NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2022
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
We operate primarily in the beverage alcohol industry with operations in the U.S., Mexico, New Zealand, and Italy producing a powerful portfolio of consumer-connected, high-end imported 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 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. GAAP 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
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. We have elected to treat shipping as a fulfillment activity. 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 agencies, on-premise, retail locations in certain markets, and eCommerce, including DTC. We have evaluated these other revenue generating activities under the disaggregation disclosure criteria and concluded that they are immaterial for separate disclosure. See Note 22 for disclosure of net sales by product type.
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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, 2022, February 28, 2021, and February 29, 2020, was $826.4 million, $805.0 million, and $769.5 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 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.
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
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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.
Interest incurred relating to expansion, optimization, and construction of facilities is capitalized to construction in progress. We cease the capitalization of interest when construction activities are substantially completed and the facility and related assets are available for their intended use. At this point, construction in progress is transferred to the appropriate asset class.
Depreciation
Depreciation is computed primarily using the straight-line method over the following estimated useful lives:
| | | | | |
| Years |
Land improvements | 15 to 32 |
Vineyards | 16 to 26 |
Buildings and improvements | 10 to 50 |
Machinery and equipment | 3 to 35 |
Motor vehicles | 3 to 8 |
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 Notes 6 and 7). We present our derivative positions gross on our balance sheets.
The change in the fair value of outstanding cash flow hedges is deferred in stockholders’ equity as a component of AOCI. 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.
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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.
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).
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.
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. Certain income earned by foreign subsidiaries, GILTI, is subject to U.S. tax. We treat the tax effect of GILTI as a current period tax expense when incurred. We provide deferred income taxes, consisting primarily of foreign withholding and state taxes, on all applicable unremitted earnings of our foreign subsidiaries. Interest and penalties are recognized as a component of (provision for) benefit from income taxes.
We recognize a tax benefit from an uncertain tax position when it is more likely than not 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.
Leases
We recognize right-of-use assets and lease liabilities on our balance sheet. We assess service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset.
The right-of-use asset and lease liability are initially measured at the present value of future lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate. The incremental borrowing rates are determined using a portfolio approach based on publicly available information in connection with our unsecured borrowing rates. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet.
The right-of-use asset and lease liability are calculated including options to extend or to terminate the lease when we determine that it is reasonably certain that we will exercise those options. In making that
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determination, we consider various existing economic and market factors, business strategies as well as the nature, length, and terms of the agreement. Based on our evaluation using these factors, we concluded that the exercise of renewal options or early termination options would not be reasonably certain in determining the lease term at commencement for leases we currently have in place. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events such as a lease modification.
Certain of our contractual arrangements may contain both lease and non-lease components. We elected to measure the lease liability by combining the lease and non-lease components as a single lease component for all asset classes.
Certain of our leases include variable lease payments, including payments that depend on an index or rate, as well as variable payments for items such as raw materials, labor, property taxes, insurance, maintenance, and other operating expenses associated with leased assets. Certain grape purchasing arrangements include variable payments based on actual tonnage and price of grapes. In addition, certain third-party logistics arrangements include variable payments that vary depending on throughput. Such variable lease payments are excluded from the calculation of the right-of-use asset and the lease liability and are recognized in the period in which the obligation is incurred.
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 16).
Stock-based employee compensation
We have two stock-based employee compensation plans (see Note 18). 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.
Net income (loss) per common share attributable to CBI
We have two classes of common stock with a material number of shares outstanding: Class A Stock and Class B Stock (see Note 17). In addition, we have another class of common stock with an immaterial number of shares outstanding: Class 1 Stock (see Note 17). If we pay a cash dividend on Class B Stock, each share of Class A Stock will receive an amount at least 10% greater than the amount of the cash dividend per share paid on Class B Stock. Class B Stock shares are convertible into shares of Class A 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 (loss) per common share attributable to CBI (hereafter referred to as “net income (loss) per common share”) (see Note 19). The two-class method is an earnings allocation formula that calculates basic and diluted net income (loss) 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 Stock is assumed to receive a 10% greater participation in undistributed earnings (losses) than Class B Stock, in accordance with the respective minimum dividend rights of each class of stock.
Net income (loss) per common share – basic excludes the effect of common stock equivalents and is computed using the two-class method. Net income (loss) per common share – diluted for Class A 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 (loss) per common share – diluted for Class A Stock is computed using the more dilutive of the if-converted or two-class method. Net income (loss) per common share – diluted for Class A Stock is computed using the if-converted method for the year ended February 28, 2021, and assumes the exercise of stock options using the treasury stock method and the conversion of Class B Stock as this method is
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more dilutive than the two-class method. For the years ended February 28, 2022, and February 29, 2020, net income (loss) per common share – diluted for Class A Stock is computed using the two-class method. Net income (loss) per common share – diluted for Class B Stock is computed using the two-class method and does not assume conversion of Class B Stock into shares of Class A Stock.
