extent described therein.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
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.
Page
1
10
21
22
23
23
23
24
25
49
51
113
113
114
114
114
115
115
116
116
116
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, future net sales and expected volume trends, expected effective tax rates and anticipated tax
liabilities, prospects, plans and objectives of management, (ii) information concerning expected or potential actions
of third parties, including insurance carrier reimbursements or 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 expansion, construction and optimization
activities, including anticipated costs and timeframes for completion; (III) the statements regarding (i) the volatility
of the fair value of our investments in Canopy measured at fair value, (ii) our activities following the close of the
November 2018 Canopy Transaction, (iii) the time to return to our targeted leverage ratio following the close of the
November 2018 Canopy Transaction, (iv) the New November 2018 Canopy Warrants, and (v) our future ownership
level in Canopy and (IV) the statements regarding the Wine and Spirits Transaction, expected gain or loss, amount
and use of expected proceeds, estimated remaining costs and expected restructuring charge 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, net sales and volume trends for our products will vary from current
expectations due to, among other reasons, actual shipments to distributors and actual consumer demand, (iii) the
amount, timing 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, the impact of the November 2018 Canopy
Transaction, the expected impacts of the Wine and Spirits Transaction and the New November 2018 Canopy Warrants,
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 fair value of our investments in Canopy may vary due to market and economic conditions in
Canopy’s markets and business locations, (vi) 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 required regulatory approvals by the expected dates and on the expected terms, and other factors
as determined by management, (vii) any consummation of the Wine and Spirits Transaction and any actual date of
consummation may vary from our current expectations and the actual restructuring charge, if any, will vary based on
management’s final plans, and (viii) the time to return to our targeted leverage ratio may vary from management’s
current expectations due to market conditions, our ability to generate cash flow at expected levels and our ability to
generate expected earnings. The Wine and Spirits Transaction is subject to the satisfaction of certain closing
conditions, including receipt of required regulatory approvals. Modification of the November 2018 Canopy Warrants
is subject to, among other things, Canopy shareholder approval of the modification of the November 2018 Canopy
Warrants and Canopy shareholder approval of its proposed transaction with Acreage. 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 2019,” “Fiscal 2018” and “Fiscal 2017” refer to the Company’s fiscal year ended the last day of February of
the indicated year. All references to “Fiscal 2020” refer to our fiscal year ending February 29, 2020. All references
to “$” are to U.S. dollars, all references to “C$” are to Canadian dollars and all references to “A$” are to
Australian 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 2018
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; Growers Network; 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 with powerful, consumer-connected, high-quality brands like Corona, Modelo
Especial, Robert Mondavi, Kim Crawford, Meiomi and SVEDKA Vodka. In the U.S., we are the number one sales
growth driver at retail among beverage alcohol suppliers. We are the third-largest beer company in the U.S. market
and a leading, higher-end wine company in the U.S. market. 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 9,800 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 drive industry-leading growth and shareholder value by building brands that
people love when celebrating big moments or enjoying quiet ones. We position our portfolio to benefit from the
consumer-led trend toward premiumization, which we believe will continue to result in faster growth rates in the
higher-end of the beer, wine and spirits categories.
1
To capitalize on premiumization trends, become more competitive and grow our business, we have
generally employed a strategy focused on a combination of organic growth and acquisitions, with a focus on the
higher-margin, higher-growth 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 to provide for cross promotional opportunities;
strengthening relationships with wholesalers and retailers by providing consumer and beverage alcohol
insights;
investing in brand building and innovation activities;
positioning ourselves for success with consumer-led products that identify, meet and stay ahead of
evolving consumer trends and market dynamics;
realizing operating efficiencies through expanding and enhancing production capabilities and
maximizing asset utilization; and
developing employees to enhance performance in the marketplace.
In the beer business, we have solidified our position in the U.S. beer market; enhanced our margins, results
of operations and operating cash flow; and provided new avenues for growth. 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. Additionally, in an effort to more fully compete in growing sectors of the high-
end segment of the U.S. beer market, we’ve made several acquisitions of high-quality, regional craft beer brands
and leveraged our innovation capabilities to introduce new brands that align with consumer trends.
In our wine and spirits business, as part of our efforts to focus on higher-end brands, improve margins and
create operating efficiencies, we have acquired higher-margin, higher-growth wine brands and portfolios of brands,
including Meiomi, Prisoner and Charles Smith, and have strategically optimized the value of this business,
particularly lower-margin, lower-growth products, with the divestiture of the Canadian wine business and the
expected transaction, which was recently announced, to divest a portion of our wine and spirits business. In
addition, we have added higher-end brands to our spirits portfolio through the acquisitions of Casa Noble tequila
and High West craft whiskeys.
Within our Corporate Operations and Other segment, we complemented our total beverage alcohol strategy
in an adjacent category by making investments in Canopy, a world-leading, diversified cannabis company. These
investments are consistent with our long-term strategy to identify, meet and stay ahead of evolving consumer trends
and market dynamics, and they represent a significant expansion of our strategic relationship to position Canopy as
a global leader in cannabis production, branding, intellectual property and retailing.
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”).
Investments and Acquisitions
In connection with our strategy outlined above, we completed the following investments and acquisitions
during Fiscal 2019:
Transaction
Date
Corporate Operations and Other Segment
Strategic Contribution
Canopy Growth Corporation
investments
November
2018
and
June 2018
Investment in Ontario, Canada-based public company; leading provider of
medicinal and recreationally legal cannabis products; supported our long-
term strategy to identify, meet and stay ahead of evolving consumer trends
and market dynamics.
Beer Segment
Four Corners acquisition
July
2018
Portfolio of high-quality, dynamic and bicultural, Texas-based craft beers;
strengthened our position in the high-end segment of the U.S. beer market.
2
For further information about our Fiscal 2019, Fiscal 2018 and Fiscal 2017 transactions, refer to (i) MD&A
and (ii) Notes 2, 7 and 10 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,
2019
% of
Net Sales
For the Year
Ended
February 28,
2018
% of
Net Sales
For the Year
Ended
February 28,
2017
% of
Net Sales
$
5,202.1
64.1% $
4,660.4
61.5% $
4,227.3
57.7%
2,532.5
381.4
2,913.9
8,116.0
31.2%
4.7%
35.9%
$
2,556.3
363.6
2,919.9
7,580.3
33.7%
4.8%
38.5%
$
2,732.7
361.1
3,093.8
7,321.1
37.4%
4.9%
42.3%
(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, which includes the imported, craft,
domestic super premium, and alternative beverage alcohol categories. We sell a number of brands in the high-end
categories, driven largely by our imported Mexican beer portfolio.
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 Brand Family
Modelo Brand Family
Other Import Brands
Corona Extra
Corona Premier
Corona Familiar
Corona Light
Modelo Especial
Modelo Negra
Modelo Chelada
Pacifico
Victoria
In the U.S., we are the leading imported beer company and have eight of the 15 top-selling imported beer
brands. Corona Extra is the best-selling imported beer and the sixth best-selling beer overall in the U.S. and
Modelo Especial is the second-largest and the fastest-growing major imported beer brand.
Since the June 2013 acquisition of the imported beer business, we have more than tripled our production
capacity in Mexico from 10 million to approximately 34 million hectoliters. Our current production capacity
provides us the opportunity to further expand our leadership position in the high-end segment of the U.S. beer
market by increasing our investment behind on-trend innovation. As part of these efforts, we successfully
introduced Corona Premier, a lower-calorie, lower-carbohydrate product offering, which has become one of the top
growth contributors in the high-end segment of the U.S. beer market. For Fiscal 2020, we are launching Corona
Refresca nationally to capitalize on the growth of the high-end alternative beverage alcohol category. Additionally,
we are continuing efforts focused on increasing sales distribution of products in can, draft, single-serve and larger
package size formats.
Expansion and construction efforts continue under our Mexico Beer Expansion Projects. Since the June
2013 acquisition of the imported beer business, we have invested approximately $3.5 billion for the Mexico Beer
Expansion Projects, with approximately $600 million during Fiscal 2019. To align with our anticipated future
3
growth expectations, we are targeting an additional 10 million hectoliters of production capacity expansion
activities to be completed over the next four fiscal years.
Our craft and specialty beer products are primarily sold under the Ballast Point brand. Ballast Point is led
by its popular Sculpin IPA. In addition, the Funky Buddha and Four Corners acquisitions allow us to leverage our
craft beer platform, capitalizing on the growth of high-quality, regional craft beer brands. Overall, our craft and
specialty beer capabilities further strengthen our position as the leader in the high-end segment of the U.S. beer
market.
Wine and Spirits Segment
We are a leading, higher-end wine and spirits company in the U.S. market, with a portfolio that includes
higher-margin, higher-growth wine and spirits brands. Our wine portfolio is supported by grapes purchased from
independent growers, primarily in the U.S., New Zealand and Chile, 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. Our spirits offerings include
SVEDKA Vodka, which is imported from Sweden and is the largest imported vodka brand in the U.S. Our higher-
end spirits brands include Casa Noble tequila and High West craft whiskeys.
In the U.S., we have 18 of the 100 top-selling wine brands. Some of our well-known wine and spirits
brands, and portfolio of brands, sold in the U.S., which comprised our Fiscal 2019 U.S. Focus Brands (“Focus
Brands”), included:
7 Moons
Black Box
Wine Brands
Mark West
Meiomi
Robert Mondavi
Ruffino
Clos du Bois
Franciscan Estate
Mount Veeder
Nobilo
Schrader
Simi
Kim Crawford
Ravage
The Dreaming Tree
Wine Portfolio
of Brands
Charles Smith
Prisoner
Spirits Brands
Casa Noble
High West
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 hold strong positions in their respective price
categories.
We have been increasing resources in support of on-trend 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, such as Bourbon Barrel Aged Robert Mondavi Private Selection and Meiomi Rosé, and
we have introduced newer brands like Derange, Spoken Barrel, Cooper & Thief and Crafters Union. In spirits, we
have introduced Mi CAMPO tequila.
In connection with our efforts to increase focus on higher-margin, higher-growth brands, in April 2019, we
entered into a definitive agreement to sell a portion of our wine and spirits business, including approximately 30
lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices and facilities, for approximately
$1.7 billion, subject to certain closing adjustments. The Wine and Spirits Transaction is subject to the satisfaction of
certain closing conditions, including receipt of required regulatory approvals (see “Recent Developments” in
MD&A and Note 23 of the Notes to the Financial Statements).
Corporate Operations and Other
The Corporate Operations and Other segment includes traditional corporate-related items including costs of
executive management, corporate development, corporate finance, corporate growth and strategy, human resources,
internal audit, investor relations, legal, public relations and information technology, as well as our investments in
Canopy and those made through our corporate venture capital function.
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 22 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 generally 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 our June 2013 acquisition of the imported beer
business, 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,
Mark Anthony
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
Our current production capacity in Mexico at our Nava and Obregon breweries is approximately 34 million
hectoliters. Prior to the acquisition of the Obregon Brewery, we entered into a three-year interim supply agreement
with Modelo in June 2013, which was initially extended for one additional year through 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. In addition, we are expanding the Obregon Brewery and
constructing the Mexicali Brewery, located near California, which is our largest imported beer market in the U.S.
5
Based on our anticipated future growth expectations, we intend to expand our production capacity in Mexico to
approximately 44 million hectoliters over the next four fiscal years.
Our craft beer production requirements are primarily fulfilled by our Miramar and Daleville facilities,
located in the greater San Diego, California, and Roanoke, Virginia, areas, respectively. These facilities can be
expanded to accommodate future growth. We also operate multiple tap rooms with smaller scale production and
innovation capabilities.
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 three wineries in New Zealand and six 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 Mexican and craft 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. For Fiscal 2019, the package
format mix of our Mexican beer volume sold in the U.S. was 69% glass bottles, 28% aluminum cans and 3% in
stainless steel kegs.
The Nava and Obregon breweries 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 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 four operational glass furnaces and the joint venture intends to
increase it to five furnaces by the end of calendar 2019. When fully operational with five furnaces, the glass plant is
expected to supply approximately 60% 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 800 independent growers in the U.S. and approximately 165
independent growers located primarily in New Zealand and Chile. We enter into purchase agreements with a
majority of these growers with pricing that generally varies year-to-year and is largely based on then-current market
prices.
6
As of February 28, 2019, we owned or leased approximately 20,500 acres of land and vineyards, either fully
bearing or under development, 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, 2019, we had approximately 9,800 employees. Approximately 4,900 employees were in
the U.S. and approximately 4,900 employees were outside of the U.S., primarily in Mexico. We may employ
additional workers during the grape crushing seasons. Approximately 21% of our employees are covered by
collective bargaining agreements. Collective bargaining agreements expiring within one year are minimal. We
consider our employee relations generally to be good.
7
Executive Officers of the Company
Information with respect to our current executive officers is as follows:
NAME
Robert Sands
Richard Sands
William A. Newlands
James O. Bourdeau
F. Paul Hetterich
Thomas M. Kane
David Klein
James A. Sabia, Jr.
AGE
60
68
60
54
56
58
55
57
OFFICE OR POSITION HELD
Executive Chairman of the Board
Executive Vice Chairman of the Board
President and Chief Executive Officer
Executive Vice President, General Counsel and Secretary
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 Chief Marketing Officer
Robert Sands is the Executive Chairman of the Board of the Company, having served in that role since
March 2019 and as a director since January 1990. Previously, he served as Chief Executive Officer of the Company
from July 2007 through February 2019. Mr. Sands also served as President from December 2002 to February 2018,
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.
Richard Sands, Ph.D., is the Executive Vice Chairman of the Board of the Company, having served in that
role since March 2019. He previously served as Chairman of the Board from September 1999 through February
2019. He has been employed by the Company in various capacities since 1979. He has served as a director since
1982. 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.
William A. Newlands is President and Chief Executive Officer of the Company. He has served as Chief
Executive Officer since March 2019 and as President since February 2018. He served as Chief Operating Officer
from January 2017 through February 2019 and as Executive Vice President of the Company from January 2015
until February 2018. 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 joined the Company in January 2015. Prior to that he 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.
James O. Bourdeau has served as the Company’s Executive Vice President and General Counsel since
December 2017 and as the Company’s Secretary since April 2017. Prior to that, Mr. Bourdeau was the Company’s
Senior Vice President and General Counsel, Corporate Development, having performed that role from September
2014 until December 2017. Before joining the Company in September 2014, Mr. Bourdeau was an attorney with
the law firm of Nixon Peabody LLP from July 2000 through September 2014, and a partner from February 2005
through September 2014. Mr. Bourdeau was associated with another law firm from 1995 to 2000.
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 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
8
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.
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.
James A. Sabia, Jr. has been the Company’s Executive Vice President and Chief Marketing Officer since
May 2018. Prior to that, Mr. Sabia was the Chief Marketing Officer of the Company’s Beer Division, having
performed that role from February 2009 through May 2018. From February 2009 to June 2013, Mr. Sabia was
employed by Crown Imports LLC (“Crown”), of which the Company owned a 50% interest and was the Company’s
beer business during that period. Effective June 7, 2013, the Company acquired the remaining 50% of Crown,
which became a wholly-owned subsidiary of the Company on that date. Mr. Sabia originally joined the Company in
August 2007 as Vice President, Marketing for the Company’s spirits business, serving in that capacity until
February 2009. Before that, Mr. Sabia was with Molson Coors Brewing Company, a large international brewing
company, from 1990 to 2007.
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 https://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 https://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 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 https://www.sec.gov.
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 at https://www.cbrands.com/investors. 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 at https://
9
www.cbrands.com/story/policies. 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.
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) are accessible on our Internet website at https://
www.cbrands.com/investors. 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.
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 information discussed elsewhere in this report, you should carefully consider the following
factors which could materially affect our business, liquidity, financial condition and/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 may also have a material adverse effect on our business, liquidity, financial
condition and/or results of operations in future periods.
Operational Risks
International operations, worldwide and domestic economic trends and financial market conditions,
geopolitical uncertainty, or changes to international trade agreements and tariffs, import and excise duties, other
taxes, or other governmental rules and regulations
Our products are produced and sold in numerous countries, we have employees in various countries 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/or 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.;
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 regarding contract enforcement, intellectual property rights, real
property rights, and liability issues; and
inadequate levels of compliance with applicable anti-bribery laws, including the Foreign Corrupt
Practices Act.
Unfavorable global or regional economic conditions, including economic slowdown, inflation, and the
disruption, volatility and tightening of credit and capital markets, as well as 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.
10
We are also exposed to risks associated with interest rate fluctuations. We could experience changes in our
ability to manage fluctuations in 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, intergovernmental disputes or animus against the United States. 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.
The U.S. and other countries in which we operate impose duties, excise taxes, and/or other taxes on
beverage alcohol products, and/or on certain raw materials used to produce our beverage alcohol products, in
varying amounts. The U.S. federal government or other governmental bodies may propose changes to international
trade agreements, tariffs, taxes and other government rules and regulations. Significant increases in import and
excise duties or other taxes on, or that impact, beverage alcohol products could have a material adverse effect on our
business, liquidity, financial condition and/or 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
local regulations also require warning labels and signage. New or revised regulations or increased licensing fees,
requirements or taxes could have a material adverse effect on our business, liquidity, financial condition and/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 because of what our products contain
or allegations that our products 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.
These international, economic and political uncertainties and regulatory changes could have a material
adverse effect on our business, liquidity, financial condition and/or results of operations, especially to the extent
these matters, or the decisions, policies or economic strength of our suppliers and distributors, affect our business,
liquidity, financial condition and/or results of operations.
Dependence on limited facilities for production of our Mexican beer brands, and expansion and
construction issues
We are dependent on our Nava and Obregon breweries as our sole sources of supply to fulfill our Mexican
beer brands product requirements, both now as well as for the near term.
We are currently expanding our Obregon Brewery and constructing our Mexicali Brewery, and our joint
venture with Owens-Illinois is expanding its 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 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 or construction of our production facilities.
We may not be able to satisfy our product supply requirements for the Mexican beer brands in the event of a
significant disruption, partial destruction or total destruction of the Nava or Obregon breweries or the glass plant, or
11
difficulty shipping raw materials and product into or out of the United States. Also, if the contemplated expansions
of the Obregon Brewery and the glass plant and construction of the Mexicali Brewery are not completed by their
targeted completion dates, we may not be able to produce sufficient quantities of our Mexican beer to satisfy our
needs. Under such circumstances, we may be unable to obtain our Mexican beer at a reasonable price from another
source, if at all. A significant disruption at our Nava or Obregon breweries, or the glass plant, 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 have a material adverse effect on our business, liquidity, financial
condition and/or results of operations.
Operational disruptions or catastrophic loss to breweries, wineries, other production facilities or
distribution systems
All of our Mexican beer brands product supply is currently produced at our breweries in Nava, Coahuila,
Mexico and Obregon, Sonora, Mexico. Many of the workers at these breweries are covered by collective
bargaining agreements. The glass plant currently produces approximately half of the total annual glass bottle supply
for our Mexican beer brands. Several of our vineyards and production and distribution facilities, including certain
California wineries and breweries and our planned Mexicali Brewery, are in areas prone to seismic activity.
Additionally, we have various vineyards, wineries and breweries in the state of California which has recently
experienced wildfires and landslides.
If any of these or other of our properties and production facilities were to experience a significant
operational disruption or catastrophic loss, it could delay or disrupt production, shipments and revenue, and result in
potentially significant expenses to repair or replace these properties. Also, our production facilities are asset
intensive. As our operations are concentrated in a limited number of production and distribution facilities, we are
more likely to experience a significant operational disruption or catastrophic loss in any one location from acts of
war or terrorism, fires, floods, earthquakes, hurricanes, labor strike or other labor activities, cyber-attacks and other
attempts to penetrate our information technology systems, unavailability of raw or packaging materials, or other
natural or man-made events. If a significant operational disruption or catastrophic loss were to occur, we could
breach agreements, our reputation could be harmed, and our business, liquidity, financial condition and/or results of
operations could be adversely affected due to higher maintenance charges, unexpected capital spending or product
supply constraints.
Our insurance policies do not cover certain types of catastrophes. Economic conditions and uncertainties in
global markets may adversely affect the cost and other terms upon which we are able to obtain property damage and
business interruption 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 business, liquidity, financial
condition and/or results of operations. If one or more significant uninsured or under-insured events occur, we could
suffer a major financial loss.
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. If water available to our operations or the
operations of our suppliers becomes scarce or the quality of that water deteriorates, we may incur increased
production costs or face manufacturing constraints. In addition, 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, such
as barley or hops, which could lead to a shortage of our product supply.
12
We have substantial brewery operations in the country of Mexico, brewery operations in the states of
California, Texas, Virginia and Florida, and we currently have substantial wine operations in the state of California
as well. In the past, California had endured an extended period of drought and instituted restrictions on water usage.
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
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 operations will have adequate sources of water to support
their on-going requirements, there is no guarantee that the sources of water, methods of water delivery, or water
requirements will not change materially in the future.
Our breweries, the glass plant, our wineries and our distilleries use a large volume of agricultural and other
raw materials to produce their products. These include corn starch and sugars, malt, hops, fruits, yeast and water for
our breweries; soda ash and silica sand for the glass plant; grapes and water for our wineries; and grain and water
for our distilleries. Our breweries, wineries and distilleries all use large amounts of various packaging materials,
including glass, aluminum, cardboard and other paper products. Our production facilities also use electricity,
natural gas and diesel fuel in their operations. 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 many factors beyond our control, including market demand, global geopolitical events (especially as to
their impact on crude oil prices), droughts and other weather conditions or natural or man-made events, economic
factors affecting growth decisions, inflation, plant diseases and theft.
Our breweries, wineries and distilleries are also dependent upon an adequate supply of glass bottles. 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 two producers supply our glass bottles for our craft beer.
To the extent any of the foregoing factors increases the costs of our finished products or lead to a shortage
of our product supply, we could experience a material adverse effect on our business, liquidity, financial condition
and/or results of operations.
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 beer, wine and spirits categories, with separate distribution
networks utilized for our beer portfolio and our wine and spirits portfolio. In the U.S., we sell our products
principally to wholesalers for resale to retail outlets and 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 net sales.
Wholesalers and retailers of our products offer products which compete directly with our products for retail shelf
space, promotional support and consumer purchases, and wholesalers or retailers may give higher priority to
products of our competitors. The replacement or poor performance of our major wholesalers, retailers or
government agencies could result in temporary or longer-term sales disruptions or could have a material adverse
effect on our business, liquidity, financial condition and/or results of operations.
Reliance upon complex information systems and third party global networks, cyber-attacks, and design
and implementation of our new global enterprise resource planning system (“ERP”)
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 and effect accurate and timely governmental
reporting. 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, the loss of or damage to intellectual property through security breach, or penalties associated
with the failure to timely file governmental reports. We recognize that many groups on a world-wide basis have
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experienced increases in security breaches, cyber-attacks, and other hacking activities such as denial of service,
malware, and ransomware. As with all large information technology systems, our systems could be penetrated by
increasingly sophisticated 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 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.
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.
However, 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.
We are in the process of a multi-year implementation of a new ERP system which we intend to replace our
existing operating and financial systems in fiscal 2020 and 2021. We are designing the ERP system to accurately
maintain our financial records, enhance operational functionality and provide timely information to our
management team related to the operation of the business. We expect the implementation process will require the
investment of significant personnel and financial resources. Companies which implement new ERP systems may
experience delays, increased costs and other difficulties. If we are not successful in designing and implementing
our ERP system as planned or if it does not operate as intended, the effectiveness of our internal control over
financial reporting could be adversely affected, our ability to assess those controls adequately could be delayed, or
we may not be able to operate our business.
To the extent any of the foregoing factors result in significant disruptions and costs to our operations, or
reduce the effectiveness of our internal control over financial reporting, we could have a material adverse effect on
our business, liquidity, financial condition and/or results of operations.
Contamination and degradation of product quality from diseases, pests and weather conditions
Our success depends upon the positive image that consumers have of our brands and of the safety and
quality of our products. 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. 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 and quality of
our products. 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. It is also 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.
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 also reduce demand for our products or cause production and delivery
disruptions. Contaminants or other defects 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 our brands.
If any of our products become unsafe or unfit for consumption, are misbranded, or cause 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, which could further reduce consumer demand and brand equity.
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Climate change and environmental regulatory compliance
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. Natural disasters such as floods and earthquakes
may also negatively impact the ability of consumers to purchase our products.
We may experience significant future increases in the costs associated with environmental regulatory
compliance, including fees, licenses, and the cost of capital improvements for our operating facilities to meet
environmental regulatory requirements. In addition, we may be party to various environmental remediation
obligations arising in the normal course of our business or relating to 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 costs associated with environmental compliance
arising from events we cannot control, such as unusually severe floods, hurricanes, earthquakes or fires. We cannot
assure you that our costs in relation to these matters will not exceed our projections or otherwise have a material
adverse effect upon our business, liquidity, financial condition or results of operations.
Cannabis is currently illegal under U.S. federal law and in other jurisdictions; we do not control
Canopy’s business or operations
The ability of Canopy to achieve its business objectives is contingent, in part, upon the legality of the
cannabis industry, Canopy’s compliance with regulatory requirements enacted by various governmental authorities,
and Canopy obtaining all regulatory approvals, where necessary, for the production and sale of its products. The
laws and regulations governing medical and recreational cannabis are still developing, including in ways that we
may not foresee. Although the Agriculture Improvement Act of 2018 has taken hemp and hemp derived
cannabinoids out of the most restrictive class of controlled substances, marijuana is a schedule-1 controlled
substance in the U.S. and is currently illegal under U.S. federal law. Even in those U.S. states in which the
recreational use of marijuana has been legalized, its use remains a violation of U.S. federal law. Since U.S. federal
laws criminalizing the use of marijuana preempt state laws that legalize its use, continuation of U.S. federal law in
its current state regarding marijuana would likely limit the expansion of Canopy’s business into the U.S. Similar
issues of illegality apply in other countries. Any amendment to or replacement of existing laws to make them more
onerous, or delays in amending or replacing existing laws to liberalize the legal possession and use of cannabis, or
delays in obtaining, or the failure to obtain, any necessary regulatory approvals may significantly delay or impact
negatively Canopy’s markets, products and sales initiatives and could have a material adverse effect on Canopy’s
business, liquidity, financial condition and/or results of operations. Were that to occur, we may not be able to
recover the value of our investments in Canopy.
We have the right to nominate four members of the Canopy board of directors. While we do not control
Canopy’s business or operations, we do rely on Canopy’s internal controls and procedures for operation of that
business. Nevertheless, our financing arrangements require us to certify, among other things, that to our knowledge
(i) Canopy is properly licensed and operating in accordance with Canadian laws in all material respects;
(ii) Canopy does not knowingly or intentionally purchase, manufacture, distribute, import and/or sell marijuana or
any other controlled substance in or from the United States of America or any other jurisdiction, in each case, where
such purchase, manufacture, distribution, importation or sale of marijuana or such other controlled substance is
illegal, except in compliance with all applicable Federal, state, local or foreign laws, rules and regulations; and
(iii) Canopy does not knowingly or intentionally partner with, invest in, or distribute marijuana or any other
controlled substance to any third-party that knowingly or intentionally purchases, sells, manufactures, or distributes
marijuana or any other controlled substance in the United States of America or any other jurisdiction, in each case,
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where such purchase, sale, manufacture or distribution of marijuana or such other controlled substance is illegal,
except in compliance with all applicable Federal, state, local or foreign laws, rules and regulations. Were we to
know that Canopy was knowingly or intentionally violating any of these applicable laws, we would be unable to
make the required certification under our financing arrangements, which could lead to a default under those
financing arrangements.
Strategic Risks
Competition
We are in a highly competitive industry and our sales could be negatively affected by numerous factors
including:
•
•
•
•
our inability to maintain or increase prices;
new entrants in our market or categories;
the decision of wholesalers, retailers or consumers to purchase competitors’ products instead of ours; or
a general decline in beverage alcohol consumption due to consumer dietary preference changes or
consumers substituting legalized marijuana or other similar products in lieu of beverage alcohol.
Sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional
decisions made by wholesalers, state and other local 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. We cannot guarantee that we will
be able to increase our prices to pass along to our customers any increased costs we incur.
Potential decline in the consumption of products we sell; dependence on sales of our Mexican beer
brands
Our business depends upon consumers’ consumption of our beer, wine and spirits brands, and 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 due to, among other reasons, changing taste preferences,
demographics or perceived value. Consequently, any material shift in consumer preferences and taste in our major
markets away from our beer, wine and spirits brands, and our Mexican beer brands in particular, from the categories
in which they compete could have a negative impact on our business, liquidity, financial condition and/or results of
operations. 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. 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 stricter laws relating to driving while under the influence of alcohol;
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.
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Acquisition, divestiture, investment, and new product development strategies
From time to time, we acquire businesses, assets or securities of companies that we believe will provide a
strategic fit with our business. We 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 not effectively assimilate the business or product offerings of acquired
companies into our business or within the anticipated costs or timeframes, retain key customers and suppliers or key
employees of acquired businesses, or successfully implement our business plan for the combined business. In
addition, 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 and we may fail to realize fully anticipated
cost savings, growth opportunities or other potential synergies. We cannot assure you that the fair value of acquired
businesses or investments will remain constant.
We may also divest ourselves of businesses, assets or securities of companies that we believe no longer
provide a strategic fit with our business. We may provide various indemnifications in connection with the
divestiture of businesses or assets. Divestitures of portions of our business may also result in costs stranded in our
remaining business. Delays in developing or implementing plans to address such costs could delay or prevent the
accomplishment of our financial objectives.
We have also acquired or retained ownership interests in companies which we do not control, such as our
joint venture to operate a glass plant adjacent to our Nava Brewery, our interest in Canopy, and investments made
through our corporate ventures capital function. 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.
We recently increased our investment in Canopy. While we will not develop, distribute, manufacture or sell
cannabis products in the U.S., or anywhere else in the world, unless it is legally permissible to do so at all
governmental levels in the particular jurisdiction, this investment could affect consumer perception of our existing
brands and our reputation with various constituencies.
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 respect to consumer appeal. 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.
We cannot assure you that we will realize the expected benefits of acquisitions, divestitures or investments.
We also cannot assure you that our acquisitions, investments or joint ventures will be profitable or that forecasts
regarding acquisition, divestiture or investment activities will be accurate. Our failure to adequately manage the
risks associated with acquisitions or divestitures, or the failure of an entity in which we have an equity or
membership interest, could have a material adverse effect on our business, liquidity, financial condition and/or
results of operations.
Sale of a portion of our wine and spirits business
As previously announced, we entered into a definitive agreement to sell a portion of our wine and spirits
business, including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards,
offices and facilities. The divestiture of this portion of our business will enable us to focus on our higher-margin,
higher-growth wine and spirits brands. The Wine and Spirits Transaction is subject to the satisfaction of certain
closing conditions, including receipt of required regulatory approval, and we cannot guarantee the transaction will
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occur on the terms, conditions or timetable that we currently anticipate. We intend to use the net proceeds from this
transaction primarily to reduce our outstanding borrowings. A delay in completing this transaction, or the failure to
complete this transaction, could delay the accomplishment of our strategic and financial objectives. Moreover, the
Wine and Spirits Transaction will reduce the diversification of our portfolio. We may not fully realize the expected
benefits of a portfolio of higher-end wine and spirits brands.
Our Canopy investments are dependent upon an emerging market and legal sales of cannabis products
The legal cannabis market is an emerging market. The legislative framework pertaining to the Canadian
cannabis market, as well as cannabis markets in other countries, is uncertain. The success of the Canopy
transactions will depend on, among other things, the ability of Canopy to create a strong platform for us to operate
successfully in the cannabis market space. There is no assurance a robust cannabis consumer market will develop
consistent with our expectations or that consumers will purchase any Canopy products.
A failure in the demand for Canopy’s products to materialize as a result of competition, consumer desire,
competition from legal and illegal market entrants or other products, or other factors could have a material adverse
effect on Canopy’s business, liquidity, financial condition and/or results of operations. Were that to occur, we may
have to write down the value of our investments in Canopy. The changing legal landscape and the lack of consumer
market data makes it difficult to predict the pace at which the cannabis market may grow, if at all, and the products
that consumers will purchase in the cannabis marketplace.
For example, the Canadian Cannabis Act prohibits testimonials, lifestyle branding and packaging that is
appealing to youth. The restrictions on advertising, marketing and the use of logos and brand names could have a
material adverse effect on Canopy’s business, liquidity, financial condition and/or results of operations, and our
investment in Canopy.
Additionally, Canopy must rely on its own market research to forecast sales as detailed forecasts may not be
fully available at this early stage in the cannabis industry in Canada and globally. Market research relating to the
adult-use recreational legal cannabis industry is in its early stages and, as such, trends can only be forecasted.
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. We could also, by omission, fail to timely renew or protect a trademark and our
competitors could challenge, invalidate or circumvent any existing or future trademarks issued to, or licensed by, us.
Financial Risks
Indebtedness
We have incurred indebtedness to finance investments and acquisitions, fund beer operations expansion and
construction activities and repurchase shares of our common stock. In the future, we may continue to incur
additional indebtedness to finance investments and acquisitions, repurchase shares of our stock and fund other
general corporate purposes, including beer operations expansion and construction activities. We cannot assure you
that our business will generate sufficient cash flow from operations to meet all our debt service requirements, pay
dividends, repurchase shares of our common stock, and fund our general corporate and capital requirements.
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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 investments/acquisitions or other
purposes may be limited;
our funds available for operations, expansions and construction, 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.
Additionally, any failure to meet required payments on our debt, or failure to comply with any covenants in
the instruments governing our debt, could result in an event of default under the terms of those instruments and a
downgrade to our credit ratings. A downgrade in our credit ratings would increase our borrowing costs and could
affect our ability to issue commercial paper. Certain of our debt facilities also contain 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 our senior credit facility, our existing or future
indentures, or other loan agreements, we could be in default under such debt facilities or agreements. In the event
of a default, the holders of our debt could elect to declare all amounts outstanding under such instrument to be due
and payable. A default could also require the immediate repayment of outstanding obligations under other debt
facilities or agreements that contain cross-acceleration or cross-default provisions. If that were to occur, we might
not have available funds to satisfy such repayment obligations.
Intangible assets, such as goodwill and trademarks
We 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 have a material adverse effect on our
business, liquidity, financial condition and/or results of operations.
Changes to tax laws, fluctuations in our effective tax rate, accounting for tax positions and the resolution
of tax disputes, and changes to accounting standards, elections or assertions
The U.S. federal budget and individual state, provincial, local municipal budget deficits, or deficits in other
governmental entities, 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 levels or at other
governmental bodies in recent years. Federal, state, provincial, local or foreign governmental entities may consider
increasing taxes upon beverage alcohol products as they explore available alternatives for raising funds.
On December 22, 2017, the TCJ Act was signed into law in the United States. The changes in the TCJ Act
are broad and complex and we continue to examine the impact the TCJ Act may have on our business and financial
results.
In addition, significant judgment is required to determine our effective tax rate and evaluate our tax
positions. Our provision for income taxes includes a provision for uncertain tax positions. 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, several years may elapse before such
matters are audited and finally resolved. Unfavorable resolution of any tax matter could increase our effective tax
rate and resolution of a tax issue may require the use of cash in the year of resolution.
Additional U.S. tax changes or in how international corporations are taxed, including changes in how
existing tax laws are interpreted or enforced, or changes to accounting standards, elections or assertions could have
a material adverse effect on our business, liquidity, financial condition and/or results of operations.
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Securities measured at fair value
The value of the warrants and convertible debt we hold in Canopy through our subsidiaries is subject to the
volatility of the market price of Canopy’s common stock. This volatility subjects our financial statements to
volatility. The market price of Canopy’s common stock has experienced significant volatility, and that volatility
may continue in the future and may also be subject to wide fluctuations in response to many factors beyond the
control of Canopy, or of us. These factors include, but are not limited to:
•
•
•
•
•
•
•
•
•
actual or anticipated fluctuations in Canopy’s reported results of operations;
recommendations by securities analysts;
changes in the market valuations of companies in the industry in which Canopy operates;
announcement of developments and material events by Canopy or its competitors;
fluctuations in the costs of vital production materials and services;
addition or departure of Canopy executive officers or other key personnel;
news reports relating to trends, concerns, technological or competitive developments, regulatory
changes and other related issues in Canopy’s industry or target markets;
regulatory changes affecting the cannabis industry generally and Canopy’s business and operations; and
administrative obligations associated with Health Canada requirements and compliance with all
associated rules and regulations including, but not limited to, the Canadian Cannabis Act.
We recently agreed to modify the terms of certain warrants we hold in Canopy which, if modified, would
among other things extend the expiry of those warrants and extend the time period through which the value of those
warrants and our financial statements are subject to the volatility of the market price of Canopy’s common stock.
Canopy’s Corporate Governance
Canopy’s business is subject to evolving corporate governance and public disclosure regulations that may
from time to time increase both Canopy’s compliance costs and the risk of its non-compliance. These include
changing rules and regulations promulgated by a number of governmental and self-regulated organizations,
including, but not limited to, the Canadian Securities Administrators, the TSX, the International Accounting
Standards Board, the SEC and the NYSE. These rules continue to evolve in scope and complexity creating new
requirements for Canopy. Canopy is currently exempt from certain NYSE corporate governance requirements
because it is a foreign private issuer listed on the NYSE and registered with the SEC and is subject to Canadian
requirements. When Canopy registered with the SEC, it did not need to test its internal control procedures to satisfy
the requirements pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) that require management of
Canopy to perform an annual assessment of the effectiveness of Canopy’s internal control over financial reporting
and its registered public accounting firm to provide an attestation report as to the effectiveness of such controls.
The future application of SOX to Canopy will require management of Canopy to perform an annual assessment of
Canopy’s internal control over financial reporting and its registered public accounting firm to conduct an
independent assessment of the effectiveness of such controls. Canopy has disclosed a material weakness in internal
controls over financial reporting. Canopy may not be able to remediate the material weakness timely. Also,
Canopy’s internal controls may not be adequate, or Canopy may not be able to maintain adequate internal controls
as required by SOX. Canopy may not be able to maintain effective internal controls over financial reporting on an
ongoing basis if standards are modified, supplemented or amended from time to time. If Canopy does not satisfy
SOX requirements on an ongoing and timely basis, investors could lose confidence in the reliability of its financial
statements, which could harm Canopy’s business and have a negative impact on the trading price or market value of
Canopy securities.
Other Risks
Damage to our reputation
The success of our brands depends upon the positive image that consumers have of those brands and
maintaining a good reputation is critical to selling our branded products. Contamination, whether arising
accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for
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our brands, could adversely affect their sales and our reputation. Our reputation could also be impacted negatively
by public perception, adverse publicity (whether or not valid), negative comments in social media, or our responses
relating to:
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•
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a perceived failure to maintain high ethical, social and environmental standards for all our operations
and activities;
a perceived failure to address concerns relating to the quality, safety or integrity of our products;
allegations that we, or persons associated with us or formerly associated with us, have violated
applicable laws or regulations, including but not limited to those related to safety, employment,
discrimination, harassment, whistle-blowing, privacy, or cyber-security;
our environmental impact, including use of agricultural materials, packaging, water and energy use, and
waste management; or
efforts that are perceived as insufficient to promote the responsible use of alcohol or cannabis.
Failure to comply with federal, state, or local laws and regulations, maintain an effective system of internal
controls, provide accurate and timely financial statement information, or 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, liquidity, financial
condition and/or results of operations, as well as require additional resources to rebuild our reputation, competitive
position and brand equity.
Class action or other litigation relating to abuse of our products, the misuse of our products, 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 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, liquidity, financial condition and/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
the Sands family represents a majority of the combined voting power of all classes of our common stock as of
April 17, 2019, 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.
Item 1B. Unresolved Staff Comments.
Not Applicable.
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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, 2019, our properties include the
following:
Owned
Leased
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.
Canada
Italy
Total warehouse, distribution and other production facilities
Total Wine and Spirits Segment
2
2
4
1
1
1
6
14
1
1
3
1
20
1
1
2
1
1
23
8
8
32
5
37
45
2
5
7
1
1
6
1
8
15
23
(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.
22
Within our Wine and Spirits segment, as of February 28, 2019, we owned, leased or had interests in
approximately 12,500 acres of vineyards in California (U.S.), 6,800 acres of vineyards in New Zealand and 1,200
acres of vineyards in Italy.
As of February 28, 2019, 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.
In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business,
including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices and
facilities. The transaction will include two of our principal Wine and Spirits facilities: the Canandaigua winery and
the Mission Bell winery. For further information about this transaction, refer to MD&A and Note 23 of the Notes to
the Financial Statements.
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.
Item 4. Mine Safety Disclosures.
Not Applicable.
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. At April 17, 2019, the number of holders of record of our Class A Common Stock, Class B
Common Stock and Class 1 Common Stock were 531, 100 and 11, respectively.
23
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”). Effective March 1, 2018, we adopted the FASB amended guidance regarding the recognition of
revenue from contracts with customers using the retrospective application method. Accordingly, we have restated
sales, net sales, gross profit, operating income, income before income taxes, provision for income taxes, net income,
net income attributable to CBI and net income per common share attributable to CBI, for the years ended February
28, 2018, and February 28, 2017. For additional information, refer to Note 1 of the Notes to the Financial
Statements.
February 28,
2019
February 28,
2018
February 28,
2017 (1)
February 29,
2016
February 28,
2015
For the Years Ended
(in millions, except per share data)
Sales
Excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative
expenses (2) (3)
Gain on sale of business
Operating income
Income from unconsolidated
investments (4)
Interest expense
Loss on extinguishment of debt (5)
Income before income taxes
Provision for income taxes (6)
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
$
$
$
$
$
$
$
$
$
$
8,884.3
(768.3)
8,116.0
(4,035.7)
4,080.3
(1,668.1)
—
2,412.2
2,101.6
(367.1)
(1.7)
4,145.0
(685.9)
3,459.1
(23.2)
3,435.9
18.24
16.57
17.57
16.21
2.96
2.68
29,231.5
$
$
$
$
$
$
$
$
$
8,322.1
(741.8)
7,580.3
(3,767.8)
3,812.5
(1,532.7)
—
2,279.8
487.2
(332.0)
(97.0)
2,338.0
(22.7)
2,315.3
(11.9)
2,303.4
11.96
10.86
11.47
10.59
2.08
1.88
20,538.7
$
$
$
$
$
$
$
$
$
8,051.2
(730.1)
7,321.1
(3,802.1)
3,519.0
(1,392.4)
262.4
2,389.0
27.3
(333.3)
—
2,083.0
(550.3)
1,532.7
(4.1)
1,528.6
7.76
7.04
7.49
6.90
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
—
—
15,093.0
12,825.0
$
9,439.9
$
8,631.6
$
7,672.9
$
7,244.1
24
(1)
(2)
(3)
(4)
In December 2016, we completed the Canadian Divestiture and recognized a gain on sale of business (refer to
Note 2 of the Notes to the Financial Statements for additional discussion).
Includes impairment of intangible assets of $108.0 million, $86.8 million and $46.0 million for the years ended
February 28, 2019, February 28, 2018, and February 28, 2017, respectively (refer to Note 7 of the Notes to the
Financial Statements for additional discussion).
Includes a net gain in connection with the sale of our Accolade Wine Investment of $99.8 million for the year
ended February 28, 2019 (refer to Note 2 of the Notes to the Financial Statements for additional discussion).
Includes unrealized net gain from the changes in fair value of the Canopy securities measured at fair value of
$1,971.2 million and $464.3 million for the years ended February 28, 2019, and February 28, 2018, respectively
(refer to Note 7 of the Notes to the Financial Statements for additional discussion).
(5) Consists of a make-whole payment of $73.6 million in connection with the early redemption of our April 2012
senior notes and the write-off of debt issuance costs of $23.4 million in connection with prior-to-maturity
repayments of various debt obligations for the year ended February 28, 2018 (refer to Note 12 of the Notes to the
Financial Statements for additional discussion).
(6)
Includes a provisional net income tax benefit of $351.2 million for the year ended February 28, 2018, associated
with the December 2017 enactment of the TCJ Act (refer to Note 13 of the Notes to the Financial Statements for
additional discussion).
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 recent developments,
investments, 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 and policies. 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.
Effective March 1, 2018, we adopted the FASB amended guidance regarding the recognition of revenue
from contracts with customers using the retrospective application method. Accordingly, unless otherwise noted, we
have restated net sales, gross profit, operating income, provision for income taxes and net income attributable to
CBI for the years ended February 28, 2018, and February 28, 2017. For additional information, refer to Note 1 of
the Notes to the Financial Statements.
25
Overview
We are an international beverage alcohol company with a broad portfolio of consumer-preferred, high-end
imported and craft beer brands, and higher-end wine and spirits brands. We are the third-largest producer and
marketer of beer for the U.S. market and a leading, higher-end wine company in the U.S. market. 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, our portfolio includes higher-margin, higher-growth wine brands complemented by
certain higher-end spirits brands. Amounts included in the Corporate Operations and Other segment consist of costs
of executive management, corporate development, corporate finance, corporate growth and strategy, human
resources, internal audit, investor relations, legal, public relations and information technology, as well as our
investments in Canopy and those made through our corporate venture capital function. All costs 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 drive industry-leading growth and shareholder value by building brands that
people love when celebrating big moments or enjoying quiet ones. We position our portfolio to benefit from the
consumer-led trend towards premiumization, which we believe will continue to result in faster growth rates in the
higher-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 focus on targeted acquisitions of, and
investments in, businesses that are higher-margin, higher-growth, consumer-led, have a low integration risk and/or
fill a gap in our portfolio. We also strive to identify, meet and stay ahead of evolving consumer trends and market
dynamics (see “Recent Developments” and “Investments, Acquisitions and Divestitures – Canopy Investments”
below).
We strive to strengthen our portfolio of higher-end 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 to provide for cross promotional opportunities;
strengthening relationships with wholesalers and retailers by providing consumer and beverage alcohol
insights;
investing in brand building and innovation activities;
positioning ourselves for success with consumer-led products that identify, meet and stay ahead of
evolving consumer trends and market dynamics;
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 for the Beer segment focuses on leading the high-end segment of the U.S. beer market
and includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key
26
brands, as well as new product development and innovation within the existing portfolio of brands, and continued
expansion, construction and optimization activities for our Mexico beer operations. Additionally, in an effort to
more fully compete in growing sectors of the high-end segment of the U.S. beer market, we’ve made several
acquisitions of high-quality, regional craft beer brands and leveraged our innovation capabilities to introduce new
brands that align with consumer trends.
In connection with our business strategy for the Beer segment, we have more than tripled the production
capacity of our Nava Brewery since its June 2013 acquisition. In addition, construction of the Mexicali Brewery is
progressing and we are continuing to invest to expand the Obregon Brewery, which was acquired in December
2016. Expansion, construction and optimization efforts continue under our previously-announced Mexico Beer
Expansion Projects (as defined below in “Capital Expenditures”) to align with our anticipated future growth
expectations (see “Capital Expenditures” below).
Our business strategy for the Wine and Spirits segment is to build an industry-leading portfolio of higher-
end wine and spirits brands. We are investing to meet the evolving needs of consumers; building brands through
consumer insights, sensory expertise and innovation; and refreshing existing brands, as we continue to focus on
moving our branded wine and spirits portfolio towards a higher-margin, higher-growth portfolio of brands. 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 hold strong positions in their respective price
categories. We focus our innovation and investment dollars on those brands within our portfolio which position us
to benefit from the consumer-led trend towards premiumization. Additionally, in connection with the Wine and
Spirits Transaction, we expect to optimize the value of our wine and spirits portfolio by driving increased focus on
our higher-end priority brands to accelerate growth and improve overall operating margins. In markets where it is
feasible, we entered into contractual arrangements to consolidate our 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.
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 generally 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.
Within our Corporate Operations and Other segment, we complemented our total beverage alcohol strategy
in an adjacent category by making investments in Canopy, a world-leading, diversified cannabis company. These
investments are consistent with our long-term strategy to identify, meet and stay ahead of evolving consumer trends
and market dynamics, and they represent a significant expansion of our strategic relationship to position Canopy as
a global leader in cannabis production, branding, intellectual property and retailing.
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, maintain our targeted leverage ratio and pay quarterly cash
dividends.
Recent Developments
Wine and Spirits Transaction
In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business,
including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices and
facilities, for approximately $1.7 billion, subject to certain adjustments. The Wine and Spirits Transaction is subject
to the satisfaction of certain closing conditions, including receipt of required regulatory approval. We expect to use
the net cash proceeds from this transaction primarily to reduce outstanding borrowings. We are in the process of
27
developing a plan to eliminate any remaining costs in the Wine and Spirits segment from the brands we are selling
and expect to incur a restructuring charge for the first quarter of fiscal 2020. We expect the Wine and Spirits
Transaction to close around the end of the first quarter of fiscal 2020. The Wine and Spirits Transaction is
consistent with our strategic focus on higher-margin, higher-growth brands.
We are selling approximately $1.3 billion in tangible and intangible assets, excluding goodwill, in
connection with the Wine and Spirits Transaction. Selected financial information included in our results of
operations for Fiscal 2019 for the portion of the wine and spirits business we expect to sell is as follows:
(in millions)
Wine and Spirits segment results
Canopy Warrants Modification
Net Sales
Gross Profit
Marketing
$
1,106.7
$
419.5
$
30.5
In April 2019, we agreed to modify the terms of the November 2018 Canopy Warrants and certain other
rights. Modification of the November 2018 Canopy Warrants is subject to, among other things, approval by
Canopy’s shareholders. These changes are a result of Canopy’s intention to acquire Acreage Holdings, Inc. upon
U.S. Federal cannabis legalization, subject to certain conditions. We expect the New November 2018 Canopy
Warrants to be accounted for at fair value. If Canopy shareholder approval is received, we expect the modifications
to the November 2018 Canopy Warrants will result in a fair value adjustment related to the warrants. Additionally,
we expect the fair value of the New November 2018 Canopy Warrants to be volatile in future periods. For
additional information regarding the Canopy warrants modification, see Note 10 of the Notes to the Financial
Statements.
Investments, Acquisitions and Divestitures
Corporate Operations and Other Segment
Canopy Investments
Our investments in Canopy, and the method of accounting for these investments, consist of the following:
Investment
Acquired
Purchase
Price
Method of
Accounting
Date of
Investment
(in millions)
Nov 2017
Common shares
Nov 2017 Warrants
June 2018
Convertible debt securities
Nov 2018
Nov 2018 Warrants
Common shares
$
$
$
$
$
130.1 Fair value / equity method (1)
61.2 Fair value
191.3
150.5 Fair value
2,740.3 Equity method
1,146.8 Fair value
3,887.1 (2)
28
We recognized an unrealized net gain from the changes in fair value of these investments accounted for at
fair value in income from unconsolidated investments, as follows:
Date of
Investment
(in millions)
Investment
Nov 2017
Nov 2017 Warrants
Common shares (1)
June 2018
Convertible debt securities
Nov 2018 Warrants
Fiscal 2019
Fiscal 2018
$
$
292.5
465.5
55.5
1,157.7
272.3
192.0
—
—
$
1,971.2
$
464.3
(1) Accounted for at fair value from the date of investment in November 2017 through October 31, 2018. Accounted
for under the equity method from November 1, 2018 (refer to Note 10 of the Financial Statements).
(2)
Includes $17.2 million of direct acquisition costs capitalized under the equity method cost accumulation model.
Excludes $7.3 million of direct acquisition costs associated with the investment in warrants which are expensed as
incurred in selling, general and administrative expenses. See “Financial Liquidity and Capital Resources –
General” for a discussion of financing for this transaction.
We expect the fair value of the Canopy investments accounted for at fair value to be volatile in future
periods. Equity in earnings (losses) for our Canopy Equity Method Investment are reported in the Corporate
Operations and Other segment and are expected to be volatile in future periods. Additionally, since November 1,
2018 we recognize equity in earnings (losses) for our Canopy Equity Method Investment on a two-month lag.
Accordingly, we recognized our share of Canopy’s losses from November and December 2018, which was included
in Canopy’s third quarter fiscal 2019 results, in our fourth quarter fiscal 2019 results.
As of February 28, 2019, the conversion of Canopy equity securities held by its employees and/or held by
other third parties would not have a significant effect on our share of Canopy’s reported earnings or losses.
Additionally, under an amended and restated investor rights agreement, we have the option to purchase additional
common shares of Canopy at the then-current price of the underlying equity security to allow us to maintain our
relative ownership interest.
As previously noted, these investments are consistent with our long-term strategy to identify, meet and stay
ahead of evolving consumer trends and market dynamics, and they represent a significant expansion of our strategic
relationship to position Canopy as a global leader in cannabis production, branding, intellectual property and
retailing.
Beer Segment
Four Corners Acquisition
In July 2018, we acquired Four Corners, which primarily included the acquisition of operations, goodwill,
property, plant and equipment, and trademarks. This acquisition included a portfolio of high-quality, dynamic and
bicultural, Texas-based craft beers which further strengthened our position in the high-end segment of the U.S. beer
market. The results of operations of Four Corners are reported in the Beer segment and have been included in our
consolidated results of operations from the date of acquisition.
Funky Buddha Acquisition
In August 2017, we acquired Funky Buddha, which primarily included the acquisition of operations,
goodwill and trademarks. This acquisition included a portfolio of high-quality, Florida-based craft beers which
further strengthened our position in the high-end segment of the U.S. beer market. The results of operations of
Funky Buddha are reported in the Beer segment and have been included in our consolidated results of operations
from the date of acquisition.
29
Obregon Brewery Acquisition
In December 2016, we acquired the Obregon Brewery, which 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.
Wine and Spirits Segment
Schrader Cellars Acquisition
In June 2017, we acquired Schrader Cellars, which primarily included the acquisition of goodwill,
inventories, trademarks and certain grape supply contracts. This acquisition included a collection of highly-rated,
limited-production fine wines which aligned with our strategic focus on higher-end wine and spirits brands and
strengthened our position in the fine wine category. The results of operations of Schrader Cellars are reported in the
Wine and Spirits segment and have been included in our consolidated results of operations from the date of
acquisition.
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 $775.1 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 $570.3
million, net of outstanding debt and direct costs to sell. 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 higher-margin, higher-growth brands. We recognized a net gain on the sale of the business in the fourth quarter
of fiscal 2017 of $262.4 million.
Selected financial information included in our historical financial statements for Fiscal 2017 that are no
longer part of our results after the Canadian Divestiture is as follows:
Net Sales
Gross Profit
Depreciation
and
Amortization
Operating
Income
Income
Before
Income
Taxes
Cash Flows
From
Operating
Activities
(in millions)
Consolidated results (1)
$
311.2
Wine and Spirits segment results (1) $
311.2
$
$
131.2
131.2
$
$
9.1
9.1
$
$
49.8
$
46.6
$
47.2
50.1
(1) Amounts have not been adjusted to reflect the adoption of the amended guidance for revenue recognition as the
impact is not deemed material. Additionally, the Wine and Spirits segment results do not include the impact of
comparable adjustments (see “Comparable Adjustments” below).
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, high-quality Washington State wine brands with 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.
30
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 higher-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.
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 higher-margin,
fast-growing, super-luxury wine brands, aligned with our strategic focus on higher-end wine and spirits brands 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.
For additional information on these investments, acquisitions and divestitures, refer to Notes 2, 7 and 10 of
the Notes to the Financial Statements.
Results of Operations
Financial Highlights
References to organic throughout the following discussion exclude the impact of acquired brand activity in
connection with our more significant acquisitions, consisting of Prisoner, High West and Charles Smith (wine and
spirits), and divested brand activity in connection with the Canadian Divestiture (wine and spirits), as appropriate.
Financial Highlights for Fiscal 2019:
• Our results of operations benefited primarily from continued improvements within the Beer segment, an
unrealized net gain from the changes in fair value of our investments in Canopy and a net gain on the
sale of the Accolade Wine Investment.
• Net sales increased 7% primarily due to an increase in Beer net sales driven predominantly by volume
growth and a favorable impact from pricing within our Mexican beer portfolio.
• Operating income increased 6% largely due to the net sales volume growth and favorable impact from
pricing within our Mexican beer portfolio. Operating income growth was tempered by planned
increases in marketing spend and higher cost of product sold across both the Beer and Wine and Spirits
segments.
• Net income attributable to CBI and diluted net income per common share attributable to CBI increased
significantly primarily due to the factors discussed above.
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.