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
My Favorite Neighbor
In November 2021, we acquired the remaining 65% ownership interest in My Favorite Neighbor, a super-luxury, DTC focused wine business as well as certain wholesale sourced brands. This transaction primarily included the acquisition of goodwill, trademarks, inventory, and property, plant, and equipment. In addition, the My Favorite Neighbor transaction includes an earn-out over 10 years based on performance, with a 50% minimum guarantee due at the end of the earn-out period. The results of operations of My Favorite Neighbor are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
We recognized a gain of $13.5 million for the year ended February 28, 2022, related to the remeasurement of our previously held 35% equity interest in My Favorite Neighbor to the acquisition-date fair value. This gain is included in selling, general, and administrative expenses within our consolidated results of operations. See Note 10 for further discussion.
Copper & Kings
In September 2020, we acquired the remaining ownership interest in Copper & Kings. This acquisition included a collection of traditional and craft batch-distilled American brandies and other select spirits. The transaction primarily included the acquisition of inventory and property, plant, and equipment. The results of operations of Copper & Kings are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
Empathy Wines
In June 2020, we acquired Empathy Wines, including the acquisition of a digitally-native wine brand which strengthens our position in the DTC and other eCommerce markets. This transaction primarily included the acquisition of goodwill, trademarks, and inventory. In addition, the purchase price for Empathy Wines includes an earn-out over five years based on performance. The results of operations of Empathy Wines are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
Nelson’s Green Brier
In May 2019, we increased our ownership interest in Tennessee-based Nelson’s Green Brier to 75%, resulting in consolidation of the business and recognition of a 25% noncontrolling interest. This acquisition included a portfolio of craft bourbon and whiskey products. The fair value of the business combination was allocated primarily to goodwill, trademarks, inventory, and property, plant, and equipment. The results of operations of Nelson’s Green Brier are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.
We recognized a gain of $11.8 million for the year ended February 29, 2020, related to the remeasurement of our previously held 20% equity interest in Nelson’s Green Brier to the acquisition-date fair value. This gain is included in selling, general, and administrative expenses within our consolidated results of operations.
Divestitures
Paul Masson Divestiture
On January 12, 2021, we sold the Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts. We received cash proceeds of $267.4 million, net of post-closing adjustments, which
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were used for general corporate purposes. Prior to the Paul Masson Divestiture, we recorded the results of operations of our Paul Masson Grande Amber Brandy business in the Wine and Spirits segment. In connection with the Paul Masson Divestiture, we entered into a transition services agreement with Sazerac Company whereby our retained Mission Bell facility will provide certain bulk wine processing services at market rates for a period of up to three years. The following table summarizes the net gain recognized, primarily for the year ended February 28, 2021, in connection with this divestiture:
| | | | | |
(in millions) | |
Cash received from buyer | $ | 272.0 | |
Net assets sold | (206.4) | |
Contract termination | (4.0) | |
Direct costs to sell | (3.2) | |
| |
Gain on sale of business | $ | 58.4 | |
Wine and Spirits Divestitures
On January 5, 2021, we sold a portion of our wine and spirits business, including lower-margin, lower growth wine and spirits brands, related inventory, interests in certain contracts, wineries, vineyards, offices, and facilities. We received net cash proceeds of $538.4 million, from the Wine and Spirits Divestiture, net of post-closing adjustments. In addition, we have the potential to earn an incremental $250 million of contingent consideration if certain brand performance targets are met over a two-year period after closing.
On January 5, 2021, in a separate, but related transaction with the same buyer, Gallo, we also sold the New Zealand-based Nobilo Wine brand and certain related assets. We received cash proceeds of $129.0 million, from the Nobilo Wine Divestiture, net of post-closing adjustments.
In connection with the Wine and Spirits Divestitures, we entered into certain transition services agreements with Gallo whereby we provide certain cellar, package, and storage services primarily at Mission Bell. We recorded a $13.0 million liability related to the unfavorable transition services agreements, which was included in the net loss on sale of business for the year ended February 28, 2021, and is being amortized over the expected term of the contracts to selling, general, and administrative expenses both within our consolidated results of operations.
The cash proceeds from the Wine and Spirits Divestitures were utilized to reduce outstanding debt and for other general corporate purposes. Prior to the Wine and Spirits Divestitures, we recorded the results of operations for this portion of our business in the Wine and Spirits segment. The following table summarizes the net loss recognized, primarily for the year ended February 28, 2021, in connection with these divestitures:
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(in millions) | |
Cash received from buyer | $ | 667.4 | |
Net assets sold | (669.2) | |
Transition services agreements | (13.0) | |
Direct costs to sell | (8.5) | |
AOCI reclassification adjustments, primarily foreign currency translation | (5.1) | |
Other | (5.2) | |
Loss on sale of business | $ | (33.6) | |
Concentrate Business Divestiture
On December 29, 2020, we sold certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets. Prior to the Concentrate Business Divestiture, we recorded the results of operations of our concentrates and high-color concentrate business in the Wine and Spirits segment.