31
As more fully described herein and in the related Notes to the Financial Statements, the Comparable
Adjustments that impacted comparability in our segment results for each period are as follows:
(in millions)
Cost of product sold
Accelerated depreciation
Settlements of undesignated commodity derivative contracts
Flow through of inventory step-up
Loss on inventory write-down
Net gain on undesignated commodity derivative contracts
Other losses
Total cost of product sold
Selling, general and administrative expenses
Impairment of intangible assets
Net loss on foreign currency derivative contracts associated with
acquisition of investment
Restructuring and other strategic business development costs
Deferred compensation
Transaction, integration and other acquisition-related costs
Loss on contract termination
Costs associated with the Canadian Divestiture and related activities
Other gains (losses)
Total selling, general and administrative expenses
Gain on sale of business
Comparable Adjustments, Operating income (loss)
Income (loss) from unconsolidated investments
Cost of Product Sold
Accelerated Depreciation
Fiscal 2019
Fiscal 2018
Fiscal 2017
$
(8.9) $
(8.6)
(4.9)
(3.3)
1.8
(6.0)
(29.9)
— $
2.3
(18.7)
(19.1)
7.4
—
(28.1)
(108.0)
(86.8)
(32.6)
(17.1)
(16.3)
(10.2)
—
—
10.1
(174.1)
—
(14.0)
—
(8.1)
(59.0)
(3.2)
10.5
(160.6)
—
(204.0) $
—
(188.7) $
2,084.9
$
452.6
$
$
$
—
23.4
(20.1)
—
16.3
(2.2)
17.4
(37.6)
—
(0.9)
—
(14.2)
—
(20.4)
(2.6)
(75.7)
262.4
204.1
(1.7)
We recognized accelerated depreciation for certain assets primarily in connection with our current multi-
year implementation of a new ERP system which is intended to replace our existing operating and financial systems.
Undesignated Commodity Derivative Contracts
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.
32
Loss on Inventory Write-Down
We recognized a loss on the write-down of certain bulk wine inventory as a result of smoke damage
sustained during the Fall 2017 California wildfires (Fiscal 2019 and Fiscal 2018).
Selling, General and Administrative Expenses
Impairment of Intangible Assets
We recognized trademark impairment losses related to our Beer segment’s Ballast Point craft beer
trademark asset (Fiscal 2019 and Fiscal 2018) and certain of our Wine and Spirits trademark assets associated with
our decision to discontinue certain small-scale, low-margin U.S. brands (Fiscal 2017). See “Costs Associated with
the Canadian Divestiture and Related Activities” below for information about an additional impairment of
intangible assets recognized in connection with the Canadian Divestiture. For additional information, refer to Note
7 of the Notes to the Financial Statements.
Net Loss on Foreign Currency Derivative Contracts Associated with Acquisition of Investment
We recognized a net loss in connection with the settlement of foreign currency option contracts entered into
to fix the U.S. dollar cost of the November 2018 Canopy Transaction.
Restructuring and Other Strategic Business Development Costs
We recognized costs primarily in connection with the development of a program specifically intended to
identify opportunities for further streamlining of processes and improving capabilities, linking strategy with
execution, prioritizing resources and enabling a new enterprise resource planning system (Fiscal 2019 and Fiscal
2018).
Deferred Compensation
We recognized an adjustment related to prior periods to correct for previously unrecognized deferred
compensation costs associated with certain employment agreements.
Transaction, Integration and Other Acquisition-Related Costs
We recognized transaction, integration and other acquisition-related costs in connection with our
acquisitions and investments.
Loss on Contract Termination
We recognized a loss in connection with the early termination of a beer glass supply contract with Owens-
Illinois, a related-party entity with which we have an equally-owned joint venture which owns and operates a glass
production plant located adjacent to our Nava Brewery.
Costs Associated with the Canadian Divestiture and Related Activities
We recognized costs in connection with the evaluation of the merits of executing an initial public offering
for a portion of our Canadian wine business (Fiscal 2017) and net costs incurred in connection with the sale of the
Canadian wine business (Fiscal 2018 and Fiscal 2017). In addition, in connection with the Canadian Divestiture,
we recognized a trademark impairment loss for trademarks associated with certain U.S. brands within our Wine and
Spirits portfolio sold exclusively through the Canadian wine business, for which future sales of these brands were
expected to be minimal subsequent to the Canadian Divestiture (Fiscal 2017).
33
Other Gains (Losses)
We recognized gains primarily in connection with the sale of certain non-core assets (Fiscal 2019) and the
reduction in estimated fair value of a contingent liability associated with a prior period acquisition (Fiscal 2018).
Gain on Sale of Business
We recognized a net gain on sale of the Canadian wine business.
Income (Loss) from Unconsolidated Investments
We recognized an unrealized net gain from the changes in fair value of our securities measured at fair value
(Fiscal 2019 and Fiscal 2018), and a net gain in connection with the sale of our Accolade Wine Investment (Fiscal
2019). For additional information, refer to Notes 2, 7 and 10 of the Notes to the Financial Statements.
Fiscal 2019 Compared to Fiscal 2018
Net Sales
(in millions)
Beer
Wine and Spirits:
Wine
Spirits
Total Wine and Spirits
Consolidated net sales
Beer Segment
Fiscal 2019
Fiscal 2018
Dollar
Change
Percent
Change
$
5,202.1
$
4,660.4
$
541.7
2,532.5
381.4
2,913.9
8,116.0
$
2,556.3
363.6
2,919.9
7,580.3
$
$
(23.8)
17.8
(6.0)
535.7
12%
(1%)
5%
—%
7%
Fiscal 2019
Fiscal 2018
Dollar
Change
Percent
Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales
$
5,202.1
$
4,660.4
$
541.7
Shipment volume
Depletion volume (1)
294.1
268.0
12%
9.7%
8.8%
(1) Depletions represent distributor shipments of our respective branded products to retail customers, based on third-
party data.
The increase in Beer net sales is primarily due to (i) $446.5 million of volume growth within our Mexican
beer portfolio, which benefited from continued consumer demand, increased marketing spend and new product
introductions, and (ii) a $102.8 million favorable impact from pricing in select markets within our Mexican beer
portfolio. Shipment volume growth outpaced depletion volume growth primarily due to timing. We expect this
shipment timing benefit to reverse during Fiscal 2020.
34
Wine and Spirits Segment
(in millions, branded product, 9-liter case equivalents)
Net sales
$
2,913.9
$
2,919.9
$
(6.0)
—%
Fiscal 2019
Fiscal 2018
Dollar
Change
Percent
Change
Shipment volume
Total
U.S. Domestic
U.S. Domestic Focus Brands
Depletion volume (1)
U.S. Domestic
U.S. Domestic Focus Brands
58.5
54.4
33.9
59.0
54.7
33.1
(0.8%)
(0.5%)
2.4%
(2.6%)
0.6%
Wine and Spirits net sales remained relatively flat as $21.4 million of lower branded wine and spirits
volume and $16.2 million of unfavorable product mix shift were largely offset by a $35.5 million favorable impact
from pricing. As noted in the table above, the decline in the U.S. shipment volume was not as unfavorable as the
decline in U.S. depletion volume. As U.S. shipment volume should generally be aligned with U.S. depletion
volume, we expect this timing difference to reverse primarily in the first quarter of fiscal 2020. As a result, first
quarter of fiscal 2020 net sales are expected to decrease 10% as compared with the first quarter of fiscal 2019.
Gross Profit
(in millions)
Beer
Wine and Spirits
Comparable Adjustments
Consolidated gross profit
Fiscal 2019
Fiscal 2018
Dollar
Change
Percent
Change
$
$
2,830.7
$
2,531.2
$
1,279.5
(29.9)
4,080.3
$
1,309.4
(28.1)
3,812.5
$
299.5
(29.9)
(1.8)
267.8
12%
(2%)
(6%)
7%
The increase in Beer is primarily due to $247.2 million of volume growth and the $102.8 million favorable
impact from pricing, partially offset by $46.3 million of higher cost of product sold for our Mexican beer business.
The higher cost of product sold is predominantly due to $57.8 million of increased transportation costs, partially
offset by $17.2 million of foreign currency transactional benefits within our Mexican beer portfolio. The Beer
segment also recognized higher operational costs for Fiscal 2019, largely attributable to higher depreciation,
brewery maintenance and compensation and benefits; however, these costs were offset by brewery sourcing
benefits.
The decrease in Wine and Spirits is largely due to $37.4 million of higher cost of product sold and an
unfavorable product mix shift of $26.3 million, partially offset by the $35.5 million favorable impact from pricing.
The higher cost of product sold is largely attributable to higher raw material costs, including grape, bulk wine and
imported vodka costs, as well as increased transportation costs.
Gross profit as a percent of net sales remained flat for Fiscal 2019 compared to Fiscal 2018 at 50.3%. This
was largely due to the higher cost of product sold within both the Beer and Wine and Spirits segments, which
resulted in approximately 25 basis points and 20 basis points of rate decline, respectively, partially offset by the
favorable impact from Beer pricing in select markets, which contributed approximately 30 basis points of rate
growth.
35
Selling, General and Administrative Expenses
Fiscal 2019
Fiscal 2018
Dollar
Change
Percent
Change
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
Comparable Adjustments
Consolidated selling, general and administrative expenses $
$
787.8
$
691.0
$
508.3
197.9
174.1
1,668.1
$
515.3
165.8
160.6
1,532.7
$
96.8
(7.0)
32.1
13.5
135.4
14%
(1%)
19%
8%
9%
The increase in Beer is primarily due to an increase of $63.6 million in marketing spend and $33.7 million
in general and administrative expenses. The increase in marketing spend is due largely to planned investment to
support the growth of our Mexican beer portfolio, including support of the new product introductions. The increase
in general and administrative expenses is largely driven by unfavorable foreign currency transaction losses and
higher expenses supporting the growth of the business, including compensation and benefits associated primarily
with increased headcount and information technology costs.
The decrease in Wine and Spirits is primarily due to a decrease of $18.2 million in general and
administrative expenses, partially offset by an increase of $12.0 million in marketing spend. The decrease in
general and administrative expenses is largely driven by certain cost savings initiatives. The increase in marketing
spend is primarily attributable to planned investment supporting the portfolio.
The increase in Corporate Operations and Other is due to higher general and administrative expenses driven
predominantly by an increase of approximately $28 million in compensation and benefits largely attributable to
supporting our growth initiatives.
Selling, general and administrative expenses as a percent of net sales increased to 20.6% for Fiscal 2019 as
compared with 20.2% for Fiscal 2018. The increase is primarily attributable to the growth in Corporate Operations
and Other general and administrative expenses, which resulted in approximately 30 basis points of rate growth.
Operating Income
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
Comparable Adjustments
Consolidated operating income
Fiscal 2019
Fiscal 2018
Dollar
Change
Percent
Change
$
2,042.9
$
1,840.2
$
771.2
(197.9)
(204.0)
2,412.2
$
794.1
(165.8)
(188.7)
2,279.8
$
$
202.7
(22.9)
(32.1)
(15.3)
132.4
11%
(3%)
(19%)
(8%)
6%
The increase in Beer is primarily attributable to the strong net sales growth, partially offset by the planned
increase in marketing spend and the higher cost of product sold. The decrease in Wine and Spirits was driven by the
higher cost of product sold and unfavorable product mix shift, partially offset by pricing. As previously discussed,
Corporate Operations and Other reduction in operating income is due largely to the higher costs supporting our
growth initiatives.
Income from Unconsolidated Investments
Income from unconsolidated investments increased to $2,101.6 million for Fiscal 2019 from $487.2 million
for Fiscal 2018, an increase of $1,614.4 million. This increase is driven largely by an unrealized net gain from the
changes in fair value of our securities measured at fair value of $1,971.2 million for Fiscal 2019 as compared with
an unrealized net gain of $464.3 million recognized for Fiscal 2018. Fiscal 2019 also benefited from a net gain in
connection with the sale of our Accolade Wine Investment of $99.8 million.
36
Interest Expense
Interest expense increased to $367.1 million for Fiscal 2019 from $332.0 million for Fiscal 2018, an
increase of $35.1 million, or 11%. This increase is predominately due to higher average borrowings of
approximately $2.0 billion. The higher average borrowings are primarily attributable to the significant purchases of
treasury stock for Fiscal 2018 and the November 2018 Canopy Transaction.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for Fiscal 2018 consists of a make-whole payment of $73.6 million in
connection with the early redemption of our April 2012 senior notes and the write-off of debt issuance costs of
$23.4 million in connection with the May and November 2017 repayments of outstanding obligations under the
European Term A loan facility and the U.S. Term A loan facility under our applicable senior credit facility, the July
2017 amendment and restatement of the 2016 Credit Agreement and the early redemption of our April 2012 senior
notes.
Provision for Income Taxes
Our effective tax rate for Fiscal 2019 was 16.5% as compared with 1.0% for Fiscal 2018 driven primarily
by the recognition of a $351.2 million income tax benefit for Fiscal 2018 associated with the enactment of the TCJ
Act, which was signed into law on December 22, 2017. For Fiscal 2018, we recognized a provisional net income
tax benefit comprised primarily of benefits from (i) the remeasurement of our deferred tax assets and liabilities to
the new, lower federal statutory rate and (ii) the reversal of deferred tax liabilities previously provided for
unremitted earnings of foreign subsidiaries which were not considered to be indefinitely reinvested; partially offset
by the recording of the mandatory one-time transition tax on unremitted earnings of our foreign subsidiaries. We
completed our analysis of the income tax implications of the TCJ Act for the third quarter of fiscal 2019 and
recognized an additional income tax benefit of $37.6 million resulting from a decrease in the mandatory one-time
transition tax on unremitted earnings of our foreign subsidiaries.
For additional information, refer to Note 13 of the Notes to the Financial Statements.
We expect our effective tax rate for the next fiscal year to be in the range of 16% to 18%. This includes an
estimated impact for (i) benefits related to the recognition of the income tax effect of stock-based compensation
awards in the income statement when the awards vest or are settled, (ii) lower effective tax rates applicable to our
foreign businesses and (iii) closing of the Wine and Spirits Transaction in accordance with the expected timeline.
Since estimates are not currently available, this range does not assume (i) any future changes in the fair value of our
Canopy investments measured at fair value, (ii) any gain (loss) recognized in connection with the Wine and Spirits
Transaction and (iii) any equity in earnings (losses) from the Canopy Equity Method Investment.
Net Income Attributable to CBI
Net income attributable to CBI increased to $3,435.9 million for Fiscal 2019 from $2,303.4 million for
Fiscal 2018, an increase of $1,132.5 million. This increase is largely attributable to the increase in income from
unconsolidated investments discussed above. Solid operating performance from Beer contributed an additional
$202.7 million of operating income. These increases were partially offset by the higher provision for income taxes
discussed above.
37
Fiscal 2018 Compared to Fiscal 2017
Net Sales
(in millions)
Beer
Wine and Spirits:
Wine
Spirits
Total Wine and Spirits
Consolidated net sales
Beer Segment
Fiscal 2018
Fiscal 2017
Dollar
Change
Percent
Change
$
4,660.4
$
4,227.3
$
433.1
10%
2,556.3
363.6
2,919.9
2,732.7
361.1
3,093.8
$
7,580.3
$
7,321.1
$
(176.4)
2.5
(173.9)
259.2
(6%)
1%
(6%)
4%
Fiscal 2018
Fiscal 2017
Dollar
Change
Percent
Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales
$
4,660.4
$
4,227.3
$
433.1
Shipment volume
Depletion volume (1)
268.0
246.4
10%
8.8%
9.8%
(1) 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 net sales is primarily due to (i) the volume growth within our Mexican beer portfolio
of $371.4 million, which benefited from continued consumer demand and increased marketing spend, and (ii) a
favorable impact from pricing in select markets within our Mexican beer portfolio of $78.1 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 (1)
U.S. Domestic
U.S. Domestic Focus Brands
Fiscal 2018
Fiscal 2017
Dollar
Change
Percent
Change
$
2,919.9
$
3,093.8
$
(173.9)
(6%)
59.0
58.6
54.7
54.4
33.6
33.4
69.2
59.3
55.0
55.0
31.8
31.8
(14.7%)
(1.2%)
(0.5%)
(1.1%)
5.7%
5.0%
0.9%
6.6%
The decrease in Wine and Spirits net sales is due to the Canadian Divestiture of $311.2 million, partially
offset by net sales from acquired brands of $50.4 million and organic net sales growth of $86.9 million. The organic
growth is due largely to favorable product mix shift of $129.5 million, partially offset by lower branded wine and
spirits volume of $39.9 million driven predominantly by brands within our wine and spirits portfolio other than our
Focus Brands.
38
Gross Profit
(in millions)
Beer
Wine and Spirits
Comparable Adjustments
Consolidated gross profit
NM = Not meaningful
Fiscal 2018
Fiscal 2017
Dollar
Change
Percent
Change
$
$
2,531.2
1,309.4
(28.1)
3,812.5
$
$
$
2,149.3
1,352.3
17.4
3,519.0
$
381.9
(42.9)
(45.5)
293.5
18%
(3%)
NM
8%
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 $190.2 million and $78.1 million, respectively, and (ii) lower
cost of product sold for our Mexican beer business of $140.5 million. The lower cost of product sold is primarily
due to operational and foreign currency transactional benefits within our Mexican beer portfolio of $89.6 million
and $30.3 million, respectively.
The decrease in Wine and Spirits is due to the Canadian Divestiture of $131.2 million, partially offset by
organic gross profit growth of $62.2 million and gross profit from the acquired brands of $26.1 million. The
organic growth is due largely to favorable product mix shift of $93.2 million, partially offset by higher branded
wine and spirits cost of product sold of $25.9 million.
Gross profit as a percent of net sales increased to 50.3% for Fiscal 2018 compared with 48.1% for Fiscal
2017 primarily due to (i) lower cost of product sold for the Beer segment, (ii) the favorable impact from Beer
pricing in select markets and (iii) the favorable Wine and Spirits product mix shift, which contributed
approximately 185 basis points, 55 basis points and 40 basis points of rate growth, respectively; partially offset by
an unfavorable change in Comparable Adjustments, which resulted in approximately 60 basis points of rate decline.
Selling, General and Administrative Expenses
Fiscal 2018
Fiscal 2017
Dollar
Change
Percent
Change
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
$
691.0
$
616.9
$
515.3
165.8
559.9
139.9
Comparable Adjustments
Consolidated selling, general and administrative expenses $
160.6
1,532.7
$
75.7
1,392.4
$
74.1
(44.6)
25.9
84.9
140.3
12%
(8%)
19%
NM
10%
The increase in Beer is primarily due to increases in marketing spend of $46.1 million and general and
administrative expenses of $27.9 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 expenses supporting the growth of the business. The decrease in Wine and Spirits
is primarily driven by the Canadian Divestiture of $81.1 million, partially offset by an increase in marketing spend
primarily due to planned investment to support our organic growth and acquired businesses of $32.4 million. The
increase in Corporate Operations and Other is due to higher general and administrative expenses primarily
attributable to increases in consulting of $12.8 million and compensation and benefits of $11.0 million, both largely
attributable to supporting the growth of the business.
Selling, general and administrative expenses as a percent of net sales increased to 20.2% for Fiscal 2018 as
compared with 19.0% for Fiscal 2017. The increase is primarily attributable to the unfavorable change in
Comparable Adjustments and the growth in Corporate Operations and Other general and administrative expenses,
which resulted in approximately 135 basis points of rate growth, partially offset by a benefit of approximately 25
39
basis points from the divestiture of the Canadian wine business, which had a higher rate of selling, general and
administrative expenses as a percent of net sales as compared with the rest of the Wine and Spirits business.
Operating Income
(in millions)
Beer
Wine and Spirits
Corporate Operations and Other
Comparable Adjustments
Consolidated operating income
Fiscal 2018
Fiscal 2017
Dollar
Change
Percent
Change
$
1,840.2
$
1,532.4
$
794.1
(165.8)
(188.7)
2,279.8
$
792.4
(139.9)
204.1
2,389.0
$
$
307.8
1.7
(25.9)
(392.8)
(109.2)
20%
—%
(19%)
NM
(5%)
Operating income growth in our Beer segment was driven predominantly by the factors discussed above.
Wine and Spirits remained relatively flat as the loss of operating income in connection with the divestiture of the
Canadian wine business was offset by the growth factors discussed above.
Income from Unconsolidated Investments
Income from unconsolidated investments increased to $487.2 million for Fiscal 2018 from $27.3 million for
Fiscal 2017, an increase of $459.9 million. This increase is driven largely by an unrealized net gain from the
changes in fair value of our securities measured at fair value of $464.3 million.
Interest Expense
Interest expense remained relatively flat for Fiscal 2018 as compared to Fiscal 2017 as a lower average
interest rate of approximately 30 basis points was offset by higher average borrowings of approximately $645
million. The lower average interest rate is predominantly due to the issuance of the lower rate December 2016
Senior Notes, May 2017 Senior Notes and November 2017 Senior Notes and the repayment of the higher rate
August 2006 senior notes and January 2008 senior notes. The higher average borrowings are primarily attributable
to the purchases of businesses and treasury stock, net of proceeds from the Canadian Divestiture, during Fiscal
2017.
Provision for Income Taxes
Our effective tax rate for Fiscal 2018 was 1.0% as compared with 26.4% for Fiscal 2017 driven primarily
by the recognition of a $351.2 million income tax benefit for Fiscal 2018 associated with the enactment of the TCJ
Act, which was signed into law on December 22, 2017. For Fiscal 2018, we recognized a provisional net income
tax benefit comprised primarily of benefits from (i) the remeasurement of our deferred tax assets and liabilities to
the new, lower federal statutory rate and (ii) the reversal of deferred tax liabilities previously provided for
unremitted earnings of foreign subsidiaries which were not considered to be indefinitely reinvested; partially offset
by the recording of the mandatory one-time transition tax on unremitted earnings of our foreign subsidiaries.
Our effective tax rate for Fiscal 2018 as compared with Fiscal 2017 was also favorably impacted by:
•
•
•
lower effective tax rates applicable to our foreign businesses;
the recognition of the income tax effect of stock-based compensation awards in the income statement
when the awards vest or are settled in connection with our March 1, 2017, adoption of FASB amended
share-based compensation guidance; and
the new, lower federal statutory rate of 32.7% associated with the TCJ Act, as compared to the federal
statutory rate of 35% in effect for Fiscal 2017.
40
Net Income Attributable to CBI
Net income attributable to CBI increased to $2,303.4 million for Fiscal 2018 from $1,528.6 million for
Fiscal 2017, an increase of $774.8 million. This increase was driven largely by the factors discussed above,
including the net unrealized gain from the changes in fair value of our securities measured at fair value of $464.3
million, the net income tax benefit of $351.2 million resulting from the TCJ Act and the strong operating
performance for the Beer segment of $307.8 million.
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 investments and 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.
Additionally, we have a commercial paper program which we use to fund our short-term borrowing requirements
and to maintain our access to the capital markets. We will continue to use our short-term borrowings, including our
commercial paper program, 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.
In November 2018, we completed the November 2018 Canopy Transaction for C$5,078.7 million, or
$3,869.9 million. In addition, we incurred $24.5 million of direct acquisition costs. The aggregate cash paid at
closing was financed with (i) the net proceeds from the issuance of $2,150.0 million aggregate principal amount of
October 2018 Senior Notes, (ii) $1,500.0 million in term loans under the Term Credit Agreement and (iii) the
remainder from proceeds of borrowings under our commercial paper program. Based on our ability to consistently
generate strong cash flow from operating activities, we expect to be able to return to our targeted leverage ratio
within 24 months following the close of this transaction, while continuing to make appropriate investments in our
business that we believe will enhance shareholder value.
In April 2019, we entered into an agreement to sell a portion of our wine and spirits business for
approximately $1.7 billion, subject to closing adjustments. We expect to use the net cash proceeds from this
transaction primarily to reduce outstanding borrowings.
Cash Flows
(in millions)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
41
Fiscal 2019
Fiscal 2018
Fiscal 2017
$
$
2,246.3
(4,831.8)
2,593.3
(4.5)
3.3
$
$
$
1,931.4
(1,423.1)
(601.2)
5.8
(87.1) $
1,696.0
(1,461.8)
(134.8)
(5.1)
94.3
Operating Activities
Fiscal 2019 Compared to Fiscal 2018
The increase in net cash provided by operating activities for Fiscal 2019 is largely due to strong cash flow
from the Beer segment driven primarily by the segment’s solid operating results, including a benefit from decreased
inventory levels due to strong shipments in the fourth quarter of fiscal 2019. Additionally, net cash provided by
operating activities for Fiscal 2019 benefited from lower income tax payments predominantly due to (i) the receipt
of a federal tax refund for Fiscal 2019 and (ii) lower federal tax payments resulting from the reduction in the U.S.
corporate income tax rate associated with the enactment of the TCJ Act.
Fiscal 2018 Compared to Fiscal 2017
The increase in net cash provided by operating activities for Fiscal 2018 is primarily due to strong cash flow
from the Beer segment driven largely by the segment’s strong operating results, partially offset by (i) the timing of
collections for recoverable value-added taxes and (ii) an increase in cash outflow from accounts payable primarily
attributable to the timing of payments. Net cash provided by operating activities also benefited from our March 1,
2017, adoption of the FASB amended share-based compensation guidance, which resulted in the classification of
excess tax benefits (resulting from an increase in the fair value of an award from grant date to the vesting or
settlement date) as an operating activity in the statement of cash flows instead of as a financing activity where they
were previously presented prior to March 1, 2017.
Investing Activities
Fiscal 2019 Compared to Fiscal 2018
The increase in net cash used in investing activities for Fiscal 2019 is primarily due to the November 2018
Canopy Transaction. The increase in net cash used in investing activities was partially offset by (i) lower capital
expenditures of $171.3 million, (ii) proceeds from the May 2018 sale of our Accolade Wine Investment of $110.2
million and (iii) the lower level of business acquisition activity of $104.5 million.
Fiscal 2018 Compared to Fiscal 2017
The decrease in net cash used in investing activities for Fiscal 2018 is primarily due to the lower level of net
business acquisition and divestiture activity of $380.6 million. The decrease in net cash used in investing activities
was partially offset by the November 2017 Canopy Investment of $191.3 million and higher capital expenditures of
$150.2 million.
Business acquisitions consist primarily of the following:
Fiscal 2019
Fiscal 2018
Fiscal 2017
Four Corners (July 2018)
Schrader Cellars (June 2017)
Prisoner (April 2016)
Funky Buddha (August 2017)
High West (October 2016)
Charles Smith (October 2016)
Obregon Brewery (December 2016)
42
Financing Activities
Fiscal 2019 Compared to Fiscal 2018
The increase in net cash provided by financing activities consists of:
(in millions)
Net proceeds from debt, current and long-term, and related activities
Dividends paid
Purchases of treasury stock
Net cash provided by stock-based compensation activities
Net cash provided by (used in) financing activities
Fiscal 2019
Fiscal 2018
Dollar
Change
$
$
3,605.7
(557.7)
(504.3)
49.6
2,593.3
$
$
$
819.7
(400.1)
(1,038.5)
17.7
(601.2) $
2,786.0
(157.6)
534.2
31.9
3,194.5
Fiscal 2018 Compared to Fiscal 2017
The increase in net cash used in financing activities consists of:
Fiscal 2018
Fiscal 2017
Dollar
Change
(in millions)
Net proceeds from debt, current and long-term, and related activities
Dividends paid
Purchases of treasury stock
Net cash provided by stock-based compensation activities
Net cash used in financing activities
$
$
$
819.7
(400.1)
(1,038.5)
17.7
(601.2) $
$
1,176.8
(315.1)
(1,122.7)
126.2
(134.8) $
(357.1)
(85.0)
84.2
(108.5)
(466.4)
Debt
Total debt outstanding as of February 28, 2019, amounted to $13,616.5 million, an increase of $3,429.8
million from February 28, 2018. This increase was predominately due to the financing of the November 2018
Canopy Transaction, including the issuance of the October 2018 Senior Notes and borrowings under the Term
Credit Agreement, partially offset by the conversion of $248.2 million from long-term debt to noncontrolling equity
interests associated with the noncash settlement of a prior contractual agreement with our glass production plant
joint venture partner.
Senior Credit Facility
In August 2018, we entered into the August 2018 Restatement Agreement that amended and restated our
2017 Credit Agreement, primarily for technical amendments. In September 2018, we entered into the 2018
Restatement Agreement that amended and restated the August 2018 Credit Agreement. Among other things, the
2018 Restatement Agreement increased our revolving credit facility by $500.0 million to $2.0 billion and extended
its maturity to September 14, 2023. Additionally, the 2018 Restatement Agreement modified certain financial
covenants and added various representations and warranties, covenants and an event of default in connection with
the then-pending additional investment in Canopy.
General
The majority of our outstanding borrowings as of February 28, 2019, consisted of fixed-rate senior
unsecured notes, with maturities ranging from calendar 2019 to calendar 2048, and variable-rate senior unsecured
43
term loan facilities under our 2018 Credit Agreement and Term Credit Agreement, with maturities ranging from
calendar 2021 to calendar 2024.
Additionally, we have a commercial paper program which provides for the issuance of up to an aggregate
principal amount of $2.0 billion of commercial paper. Our commercial paper program is backed by unused
commitments under our revolving credit facility under our 2018 Credit Agreement. Accordingly, outstanding
borrowings under our commercial paper program reduce the amount available under our revolving credit facility
under our 2018 Credit Agreement.
We do not have purchase commitments from buyers for our commercial paper and, therefore, our ability to
issue commercial paper is subject to market demand. If the commercial paper market is not available to us for any
reason when outstanding commercial paper borrowings mature, we will utilize unused commitments under our
revolving credit facility under our 2018 Credit Agreement to repay commercial paper borrowings. We do not expect
that fluctuations in demand for commercial paper will affect our liquidity given our borrowing capacity available
under our revolving credit facility under our 2018 Credit Agreement.
We had the following borrowing capacity available under our 2018 Credit Agreement:
(in millions)
Revolving Credit Facility (1)
Remaining Borrowing Capacity
February 28,
2019
April 17,
2019
$
1,196.7
$
1,176.8
(1) Net of outstanding revolving credit facility borrowings and outstanding letters of credit under our 2018 Credit
Agreement and outstanding borrowings under our commercial paper program.
The financial institutions participating in our 2018 Credit Agreement 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.
We and our subsidiaries are subject to covenants that are contained in the 2018 Credit Agreement, including
those restricting the incurrence of additional indebtedness (including guarantees of indebtedness) by subsidiaries
that are not guarantors, additional liens, mergers and consolidations, transactions with affiliates, and sale and
leaseback transactions, in each case subject to numerous conditions, exceptions and thresholds. The financial
covenants are limited to a minimum interest coverage ratio and a maximum net leverage ratio, both as defined in the
2018 Credit Agreement. As of February 28, 2019, under the 2018 Credit Agreement, the minimum interest
coverage ratio was 2.5x and the maximum net leverage ratio was 5.25x.
The obligations under the Term Credit Agreement are guaranteed by certain of our U.S. subsidiaries. In
addition, the representations, warranties, covenants and events of default set forth in the Term Credit Agreement are
substantially similar to those set forth in the 2018 Credit Agreement.
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, 2019, we were in compliance with all of our covenants under the 2018 Credit
Agreement, the Term 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 12 of the Notes to the Financial Statements.
44
Common Stock Dividends
On April 3, 2019, our Board of Directors declared a quarterly cash dividend of $0.75 per share of Class A
Common Stock, $0.68 per share of Class B Convertible Common Stock and $0.68 per share of Class 1 Common
Stock payable on May 24, 2019, to stockholders of record of each class on May 10, 2019. We expect to return
approximately $567 million to stockholders in Fiscal 2020 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 have authorized the repurchase of up to $3.0 billion of our Class A Common Stock
and Class B Convertible Common Stock under the 2018 Authorization. Shares repurchased under this authorization
have become treasury shares.
As of February 28, 2019, total shares repurchased under this authorization are as follows:
(in millions, except share data)
2018 Authorization
Class A Common Shares
Dollar Value
of Shares
Repurchased
Number of
Shares
Repurchased
Repurchase
Authorization
$
3,000.0
$
995.9
4,632,012
Share repurchases under the 2018 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 16 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,
2019. 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 11, 12, 13, 14 and 15 of the Notes to the
Financial Statements.
PAYMENTS DUE BY PERIOD
Total
Less than
1 year
1-3 years
3-5 years
After
5 years
(in millions)
Short-term borrowings
$
791.5
$
791.5
$
— $
— $
—
Long-term debt (excluding unamortized
debt issuance costs and unamortized
discounts)
Interest payments on long-term debt (1)
Operating leases
Other long-term liabilities (2)
Purchase obligations (3)
Total contractual obligations
12,910.1
1,067.4
2,474.6
3,699.3
4,197.0
559.5
284.2
7,194.2
477.8
59.0
58.1
853.4
109.3
68.1
635.7
89.1
69.8
1,568.7
2,591.6
1,568.9
$
25,936.5
$
4,022.5
$
6,097.0
$
6,062.8
$
5,668.8
2,230.1
302.1
88.2
1,465.0
9,754.2
45
(1)
(2)
Interest rates on long-term debt obligations range from 2.0% to 5.3% as of February 28, 2019. Interest payments
on long-term debt do not include interest related to capital lease obligations, which represent approximately 0.2%
of our total long-term debt, as amounts are not material.
Includes $36.3 million associated with expected payments for unrecognized tax benefit liabilities as of
February 28, 2019, $0.3 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 $188.0
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 13 of the Notes to the Financial Statements.
(3) Consists primarily of $5,955.1 million for contracts to purchase certain raw materials and supplies over the next
sixteen fiscal years and $649.8 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 15 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 2019, we incurred $886.3 million for capital expenditures, including $720.0 million for the
Beer segment primarily for (i) our Nava Brewery and glass production plant expansions, (ii) our Obregon Brewery
optimization and expansion and (iii) our Mexicali Brewery construction (collectively, 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 $800.0 million to $900.0 million for capital expenditures for Fiscal
2020, including approximately $750.0 million for the Beer segment associated primarily with the Mexico Beer
Expansion Projects. The remaining Fiscal 2020 capital expenditures consist of improvements of existing operating
facilities and replacements of existing equipment and/or buildings. The Mexico Beer Expansion Projects are
expected to be completed over the next four fiscal years.
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
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 and Policies
Our significant accounting policies are more fully described in Note 1 of the 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
46
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 a quantitative impairment test. Under the quantitative assessment, the
estimated fair value of each reporting unit is compared to its carrying value, 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 goodwill impairment will be
recognized. 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 with goodwill include
the Beer segment and 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 recognize an
impairment loss for these assets. The recognition of any resulting impairment loss could have a
material adverse impact on our financial statements.
In the fourth quarter of fiscal 2019, we performed our annual goodwill impairment analysis using the
qualitative assessment. Our decision to utilize the qualitative assessment was based primarily on the
significant amount of excess fair value over the carrying amount of goodwill for our reporting units
noted in the prior year assessment. As part of the qualitative assessment, we first identified the key
drivers of fair value used in the prior year valuations for each of the reporting units noting that the most
significant assumptions used in the discounted cash flow calculations were: (i) the discount rate,
(ii) the expected long-term growth rate and (iii) the annual cash flow projections. We then evaluated
whether those drivers had subsequently been affected by events and circumstances that could have
positive, negative or neutral impacts on the valuation inputs. No indication of impairment was noted
for either of our reporting units; therefore, no quantitative assessment was performed. For Fiscal 2018
and Fiscal 2017, as a result of our annual goodwill impairment analyses, we concluded that there were
no indications of impairment for either of our reporting units.
We performed sensitivity analyses on our qualitative assessment for each reporting unit, by updating the
reporting unit’s carrying value for all assets and liabilities, as well as prior year’s estimated fair value,
using actual reporting unit operating results for Fiscal 2019, with any forecast versus actual variances
carried through estimated future periods. These analyses further supported our qualitative conclusion of
no indication of impairment for either of our reporting units.
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. Under the quantitative assessment, 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
47
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 recognized 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 recognize an
impairment loss for these assets. The recognition of any resulting impairment loss could have a
material adverse impact on our financial statements.
In the fourth quarter of fiscal 2019, we performed our annual indefinite lived intangible asset impairment
analysis utilizing the qualitative assessment for our import beer, total wine and total spirits trademark assets
and the quantitative assessment for the Ballast Point and Funky Buddha trademark assets. Our decision
to utilize the qualitative assessment for the import beer, total wine and total spirits trademark assets was
based primarily on the significant amount of excess fair value over the carrying amount for the trademark
assets noted in the prior year assessment. No indication of impairment was noted for any of the trademark
assets tested under the qualitative assessment. As the aforementioned more likely than not criteria was
not met, no quantitative assessment was performed. Additionally, under the quantitative assessment, no
indication of impairment was noted for the Funky Buddha trademark asset.
For the fourth quarter of fiscal 2019, the Beer segment’s Ballast Point business recognized a trademark
impairment loss of $108.0 million in connection with certain continuing negative trends within its craft
beer portfolio and a change in strategy for this portfolio focused on improving profitability by
rationalizing the number of product offerings while targeting distribution growth in select strategic
markets. In the first quarter of fiscal 2018, the Beer segment’s Ballast Point business recognized a
trademark impairment loss of $86.8 million in connection with certain negative trends within its craft
beer portfolio. 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 (refer to Note 7 of the Notes to the
Financial Statements for further discussion).
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, 2019, 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 the Funky Buddha trademark, then each change individually would not have
resulted in its carrying value exceeding its estimated fair value.
• Accounting for income taxes. We estimate our deferred tax assets and liabilities, income taxes payable,
provision for income taxes and unrecognized tax benefit liabilities 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 various items of income and expense, interpretation of
tax laws and tax planning strategies. We are subject to income taxes in Canada, Luxembourg, Mexico,
Switzerland, the U.S. and other jurisdictions. We are regularly audited by federal, state and foreign tax
authorities, but a number of years may elapse before an uncertain tax position, for which we have
unrecognized tax benefit liabilities, is audited and finally resolved.
48
We believe that all tax positions are fully supported. However, we recognize tax assets and liabilities in
accordance with the FASB guidance for income tax accounting. Accordingly, 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. We measure and recognize the tax benefit from such a position based on the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. 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 unrecognized tax benefit liabilities. In addition,
changes in existing tax laws or rates could significantly change our current estimate of our
unrecognized tax benefit 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.
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 recognize a valuation allowance on
deferred tax assets when it is more likely than not that they will not be realized. We evaluate our ability
to realize the tax benefits associated with deferred tax assets by assessing the adequacy of future
expected taxable income, historical and projected operating results, and the availability of prudent and
feasible tax planning strategies. The realization of deferred tax assets is evaluated by jurisdiction and
the realizability of these assets can vary based on the character of the tax attribute and the carryforward
periods specific to each jurisdiction. We believe it is more likely than not that the results of future
operations will generate sufficient taxable income to realize our existing deferred tax assets, net of
valuation allowances. Changes in the realizability of our deferred tax assets will be reflected in our
effective tax rate in the period in which they are determined.
Accounting Guidance
Accounting guidance adopted for Fiscal 2019 did not have a material impact on our consolidated financial
statements. For additional information on recently adopted accounting guidance and accounting guidance not yet
adopted, refer to Note 1 in the 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, interest rates and equity prices. 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 contracts and interest rate swap contracts. 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 investments outside the U.S. As of February 28, 2019, we had exposures to foreign currency risk
primarily related to the Mexican peso, euro, New Zealand dollar and Canadian dollar. Approximately 80% of our
balance sheet exposures and forecasted transactional exposures for the year ending February 29, 2020, were hedged
as of February 28, 2019.
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, 2019, exposures to commodity price
risk which we are currently hedging include aluminum, corn, diesel fuel, natural gas and wheat prices.
Approximately 75% of our forecasted transactional exposures for the year ending February 29, 2020, were hedged
as of February 28, 2019.
49
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
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 Asset (Liability)
Increase (Decrease)
in Fair Value –
Hypothetical
10% Adverse Change
February 28,
2019
February 28,
2018
February 28,
2019
February 28,
2018
February 28,
2019
February 28,
2018
$
$
2,039.6
284.7
$
$
1,906.0
177.5
$
$
$
22.5
(2.9) $
20.4
3.5
$
$
(166.5) $
$
24.4
(107.1)
(15.0)
(in millions)
Foreign currency contracts
Commodity derivative contracts
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, 2019, and February 28, 2018, we had no interest rate swap contracts outstanding.
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, are summarized as follows:
Aggregate
Notional Value
Fair Value
Decrease
in Fair Value –
Hypothetical
1% Rate Increase
February 28,
2019
February 28,
2018
February 28,
2019
February 28,
2018
February 28,
2019
February 28,
2018
$
$
10,278.9
3,422.7
$
$
8,787.5
1,476.1
$
$
10,098.5
3,461.9
$
$
8,682.9
1,460.7
$
$
(591.0) $
(88.0) $
(524.3)
(29.6)
(in millions)
Fixed interest rate debt
Variable interest rate debt
Equity Price Risk
The estimated fair value of our investments in the Canopy warrants and the Canopy convertible debt
securities are subject to equity price risk, interest rate risk, credit risk and foreign currency risk. These investments
are recognized at fair value utilizing various option-pricing models and have the potential to fluctuate from, among
other items, changes in the quoted market price of the underlying equity security. We manage our equity price risk
exposure by closely monitoring the financial condition, performance and outlook of Canopy Growth Corporation.
As of February 28, 2019, the fair value of our investments in the Canopy warrants and the Canopy
convertible debt securities was $3,234.7 million, with an unrealized net gain on these investments of $1,678.7
million recognized in our results of operations for the year ended February 28, 2019. We have performed a
sensitivity analysis to estimate our exposure to market risk of the equity price reflecting the impact of a hypothetical
10% adverse change in the quoted market price of the underlying equity security. As of February 28, 2019, such a
hypothetical 10% adverse change would have resulted in a decrease in fair value of $438.3 million.
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, 2019
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 as of February 28, 2019, and February 28, 2018
Consolidated Statements of Comprehensive Income for the years ended February 28, 2019, February 28, 2018, and
February 28, 2017
Consolidated Statements of Changes in Stockholders’ Equity for the years ended February 28, 2019,
February 28, 2018, and February 28, 2017
Consolidated Statements of Cash Flows for the years ended February 28, 2019, February 28, 2018, and
February 28, 2017
Notes to Consolidated Financial Statements
Selected Quarterly Financial Information (unaudited)
Page
52
53
55
56
57
58
59
61
112
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, 2019.
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
To the Stockholders and Board of Directors
Constellation Brands, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Constellation Brands, Inc. and subsidiaries’ (the Company) internal control over financial reporting
as of February 28, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of February 28, 2019, 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) (PCAOB), the consolidated balance sheets of the Company as of February 28, 2019 and 2018, the related
consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the
fiscal years in the three-year period ended February 28, 2019, and the related notes (collectively, the consolidated
financial statements), and our report dated April 23, 2019 expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
The Company’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 are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
53
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.
Rochester, New York
April 23, 2019
/s/ KPMG LLP
54
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Constellation Brands, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Constellation Brands, Inc. and subsidiaries (the
Company) as of February 28, 2019 and 2018, the related consolidated statements of comprehensive income,
changes in stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended
February 28, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
February 28, 2019 and 2018, and the results of its operations and its cash flows for each of the fiscal years in the
three-year period ended February 28, 2019, 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) (PCAOB), the Company’s internal control over financial reporting as of February 28, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated April 23, 2019 expressed an unqualified opinion
on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
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 are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2002.
Rochester, New York
April 23, 2019
55
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
ASSETS
February 28,
2019
February 28,
2018
Current assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other
Total current assets
Property, plant and equipment
Goodwill
Intangible assets
Equity method investments
Securities measured at fair value
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Other accrued expenses and liabilities
Total current liabilities
Long-term debt, less current maturities
Deferred income taxes and other liabilities
Total liabilities
Commitments and contingencies (Note 15)
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,
185,740,178 shares and 258,718,356 shares, respectively
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares;
Issued, 28,322,419 shares and 28,335,387 shares, respectively
Class 1 Common Stock, $.01 par value – Authorized, 25,000,000 shares; Issued,
1,149,624 shares and 1,970 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Less: Treasury stock –
Class A Common Stock, at cost, 18,927,966 shares and 90,743,239 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
$
$
$
$
93.6
846.9
2,130.4
613.1
3,684.0
5,267.3
8,088.8
3,198.1
3,465.6
3,234.7
2,183.3
109.7
29,231.5
791.5
1,065.2
616.7
690.4
3,163.8
11,759.8
1,470.7
16,394.3
—
1.9
0.3
—
1,410.8
14,276.2
(353.9)
15,335.3
(2,782.1)
(2.2)
(2,784.3)
12,551.0
286.2
12,837.2
29,231.5
$
$
$
$
90.3
776.2
2,084.0
523.5
3,474.0
4,789.7
8,083.1
3,304.8
121.5
672.2
—
93.4
20,538.7
746.8
22.3
592.2
678.3
2,039.6
9,417.6
1,089.8
12,547.0
—
2.6
0.3
—
2,825.3
9,157.2
(202.9)
11,782.5
(3,805.2)
(2.2)
(3,807.4)
7,975.1
16.6
7,991.7
20,538.7
The accompanying notes are an integral part of these statements.
56
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
Sales
Excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative expenses
Gain on sale of business
Operating income
Income from unconsolidated investments
Interest expense
Loss on extinguishment of debt
Income before income taxes
Provision for income taxes
Net income
Net income 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 on cash flow hedges
Unrealized gain (loss) on available-for-sale debt securities
Pension/postretirement adjustments
Share of other comprehensive income of equity method investments
Other comprehensive income (loss), net of income tax effect
Comprehensive income
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income attributable to CBI
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
8,884.3
(768.3)
8,116.0
(4,035.7)
4,080.3
(1,668.1)
—
2,412.2
2,101.6
(367.1)
(1.7)
4,145.0
(685.9)
3,459.1
(23.2)
3,435.9
18.24
16.57
17.57
16.21
167.249
23.321
195.532
23.321
$
$
$
$
$
$
8,322.1
(741.8)
7,580.3
(3,767.8)
3,812.5
(1,532.7)
—
2,279.8
487.2
(332.0)
(97.0)
2,338.0
(22.7)
2,315.3
(11.9)
2,303.4
11.96
10.86
11.47
10.59
171.457
23.336
200.745
23.336
8,051.2
(730.1)
7,321.1
(3,802.1)
3,519.0
(1,392.4)
262.4
2,389.0
27.3
(333.3)
—
2,083.0
(550.3)
1,532.7
(4.1)
1,528.6
7.76
7.04
7.49
6.90
175.934
23.353
204.099
23.353
2.96
2.68
$
$
2.08
1.88
$
$
1.60
1.44
3,459.1
$
2,315.3
$
1,532.7
(196.8)
11.4
2.5
0.5
29.6
(152.8)
3,306.3
(21.4)
3,284.9
$
153.8
55.5
(0.2)
(1.1)
—
208.0
2,523.3
(23.0)
2,500.3
$
22.1
7.8
0.5
11.6
—
42.0
1,574.7
6.6
1,581.3
The accompanying notes are an integral part of these statements.
57
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
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Non-
controlling
Interests
Total
Balance at February 29, 2016
$
2.6
$
0.3
$ 2,589.0
$ 6,090.5
$
(452.5) $ (1,670.3) $
132.2
$ 6,691.8
Cumulative effect of change in
accounting principle
Comprehensive income:
Net income
Other comprehensive income
(loss), net of income tax effect
Comprehensive income
Repurchase of shares
Dividends declared
Conversion of noncontrolling
equity interests to long-term debt
Shares issued under equity
compensation plans
Stock-based compensation
Tax benefit on stock-based
compensation
Balance at February 28, 2017
Comprehensive income:
Net income
Other comprehensive income,
net of income tax effect
Comprehensive income
Repurchase of shares
Dividends declared
Shares issued under equity
compensation plans
Stock-based compensation
Balance at February 28, 2018
Cumulative effect of change in
accounting principle
Comprehensive income:
Net income
Other comprehensive loss, net of
income tax effect
Comprehensive income
—
—
—
—
—
—
—
—
—
2.6
—
—
—
—
—
—
2.6
—
—
—
Retirement of treasury shares
(0.7)
Repurchase of shares
Dividends declared
Conversion of long-term debt to
noncontrolling equity interest
Shares issued under equity
compensation plans
Stock-based compensation
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.3
—
—
—
—
—
—
0.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(20.1)
55.5
131.4
(49.0)
1,528.6
—
—
(315.6)
—
—
—
—
—
—
52.7
—
—
—
— (1,122.7)
—
—
—
—
—
—
—
15.3
—
—
—
(49.0)
4.1
1,532.7
(10.7)
42.0
1,574.7
(1,122.7)
(315.6)
—
—
(132.0)
(132.0)
—
—
—
(4.8)
55.5
131.4
2,755.8
7,254.5
(399.8)
(2,777.7)
(6.4)
6,829.3
—
—
—
—
8.3
61.2
2,303.4
—
—
(400.7)
—
—
—
196.9
—
—
— (1,038.5)
—
—
—
—
8.8
—
11.9
2,315.3
11.1
—
—
—
—
208.0
2,523.3
(1,038.5)
(400.7)
17.1
61.2
2,825.3
9,157.2
(202.9)
(3,807.4)
16.6
7,991.7
—
—
—
(1,522.3)
—
—
—
45.2
62.6
2,242.0
3,435.9
—
—
—
(558.9)
—
—
—
—
—
(151.0)
—
—
—
—
—
—
—
—
—
1,523.0
(504.3)
—
—
4.4
—
—
2,242.0
23.2
3,459.1
(1.8)
(152.8)
3,306.3
—
(504.3)
(558.9)
—
—
—
248.2
248.2
—
—
49.6
62.6
Balance at February 28, 2019
$
1.9
$
0.3
$ 1,410.8
$ 14,276.2
$
(353.9) $ (2,784.3) $
286.2
$ 12,837.2
The accompanying notes are an integral part of these statements.
58
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
Cash flows from operating activities:
Net income
$
3,459.1
$
2,315.3
$
1,532.7
Adjustments to reconcile net income to net cash provided by operating
activities:
Unrealized net gain on securities measured at fair value
Net gain on sale of unconsolidated investment
Net income tax benefit related to the Tax Cuts and Jobs Act
Deferred tax provision
Depreciation
Impairment and amortization of intangible assets
Stock-based compensation
Amortization of debt issuance costs and loss on extinguishment of debt
Gain on sale of business
Loss on contract termination
Change in operating assets and liabilities, net of effects from purchases
of businesses:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Other accrued expenses and liabilities
Other
Total adjustments
Net cash provided by operating activities
Cash flows from investing activities:
Investments in equity method investees and securities
Purchases of property, plant and equipment
Purchases of businesses, net of cash acquired
Proceeds from sale of unconsolidated investment
Proceeds from sales of assets
Proceeds from (payments related to) sale of business
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Proceeds from shares issued under equity compensation plans
Net proceeds from short-term borrowings
Dividends paid
Purchases of treasury stock
Principal payments of long-term debt
Payments of debt issuance, debt extinguishment and other financing costs
Payments of minimum tax withholdings on stock-based payment awards
Excess tax benefits from stock-based payment awards
Net cash provided by (used in) financing activities
(1,971.2)
(99.8)
(37.6)
426.9
333.1
114.0
64.1
29.4
—
—
(71.9)
(61.9)
(103.0)
21.4
(22.1)
165.8
(1,212.8)
2,246.3
(4,081.5)
(886.3)
(45.6)
110.2
72.3
—
(0.9)
(4,831.8)
3,657.6
63.2
45.5
(557.7)
(504.3)
(62.8)
(34.6)
(13.6)
—
2,593.3
(464.3)
—
(351.2)
113.8
293.8
92.7
60.9
108.7
—
59.0
(34.1)
(123.8)
(111.5)
12.8
(66.8)
26.1
(383.9)
1,931.4
(210.9)
(1,057.6)
(150.1)
—
5.9
(5.0)
(5.4)
(1,423.1)
7,933.4
49.4
137.2
(400.1)
(1,038.5)
(7,128.7)
(122.2)
(31.7)
—
(601.2)
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
(4.5)
3.3
90.3
93.6
$
5.8
(87.1)
177.4
90.3
$
$
59
—
—
—
124.8
237.5
56.4
56.1
12.7
(262.4)
—
(49.4)
(151.0)
(71.6)
115.9
132.6
(38.3)
163.3
1,696.0
(17.1)
(907.4)
(1,111.0)
—
2.1
575.3
(3.7)
(1,461.8)
1,965.6
59.7
197.1
(315.1)
(1,122.7)
(971.8)
(14.1)
(64.9)
131.4
(134.8)
(5.1)
94.3
83.1
177.4
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest, net of interest capitalized
Income taxes, net of refunds received
Noncash investing and financing activities:
Additions to property, plant and equipment
Conversion of long-term debt to noncontrolling equity interest
Conversion of noncontrolling equity interest to long-term debt
$
$
$
$
$
324.8
186.2
141.7
248.2
$
$
$
$
— $
322.2
238.6
$
$
170.0
$
— $
— $
300.4
219.6
190.3
—
132.0
The accompanying notes are an integral part of these statements.
60
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2019
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 higher-end 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. In addition, we have an equally-owned joint venture with Owens-Illinois. The
joint venture owns and operates a state-of-the-art glass production plant which provides bottles exclusively for our
brewery located in Nava, Coahuila, Mexico (the “Nava Brewery”). We have determined that we are the primary
beneficiary of this variable interest entity and accordingly, the results of operations of the joint venture are reported
in the Beer segment and are included in our consolidated results of operations. 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. We monitor our equity method
investments for factors indicating other-than-temporary impairment. 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:
Effective March 1, 2018, we adopted the FASB amended guidance regarding the recognition of revenue
from contracts with customers using the retrospective application method (see “Recently adopted accounting
guidance – Revenue recognition” below for impacts of adoption). Our revenue (referred to in our financial
statements as “sales”) consists primarily of the sale of beer, wine and spirits domestically in the U.S. Sales of
products are for cash or otherwise agreed-upon credit terms. Our payment terms vary by location and customer,
however, the time period between when revenue is recognized and when payment is due is not significant. Our
customers consist primarily of wholesale distributors. Our revenue generating activities have a single performance
obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which
is when the related goods are shipped or delivered to the customer, depending upon the method of distribution and
shipping terms. Revenue is measured as the amount of consideration we expect to receive in exchange for the sale
of our product. 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.
As noted, the majority of our revenues are generated from the domestic sale of beer, wine and spirits to
wholesale distributors in the U.S. Our other revenue generating activities include the export of certain of our
products to select international markets, as well as the sale of our products through state alcohol beverage control
61
agencies and on-premise, retail locations in certain markets. We have evaluated these other revenue generating
activities under the disaggregation disclosure criteria outlined within the amended guidance and concluded that
these other revenue generating activities are immaterial for separate disclosure. See Note 22 for disclosure of net
sales by product type.
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. This variable consideration is recognized as a reduction of the transaction price
based upon expected amounts at the time revenue for the corresponding product sale is recognized. For example,
customer promotional discount programs are entered into with certain distributors for certain periods of time. The
amount ultimately reimbursed to distributors is determined based upon agreed-upon promotional discounts which
are applied to distributors’ sales to retailers. Other common forms of variable consideration include volume rebates
for meeting established sales targets, and coupons and mail-in rebates offered to the end consumer. The
determination of the reduction of the transaction price for variable consideration requires that we make certain
estimates and assumptions that affect the timing and amounts of revenue and liabilities recognized. We estimate
this variable consideration by taking into account factors such as the nature of the promotional activity, historical
information and current trends, availability of actual results and expectations of customer and consumer behavior.
Excise taxes remitted to tax authorities are government-imposed excise taxes on our beverage alcohol
products. Excise taxes are shown on a separate line item as a reduction of sales and are recognized in our results of
operations when the related product sale is recognized. Excise taxes are recognized as a current liability in other
accrued expenses and liabilities, with the liability subsequently reduced when the taxes are remitted to the tax
authority.
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.
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, 2019, February 28, 2018, and February 28, 2017, was $700.8 million, $615.7 million and
$552.8 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 recognized as a component of Accumulated
Other Comprehensive Income (Loss) (“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, swaps and convertible debt) which take into account the present
value of estimated future cash flows (see Note 7).
62
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 and Note 7). We present our derivative
positions gross on our balance sheets.
Effective March 1, 2018, we adopted FASB guidance which amends, among other items, the requirement to
separately measure and report hedge ineffectiveness for outstanding cash flow hedges. Accordingly, the entire
change in the fair value of outstanding cash flow hedges is deferred in stockholders’ equity as a component of AOCI
prospectively from the date of adoption. For the years ended February 28, 2018, and February 28, 2017, changes in
fair values of outstanding cash flow hedges deferred in stockholders’ equity as a component of AOCI consisted only
of amounts deemed effective, with ineffectiveness associated for these derivative instruments recognized
immediately in our results of operations for the applicable period. For all periods presented herein, gains or losses
deferred in stockholders’ equity as a component of AOCI 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.
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.
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, value added 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 recognized 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.
63
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 8
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 when events or circumstances indicate that the carrying amount of an asset may not be
recoverable. 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 deferred income taxes and other liabilities (see Note 15).
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 (see Note 13). 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 16). In addition, we have another class of common stock
with an immaterial number of shares outstanding: Class 1 Common Stock (see Note 16). 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 18). 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
64
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 17). We apply grant date fair-value-
based measurement methods in accounting for our stock-based payment arrangements and recognize all costs
resulting from stock-based payment transactions, net of expected forfeitures, 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.
Recently adopted accounting guidance –
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. Additionally, this guidance requires improved disclosures regarding the nature, amount,
timing and uncertainty of revenue and cash flows arising from contracts with customers.
We adopted this guidance on March 1, 2018, using the retrospective application method to allow for
comparable reporting in all periods throughout the year ending February 28, 2019. Based on our analysis, we
concluded that the adoption of the amended guidance did not have a material impact on our net sales recognition.
However, the broad definition of variable consideration under this guidance requires us to estimate and recognize
certain variable payments resulting from various sales incentives earlier than we have historically recognized them.
This change in the timing of when we recognize sales incentives resulted in a shift in net sales recognition primarily
between our fiscal quarters. Under the retrospective application method, we recognized the cumulative effect of
adopting this guidance in the first quarter of fiscal 2019 with a reduction to our March 1, 2016, opening retained
earnings of $49.0 million, net of income tax effect, with an offsetting increase to current accrued promotion expense
and the recognition of a deferred tax asset to align the timing of when we recognize sales incentive expense and
when we recognize revenue.
The effects of the retrospective application method on our consolidated financial statements for the periods
presented in this report are as follows:
As
Previously
Reported
Revenue
Recognition
Adjustments
As
Adjusted
(in millions)
Consolidated Balance Sheet at February 28, 2018
Other accrued expenses and liabilities
Total current liabilities
Deferred income taxes and other liabilities (including deferred income
taxes – as previously reported, $718.3 million; as adjusted, $694.4 million) $
$
Total liabilities
$
Retained earnings
$
Total stockholders’ equity
$
$
583.4
1,944.7
1,113.7
12,476.0
9,228.2
8,062.7
$
$
$
$
$
$
94.9
94.9
$
$
(23.9) $
71.0
$
(71.0) $
(71.0) $
678.3
2,039.6
1,089.8
12,547.0
9,157.2
7,991.7
65
For the Year Ended February 28, 2018
Revenue
Recognition
Adjustments
As
Previously
Reported
As
Adjusted
For the Year Ended February 28, 2017
Revenue
Recognition
Adjustments
As
Previously
Reported
As
Adjusted
(in millions, except per share data)
Consolidated Statements of Comprehensive Income
8,326.8
Sales
7,585.0
Net sales
3,817.2
Gross profit
2,284.5
Operating income
2,342.7
Income before income taxes
Provision for income taxes
Net income
Net income attributable to CBI
Comprehensive income attributable to
CBI
$
$
$
$
$
(11.9) $
$
$
2,330.8
2,318.9
$
$
$
$
$
$
$
$
2,515.8
$
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
$
$
$
$
12.04
10.93
11.55
10.66
(4.7) $
(4.7) $
(4.7) $
(4.7) $
(4.7) $
(10.8) $
(15.5) $
(15.5) $
8,322.1
7,580.3
3,812.5
2,279.8
2,338.0
$
$
$
$
$
(22.7) $
$
$
2,315.3
2,303.4
8,061.6
$
7,331.5
$
3,529.4
$
2,399.4
$
$
2,093.4
(554.2) $
$
1,539.2
$
1,535.1
(10.4) $
(10.4) $
(10.4) $
(10.4) $
(10.4) $
3.9
$
(6.5) $
(6.5) $
8,051.2
7,321.1
3,519.0
2,389.0
2,083.0
(550.3)
1,532.7
1,528.6
$
$
$
$
$
(15.5) $
2,500.3
$
1,587.8
$
(6.5) $
1,581.3
(0.08) $
11.96
(0.07) $
10.86
(0.08) $
11.47
(0.07) $
10.59
$
$
$
$
7.79
7.07
7.52
6.93
$
$
$
$
(0.03) $
(0.03) $
(0.03) $
(0.03) $
7.76
7.04
7.49
6.90
The adoption of the revenue recognition guidance had no impact to cash flows from operating, financing or
investing activities in our consolidated statements of cash flows for the years ended February 28, 2018, and
February 28, 2017.
Income taxes:
In October 2016, the FASB issued guidance that simplifies the accounting for the income tax consequences
of intra-entity transfers of assets other than inventory. Under this guidance, an entity is required to recognize the
income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Prior
guidance prohibited the recognition in earnings of current and deferred income taxes for an intra-entity asset
transfer until the asset had been sold to an outside party or recovered through use.
We adopted this guidance on March 1, 2018, using the modified retrospective basis, which requires a
cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. Based on our
assessment of intra-entity asset transfers that are in scope and the related deferred income taxes, we recognized the
cumulative effect of adopting this guidance in the first quarter of fiscal 2019 with a net increase to our March 1,
2018, opening retained earnings and deferred tax assets of approximately $2.2 billion, primarily in connection with
the intra-entity transfer of certain intellectual property related to our imported beer business for the year ended
February 28, 2018. In connection with a change in forecast within that business for the fourth quarter of fiscal
2019, we recognized a tax benefit of $50.1 million from the reversal of a valuation allowance established in
connection with the adoption of this guidance on March 1, 2018.
Accounting guidance not yet adopted –
Leases:
In February 2016, the FASB issued guidance for the accounting for leases. Under this guidance, a lessee
will recognize assets and liabilities on its balance sheet for most leases, but will recognize expense similar to current
lease accounting guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing
and uncertainty of cash flows arising from leasing arrangements.
We adopted this guidance on March 1, 2019, using the modified retrospective approach. We will apply the
transition method which does not require adjustments to comparative periods or require modified disclosures for
those comparative periods for Fiscal 2020. The guidance provides a number of optional practical expedients in
66
transition. We have elected all of the available transition practical expedients, other than the use-of-hindsight. We
are finalizing the implementation of changes to our accounting policies, systems and controls, including the
implementation of new leasing software capable of producing the required data for accounting and disclosure
purposes. The adoption of this guidance did not have a material impact on our results of operations or liquidity. We
expect to recognize new right-of-use assets and lease liabilities associated with our operating leases of
approximately $600.0 million to $650.0 million in the first quarter of fiscal 2020.
The guidance also provides practical expedients for an entity’s ongoing accounting. We have elected the
short-term lease recognition exemption which allows us to not recognize right-of-use assets and lease liabilities for
all leases with an initial term of 12 months or less. We have also elected the practical expedient to not separate lease
and non-lease components for all of our leases.
2.
ACQUISITIONS AND DIVESTITURES:
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 $569.7 million, net of cash acquired (the “Obregon Brewery”). 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.
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.
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
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.
Other Acquisitions:
During the year ended February 28, 2019, we completed the acquisitions of other businesses, including the
Four Corners Brewing Company LLC business, which included a portfolio of high-quality, dynamic and bicultural,
Texas-based craft beers (“Four Corners”), and a business in Italy, which provided additional processing and
sourcing capabilities for our Italian wine portfolio. The purchase price for the Four Corners acquisition was
primarily allocated to goodwill, property, plant and equipment, and trademarks, plus an earn-out over five years
based on the performance of the brands. The purchase price for the acquired business in Italy was primarily
67
allocated to a production facility, vineyards and inventory. The results of operations of these acquired businesses
are reported in the respective segment and have been included in our consolidated results of operations from their
respective date of acquisition.
During the year ended February 28, 2018, we completed the acquisitions of other businesses, including the
Funky Buddha Brewery LLC business, which included a portfolio of high-quality, Florida-based craft beers
(“Funky Buddha”), and the Schrader Cellars, LLC business, which included a collection of highly-rated, limited-
production fine wines (“Schrader Cellars”). The total combined purchase price for these acquisitions was $149.8
million. The purchase price for each acquisition was primarily allocated to goodwill and trademarks. In addition,
the purchase price for Funky Buddha includes an earn-out over five years based on the performance of the brands.
The results of operations of these acquired businesses are reported in the respective segment and have been included
in our consolidated results of operations from their respective date of acquisition.
Divestitures –
Sale of Accolade Wine Investment:
In May 2018, we completed the sale of our remaining interest in our previously-owned Australian and
European business (the “Accolade Wine Investment”) for A$149.1 million, or $113.6 million, subject to closing
adjustments. We received cash proceeds, net of direct costs to sell, of $110.2 million and a note receivable of $3.4
million. This interest consisted of an investment accounted for under the cost method and AFS debt securities. For
the year ended February 28, 2019, we recognized a net gain of $99.8 million in connection with this transaction.
This net gain is included in income from unconsolidated investments.
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 $775.1 million (the “Canadian Divestiture”). We received cash proceeds of
$570.3 million, net of outstanding debt and direct costs to sell of $194.9 million and $9.9 million, respectively. The
following table summarizes the net gain recognized in connection with this divestiture:
(in millions)
Cash received from buyer
Net assets sold
AOCI reclassification adjustments, primarily foreign currency translation
Direct costs to sell
Other
Gain on sale of business
$
$
580.2
(175.3)
(122.5)
(9.9)
(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 expected future sales of these brands to be minimal subsequent to the Canadian
Divestiture. We have also recognized $15.2 million of other costs associated with the Canadian Divestiture, with
$12.0 million recognized 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 then-owned Canadian wine business, and $3.2
million recognized for the first quarter of fiscal 2018 in connection with the sale of the Canadian wine business.
These amounts are included in selling, general and administrative expenses. In total, we have recognized $238.8
million of net gains associated with the Canadian Divestiture, with $242.0 million of net gains recognized for the
year ended February 28, 2017, and $3.2 million of net losses recognized for the year ended February 28, 2018, 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
68
$
$
262.4
(8.4)
(15.2)
238.8
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)
Value added taxes receivable
Income taxes receivable
Prepaid excise and sales taxes
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,
2019
February 28,
2018
$
$
182.6
1,480.5
467.3
2,130.4
$
$
160.8
1,382.8
540.4
2,084.0
February 28,
2019
February 28,
2018
$
$
315.8
105.2
48.1
144.0
613.1
$
$
209.9
121.0
59.2
133.4
523.5
February 28,
2019
February 28,
2018
$
456.7
$
221.3
1,067.3
3,931.1
81.8
1,214.3
6,972.5
(1,705.2)
5,267.3
$
$
438.0
238.3
883.0
3,548.3
93.6
1,072.5
6,273.7
(1,484.0)
4,789.7
6.
DERIVATIVE INSTRUMENTS:
Overview –
We are exposed to market risk from changes in foreign currency exchange rates, commodity prices, interest
rates and equity prices 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,
commodity, interest rate and equity 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, interest rates and/or equity prices and are expected to offset changes in the values of the
69
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.
We have investments in certain equity securities which provide us with the option to purchase an additional
ownership interest in the equity securities of that issuer (see Note 10). These investments are included in securities
measured at fair value and are accounted for at fair value, with the net gain (loss) from the changes in fair value of
these investments recognized in income (loss) from unconsolidated investments (see Note 7).
The aggregate notional value of outstanding derivative instruments is as follows:
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts
Derivative instruments not designated as hedging instruments
Foreign currency contracts
Commodity derivative contracts
February 28,
2019
February 28,
2018
$
$
$
1,579.3
$
1,465.4
460.3
284.7
$
$
440.6
177.5
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 periodically 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.
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 $11.8 million of net gains, net of income tax effect, to be reclassified from AOCI to our results of
operations within the next 12 months.
70
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 foreign-
denominated investments, and cash flows related primarily to the repatriation of those loans or investments; and
commodity prices, including aluminum, corn, diesel fuel, natural gas and wheat prices. We primarily use foreign
currency forward and option contracts, generally less than 12 months in duration, and commodity swap contracts,
generally less than 36 months in duration, with a maximum maturity of five years, to hedge some of these risks. In
addition, from time to time, we utilize interest rate swap contracts, generally less than six months in duration, to
economically hedge our exposure to changes in interest rates associated with the financing of significant
investments and acquisitions. 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, 2019, the estimated fair value of derivative instruments in a net liability position
due to counterparties was $3.4 million. If we were required to settle the net liability position under these derivative
instruments on February 28, 2019, we would have had sufficient available liquidity on hand to satisfy this
obligation.
Results of period derivative activity –
The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see
Note 7):
Assets
February 28,
2019
February 28,
2018
Liabilities
February 28,
2019
February 28,
2018
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and
other
14.1
$
$
21.2
Other assets
$
22.1
$
17.0
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and
other
2.0
$
2.1
$
Commodity derivative contracts:
Other accrued expenses
and liabilities
Deferred income taxes
and other liabilities
Other accrued expenses
and liabilities
Prepaid expenses and
other
Other assets
$
$
6.1
2.6
$
$
6.3
2.8
Other accrued expenses
and liabilities
Deferred income taxes
and other liabilities
71
$
$
$
$
$
8.8
6.3
$
$
0.6
$
6.1
5.5
$
$
7.8
9.9
2.2
3.0
2.6
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, 2019
Foreign currency contracts
For the Year Ended February 28, 2018
Foreign currency contracts
Interest rate swap contracts
For the Year Ended February 28, 2017
Foreign currency contracts
Interest rate swap contracts
Net
Gain (Loss)
Recognized
in OCI
Location of Net Gain (Loss)
Reclassified from AOCI to
Income
Net
Gain (Loss)
Reclassified
from AOCI to
Income
$
$
$
$
$
$
15.9 Sales
Cost of product sold
15.9
61.4 Sales
Cost of product sold
Interest expense
(1.5)
59.9
(26.1) Sales
Cost of product sold
Interest expense
2.8
(23.3)
$
$
$
$
$
$
0.4
4.1
4.5
(1.4)
1.3
2.2
2.1
1.1
(28.3)
(4.0)
(31.2)
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, 2019
Commodity derivative contracts
Foreign currency contracts
Interest rate swap contracts
For the Year Ended February 28, 2018
Commodity derivative contracts
Foreign currency contracts
For the Year Ended February 28, 2017
Commodity derivative contracts
Foreign currency contracts
Location of Net Gain (Loss)
Recognized in Income
Net
Gain (Loss)
Recognized
in Income
Cost of product sold
Selling, general and administrative expenses
Interest expense
Cost of product sold
Selling, general and administrative expenses
Cost of product sold
Selling, general and administrative expenses
$
$
$
$
$
$
1.8
(60.8)
35.0
(24.0)
7.5
6.0
13.5
16.3
(26.1)
(9.8)
72
7.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Authoritative guidance establishes a framework for measuring fair value, including a hierarchy for inputs
used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. The hierarchy includes three levels:
• Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
• Level 2 inputs include data points that are observable such as quoted prices for similar assets or
liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets
that are not active, and inputs (other than quoted prices) such as 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 –
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:
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).
Canopy investments:
Equity securities, Common stock – The fair value of the November 2017 Canopy Investment (as defined in
Note 10) is calculated through the date of the November 2018 Canopy Transaction (as defined in Note 10) by using
the closing market price of the underlying equity security (Level 1 fair value measurement). As of the date of the
November 2018 Canopy Transaction, the November 2017 Canopy Investment, collectively with the November 2018
Canopy Investment (as defined in Note 10), is accounted for under the equity method (see Note 10).
Equity securities, Warrants – The fair value of the November 2017 Canopy Warrants and the November
2018 Canopy Warrants (both as defined in Note 10) is estimated using the Black-Scholes option-pricing model
(Level 2 fair value measurement). The inputs used to estimate the fair value of the warrants are as follows:
Issue date exercise price (1)
Valuation date stock price (1)
Expected life (2)
Expected volatility (3)
Risk-free interest rate (4)
Expected dividend yield (5)
February 28, 2019
November
2018 Canopy
Warrants
November
2017 Canopy
Warrants
February 28,
2018
November
2017 Canopy
Warrants
C$
C$
C$
C$
50.40
62.38
2.7 years
79.3%
1.8%
0.0%
C$
C$
12.98
62.38
1.2 years
87.8%
1.8%
0.0%
12.98
27.35
2.2 years
70.9%
1.8%
0.0%
(1) Based on the closing market price for Canopy common stock on the Toronto Stock Exchange (“TSX”) as of the
applicable date.
(2) Based on the expiration date of the warrants.
(3) Based on historical volatility levels of the underlying equity security.
(4) Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term
equal to the expected life.
(5) Based on historical dividend levels.
73
Debt securities, Convertible – In June 2018, we acquired convertible debt securities issued by Canopy for
C$200.0 million, or $150.5 million (the “Canopy Debt Securities”). We have elected the fair value option to
account for the Canopy Debt Securities, which, at that time, provided the greatest level of consistency with the
accounting treatment for the November 2017 Canopy Warrants. Interest income on the Canopy Debt Securities is
calculated using the effective interest method and is recognized separately from the changes in fair value in interest
expense. The Canopy Debt Securities have a contractual maturity of five years from the date of issuance, but may
be converted prior to maturity by either party upon the occurrence of certain events. At settlement, the Canopy Debt
Securities can be settled at the option of the issuer, in cash, equity shares of the issuer, or a combination thereof.
The fair value is estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which
includes an estimate of the credit spread based on the implied spread as of the issuance date of the notes. As of
February 28, 2019, the inputs used to estimate the fair value of the Canopy Debt Securities are as follows:
Conversion price (1)
Valuation date stock price (3)
Remaining term (5)
C$
C$
48.17
62.38
4.4 years
Expected volatility (2)
Risk-free interest rate (4)
Expected dividend yield (6)
45.9%
1.8%
0.0%
(1) Based on the rate which the Canopy Debt Securities may be converted into equity shares, or the equivalent
amount of cash, at the option of the issuer.
(2) Based on historical volatility levels of the underlying equity security reduced to account for certain risks not
incorporated into the option-pricing model.
(3) Based on the closing market price for Canopy common stock on the TSX as of the applicable date.
(4) Based on the implied yield currently available on Canadian Treasury zero coupon issues with a term equal to the
remaining contractual term of the debt securities.
(5) Based on the contractual maturity date of the notes.
(6) Based on historical dividend levels.
Debt securities, Available-for-sale (“AFS”): The fair value is estimated by discounting cash flows using
market-based inputs (Level 3 fair value measurement).
Short-term borrowings: 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 rating (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, including our commercial paper, are variable interest rate bearing notes
for which the carrying value approximates the fair value.
Long-term debt: The term loans under our 2018 Credit Agreement and our Term Credit Agreement (both as
defined in Note 12) are variable interest rate bearing notes which include a fixed margin which is adjustable based
upon our debt rating. The Senior Floating Rate Notes (as defined in Note 12) are variable interest rate bearing notes
which include a fixed margin. The fair value of the term loans and the Senior Floating Rate Notes are 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 short-term borrowings, approximate fair value as of February 28, 2019, and
February 28, 2018, due to the relatively short maturity of these instruments. As of February 28, 2019, the carrying
amount of long-term debt, including the current portion, was $12,825.0 million, compared with an estimated fair
value of $12,768.5 million. As of February 28, 2018, the carrying amount of long-term debt, including the current
portion, was $9,439.9 million, compared with an estimated fair value of $9,398.4 million.
74
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, 2019
Assets:
Foreign currency contracts
Commodity derivative contracts
Equity securities (1) (2)
Canopy Debt Securities (2)
Liabilities:
Foreign currency contracts
Commodity derivative contracts
February 28, 2018
Assets:
Foreign currency contracts
Commodity derivative contracts
Equity securities (1) (2)
Debt securities, AFS
Liabilities:
Foreign currency contracts
Commodity derivative contracts
(1)
Equity securities consist of:
(in millions)
November 2017 Canopy Investment (i)
November 2017 Canopy Warrants
November 2018 Canopy Warrants
Fair Value Measurements Using
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
$
402.4
— $
38.2
8.7
3,023.2
211.5
15.7
11.6
40.3
9.1
253.2
$
$
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
16.6
$
— $
— $
19.9
5.6
$
$
— $
— $
38.2
8.7
3,023.2
211.5
15.7
11.6
40.3
9.1
655.6
16.6
19.9
5.6
February 28,
2019
February 28,
2018
$
$
— $
718.7
2,304.5
3,023.2
$
402.4
253.2
—
655.6
(2) Unrealized net gain from the changes in fair value of our securities measured at fair value recognized in income from
unconsolidated investments, are as follows:
(in millions)
November 2017 Canopy Investment (i)
November 2017 Canopy Warrants
November 2018 Canopy Warrants
Canopy Debt Securities
February 28,
2019
February 28,
2018
$
$
292.5
$
465.5
1,157.7
55.5
272.3
192.0
—
—
1,971.2
$
464.3
(i)
Accounted for at fair value from the date of investment in November 2017 through October 31, 2018. Accounted for
under the equity method from November 1, 2018.
75
Nonrecurring basis measurements –
The following table presents our assets and liabilities measured at estimated fair value on a nonrecurring
basis for which an impairment assessment was performed for the periods presented. Impairment losses are included
in selling, general and administrative for the periods 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, 2019
Trademarks
For the Year Ended February 28, 2018
Trademarks
For the Year Ended February 28, 2017
Trademarks
$
$
$
— $
— $
28.0
$
108.0
— $
— $
136.0
$
86.8
— $
— $
— $
46.0
Trademarks:
For the fourth quarter of fiscal 2019, in connection with certain continuing negative trends within our Beer
segment’s Ballast Point craft beer portfolio, including slower growth rates and increased competition, we
implemented a change in strategy for our Ballast Point craft beer portfolio. This change in strategy, when combined
with the continuing negative trends, indicated that it was more likely than not that the fair value of our indefinite
lived intangible asset associated with the craft beer trademarks might be below its carrying value. The change in
strategy for our Ballast Point craft beer portfolio focuses on improving profitability by rationalizing the number of
product offerings while targeting distribution growth in select strategic markets. This change in strategy resulted in
updated long-term financial forecasts with lower revenues and cash flows for the related portfolio. Accordingly, we
performed a quantitative assessment for impairment of the Ballast Point craft beer trademark asset. As a result of
this assessment, the Ballast Point craft beer trademark asset with a carrying value of $136.0 million was written
down to its estimated fair value of $28.0 million, resulting in an impairment of $108.0 million.
For the first quarter of fiscal 2018, we identified certain negative trends within our Beer segment’s Ballast
Point craft beer portfolio which, when combined with the then-recent negative craft beer industry trends, including
slower growth rates and increased competition, indicated that it was more likely than not that the fair value of our
indefinite lived intangible asset associated with the craft beer trademarks might be below its carrying value. These
negative trends were the result of (i) a disruption in our distribution network transition plan, (ii) an unexpected
decrease in sales from product innovations and (iii) a significant shift in market conditions for our craft beer
portfolio, all of which resulted in a decline in net sales and depletion trends, which represent distributor shipments
of our branded products to retail customers, for the first quarter of fiscal 2018 as compared to the first quarter of
fiscal 2017, following consecutive quarters of significant net sales and depletion volume growth for our craft beer
portfolio. Additionally, net sales for the first quarter of fiscal 2018 were below our forecasted net sales for the first
quarter of fiscal 2018. Accordingly, we performed a quantitative assessment for impairment of the craft beer
trademark asset. As a result of this assessment, the craft beer trademark asset with a carrying value of $222.8
million was written down to its estimated fair value of $136.0 million, resulting in an impairment of $86.8 million.
For the fourth quarter of fiscal 2017, in connection with our continued focus on the consumer-led trend
towards premiumization of our branded wine and spirits portfolio, a decision was made to discontinue certain small-
scale, lower-margin U.S. brands within our Wine and Spirits’ portfolio. As a result, trademark assets 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, in connection with the Canadian Divestiture in the fourth quarter of fiscal 2017, trademark
assets 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
76
Spirits’ portfolio sold exclusively through the Canadian wine business, for which we expected future sales of these
brands to be minimal subsequent to the Canadian Divestiture.
When performing a quantitative assessment for impairment of a trademark asset, we measure the amount of
impairment by calculating the amount by which the carrying value of the trademark asset exceeds its estimated fair
value. The estimated fair value is 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 the trademark asset. The cash flow projections we use to estimate the fair value of our trademark
assets 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 trademark assets.
8.
GOODWILL:
The changes in the carrying amount of goodwill are as follows:
(in millions)
Balance, February 28, 2017
Purchase accounting allocations (1)
Foreign currency translation adjustments
Balance, February 28, 2018
Purchase accounting allocations (2)
Foreign currency translation adjustments
Balance, February 28, 2019
Beer
Wine and
Spirits
Consolidated
$
5,053.0
$
2,867.5
$
7,920.5
63.9
40.7
5,157.6
22.3
(12.0)
5,167.9
$
56.2
1.8
2,925.5
2.7
(7.3)
2,920.9
$
120.1
42.5
8,083.1
25.0
(19.3)
8,088.8
$
(1) Purchase accounting allocations associated primarily with the acquisitions of the Obregon Brewery ($13.8
million) and Funky Buddha (Beer), and Schrader Cellars (Wine and Spirits).
(2) Preliminary purchase accounting allocations associated primarily with the acquisition of Four Corners (Beer).
9.
INTANGIBLE ASSETS:
The major components of intangible assets are as follows:
(in millions)
Amortizable intangible assets
Customer relationships
Other
Total
Nonamortizable intangible assets
Trademarks
Total intangible assets
February 28, 2019
February 28, 2018
Gross
Carrying
Amount
Net
Carrying
Amount
Gross
Carrying
Amount
Net
Carrying
Amount
$
$
89.9
20.5
110.4
$
$
39.1
0.9
40.0
$
$
89.8
20.3
110.1
3,158.1
3,198.1
$
$
44.2
1.4
45.6
3,259.2
3,304.8
77
We did not incur costs to renew or extend the term of acquired intangible assets for the years ended
February 28, 2019, and February 28, 2018. Net carrying amount represents the gross carrying value net of
accumulated amortization. Amortization expense for intangible assets was $6.0 million, $5.9 million and $10.4
million for the years ended February 28, 2019, February 28, 2018, and February 28, 2017, respectively. Estimated
amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
(in millions)
2020
2021
2022
2023
2024
Thereafter
$
$
$
$
$
$
5.8
5.4
5.1
3.3
1.6
18.8
10.
EQUITY METHOD INVESTMENTS:
Our equity method investments are as follows:
(in millions)
Canopy Equity Method Investment
Other equity method investments
February 28, 2019
February 28, 2018
Carrying
Value
Ownership
Percentage
Carrying
Value
Ownership
Percentage
$
$
3,332.1
133.5
3,465.6
36.0% $
20%-50%
$
—
121.5
121.5
—%
20%-50%
In November 2017, we acquired 18.9 million common shares, which represented a 9.9% ownership interest
in Ontario, Canada-based Canopy Growth Corporation (the “November 2017 Canopy Investment”), a public
company and leading provider of medicinal and recreational cannabis products (“Canopy”), plus warrants which
give us the option to purchase an additional 18.9 million common shares of Canopy (the “November 2017 Canopy
Warrants”) for C$245.0 million, or $191.3 million. The November 2017 Canopy Warrants were issued with an
exercise price of C$12.98 per warrant share and are exercisable as of February 28, 2019. These warrants expire in
May 2020.
The November 2017 Canopy Investment was accounted for at fair value from the date of investment
through October 31, 2018. From November 1, 2018, the November 2017 Canopy Investment has been accounted
for under the equity method (see “Canopy Equity Method Investment” below). The November 2017 Canopy
Warrants have been accounted for at fair value from the date of investment.
On November 1, 2018, we increased our ownership interest in Canopy by acquiring an additional 104.5
million common shares (the “November 2018 Canopy Investment”) (see Canopy Equity Method Investment
below), plus warrants which give us the option to purchase an additional 139.7 million common shares of Canopy
(the “November 2018 Canopy Warrants”, and together with the November 2018 Canopy Investment, the
“November 2018 Canopy Transaction”) for C$5,078.7 million, or $3,869.9 million. The allocation of the
consideration paid as of the date of closing was determined using a relative fair value approach based upon a market
value of C$5,060.9 million for the acquired common shares and a fair value of C$2,131.3 million for the acquired
warrants using a Black-Scholes option-pricing model. The inputs used to estimate the fair value of the November
2018 Canopy Warrants as of November 1, 2018, are as follows:
Issue date exercise price
Valuation date stock price
Expected life
C$
C$
50.40
48.43
3.0 years
Expected volatility
Risk-free interest rate
Expected dividend yield
75.9%
2.4%
0.0%
78
Accordingly, C$3,573.7 million, or $2,723.1 million, was allocated to the November 2018 Canopy Investment, and
C$1,505.0 million, or $1,146.8 million, was allocated to the November 2018 Canopy Warrants. In addition, we
incurred $24.5 million of direct acquisition costs which were allocated to the acquired securities utilizing this
relative fair value approach. This resulted in $17.2 million of direct acquisition costs being allocated to the
November 2018 Canopy Investment and included in the value of the Canopy Equity Method Investment under the
cost-accumulation model, and $7.3 million being allocated to the November 2018 Canopy Warrants and expensed to
selling, general and administrative expenses.
The November 2018 Canopy Warrants consist of 88.5 million warrants (the “Tranche A Warrants”) and 51.2
million warrants (the “Tranche B Warrants”). The Tranche A Warrants are immediately exercisable at an exercise
price of C$50.40 per warrant share. The Tranche B Warrants are exercisable upon the exercise, in full, of the
Tranche A Warrants and at an exercise price based on the volume-weighted average of the closing market price of
Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date. The
November 2018 Canopy Warrants expire in November 2021 and are accounted for at fair value from the date of
investment.
On November 1, 2018, our ownership interest in Canopy increased to 36.6% and, as this allows us to
exercise significant influence over Canopy, we account for the November 2017 Canopy Investment and the
November 2018 Canopy Investment, each of which represents an investment in common shares of Canopy,
collectively, under the equity method (the “Canopy Equity Method Investment”). As of November 1, 2018, the
Canopy Equity Method Investment balance consisted of the amount allocated to the November 2018 Canopy
Investment of $2,740.3 million, plus the fair value of the November 2017 Canopy Investment at that date of $694.9
million. We recognize equity in earnings (losses) for this investment on a two-month lag. Accordingly, we
recognized $2.6 million of equity in losses from Canopy’s results of operations for the period November 1, 2018,
through December 31, 2018, and related activities, in our consolidated financial statements for the year ended
February 28, 2019. As of February 28, 2019, the carrying amount of the Canopy Equity Method Investment is
greater than our equity in the book value of net assets of Canopy by $1.4 billion. This difference primarily
represents our basis in identifiable intangible assets and goodwill associated with the November 2018 investment.
Equity in earnings (losses) from the Canopy Equity Method Investment and related activities include, among other
items, the amortization of the fair value adjustments associated with the definite-lived intangible assets over their
estimated useful lives, the flow through of inventory step up and unrealized gains associated with changes in our
Canopy ownership percentage resulting from periodic equity issuances made by Canopy.
Canopy has various convertible equity securities outstanding, including equity awards granted to its
employees and options and warrants issued to various third parties, including our November 2017 Canopy Warrants
and November 2018 Canopy Warrants. As of February 28, 2019, the conversion of Canopy equity securities held
by its employees and/or held by other third parties would not have a significant effect on our share of Canopy’s
reported earnings or losses. Additionally, under an amended and restated investor rights agreement, we have the
option to purchase additional common shares of Canopy at the then-current price of the underlying equity security
to allow us to maintain our relative ownership interest. The exercise of our November 2017 Canopy Warrants as of
February 28, 2019, also would not have a significant effect on our share of Canopy’s reported earnings or losses.
However, as of February 28, 2019, the exercise of all of the November 2017 Canopy Warrants and the November
2018 Canopy Warrants held by us would result in an increase in our ownership interest in Canopy to greater than
50% and the consolidation of Canopy’s results of operations in our consolidated results of operations with the
recognition of an associated noncontrolling ownership interest, as appropriate. This could have a significant effect
on our share of Canopy’s reported earnings or losses. As of February 28, 2019, the exercise of all Canopy warrants
held by us would have required a cash outflow of approximately $5.9 billion based on the terms of the November
2017 Canopy Warrants and the November 2018 Canopy Warrants. Additionally, as of February 28, 2019, the fair
value of our equity method investment in Canopy was $5,842.9 million based on the closing price of the underlying
equity security as of that date.
The following table presents summarized financial information for Canopy presented in accordance with
U.S. GAAP. The amounts shown represent 100% of Canopy’s financial position as of December 31, 2018, and
results of operations from the date of our investment on November 1, 2018, through December 31, 2018. We
recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of
79
Canopy’s losses from November and December 2018, which was included in Canopy’s third quarter fiscal 2019
results, in our fourth quarter fiscal 2019 results.
(in millions)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Noncontrolling interests
February 28,
2019
$
$
$
$
$
3,800.7 Net sales
2,466.0 Gross profit
216.8 Net loss
668.2 Net loss attributable to Canopy
143.3
For the Year
Ended
February 28,
2019
$
$
$
$
48.6
11.2
(39.6)
(27.8)
Subsequent event –
In April 2019, we agreed to modify the terms of the November 2018 Canopy Warrants and certain other
rights. Modification of the November 2018 Canopy Warrants is subject to, among other things, approval by
Canopy’s shareholders. These changes are the result of Canopy’s intention to acquire Acreage Holdings, Inc.
(“Acreage”) upon U.S. Federal cannabis legalization, subject to certain conditions. As a result of the proposed
modifications, and following all necessary Canopy shareholder approvals, we will continue to have the option to
purchase an additional 139.7 million common shares of Canopy upon exercise of the warrants originally received in
November 2018; however, this option will consist of three tranches of warrants, including 88.5 million warrants (the
“New Tranche A Warrants”), 38.4 million warrants (the “New Tranche B Warrants”) and 12.8 million warrants (the
“New Tranche C Warrants”, and collectively with the New Tranche A Warrants and the New Tranche B Warrants,
the “New November 2018 Canopy Warrants”). The New Tranche A Warrants will continue to have an exercise
price of C$50.40 per warrant share and remain currently exercisable, but would expire November 1, 2023. The
New Tranche B Warrants would have an exercise price of C$76.68 per warrant share and the New Tranche C
Warrants would have an exercise price based on the volume-weighted average of the closing market price of
Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date. The New
Tranche B Warrants and the New Tranche C Warrants would have an expiration date of November 1, 2026. If
Canopy exercises its proposed right to acquire the shares of Acreage and we were to exercise all of our outstanding
November 2017 Canopy Warrants and the New November 2018 Canopy Warrants, our ownership interest in
Canopy would no longer be expected to be greater than 50 percent.
11.
OTHER ACCRUED EXPENSES AND LIABILITIES:
The major components of other accrued expenses and liabilities are as follows:
(in millions)
Promotions and advertising
Salaries, commissions, and payroll benefits and withholdings
Accrued interest
Income taxes payable
Accrued excise taxes
Other
February 28,
2019
February 28,
2018
$
181.2
$
163.1
107.3
24.5
21.0
193.3
$
690.4
$
209.0
149.0
86.7
48.5
28.7
156.4
678.3
80
12.
BORROWINGS:
Borrowings consist of the following:
Current
February 28, 2019
Long-term
Total
February 28,
2018
Total
(in millions)
Short-term borrowings
Senior credit facility, Revolving credit loan
Commercial paper
Other
Long-term debt
Senior credit facility, Term loan
Term loan credit facilities
Senior notes
Other
$
$
$
59.0
732.5
—
791.5
5.0
50.0
997.8
12.4
$
$
$
$
$
487.8
1,436.4
9,819.1
16.5
492.8
1,486.4
10,816.9
28.9
$
1,065.2
$
11,759.8
$
12,825.0
$
79.0
266.9
400.9
746.8
497.7
—
8,674.2
268.0
9,439.9
Bank facilities –
Senior credit facility:
In March 2016, the Company, CIH International S.à r.l., a wholly-owned subsidiary of ours (“CIH”), CIH
Holdings S.à r.l., a wholly-owned subsidiary of ours (“CIHH”), Bank of America, N.A., as administrative agent (the
“Administrative Agent”), and certain other lenders entered into a Restatement Agreement (the “March 2016
Restatement Agreement”) that amended and restated our then-existing senior credit facility (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 subsidiary of
ours (“CB International” and together with CIH and CIHH, the “2016 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;
• 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 2016 European Borrowers
whereby each guarantees the others’ obligations under the 2016 Credit Agreement.
In May 2017, we repaid the outstanding obligations under the U.S. Term A loan facility under the 2016
Credit Agreement primarily with a portion of the proceeds from the May 2017 senior notes and revolver borrowings
under the 2016 Credit Agreement.
81
In July 2017, the Company, CIH, CB International (together with CIH, the “European Borrowers”), CIHH,
the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2017 Restatement
Agreement”) that amended and restated the 2016 Credit Agreement (as amended and restated by the 2017
Restatement Agreement, the “2017 Credit Agreement”). The principal changes effected by the 2017 Restatement
Agreement were:
• The refinance and increase of the existing U.S. Term A-1 loan facility by $261.1 million to $500.0
million and extension of its maturity to July 14, 2024;
• The creation of a new $2.0 billion European Term A loan facility into which the then-existing European
Term A loan facility, European Term A-1 loan facility and European Term A-2 loan facility were
combined;
• The increase of the revolving credit facility by $350.0 million to $1.5 billion and extension of its
maturity to July 14, 2022; and
• The removal of CIHH as a borrower under the 2017 Restatement Agreement.
In addition, the Company and certain of our U.S. subsidiaries executed an amended and restated guarantee
agreement which, among other things, released certain of our U.S. subsidiaries as guarantors of borrowings under
the 2017 Credit Agreement. Furthermore, the European Borrowers executed an amended and restated cross-
guarantee agreement which, among other things, removed CIHH as a party to the amended and restated cross-
guarantee agreement.
In November 2017, we repaid the outstanding obligations under the European Term A loan facility under
the 2017 Credit Agreement primarily with proceeds from the November 2017 senior notes.
In August 2018, the Company, CIH, CB International, certain of the Company’s subsidiaries as guarantors,
the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “August 2018
Restatement Agreement”) that amended and restated the 2017 Credit Agreement (as amended and restated by the
August 2018 Restatement Agreement, the “August 2018 Credit Agreement”). The principal changes effected by the
August 2018 Restatement Agreement were:
• The removal of CIH as a borrower under the August 2018 Credit Agreement;
• The termination of a cross-guarantee agreement by the European Borrowers; and
• The addition of a mechanism to provide for the replacement of LIBOR with an alternative benchmark
rate in certain circumstances where LIBOR cannot be adequately ascertained or available.
In September 2018, the Company, CB International, certain of the Company’s subsidiaries as guarantors,
the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2018 Restatement
Agreement”) that amended and restated the August 2018 Credit Agreement (as amended and restated by the 2018
Restatement Agreement, the “2018 Credit Agreement”). The primary change effected by the 2018 Restatement
Agreement was the increase of the revolving credit facility from $1.5 billion to $2.0 billion and extension of its
maturity to September 14, 2023. The 2018 Restatement Agreement also modified certain financial covenants in
connection with the November 2018 Canopy Transaction and added various representations and warranties,
covenants and an event of default related to the November 2018 Canopy Transaction.
Term Credit Agreement:
In September 2018, the Company, the Administrative Agent, and certain other lenders entered into a term
loan credit agreement (the “Term Credit Agreement”). The Term Credit Agreement provides for aggregate credit
facilities of $1.5 billion, consisting of a $500.0 million three-year term loan facility (the “Three-Year Term
Facility”) and a $1.0 billion five-year term loan facility (the “Five-Year Term Facility”).
The Three-Year Term Facility is not subject to amortization payments, with the balance due and payable at
maturity. The Five-Year Term Facility will be repaid in quarterly payments of principal equal to 1.25% of the
original aggregate principal amount of the Five-Year Term Facility, with the balance due and payable at maturity.
82
General:
The obligations under the 2018 Credit Agreement and the Term Credit Agreement are guaranteed by certain
of our U.S. subsidiaries. We and our subsidiaries are subject to covenants that are contained in the 2018 Credit
Agreement and the Term Credit Agreement, including those restricting the incurrence of additional indebtedness
(including guarantees of indebtedness) by subsidiaries that are not guarantors, additional liens, mergers and
consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous
conditions, exceptions and thresholds. The financial covenants are limited to a minimum interest coverage ratio and
a maximum net leverage ratio.
Our senior credit facility 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 our senior credit facility, is no
greater than 4.00 to 1.00 subject to certain limitations for the period defined pursuant to our senior credit facility.
As of February 28, 2019, aggregate credit facilities under the 2018 Credit Agreement and the Term Credit
Agreement consist of the following:
Amount
Maturity
Amount
Maturity
(in millions)
2018 Credit Agreement
Revolving Credit Facility (1) (2) $
U.S. Term A-1 Facility (1) (3)
$
Term Credit Agreement
2,000.0 Sept 14, 2023 Three-Year Term Facility (1) (3) $
500.0
Nov 1, 2021
July 14, 2024 Five-Year Term Facility (1) (3)
500.0
2,500.0
1,000.0
1,500.0
$
Nov 1, 2023
(1) Contractual interest rate varies based on our debt rating (as defined in the respective agreement) and is a function
of LIBOR plus a margin, or the base rate plus a margin, or, in certain circumstances where LIBOR cannot be
adequately ascertained or available, an alternative benchmark rate plus a margin.
(2) We and/or CB International are the borrower under the $2,000.0 million Revolving Credit Facility. Includes a
sub-facility for letters of credit of up to $200.0 million.
(3) We are the borrower under the U.S. Term A-1 loan facility, the Three-Year Term Facility and the Five-Year Term
Facility.
As of February 28, 2019, information with respect to borrowings under the 2018 Credit Agreement and the
Term Credit Agreement is as follows:
(in millions)
Outstanding borrowings
Interest rate
LIBOR margin
Outstanding letters of credit
Remaining borrowing capacity (2)
2018 Credit Agreement
Term Credit Agreement
Revolving
Credit
Facility
U.S.
Term A
Facility (1)
Three-Year
Term
Facility (1)
Five-Year
Term
Facility (1)
59.0
$
492.8
$
499.5
$
986.9
4.0%
1.50%
3.6%
1.13%
3.8%
1.25%
3.6%
1.13%
10.8
1,196.7
$
$
$
(1) Outstanding term loan facility borrowings are net of unamortized debt issuance costs.
(2) Net of outstanding revolving credit facility borrowings and outstanding letters of credit under the 2018 Credit
Agreement and outstanding borrowings under our commercial paper program of $733.5 million (excluding
unamortized discount) (see “Commercial paper program”).
Commercial paper program –
In October 2017, we implemented a commercial paper program which provided for the issuance of up to an
aggregate principal amount of $1.0 billion of commercial paper. In October 2018, our Board of Directors
83
authorized a $1.0 billion increase to our commercial paper program, thereby providing for the issuance of up to an
aggregate principal amount of $2.0 billion of commercial paper. Our commercial paper program is backed by
unused commitments under our revolving credit facility under our 2018 Credit Agreement. Accordingly,
outstanding borrowings under our commercial paper program reduce the amount available under our revolving
credit facility under our 2018 Credit Agreement. As of February 28, 2019, we had $732.5 million of outstanding
borrowings, net of unamortized discount, under our commercial paper program with a weighted average annual
interest rate of 3.0% and a weighted average remaining term of 18 days. As of February 28, 2018, we had $266.9
million of outstanding borrowings, net of unamortized discount, under our commercial paper program with a
weighted average annual interest rate of 2.1% and a weighted average remaining term of 10 days.
Senior notes –
Our outstanding senior notes are as follows:
$
$
$
$
$
$
$
(in millions)
3.75% Senior Notes (2) (3)
4.25% Senior Notes (2) (3)
3.875% Senior Notes (2) (3)
4.75% Senior Notes (2) (3)
4.75% Senior Notes (2) (3)
3.70% Senior Notes (2) (4)
2.70% Senior Notes (2) (4)
3.50% Senior Notes (2) (4)
4.50% Senior Notes (2) (4)
2.00% Senior Notes (2) (5)
2.25% Senior Notes (2) (5)
2.65% Senior Notes (2) (4)
3.20% Senior Notes (2) (4)
3.60% Senior Notes (2) (4)
4.10% Senior Notes (2) (4)
$
Senior Floating Rate Notes (2) (6) $
4.40% Senior Notes (2) (4)
$
4.65% Senior Notes (2) (4)
5.25% Senior Notes (2) (4)
$
$
$
$
$
$
$
$
$
Principal
Issuance
Maturity
Interest
Payments
February 28,
2019
February 28,
2018
Date of
Outstanding Balance (1)
500.0 May 2013
1,050.0 May 2013
400.0
400.0
400.0
600.0
Nov 2014
Nov 2014
Dec 2015
Dec 2016
500.0 May 2017
500.0 May 2017
500.0 May 2017
600.0
700.0
700.0
600.0
700.0
600.0
650.0
500.0
500.0
500.0
Nov 2017
Nov 2017
Nov 2017
Feb 2018
Feb 2018
Feb 2018
Oct 2018
Oct 2018
Oct 2018
Oct 2018
May 2021
May 2023
Nov 2019
Nov 2024
Dec 2025
Dec 2026
May 2022
May 2027
May 2047
Nov 2019
Nov 2020
Nov 2022
Feb 2023
Feb 2028
Feb 2048
Nov 2021
Nov 2025
Nov 2028
Nov 2048
May/Nov
May/Nov
May/Nov
May/Nov
Jun/Dec
Jun/Dec
May/Nov
May/Nov
May/Nov
May/Nov
May/Nov
May/Nov
Feb/Aug
Feb/Aug
Feb/Aug
Quarterly
May/Nov
May/Nov
May/Nov
$
$
498.6
1,045.4
498.0
1,044.4
399.1
396.4
395.8
595.4
496.8
495.6
492.9
598.6
696.8
693.9
596.0
693.8
592.0
646.8
495.4
397.9
395.9
395.3
594.9
495.9
495.1
492.7
596.8
695.0
692.3
595.0
693.2
591.8
—
—
494.7
492.9
10,816.9
$
$
—
—
8,674.2
(1) Amounts are net of unamortized debt issuance costs and unamortized discounts, where applicable.
(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 accrued and unpaid interest and a make-whole payment based on the present value of the
future payments at the adjusted Treasury Rate plus 50 basis points.
(4) Redeemable, in whole or in part, at our option at any time prior to the stated redemption date as defined in the
indenture, 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 the stated basis points as defined in the indenture. On or after the stated redemption date, 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.
84
3.70% Senior Notes due December 2026
2.70% Senior Notes due May 2022
3.50% Senior Notes due May 2027
4.50% Senior Notes due May 2047
2.65% Senior Notes due November 2022
3.20% Senior Notes due February 2023
3.60% Senior Notes due February 2028
4.10% Senior Notes due February 2048
4.40% Senior Notes due November 2025
4.65% Senior Notes due November 2028
5.25% Senior Notes due November 2048
Redemption
Stated
Redemption
Date
Sept 2026
Apr 2022
Feb 2027
Nov 2046
Oct 2022
Jan 2023
Nov 2027
Aug 2047
Sept 2025
Aug 2028
May 2048
Stated
Basis
Points
25
15
20
25
15
13
15
20
20
25
30
(5) Redeemable, in whole or in part, at our option at any time prior to maturity, 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 10 basis points.
(6)
Interest will accrue for each quarterly interest period at a rate equal to three-month LIBOR plus 0.70% per year as
determined on the applicable interest determination date as defined in the indenture. Interest is payable quarterly
in February, May, August and November. The notes are not redeemable prior to October 30, 2019. On or after
this date, the notes are redeemable, in whole or in part, at our option at any time prior to maturity, at a redemption
price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest.
For the year ended February 28, 2018, we recognized a loss on extinguishment of debt of $97.0 million.
This amount consisted of a make-whole payment of $73.6 million in connection with the early redemption of our
April 2012 senior notes and the write-off of debt issuance costs of $23.4 million primarily in connection with the
prior-to-maturity repayments of term loan facilities under our applicable senior credit facility in May and November
2017.
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 $45.1 million and $503.5 million as of February 28, 2019,
and February 28, 2018, respectively. As of February 28, 2019, and February 28, 2018, amounts outstanding under
these arrangements were $28.9 million and $277.0 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 (see “Other long-term debt” for additional information). Interest rates and other terms
of these borrowings vary from country to country, depending on local market conditions.
Other long-term debt:
During the year ended February 28, 2019, we recorded a conversion of $248.2 million from long-term debt
to noncontrolling equity interests associated with the noncash settlement of a prior contractual agreement with our
glass production plant joint venture partner, Owens-Illinois. During the year ended February 28, 2017, we had
recorded a noncash conversion of $132.0 million from noncontrolling equity interests to long-term debt associated
with the same contractual agreement. As of February 28, 2018, outstanding borrowings under this contractual
agreement were $230.5 million and were included in our consolidated balance sheet in accordance with our
consolidation of this variable interest entity.
85
Debt payments –
As of February 28, 2019, the required principal repayments under long-term debt obligations (excluding
unamortized debt issuance costs and unamortized discounts of $69.6 million and $15.5 million, respectively) for
each of the five succeeding fiscal years and thereafter are as follows:
(in millions)
2020
2021
2022
2023
2024
Thereafter
$
1,067.4
764.3
1,710.3
1,856.8
1,842.5
5,668.8
$
12,910.1
Accounts receivable securitization facilities –
As of February 28, 2018, we had two outstanding 364-day revolving trade accounts receivable
securitization facilities with aggregate borrowings outstanding of $391.9 million at a weighted average interest rate
of 2.4%. Both facilities reached full maturation in accordance with the respective terms for each facility during the
year ended February 28, 2019, and were not renewed.
13.
INCOME TAXES:
Income before income taxes was generated as follows:
(in millions)
Domestic
Foreign
The income tax provision (benefit) consisted of the following:
(in millions)
Current
Federal
State
Foreign
Total current
Deferred
Federal
State
Foreign
Total deferred
Income tax provision
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
$
1,615.9
2,529.1
4,145.0
$
$
591.5
1,746.5
2,338.0
$
$
777.6
1,305.4
2,083.0
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
$
4.1
15.7
239.2
259.0
223.9
75.0
128.0
426.9
685.9
$
$
261.1
20.4
158.4
439.9
(475.9)
0.4
58.3
(417.2)
22.7
$
$
270.8
28.5
126.2
425.5
109.9
7.1
7.8
124.8
550.3
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was signed into law. The TCJ Act
significantly changes U.S. corporate income taxes by, among other items, lowering the federal statutory rate from
35% to 21%, eliminating certain deductions, changing how foreign earnings are subject to U.S. tax and imposing a
86
mandatory one-time transition tax on accumulated earnings of foreign subsidiaries. In December 2017, the SEC
issued guidance related to the income tax accounting implications of the TCJ Act. This guidance provides a
measurement period, which extends no longer than one year from the enactment date of the TCJ Act, during which a
company may complete its accounting for the income tax implications of the TCJ Act. In accordance with this
guidance, we recognized a provisional net income tax benefit of $351.2 million for the year ended February 28,
2018. This amount is comprised primarily of (i) a benefit of $311.2 million from the remeasurement of our
deferred tax assets and liabilities to the new, lower federal statutory rate and (ii) a benefit of $220.0 million from
the reversal of deferred tax liabilities previously provided for unremitted earnings of foreign subsidiaries which
were not considered to be indefinitely reinvested; partially offset by the recording of the mandatory one-time
transition tax of $180.0 million on unremitted earnings of our foreign subsidiaries.
For the third quarter of fiscal 2019, we completed our analysis of the income tax implications of the TCJ
Act. We recognized an additional income tax benefit of $37.6 million resulting from a decrease in the mandatory
one-time transition tax on unremitted earnings of our foreign businesses.
The TCJ Act also creates a new requirement that certain income earned by foreign subsidiaries (“GILTI”),
must be included in U.S. gross income. The FASB allows an accounting policy election of either recognizing
deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a
current period expense when incurred. We have elected to treat the tax effect of GILTI as a current period tax
expense when incurred.
Prior to the third quarter of fiscal 2017, we had 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 unremitted 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 were expected to be indefinitely reinvested. Therefore, no deferred income taxes had been provided on
these applicable unremitted earnings. Although we expect to continue to reinvest these foreign earnings, as the TCJ
Act reduces the tax impact of repatriation, beginning in the fourth quarter of fiscal 2018, we have provided deferred
income taxes, consisting primarily of foreign withholding and state taxes, on all applicable unremitted earnings of
our foreign subsidiaries.
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:
February 28, 2019
% of
Pretax
Income
Amount
For the Years Ended
February 28, 2018
% of
Pretax
Income
Amount
February 28, 2017
% of
Pretax
Income
Amount
(in millions, except % of pretax income data)
Income tax provision at statutory rate
$
870.5
21.0% $
765.4
32.7% $
729.1
35.0%
State and local income taxes, net of federal
income tax benefit (1)
Net income tax benefit from TCJ Act
Earnings of subsidiaries taxed at other than
U.S. statutory rate (2)
Excess tax benefits from stock-based
compensation awards (3)
Canadian Divestiture
Miscellaneous items, net
Income tax provision at effective rate
$
81.3
(37.6)
2.0%
(0.9%)
18.0
(351.2)
0.8%
(15.0%)
23.1
—
1.1%
—%
(149.0)
(3.6%)
(319.1)
(13.7%)
(160.4)
(7.7%)
(82.9)
—
3.6
685.9
(2.0%)
—%
—%
16.5% $
(68.6)
—
(21.8)
22.7
(2.9%)
—%
(0.9%)
1.0% $
—
(25.5)
(16.0)
550.3
—%
(1.2%)
(0.8%)
26.4%
(1)
Includes differences resulting from adjustments to the current and deferred state effective tax rates.
87
(2) Consists of 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.
(3) Represents the recognition of the income tax effect of stock-based compensation awards in the income statement
when the awards vest or are settled as a result of our March 1, 2017, adoption of FASB amended share-based
compensation guidance (see Note 17).
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
Intangible assets
Loss carryforwards
Stock-based compensation
Inventory
Other accruals
Gross deferred tax assets
Valuation allowances
Deferred tax assets, net
Deferred tax liabilities
Intangible assets
Property, plant and equipment
Investments in unconsolidated investees
Provision for unremitted earnings
Derivative instruments
Total deferred tax liabilities
Deferred tax assets (liabilities), net
February 28,
2019
February 28,
2018
$
$
1,616.7
147.8
33.4
20.3
93.4
1,911.6
(86.9)
1,824.7
—
(191.5)
(448.9)
(22.8)
(7.9)
(671.1)
1,153.6
$
$
—
106.0
29.1
18.3
81.1
234.5
(112.1)
122.4
(499.8)
(197.8)
(78.2)
(21.2)
(19.8)
(816.8)
(694.4)
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, 2019, operating loss carryforwards, which are primarily state and foreign, totaling
$833.3 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, $745.5 million
will expire in fiscal 2020 through fiscal 2039 and $87.8 million of operating losses in certain jurisdictions may be
carried forward indefinitely. Additionally, as of February 28, 2019, federal capital losses totaling $222.3 million are
being carried forward and will expire in fiscal 2022.
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
decrease in our valuation allowances as of February 28, 2019, primarily relates to the reversal of valuation
allowances in connection with the sale of our Accolade Wine Investment in the first quarter of fiscal 2019.
88
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,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
$
89.3
56.4
(1.4)
88.8
(0.8)
(8.0)
224.3
$
$
39.5
7.5
(0.1)
43.8
(0.4)
(1.0)
89.3
$
$
30.4
—
(11.5)
21.3
—
(0.7)
39.5
As of February 28, 2019, and February 28, 2018, we had $239.0 million and $93.7 million, respectively, of
non-current unrecognized tax benefit liabilities, including interest and penalties, recognized 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, 2019, and February 28, 2018, we had $224.3 million and $89.3 million, respectively, of
unrecognized tax benefit liabilities that, if recognized, would decrease the effective tax rate.
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,
Switzerland 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, 2019, we estimate that unrecognized tax benefit liabilities could change by a range of $1 million
to $13 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 29, 2012.
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.
14.
DEFERRED INCOME TAXES AND OTHER LIABILITIES:
The major components of deferred income taxes and other liabilities are as follows:
(in millions)
Deferred income taxes
Unrecognized tax benefit liabilities
Long-term income tax payable
Other
February 28,
2019
February 28,
2018
$
1,029.7
$
239.0
95.4
106.6
694.4
93.7
165.6
136.1
$
1,470.7
$
1,089.8
89
15.
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)
2020
2021
2022
2023
2024
Thereafter
$
$
59.0
58.2
51.1
47.9
41.2
302.1
559.5
Rental expense was $63.5 million, $59.1 million and $59.2 million for the years ended February 28, 2019,
February 28, 2018, and February 28, 2017, respectively.
Purchase commitments and contingencies –
We have entered into various long-term contracts in the normal course of business for the purchase of
(i) certain inventory components, (ii) property, plant and equipment and related contractor and manufacturing
services, (iii) processing and warehousing services, (iv) transportation services and (v) certain energy
requirements. As of February 28, 2019, 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)
Other
Packaging, grapes, hops, malts and other raw
materials
Bulk wine and spirits
Property, plant and equipment, and contractor
and manufacturing services
Processing and warehousing services,
transportation services, energy contracts
through May 2034
through February 2027
through February 2022
through December 2030
$
$
5,955.1
100.4
649.8
488.9
7,194.2
(1) Certain grape purchasing arrangements include the purchase of grape production yielded from specified blocks of
a vineyard. The actual tonnage and price of grapes that we purchase will vary each year depending on certain
factors, including weather, time of harvest, overall market conditions and the agricultural practices and location of
the vineyard. Amounts included herein for the estimated aggregate minimum grape purchase obligations consist
of estimates for the purchase of the grapes and the implicit leases of the land. Upon adoption of the new lease
guidance on March 1, 2019, certain grape purchasing arrangements classified as leases will result in the
recognition of right-of-use assets and lease liabilities on our balance sheet. However, certain other grape
purchasing arrangements classified as leases will not result in the recognition of right-of-use assets and lease
liabilities on our balance sheet due to their variable nature.
(2) Consists of purchase commitments entered into primarily in connection with the construction of a new, state-of-
the-art brewery located in Mexicali, Baja California, Mexico (the “Mexicali Brewery”), and the expansion project
for the Obregon Brewery.
Additionally, we have entered into various contractual arrangements with affiliates of Owens-Illinois
primarily for the purchase of glass bottles used largely in our imported and craft beer portfolios. Amounts
90
purchased under these arrangements for the years ended February 28, 2019, February 28, 2018, and February 28,
2017, were $238.8 million, $316.6 million and $292.3 million, respectively.
Indemnification liabilities –
In connection with prior divestitures, we have indemnified respective parties against certain liabilities that
may arise subsequent to the divestiture. As of February 28, 2019, and February 28, 2018, these liabilities consist
primarily of indemnifications related to certain income tax matters. During the year ended February 28, 2019, in
connection with the sale of the Accolade Wine Investment, we were released from certain guarantees and we
recognized a gain of $3.7 million as part of the net gain on the sale of this business. This net gain is included in
income from unconsolidated investments. As of February 28, 2019, and February 28, 2018, the carrying amount of
our indemnification liabilities was $9.2 million and $12.8 million, respectively, and is included in deferred income
taxes and other liabilities. We do not expect to be required to make material payments under the indemnifications
and we believe that the likelihood is remote that the indemnifications could have a material adverse effect on our
business, liquidity, financial condition and/or results of operations.
Legal matters –
In the course of our business, we are subject to litigation from time to time. Although the amount of any
liability with respect to such litigation cannot be determined, in the opinion of management, such liability will not
have a material adverse effect on our financial condition, results of operations or cash flows.
Other –
In connection with the write-down of certain bulk wine inventory as a result of smoke damage sustained
during the Fall 2017 California wildfires, we have recognized total losses of $20.6 million, with $1.5 million
recognized for the first quarter of fiscal 2019 and $19.1 million recognized for the fourth quarter of 2018. While we
are pursuing reimbursement from our insurance carriers, there can be no assurance there will be any potential
recoveries.
16.
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
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.
91
The number of shares of common stock issued and treasury stock, and associated share activity, are as
follows:
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
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, 2018
Retirement of treasury shares (3)
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, 2019
Common Stock
Treasury Stock
Class A
255,558,026
—
2
1,948,156
—
—
—
—
257,506,184
—
29,640
1,182,532
—
—
—
—
258,718,356
(74,000,000)
—
12,968
1,008,854
—
—
—
—
185,740,178
Class B
28,358,529
—
(2)
—
—
—
—
—
28,358,527
—
(23,140)
—
—
—
—
—
28,335,387
—
—
(12,968)
—
—
—
—
—
28,322,419
Class 1
2,000
—
—
80
—
—
—
—
2,080
—
(6,500)
6,390
—
—
—
—
1,970
—
—
—
1,147,654
—
—
—
—
1,149,624
Class A
79,454,011
7,407,051
—
—
(77,671)
(4,088)
(325,773)
(190,559)
86,262,971
4,810,061
—
—
(75,023)
(3,848)
(181,994)
(68,928)
90,743,239
(74,000,000)
2,352,145
—
—
(76,844)
(3,914)
(24,308)
(62,352)
18,927,966
Class B
5,005,800
—
—
—
—
—
—
—
5,005,800
—
—
—
—
—
—
—
5,005,800
—
—
—
—
—
—
—
—
5,005,800
(1) Net of 15,409 shares, 117,188 shares and 241,870 shares withheld for the years ended February 28, 2019,
February 28, 2018, and February 28, 2017, respectively, to satisfy tax withholding requirements.
(2) Net of 44,016 shares, 55,584 shares and 168,811 shares withheld for the years ended February 28, 2019,
February 28, 2018, and February 28, 2017, respectively, to satisfy tax withholding requirements.
(3) Shares of our Class A Treasury Stock were retired to authorized and unissued shares of our Class A Common
Stock.
Stock repurchases –
From time to time, our Board of Directors has authorized the repurchase of our Class A Common Stock and
Class B Convertible Common Stock. Shares may be repurchased through open market or privately negotiated
transactions. Shares repurchased under such authorizations have become treasury shares. A summary of share
repurchase activity is as follows:
Repurchase
Authorization
Date
Amount
Authorized
For the Year Ended
February 28, 2019
Dollar
Value
Number of
Shares
Class A Common Shares Repurchased
For the Year Ended
February 28, 2018
Dollar
Value
Number of
Shares
For the Year Ended
February 28, 2017
Dollar
Value
Number of
Shares
(in millions, except share data)
2013 Authorization (1) Apr 2012
2017 Authorization (2) Nov 2016
2018 Authorization (3)
Jan 2018
$1,000.0
$1,000.0
$3,000.0
$
$
—
—
504.3
504.3
— $
—
2,352,145
2,352,145
$
—
546.9
491.6
1,038.5
— $
2,530,194
2,279,867
4,810,061
$
669.6
453.1
—
1,122.7
4,400,504
3,006,547
—
7,407,051
92
(1) The 2013 Authorization was fully utilized during the year ended February 28, 2017.
(2) The 2017 Authorization was fully utilized during the year ended February 28, 2018.
(3) As of February 28, 2019, $2,004.1 million remains available for future share repurchase under the 2018
Authorization. The Board of Directors did not specify a date upon which this authorization would expire.
Common stock dividends –
In April 2019, our Board of Directors declared a quarterly cash dividend of $0.75 per share of Class A
Common Stock, $0.68 per share of Class B Convertible Common Stock and $0.68 per share of Class 1 Common
Stock payable in the first quarter of fiscal 2020.
17.
STOCK-BASED EMPLOYEE COMPENSATION:
Effective March 1, 2017, we adopted the FASB amended guidance for, 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. Additionally, effective March 1,
2017, excess tax benefits are classified as an operating activity in the statement of cash flows instead of as a
financing activity where they were previously presented. We adopted this guidance on a prospective basis and,
accordingly, prior periods have not been adjusted. The adoption of this amended guidance also impacted 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.
We have two stock-based employee compensation plans (as further discussed below). Total compensation
cost recognized for our stock-based awards and income tax benefits related thereto are as follows:
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
(in millions)
Total compensation cost recognized in our results of operations
Income tax benefit related thereto recognized in our results of operations
$
$
64.1
11.6
$
$
60.9
13.5
$
$
56.1
18.5
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.
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
93
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 under our Long-Term Stock Incentive Plan is as follows:
February 28, 2019
For the Years Ended
February 28, 2018
February 28, 2017
Number
of
Options
7,444,701
540,640
$
$
(2,156,508) $
(133,250) $
(4,364) $
5,691,219
4,456,486
$
$
Weighted
Average
Exercise
Price
56.33
227.91
23.55
187.84
175.86
81.87
53.18
Number
of
Options
8,070,255
$
624,121
$
(1,188,922) $
(59,725) $
(1,028) $
7,444,701
5,983,286
$
$
Weighted
Average
Exercise
Price
44.31
172.70
31.86
136.08
36.13
56.33
34.12
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
As of February 28, 2019, the aggregate intrinsic value of our options outstanding and exercisable was
$527.2 million and $517.9 million, respectively. In addition, the weighted average remaining contractual life for
our options outstanding and exercisable was 4.5 years and 3.5 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
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
$
$
22.8
348.5
82.6
$
$
$
20.3
189.9
59.8
$
$
$
20.3
260.4
106.0
The weighted average grant-date fair value of stock options granted and the weighted average inputs 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,
2019
February 28,
2018
February 28,
2017
$
$
53.06
5.9 years
22.3%
$
42.88
5.9 years
26.0%
2.9%
1.3%
2.0%
1.2%
40.09
5.9 years
27.1%
1.6%
1.0%
(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.
94
A summary of restricted Class A Common Stock activity under our Long-Term Stock Incentive Plan is as
follows:
February 28, 2019
For the Years Ended
February 28, 2018
February 28, 2017
Weighted
Average
Grant-Date
Fair Value
Number
Weighted
Average
Grant-Date
Fair Value
Number
Weighted
Average
Grant-Date
Fair Value
Number
3,848
$
3,914
$
(3,848) $
197.18
214.29
197.18
$
4,088
3,848
$
(4,088) $
166.34
197.18
166.34
$
4,984
4,088
$
(4,984) $
119.37
166.34
119.37
3,914
$
214.29
3,848
$
197.18
4,088
$
166.34
286,658
108,545
$
$
(39,717) $
(41,234) $
157.29
226.97
129.57
182.00
$
455,699
157,200
$
(299,182) $
(27,059) $
117.44
178.11
109.09
140.00
$
917,009
$
174,187
(567,643) $
(67,854) $
70.23
156.74
54.29
108.56
314,252
$
181.62
286,658
$
157.29
455,699
$
117.44
227,720
172,468
$
$
(281) $
(106,368) $
(34,075) $
177.90
222.92
155.72
147.34
215.63
250,333
55,464
$
$
55,081
$
(124,512) $
(8,646) $
141.91
236.79
99.85
100.73
144.57
501,261
75,765
$
$
$
105,330
(359,370) $
(72,653) $
92.41
190.33
66.50
60.50
144.26
259,464
$
213.27
227,720
$
177.90
250,333
$
141.91
Restricted Stock Awards
Outstanding balance as of
March 1, Nonvested
Granted
Vested
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
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 net number of awards achieved above (below) 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,
2019
February 28,
2018
February 28,
2017
$
$
$
0.8
9.0
24.4
$
$
$
0.8
56.5
21.4
$
$
$
0.8
89.4
57.2
95
The weighted average grant-date fair value of performance share units granted with a market condition and
the weighted average inputs 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,
2019
February 28,
2018
February 28,
2017
$
$
322.42
228.26
$
$
250.30
172.09
$
$
204.53
157.33
2.9 years
20.7%
2.6%
0.0%
2.9 years
21.5%
1.4%
0.0%
2.8 years
20.6%
1.0%
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 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, 2019, February 28,
2018, and February 28, 2017, employees purchased 76,844 shares, 75,023 shares and 77,671 shares, respectively,
under this plan.
Other –
As of February 28, 2019, there was $86.3 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 2.4 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.
96
18.
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, 2019
February 28, 2018
February 28, 2017
Common Stock
Common Stock
Common Stock
Class A
Class B
Class A
Class B
Class A
Class B
$
3,049.5
$
386.4
$
2,049.9
$
253.5
$
1,364.3
$
164.3
386.4
—
253.5
—
164.3
—
(8.3)
—
(6.3)
—
—
(3.1)
$
3,435.9
$
378.1
$
2,303.4
$
247.2
$
1,528.6
$
161.2
167.249
23.321
171.457
23.336
175.934
23.353
23.321
4.962
—
—
23.336
5.952
—
—
23.353
4.812
—
—
195.532
23.321
200.745
23.336
204.099
23.353
$
$
18.24
17.57
$
$
16.57
16.21
$
$
11.96
11.47
$
$
10.86
10.59
$
$
7.76
7.49
$
$
7.04
6.90
(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
97
19.
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Other comprehensive income (loss) attributable to CBI includes the following components:
Before Tax
Amount
Tax (Expense)
Benefit
Net of Tax
Amount
(in millions)
For the Year Ended February 28, 2017
Other comprehensive income attributable to CBI:
Foreign currency translation adjustments:
Net loss
Reclassification adjustments
Net gain recognized in other comprehensive income
Unrealized loss on cash flow hedges:
Net derivative loss
Reclassification adjustments
Net gain recognized in other comprehensive income
Unrealized gain on AFS debt securities:
Net AFS debt securities gain
Reclassification adjustments
Net gain recognized in other comprehensive income
Pension/postretirement adjustments:
Net actuarial gain
Reclassification adjustments
Net gain recognized in other comprehensive income
Other comprehensive income attributable to CBI
For the Year Ended February 28, 2018
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net gain
Reclassification adjustments
Net gain recognized in other comprehensive income
Unrealized gain on cash flow hedges:
Net derivative gain
Reclassification adjustments
Net gain recognized in other comprehensive income
Unrealized loss on AFS debt securities:
Net AFS debt securities loss
Reclassification adjustments
Net loss recognized in other comprehensive income
Pension/postretirement adjustments:
Net actuarial loss
Reclassification adjustments
Net loss recognized in other comprehensive income
Other comprehensive income attributable to CBI
98
$
$
$
$
(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
147.3
—
147.3
76.7
(2.9)
73.8
—
—
—
$
$
11.7
(14.1)
(2.4)
0.1
—
0.1
(0.1)
(0.1)
(0.2)
(3.2) $
(1.6) $
—
(1.6)
(21.5)
0.2
(21.3)
(0.2)
—
(0.2)
(1.7)
—
(1.7)
219.4
$
0.6
—
0.6
(22.5) $
(79.0)
111.5
32.5
(23.0)
31.1
8.1
0.5
—
0.5
0.2
11.4
11.6
52.7
145.7
—
145.7
55.2
(2.7)
52.5
(0.2)
—
(0.2)
(1.1)
—
(1.1)
196.9
Before Tax
Amount
Tax (Expense)
Benefit
Net of Tax
Amount
(in millions)
For the Year Ended February 28, 2019
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net loss
Reclassification adjustments
Net loss recognized in other comprehensive loss
Unrealized gain on cash flow hedges:
Net derivative gain
Reclassification adjustments
Net gain recognized in other comprehensive loss
Unrealized loss on AFS debt securities:
Net AFS debt securities loss
Reclassification adjustments
Net gain recognized in other comprehensive loss
Pension/postretirement adjustments:
Net actuarial gain
Reclassification adjustments
Net gain recognized in other comprehensive loss
Share of OCI of equity method investments:
Net gain
Reclassification adjustments
$
(194.2) $
—
(194.2)
8.3
(3.6)
4.7
(0.4)
1.9
1.5
0.4
0.3
0.7
38.7
—
Net gain recognized in other comprehensive loss
Other comprehensive loss attributable to CBI
38.7
(148.6) $
$
— $
—
—
5.0
0.9
5.9
0.1
0.9
1.0
(0.1)
(0.1)
(0.2)
(9.1)
—
(9.1)
(2.4) $
(194.2)
—
(194.2)
13.3
(2.7)
10.6
(0.3)
2.8
2.5
0.3
0.2
0.5
29.6
—
29.6
(151.0)
Accumulated other comprehensive loss, net of income tax effect, includes the following components:
Foreign
Currency
Translation
Adjustments
Net
Unrealized
Gain on
Derivative
Instruments
Net
Unrealized
Loss
on AFS Debt
Securities
Pension/
Postretirement
Adjustments
Share of OCI
of Equity
Method
Investments
Accumulated
Other
Comprehensive
Loss
$
(212.3) $
14.5
$
(2.5) $
(2.6) $
— $
(202.9)
(in millions)
Balance, February 28,
2018
Other comprehensive
income (loss):
Other
comprehensive
income (loss) before
reclassification
adjustments
Amounts
reclassified from
accumulated other
comprehensive
income (loss)
Other comprehensive
income (loss)
Balance, February 28,
2019
$
(194.2)
13.3
(0.3)
0.3
29.6
(151.3)
—
(194.2)
(2.7)
10.6
2.8
2.5
0.2
0.5
—
29.6
0.3
(151.0)
(406.5) $
25.1
$
— $
(2.1) $
29.6
$
(353.9)
99
20.
SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Net sales to our five largest customers represented 32.7%, 32.5% and 32.6% of our net sales for the years
ended February 28, 2019, February 28, 2018, and February 28, 2017, 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
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
12.9%
30.8%
13.0%
28.1%
14.1%
32.1%
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.
21.
CONDENSED CONSOLIDATING FINANCIAL INFORMATION:
The following information sets forth the condensed consolidating balance sheets as of February 28, 2019,
and February 28, 2018, the condensed consolidating statements of comprehensive income for the years ended
February 28, 2019, February 28, 2018, and February 28, 2017, and the condensed consolidating statements of cash
flows for the years ended February 28, 2019, February 28, 2018, and February 28, 2017, 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.
100
(in millions)
Condensed Consolidating Balance Sheet at February 28, 2019
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
Equity method investments
Securities measured as fair value
Deferred income taxes
Other assets
Total assets
Current liabilities:
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Intercompany payable
Other accrued expenses and liabilities
Total current liabilities
Long-term debt, less current maturities
Intercompany notes payable
Deferred income taxes and other liabilities
Total liabilities
CBI stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity $
$
11.0
435.6
197.7
29,712.5
89.9
30,446.7
85.3
26,533.8
—
—
3,218.6
—
—
69.2
17.3
2.6
370.6
1,485.4
33,775.4
78.1
35,712.1
786.8
1,599.6
6,185.5
605.0
—
1.7
—
—
1.1
$
$
80.0
40.7
609.9
20,050.6
446.7
21,227.9
4,395.2
2,982.1
1,903.3
2,593.1
38.6
3,463.9
3,234.7
2,183.3
91.3
— $
—
(162.6)
(83,538.5)
(1.6)
(83,702.7)
—
(31,115.5)
—
—
(3,257.2)
—
—
(69.2)
—
93.6
846.9
2,130.4
—
613.1
3,684.0
5,267.3
—
8,088.8
3,198.1
—
3,465.6
3,234.7
2,183.3
109.7
60,370.9
$
44,891.8
$
42,113.4
$ (118,144.6) $
29,231.5
59.0
0.2
415.8
18,322.0
156.6
18,953.6
0.4
524.3
955.9
20,434.2
21,393.0
286.2
21,679.2
42,113.4
$
— $
—
—
(83,538.5)
(24.5)
(83,563.0)
—
(3,257.2)
(56.9)
(86,877.1)
(31,267.5)
—
(31,267.5)
$ (118,144.6) $
791.5
1,065.2
616.7
—
690.4
3,163.8
11,759.8
—
1,470.7
16,394.3
12,551.0
286.2
12,837.2
29,231.5
732.5
1,052.8
59.6
33,787.6
374.3
36,006.8
11,743.4
38.5
31.2
47,819.9
12,551.0
—
12,551.0
60,370.9
$
— $
12.2
141.3
31,428.9
184.0
31,766.4
16.0
2,694.4
540.5
35,017.3
9,874.5
—
9,874.5
44,891.8
$
$
101
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
(in millions)
Condensed Consolidating Balance Sheet at February 28, 2018
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
Equity method investments
Securities measured at fair value
Deferred income taxes
Other assets
Total assets
Current liabilities:
Short-term borrowings
$
$
$
4.6
2.0
184.3
27,680.0
138.4
28,009.3
76.2
20,948.7
—
—
6,236.4
—
—
17.4
15.7
4.4
$
81.3
$
— $
12.6
1,537.5
37,937.5
77.7
39,569.7
775.7
442.0
6,185.5
718.2
2,435.4
1.9
—
—
2.8
761.6
546.6
18,940.8
311.0
20,641.3
3,937.8
5,876.9
1,897.6
2,586.6
—
119.6
672.2
—
74.9
—
(184.4)
(84,558.3)
(3.6)
(84,746.3)
—
(27,267.6)
—
—
(8,671.8)
—
—
(17.4)
—
90.3
776.2
2,084.0
—
523.5
3,474.0
4,789.7
—
8,083.1
3,304.8
—
121.5
672.2
—
93.4
55,303.7
$
50,131.2
$
35,806.9
$ (120,703.1) $
20,538.7
746.8
22.3
592.2
—
678.3
2,039.6
9,417.6
—
1,089.8
12,547.0
7,975.1
16.6
7,991.7
20,538.7
266.9
$
— $
479.9
$
— $
Current maturities of long-term debt
Accounts payable
Intercompany payable
Other accrued expenses and liabilities
Total current liabilities
Long-term debt, less current maturities
Intercompany notes payable
Deferred income taxes and other liabilities
Total liabilities
CBI stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
7.1
63.4
37,408.2
356.2
38,101.8
9,166.9
—
59.9
47,328.6
7,975.1
—
7,975.1
15.0
128.3
30,029.7
199.3
30,372.3
9.1
5,029.2
493.5
35,904.1
14,227.1
—
14,227.1
Total liabilities and stockholders’ equity $
55,303.7
$
50,131.2
$
0.2
400.5
17,120.4
150.5
18,151.5
241.6
3,642.6
553.8
22,589.5
13,200.8
16.6
13,217.4
35,806.9
—
—
(84,558.3)
(27.7)
(84,586.0)
—
(8,671.8)
(17.4)
(93,275.2)
(27,427.9)
—
(27,427.9)
$ (120,703.1) $
102
(in millions)
Condensed Consolidating Statement of Comprehensive Income for the Year Ended February 28, 2019
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Sales
Excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general and administrative
expenses
Operating income
Equity in earnings (losses) of equity
method investees and subsidiaries and
related activities
Unrealized net gain on securities
measured at fair value
Net gain on sale of unconsolidated
investment
Interest income
Intercompany interest income
Interest expense
Intercompany interest expense
Loss on extinguishment of debt
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
$
$
$
$
2,996.9
(359.3)
2,637.6
(2,060.3)
577.3
(548.1)
29.2
$
7,323.1
(396.2)
6,926.9
(5,399.8)
1,527.1
(908.7)
618.4
$
3,905.8
(12.8)
3,893.0
(1,924.2)
1,968.8
(233.6)
1,735.2
(5,341.5) $
—
(5,341.5)
5,348.6
7.1
22.3
29.4
8,884.3
(768.3)
8,116.0
(4,035.7)
4,080.3
(1,668.1)
2,412.2
3,889.6
(39.4)
482.9
(4,302.5)
30.6
—
1,971.2
—
—
0.6
259.7
(361.7)
(547.1)
(1.7)
3,268.6
167.3
3,435.9
—
—
—
647.1
(1.0)
(196.3)
—
1,028.8
(250.2)
778.6
1,971.2
99.8
11.4
6.3
(16.4)
(169.7)
—
4,120.7
(598.1)
3,522.6
—
—
(913.1)
—
913.1
—
(4,273.1)
(4.9)
(4,278.0)
—
—
3,435.9
$
778.6
$
(23.2)
3,499.4
$
—
(4,278.0) $
99.8
12.0
—
(379.1)
—
(1.7)
4,145.0
(685.9)
3,459.1
(23.2)
3,435.9
3,284.9
$
777.7
$
3,358.4
$
(4,136.1) $
3,284.9
103
(in millions)
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Condensed Consolidating Statement of Comprehensive Income for the Year Ended February 28, 2018
Sales
Excise taxes
2,953.5
(353.5)
$
$
$
$
6,822.8
(375.6)
6,447.2
(4,809.5)
1,637.7
3,499.6
(12.7)
3,486.9
(1,795.7)
1,691.2
(4,953.8) $
—
(4,953.8)
4,917.7
(36.1)
(820.0)
817.7
(259.9)
1,431.3
16.0
(20.1)
8,322.1
(741.8)
7,580.3
(3,767.8)
3,812.5
(1,532.7)
2,279.8
2,600.0
(2,080.3)
519.7
(468.8)
50.9
Net sales
Cost of product sold
Gross profit
Selling, general and administrative
expenses
Operating income
Equity in earnings (losses) of equity
method investees and subsidiaries and
related activities
Unrealized net gain on securities
measured at fair value and related
activities
Interest income
Intercompany interest income
Interest expense
Intercompany interest expense
Loss on extinguishment of debt
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
2,515.1
(13.9)
547.8
(3,014.4)
34.6
—
0.4
240.9
(279.1)
(395.3)
(81.8)
2,051.1
252.3
2,303.4
—
—
491.1
(1.1)
(195.6)
—
1,098.2
(74.2)
1,024.0
452.6
1.9
4.2
(54.1)
(145.3)
(15.2)
2,223.2
(180.9)
2,042.3
—
—
(736.2)
—
736.2
—
(3,034.5)
(19.9)
(3,054.4)
—
—
2,303.4
$
1,024.0
$
(11.9)
2,030.4
$
—
(3,054.4) $
452.6
2.3
—
(334.3)
—
(97.0)
2,338.0
(22.7)
2,315.3
(11.9)
2,303.4
2,500.3
$
1,024.4
$
2,232.4
$
(3,256.8) $
2,500.3
$
$
104
(in millions)
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Condensed Consolidating Statement of Comprehensive Income for the Year Ended February 28, 2017
Sales
2,824.2
$
$
$
$
(351.9)
2,472.3
(1,974.5)
497.8
(417.2)
(23.4)
57.2
1,656.1
0.4
227.1
(280.0)
(311.1)
1,349.7
178.9
1,528.6
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 and
related activities
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
$
$
6,252.4
(320.8)
5,931.6
(4,373.8)
1,557.8
3,535.1
(57.4)
3,477.7
(1,949.9)
1,527.8
(4,560.5) $
—
(4,560.5)
4,496.1
(64.4)
(707.5)
(4.3)
846.0
(31.1)
—
402.7
(1.5)
(197.4)
1,018.7
(385.1)
633.6
(290.5)
290.1
1,527.4
410.4
1.4
3.6
(53.6)
(124.9)
1,764.3
(347.6)
1,416.7
22.8
—
(41.6)
(2,008.1)
—
(633.4)
—
633.4
(2,049.7)
3.5
(2,046.2)
8,051.2
(730.1)
7,321.1
(3,802.1)
3,519.0
(1,392.4)
262.4
2,389.0
27.3
1.8
—
(335.1)
—
2,083.0
(550.3)
1,532.7
(4.1)
1,528.6
—
1,528.6
$
—
633.6
$
(4.1)
1,412.6
$
—
(2,046.2) $
1,581.3
$
633.5
$
1,435.0
$
(2,068.5) $
1,581.3
105
(in millions)
Condensed Consolidating Statement of Cash Flows for the Year Ended February 28, 2019
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Net cash provided by operating
activities
Cash flows from investing activities:
Investments in equity method
investees and securities
Purchases of property, plant and
equipment
Purchases of businesses, net of cash
acquired
Proceeds from sale of unconsolidated
investment
Proceeds from sales of assets
Net proceeds from intercompany
notes
Net investment 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
Proceeds from issuance of long-term
debt
Proceeds from shares issued under
equity compensation plans
Net proceeds from (repayments of)
short-term borrowings
Dividends paid
Purchases of treasury stock
Principal payments of long-term debt
Payments of debt issuance, debt
extinguishment and other financing
costs
Payments of minimum tax
withholdings on stock-based payment
awards
$
169.8
$
353.1
$
1,880.4
$
(157.0) $
2,246.3
—
(0.1)
(4,081.4)
(34.4)
(104.2)
(747.7)
(19.5)
(26.1)
—
—
—
—
—
(525.1)
3,938.9
—
3,413.8
110.2
30.6
—
—
(0.9)
(4,715.3)
—
41.1
—
(11.1)
—
(93.8)
—
25.8
(209.5)
209.5
3,965.6
(3,991.4)
—
—
0.6
525.1
(3,927.8)
—
(3,436.5)
—
—
214.9
(256.9)
(483.1)
525.1
3,645.6
63.2
465.6
(557.7)
(504.3)
(19.6)
—
—
—
—
—
(17.2)
12.0
—
(420.1)
—
—
(26.0)
(34.6)
—
—
—
(12.8)
(0.8)
—
—
—
—
—
—
—
—
(4,081.5)
(886.3)
(45.6)
110.2
72.3
—
—
(0.9)
(4,831.8)
—
—
—
3,657.6
63.2
45.5
(557.7)
(504.3)
(62.8)
(34.6)
(13.6)
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
$
3,273.1
(261.1)
2,838.1
(3,256.8)
2,593.3
—
6.4
—
(1.8)
(4.5)
(1.3)
4.6
11.0
$
4.4
2.6
$
81.3
80.0
$
—
—
—
— $
(4.5)
3.3
90.3
93.6
106
(in millions)
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Condensed Consolidating Statement of Cash Flows for the Year Ended February 28, 2018
Net cash provided by (used in) operating
activities
(374.5) $
1,288.2
$
$
1,017.7
$
— $
1,931.4
Cash flows from investing activities:
Investments in equity method
investees and securities
Purchases of property, plant and
equipment
Purchases of businesses, net of cash
acquired
Proceeds from sales of assets
Payments related to sale of business
Net proceeds from intercompany
notes
Net investment 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
Proceeds from issuance of long-term
debt
Proceeds from shares issued under
equity compensation plan
Net proceeds from short-term
borrowings
Dividends paid
Purchases of treasury stock
Principal payments of long-term debt
Payments of debt issuance, debt
extinguishment and other financing
costs
Payments of minimum tax
withholdings on stock-based payment
awards
Net cash provided by (used in) financing
activities
Effect of exchange rate changes on cash
and cash equivalents
Net decrease in cash and cash
equivalents
Cash and cash equivalents, beginning of
year
Cash and cash equivalents, end of year
$
—
(0.1)
(210.8)
(21.3)
(128.3)
(908.0)
—
—
—
—
—
(269.6)
1,355.0
—
1,085.4
(79.2)
5.8
(5.0)
3.8
—
0.8
(1,192.6)
(70.0)
70.0
1,424.1
(1,425.0)
—
0.1
—
265.8
(1,355.0)
(6.2)
(1,116.6)
—
—
(70.9)
—
—
—
—
—
(199.3)
—
0.9
(211.0)
(1,041.1)
982.5
269.6
5,886.4
49.4
33.3
(400.1)
(1,038.5)
(2,717.8)
—
—
—
—
—
(19.1)
(115.6)
—
—
(30.5)
2,047.0
—
103.9
—
—
(4,391.8)
(6.6)
(1.2)
—
—
—
—
—
—
—
—
(210.9)
(1,057.6)
(150.1)
5.9
(5.0)
—
—
(5.4)
(1,423.1)
—
—
—
7,933.4
49.4
137.2
(400.1)
(1,038.5)
(7,128.7)
(122.2)
(31.7)
1,486.1
(1,089.8)
87.9
(1,085.4)
(601.2)
—
(5.0)
—
5.8
(0.9)
(81.2)
9.6
4.6
$
5.3
4.4
$
162.5
81.3
$
—
—
—
— $
5.8
(87.1)
177.4
90.3
107
(in millions)
Parent
Company
Subsidiary
Guarantors
Subsidiary
Nonguarantors
Eliminations
Consolidated
Condensed Consolidating Statement of Cash Flows for the Year Ended February 28, 2017
Net cash provided by operating
activities
1,051.5
341.4
$
$
$
958.5
Cash flows from investing activities:
Investments in equity method
investees and securities
Purchases of property, plant and
equipment
Purchases of businesses, net of cash
acquired
Proceeds from sales of assets
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
Proceeds from issuance of long-term
debt
Proceeds from shares issued under
equity compensation plans
Net proceeds from (repayments of)
short-term borrowings
Dividends paid
Purchases of treasury stock
Principal payments of long-term debt
Payments of debt issuance, debt
extinguishment and other financing
costs
Payments of minimum tax
withholdings on stock-based payment
awards
Excess tax benefits from stock-based
payment awards
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
$
—
(0.1)
(17.0)
(12.8)
(89.8)
(804.8)
—
0.7
(9.9)
422.0
470.7
—
870.7
—
—
(20.2)
600.0
59.7
231.0
(315.1)
(1,122.7)
(767.6)
$
(655.4) $
1,696.0
—
—
—
—
—
(422.0)
(470.7)
—
(17.1)
(907.4)
(1,111.0)
2.1
575.3
—
—
(3.7)
—
—
—
—
—
—
(1,111.0)
1.4
585.2
—
—
(3.7)
(89.9)
(1,349.9)
(892.7)
(1,461.8)
—
(22.0)
(868.7)
(235.4)
(855.4)
453.6
868.7
257.4
422.0
—
—
—
—
—
(20.6)
1,365.6
—
(33.9)
—
—
(183.6)
(9.1)
(3.0)
—
—
—
—
—
—
—
—
—
—
—
—
—
1,965.6
59.7
197.1
(315.1)
(1,122.7)
(971.8)
(14.1)
(64.9)
131.4
(5.0)
—
—
131.4
(61.9)
—
(1,208.5)
(959.9)
485.5
1,548.1
(134.8)
—
3.6
6.0
9.6
$
108
—
1.7
3.6
5.3
(5.1)
89.0
73.5
—
—
—
$
162.5
$
— $
(5.1)
94.3
83.1
177.4
22.
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 portfolio that includes higher-margin, higher-growth wine brands
complemented by certain higher-end spirits brands. Amounts included in the Corporate Operations and Other
segment consist of costs of executive management, corporate development, corporate finance, corporate growth and
strategy, human resources, internal audit, investor relations, legal, public relations and information technology, as
well as our investments in Canopy Growth Corporation and those made through our corporate venture capital
function. All costs 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:
(in millions)
Cost of product sold
Accelerated depreciation
Settlements of undesignated commodity derivative contracts
Flow through of inventory step-up
Loss on inventory write-down
Net gain on undesignated commodity derivative contracts
Other losses
Total cost of product sold
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
(8.9) $
(8.6)
(4.9)
(3.3)
1.8
(6.0)
(29.9)
— $
2.3
(18.7)
(19.1)
7.4
—
(28.1)
—
23.4
(20.1)
—
16.3
(2.2)
17.4
109
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
(in millions)
Selling, general and administrative expenses
Impairment of intangible assets
Net loss on foreign currency derivative contracts associated with
acquisition of investment
Restructuring and other strategic business development costs
Deferred compensation
Transaction, integration and other acquisition-related costs
Loss on contract termination (1)
Costs associated with the Canadian Divestiture and related activities
Other gains (losses) (2)
Total selling, general and administrative expenses
Gain on sale of business
(108.0)
(86.8)
(32.6)
(17.1)
(16.3)
(10.2)
—
—
10.1
(174.1)
—
—
(14.0)
—
(8.1)
(59.0)
(3.2)
10.5
(160.6)
—
Comparable Adjustments, Operating income (loss)
$
(204.0) $
(188.7) $
(37.6)
—
(0.9)
—
(14.2)
—
(20.4)
(2.6)
(75.7)
262.4
204.1
(1) Represents a loss incurred in connection with the early termination of a beer glass supply contract with an affiliate
of Owens-Illinois.
(2)
Includes a gain of $8.5 million for the year ended February 28, 2019, in connection with the sale of certain non-
core assets and a gain of $8.1 million for the year ended February 28, 2018, in connection with the reduction in
estimated fair value of a contingent liability associated with a prior period acquisition.
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
Income from unconsolidated investments
Long-lived tangible assets
Equity method investments
Total assets
Capital expenditures
Depreciation and amortization
For the Years Ended
February 28,
2019
February 28,
2018
February 28,
2017
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,202.1
2,042.9
4,050.1
15,044.1
720.0
203.5
2,532.5
381.4
2,913.9
771.2
33.4
1,125.5
79.7
7,305.7
129.5
98.4
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,660.4
1,840.2
3,611.6
12,325.2
882.6
168.8
2,556.3
363.6
2,919.9
794.1
34.4
1,080.7
80.7
7,217.4
151.1
94.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,227.3
1,532.4
2,810.0
11,325.3
759.2
114.9
2,732.7
361.1
3,093.8
792.4
29.2
992.9
77.6
6,976.6
100.0
99.4
110
(in millions)
Corporate Operations and Other
Segment operating loss
Income (loss) from unconsolidated investments
Long-lived tangible assets
Equity method investments
Total assets
Capital expenditures
Depreciation and amortization
Comparable Adjustments
Operating income (loss)
Income (loss) from unconsolidated investments
Depreciation and amortization
Consolidated
Net sales
Operating income
Income from unconsolidated investments (1)
Long-lived tangible assets
Equity method investments
Total assets
Capital expenditures
Depreciation and amortization
(1)
Income from unconsolidated investments consists of:
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(197.9) $
(16.7) $
$
91.7
$
3,385.9
$
6,881.7
36.8
28.3
$
$
(204.0) $
$
2,084.9
$
8.9
8,116.0
2,412.2
2,101.6
5,267.3
3,465.6
29,231.5
886.3
339.1
$
$
$
$
$
$
$
$
(165.8) $
$
0.2
97.4
40.8
996.1
23.9
36.9
$
$
$
$
$
(188.7) $
$
452.6
— $
(139.9)
(0.2)
129.9
21.1
300.5
48.2
31.4
204.1
(1.7)
2.2
7,580.3
2,279.8
487.2
4,789.7
121.5
20,538.7
1,057.6
299.7
$
$
$
$
$
$
$
$
7,321.1
2,389.0
27.3
3,932.8
98.7
18,602.4
907.4
247.9
For the Years Ended
February 28,
2019
February 28,
2018
February 28,
2017
(in millions)
Unrealized net gain on securities measured at fair value
$
1,971.2
$
464.3
$
Net gain on sale of unconsolidated investment
Equity in earnings from equity method investees and related
activities
Other (i)
99.8
30.6
—
—
34.6
(11.7)
$
2,101.6
$
487.2
$
—
—
27.3
—
27.3
(i)
Net loss on foreign currency derivative contracts associated with November 2017 Canopy securities measured at fair
value
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.
111
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)
23.
SUBSEQUENT EVENT:
February 28,
2019
For the Years Ended
February 28,
2018
February 28,
2017
$
$
7,894.8
221.2
8,116.0
$
$
7,325.4
254.9
7,580.3
$
$
6,797.3
523.8
7,321.1
February 28,
2019
February 28,
2018
$
$
1,127.7
4,139.6
5,267.3
$
$
1,124.5
3,665.2
4,789.7
In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business,
including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices and
facilities, for approximately $1.7 billion, subject to certain adjustments (the “Wine and Spirits Transaction”). The
Wine and Spirits Transaction is subject to the satisfaction of certain closing conditions, including receipt of required
regulatory approval, and is expected to close around the end of our first quarter of fiscal 2020. We expect to use the
net cash proceeds from the Wine and Spirits Transaction primarily to reduce outstanding borrowings.
24.
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
A summary of selected quarterly financial information is as follows:
QUARTER ENDED
May 31,
2018
August 31,
2018
November 30,
2018
February 28,
2019
Full Year
(in millions, except per share data)
Fiscal 2019
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
$
$
$
$
$
$
$
2,047.1
1,048.6
743.8
3.93
3.57
3.77
3.48
$
$
$
$
$
$
$
2,299.1
1,168.2
1,149.5
6.11
5.55
5.87
5.41
$
$
$
$
$
$
$
1,972.6
970.0
303.1
1.62
1.47
1.56
1.45
$
$
$
$
$
$
$
1,797.2
893.5
1,239.5
6.57
5.97
6.37
5.87
$
$
$
$
$
$
$
8,116.0
4,080.3
3,435.9
18.24
16.57
17.57
16.21
112
QUARTER ENDED
May 31,
2017
August 31,
2017
November 30,
2017
February 28,
2018
Full Year
$
$
$
$
$
$
$
1,928.5
988.3
398.5
2.07
1.88
1.98
1.83
$
$
$
$
$
$
$
2,087.9
1,068.7
501.6
2.59
2.36
2.49
2.30
$
$
$
$
$
$
$
1,801.9
910.3
492.8
2.55
2.32
2.45
2.26
$
$
$
$
$
$
$
1,762.0
845.2
910.5
4.76
4.32
4.56
4.21
$
$
$
$
$
$
$
7,580.3
3,812.5
2,303.4
11.96
10.86
11.47
10.59
(in millions, except per share data)
Fiscal 2018
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)
Includes the following:
(in millions, net of income tax effect)
Unrealized net gain (loss) on securities measured at fair
value
Net gain (loss) on sale of unconsolidated investment
Impairment of intangible assets
Unrealized net gain on securities measured at fair value
Net income tax benefit related to the TCJ Act
Impairment of intangible assets
QUARTER ENDED
May 31,
2018
August 31,
2018
November 30,
2018
February 28,
2019
$
$
$
$
$
$
224.1
99.5
$
$
— $
595.1
$
(168.4) $
911.7
(1.6) $
— $
— $
— $
—
(81.0)
QUARTER ENDED
May 31,
2017
August 31,
2017
November 30,
2017
February 28,
2018
— $
— $
(54.4) $
— $
— $
— $
138.7
$
— $
— $
264.0
351.2
—
(2)
The sum of the quarterly net income per common share for Fiscal 2019 and Fiscal 2018 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.
113
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, 2019 (our fourth
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 16, 2019, under those sections of the Proxy
Statement to be titled “Director Nominees,” and “The Board of Directors and Committees of the Board.” 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 https://
www.cbrands.com/investors. 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 16, 2019, 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.
114
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 16, 2019, 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.
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, 2019. 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))
6,454,437 (1)
—
6,454,437
$
$
$
81.87 (2)
13,345,733 (3)
—
81.87
—
13,345,733
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
(1)
(2)
(3)
Includes 448,966 shares of unvested performance share units and 314,252 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 152,764 of the target shares granted will be awarded between 100% and 175% of target; 73,532 of
the target shares granted will be awarded between 25% and 75% and 33,168 of the target shares granted will not
be awarded based upon our expectations as of February 28, 2019, 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 1,423,013 shares of Class A Common Stock under our Employee Stock Purchase Plan remaining
available for purchase, of which approximately 43,400 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 16, 2019, 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.
115
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 16, 2019, 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.
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, 2019, and February 28, 2018
Consolidated Statements of Comprehensive Income for the years ended February 28,
2019, February 28, 2018, and February 28, 2017
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
February 28, 2019, February 28, 2018, and February 28, 2017
Consolidated Statements of Cash Flows for the years ended February 28, 2019,
February 28, 2018, and February 28, 2017
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
The information called for by this Item is incorporated by reference from the Index to Exhibits
included in this Annual Report on Form 10-K.
Item 16. Form 10-K Summary.
None.
116
Exhibit
No.
2.1
2.2
2.3
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
INDEX TO EXHIBITS
Subscription Agreement, dated as of August 14, 2018, by and between CBG Holdings LLC and Canopy Growth
Corporation, including, among other things, a form of the Amended and Restated Investor Rights Agreement
(filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated August 14, 2018, filed August 16,
2018 and incorporated herein by reference). †
Foreign Exchange Rate Agreement dated October 26, 2018, between CBG Holdings LLC and Canopy Growth
Corporation (filed as Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2018 and incorporated herein by reference).
Asset Purchase Agreement made and entered into by and between the Company and E. & J. Gallo Winery (filed
as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 3, 2019, filed April 8, 2019 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). #
By-Laws of the Company, amended and restated as of October 3, 2018 (filed as Exhibit 3.3 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2018 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 (no longer outstanding ) (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). #
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 Manufacturers 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).
117
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
4.24
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).
Supplemental Indenture No. 12 with respect to 2.700% Senior Notes due 2022, dated as of May 9, 2017, 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 9, 2017, filed May 9,
2017 and incorporated herein by reference).
Supplemental Indenture No. 13 with respect to 3.500% Senior Notes due 2027, dated as of May 9, 2017, 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 9, 2017, filed May 9,
2017 and incorporated herein by reference).
Supplemental Indenture No. 14 with respect to 4.500% Senior Notes due 2047, dated as of May 9, 2017, among
the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as
Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated May 9, 2017, filed May 9,
2017 and incorporated herein by reference).
Supplemental Indenture No. 15 with respect to 2.000% Senior Notes due 2019, dated as of November 7, 2017,
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 7,
2017, filed November 7, 2017 and incorporated herein by reference).
Supplemental Indenture No. 16 with respect to 2.250% Senior Notes due 2020 dated as of November 7, 2017,
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 7,
2017, filed November 7, 2017 and incorporated herein by reference).
Supplemental Indenture No. 17 with respect to 2.650% Senior Notes due 2022, dated as of November 7, 2017,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated November 7,
2017, filed November 7, 2017 and incorporated herein by reference).
Supplemental Indenture No. 18 with respect to 3.200% Senior Notes due 2023, dated as of February 7, 2018,
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 February 7, 2018,
filed February 7, 2018 and incorporated herein by reference).
Supplemental Indenture No. 19 with respect to 3.600% Senior Notes due 2028, dated as of February 7, 2018,
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 February 7, 2018,
filed February 7, 2018 and incorporated herein by reference).
Supplemental Indenture No. 20 with respect to 4.100% Senior Notes due 2048, dated as of February 7, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated February 7, 2018,
filed February 7, 2018 and incorporated herein by reference).
Supplemental Indenture No. 21 with respect to Senior Floating Rate Notes due 2021, dated as of October 29,
2018, 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 October 29,
2018, filed October 29, 2018 and incorporated herein by reference).
Supplemental Indenture No. 22 with respect to 4.400% Senior Notes due 2025, dated as of October 29, 2018,
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 October 29,
2018, filed October 29, 2018 and incorporated herein by reference).
Supplemental Indenture No. 23 with respect to 4.650% Senior Notes due 2028, dated as of October 29, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated October 29,
2018, filed October 29, 2018 and incorporated herein by reference).
Supplemental Indenture No. 24 with respect to 5.250% Senior Notes due 2048, dated as of October 29, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K dated October 29,
2018, filed October 29, 2018 and incorporated herein by reference).
118
4.25
4.26
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Restatement Agreement, dated as of September 14, 2018, by and among the Company, CB International Finance
S.à r.l., certain of the Company’s subsidiaries as guarantors, Bank of America, N.A., as Administrative Agent,
and the Lenders party thereto, including the Eighth Amended and Restated Credit Agreement dated as of
September 14, 2018, by and among the Company, CB International Financing 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 September 14, 2018, filed September 19, 2018 and incorporated herein by reference).
Term Loan Credit Agreement, dated as of September 14, 2018, by and among the Company, Bank of America,
N.A., as Administrative Agent, and the Lenders party thereto (filed as Exhibit 4.2 to the Company’s Current
Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).
Constellation Brands, Inc. Long-Term Stock Incentive Plan, amended and restated as of July 18, 2017 (filed as
Exhibit 10.4 to the Company’s Current Report on Form 8-K dated July 18, 2017, filed July 20, 2017 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 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 and before
April 23, 2018) (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 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 23, 2018) ( filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 23, 2018, filed April 26, 2018 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). *
119
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 21, 2017 and before April 23, 2018) (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 for Employees with respect to the Company’s Long-Term Stock
Incentive Plan (awards on or after April 23, 2018) ( filed as Exhibit 10.2 to the Company’s Current Report on
Form 8-K dated April 23, 2018, filed April 26, 2018 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, 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). *
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 and before April 23, 2018) (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
(awards on or after April 23, 2018) ( filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated
April 23, 2018, filed April 26, 2018 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 Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(relating to contingent grants) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
October 19, 2018, filed October 22, 2018 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). *#
120
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
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 and before July 18,
2017) (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 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 18, 2017) (filed as Exhibit
10.1 to the Company’s Current Report on Form 8-K dated July 18, 2017, filed July 20, 2017 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 18, 2017) (filed as Exhibit 10.2 to the
Company’s Current Report on Form 8-K dated July18, 2017, filed July 20, 2017 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 18, 2017) (filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated July18, 2017, filed July 20, 2017 and incorporated herein by
reference). *
Rules for Cash Incentive Awards under the Company’s Long-Term Stock Incentive Plan (filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K dated March 27, 2018, filed March 29, 2018 and incorporated
herein by reference). *
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). *#
Constellation Brands, Inc. Non-Qualified Savings Plan (filed as Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated October 2, 2018, filed October 4, 2018 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). *#
Third Amendment to the Company’s 2005 Supplemental Executive Retirement Plan (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated October 2, 2018, filed October 4, 2018 and incorporated herein
by reference). *
Amended and Restated Guarantee Agreement, dated as of July 14, 2017, made by the subsidiaries of
Constellation Brands, Inc. 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 10.1 to the Company’s Current Report on Form 8-K dated July 14, 2017, filed July 19, 2017 and
incorporated herein by reference).
121
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
21.1
23.1
31.1
31.2
32.1
32.2
99.1
99.2
99.3
101.1
Guarantee Agreement (Term Loan Credit Agreement), dated as of September 14, 2018, made by the subsidiaries
of Constellation Brands, Inc. from time to time party thereto in favor of Bank of America, N.A., as
Administrative Agent, for the ratable benefit of the Lenders party to the Term Loan Credit Agreement (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018
and incorporated herein by reference).
Form of Executive Employment Agreement between Constellation Brands, Inc. and its Chairman of the Board
and its Vice Chairman of the Board (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated
May 21, 2008, filed May 21, 2008 and incorporated herein by reference). *#
Form of Executive Employment Agreement between Constellation Brands, Inc. and certain Other Executive
Officers (including F. Paul Hetterich) (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated
May 21, 2008, filed May 21, 2008 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). *
Form of Executive Employment Agreement between Constellation Brands, Inc. and certain of its Other
Executive Officers (including James O. Bourdeau and James A. Sabia, Jr.) (filed as Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2017 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). +#
Subsidiaries of the 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). *
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, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance
Sheets as of February 28, 2019 and February 28, 2018; (ii) Consolidated Statements of Comprehensive Income
for the years ended February 28, 2019, February 28, 2018 and February 28, 2017; (iii) Consolidated Statements
of Changes in Stockholders’ Equity for the years ended February 28, 2019, February 28, 2018 and February 28,
2017; (iv) Consolidated Statements of Cash Flows for the years ended February 28, 2019, February 28, 2018 and
February 28, 2017; and (v) Notes to Consolidated Financial Statements.
* Designates management contract or compensatory plan or arrangement.
122
# Company’s Commission File No. 001-08495. For filings prior to October 4, 1999, use Commission
File No. 000-07570.
† The exhibits, disclosure schedules and other schedules, as applicable, have been omitted pursuant to
Item 601(b)(2) of Regulation S-K. Constellation Brands, Inc. agrees to furnish supplementally a copy of
such exhibits, disclosure schedules and other schedules, as applicable, or any section thereof, to the
SEC upon request.
+ 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.
123
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 23, 2019
CONSTELLATION BRANDS, INC.
By:
/s/ William A. Newlands
William A. Newlands
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/ William A. Newlands
William A. Newlands, Director, President
and Chief Executive Officer (principal
executive officer)
April 23, 2019
/s/ Robert Sands
Robert Sands, Director and
Chairman of the Board
April 23, 2019
/s/ Jennifer M. Daniels
Jennifer M. Daniels, Director
April 23, 2019
/s/ Barry Fromberg
Barry Fromberg, Director
April 23, 2019
/s/ Ernesto M. Hernández
Ernesto M. Hernández, Director
April 23, 2019
/s/ James A. Locke III
James A. Locke III, Director
April 23, 2019
/s/ Judy A. Schmeling
Judy A. Schmeling, Director
April 23, 2019
/s/ David Klein
David Klein, Executive Vice
President and Chief Financial Officer
(principal financial officer and
principal accounting officer)
April 23, 2019
/s/ Richard Sands
Richard Sands, Director and
Vice Chairman of the Board
April 23, 2019
/s/ Jerry Fowden
Jerry Fowden, Director
April 23, 2019
/s/ Robert L. Hanson
Robert L. Hanson, Director
April 23, 2019
/s/ Susan Somersille Johnson
Susan Somersille Johnson, Director
April 23, 2019
/s/ Daniel J. McCarthy
Daniel J. McCarthy, Director
April 23, 2019
/s/ Keith E. Wandell
Keith E. Wandell, Director
April 23, 2019
124
PERFORMANCE GR APH
Set forth below is a line graph comparing, for the fiscal years ended the last day of February 2015, 2016, 2017, 2018 and 2019, 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, and the S&P 500 Food & Beverages Index. We have selected the S&P 500 Food & Beverage Index because
we believe the diversified companies in this index provide a relevant comparison. The graph assumes the investment of $100.00 on
February 28, 2014 in the Company’s Class A Common Stock, the Company’s Class B Common Stock, the S&P 500 Index, and the S&P
500 Food & Beverages Index, and also assumes the reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among Constellation Brands, Inc., the S&P 500 Index, and S&P 500 Food & Beverages Index
$300
$250
$200
$150
$100
$50
2 / 1 4
2 / 15
2 / 16
2 / 17
2 / 18
2 / 19
Constellation Brands, Inc. Class A
Constellation Brands, Inc. Class B
S&P 500
S&P 500 Food & Beverages Index
* $100 invested on 2/28/14 in stock or index, including reinvestment of dividends.
Fiscal year ending the last day of February.
Copyright© 2018 Standard & Poor’s, a division of S&P Global. All rights reserved.
2/14
2/15
2/16
2/17
2/18
2/19
100.00
100.00
100.00
100.00
141.58
141.67
115.51
119.93
176.25
176.56
108.36
128.57
199.92
197.05
135.42
141.22
274.11
271.15
158.57
141.14
218.38
218.53
166.00
139.06
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
RECONCILIATION OF GA AP TO
NON-GA AP FINANCIAL MEASURE
DIRECTORS AND
EXECUTIVE OFFICERS
For the Years Ended
(As of April 30, 2019)
2/28/19
2/28/18 Growth
EPS, reported basis $ 17.57 $ 11.47 53%
Acquisitions,
divestitures and
related costs
(0.44)
0.10
Restructuring and
other strategic business
development costs
0.10
0.05
Other
(7.95)
(2.92)
EPS, comparable
basis (1)
$ 9.28 $ 8.70
7%
(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
management uses this information in
evaluating the results of our core operations
and internal goal setting. In addition, we
believe this information provides investors
valuable insight on underlying business
trends and results in order to evaluate
year-over-year financial performance. For
further information on items excluded from
comparable basis EPS, refer to “Comparable
Adjustments,” “Interest Expense,” “Loss on
Extinguishment of Debt,” and “Provision for
Income Taxes” under “Results of Operations”
under Management’s Discussion and
Analysis of Financial Condition and Results
of Operations under Part II, Item 7 of this
Annual Report on Form 10-K.
DIRECTORS
EXECUTIVE OFFICERS
William A. Newlands
President and Chief Executive Officer,
Constellation Brands, Inc.
William A. Newlands
President and Chief Executive Officer,
Constellation Brands, Inc.
Robert Sands
Executive Chairman,
Constellation Brands, Inc.
Richard Sands
Executive Vice Chairman,
Constellation Brands, Inc.
James O. Bourdeau
Executive Vice President and General
Counsel, 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.
David Klein
Executive Vice President and
Chief Financial Officer,
Constellation Brands, Inc.
James A. Sabia, Jr.
Executive Vice President and
Chief Marketing Officer,
Constellation Brands, Inc.
Robert Sands
Executive Chairman,
Constellation Brands, Inc.
Richard Sands
Executive Vice Chairman,
Constellation Brands, Inc.
Jennifer M. Daniels (2)
Chief Legal Officer and Secretary,
Colgate-Palmolive Company
Jerry Fowden (1) (3)
Executive Chairman of the Board,
Cott Corporation
Barry A. Fromberg (2)
Senior Advisor to the CEO
of HNI Healthcare
Ernesto M. Hernández (1)
President and Managing Director,
General Motors de Mexico, S. de R.L. de C.V.
Susan Somersille Johnson (1)
Executive Vice President and Chief
Marketing Officer, SunTrust Banks, 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) (3)
Former Chief Operating Officer
of HSN, Inc. and Former President
of HSN’s Cornerstone Brands
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 2019 annual meeting
distributed with this Annual Report on Form 10-K and posted on www.cbrands.com/annual-meeting.
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, 2019,
there were 531 and 100 holders of record
of Class A and Class B Common Stock,
respectively, and 11 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, 2019.
A copy of our Annual Report on Form 10-K
for the fiscal year ended February 28, 2019,
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.
VIRTUAL ANNUAL STOCKHOLDERS’ MEETING
The virtual annual meeting is scheduled
to be held at 11:00 a.m., Eastern Daylight
Time, on Tuesday, July 16, 2019, and is
expected to be conducted exclusively via
online broadcast. Stockholders will be able
to attend the 2019 Virtual Annual Meeting,
vote shares, and submit questions during
the meeting via the Internet by visiting
www.virtualshareholdermeeting.com/STZ2019.
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
Stockholder Inquiries
1-877-810-2237
Stockholder Portal
http://shareholder.broadridge.com/stz
Broadridge Corporate Issuer Solutions
1-877-830-4936 - Phone
1-303-974-3789 - International
1-215-553-5402 - Fax
M-F, 9 a.m. to 6 p.m. ET
Regular Delivery
Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Overnight Delivery
Broadridge Corporate Issuer Solutions
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Website references in this annual report are provided as a convenience and do not constitute, and should not be viewed as,
incorporation by reference of the information contained on, or available through, the websites. Therefore, such information
should not be considered part of this annual report.
© 2019 Constellation Brands, Inc.