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Ballast Point Divestiture
On March 2, 2020, we sold the Ballast Point craft beer business, including a number of its associated production facilities and brewpubs. Prior to the Ballast Point Divestiture, we recorded the results of operations of the Ballast Point craft beer business in the Beer segment. We received cash proceeds of $41.1 million, which were primarily utilized to reduce outstanding borrowings.
Black Velvet Divestiture
On November 1, 2019, we sold the Black Velvet Canadian Whisky business and the brand’s associated production facility, along with a subset of Canadian whisky brands produced at that facility, and related inventory. We received cash proceeds of $266.7 million, net of post-closing adjustments, which were utilized to reduce outstanding debt. Prior to the Black Velvet Divestiture, we recorded the results of operations of our Black Velvet Canadian Whisky business in the Wine and Spirits segment. The following table summarizes the net gain recognized, primarily for the year ended February 29, 2020, in connection with this divestiture:
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(in millions) | |
Cash received from buyer | $ | 266.7 | |
Net assets sold | (213.3) | |
AOCI reclassification adjustments, primarily foreign currency translation | 20.9 | |
Direct costs to sell | (3.8) | |
| |
Gain on sale of business | $ | 70.5 | |
Subsequent events
Other acquisitions
During the first quarter of Fiscal 2023, we completed the acquisitions of other businesses, consisting of Lingua Franca, which included a collection of luxury wines, a vineyard, and a production facility, and the remaining 73% ownership interest in Austin Cocktails, which included a portfolio of small batch, RTD cocktails. The purchase price for each acquisition includes an earn-out based on the performance of the respective brands. The results of operations of these acquired businesses will be reported in the Wine and Spirits segment and will be included in our consolidated results of operations from their respective date of acquisition.
3. INVENTORIES
The components of inventories are as follows:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Raw materials and supplies | $ | 185.3 | | | $ | 151.1 | |
In-process inventories | 804.8 | | | 735.9 | |
Finished case goods | 583.1 | | | 404.1 | |
| $ | 1,573.2 | | | $ | 1,291.1 | |
We evaluated the carrying value of certain inventories and recognized the following in cost of product sold within our consolidated results of operations:
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| For the Years Ended |
| February 28, 2022 (1) | | February 28, 2021 (2) | | February 29, 2020 (3) |
(in millions) | | | | | |
Loss on inventory write-down | $ | 87.7 | | | $ | 100.7 | | | $ | 124.4 | |
(1)We recognized a loss predominantly from excess inventory of hard seltzers, within the Beer segment, largely resulting from a slowdown in the overall category which occurred in early Fiscal 2022.
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(2)We recognized a loss primarily in connection with the write-down of certain grapes, within the Wine and Spirits segment, as a result of smoke damage sustained during the 2020 U.S. wildfires.
(3)We recognized a loss primarily in connection with restructuring and business development costs resulting from our business transformation strategy which aligned our portfolio with consumer-led premiumization trends within the Wine and Spirits segment.
4. PREPAID EXPENSES AND OTHER
The major components of prepaid expenses and other are as follows:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Prepaid taxes | $ | 254.1 | | | $ | 76.0 | |
Value added taxes receivable | 193.0 | | | 257.8 | |
Derivative assets | 92.6 | | | 48.7 | |
Income taxes receivable | 27.2 | | | 45.4 | |
Other | 91.2 | | | 79.6 | |
| $ | 658.1 | | | $ | 507.5 | |
5. PROPERTY, PLANT, AND EQUIPMENT
The major components of property, plant, and equipment are as follows:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Land and land improvements | $ | 456.2 | | | $ | 434.0 | |
Vineyards | 255.3 | | | 226.0 | |
Buildings and improvements | 1,109.4 | | | 983.4 | |
Machinery and equipment | 4,827.8 | | | 3,696.9 | |
Motor vehicles | 140.0 | | | 131.3 | |
Construction in progress (1) (2) | 1,223.2 | | | 2,084.2 | |
| 8,011.9 | | | 7,555.8 | |
Less – Accumulated depreciation | (1,952.3) | | | (1,734.2) | |
| $ | 6,059.6 | | | $ | 5,821.6 | |
(1)The balance at February 28, 2022, is net of an impairment of brewery construction in progress of $665.9 million. See Note 7 for further discussion.
(2)Interest costs incurred during the expansion, optimization, and construction of facilities are capitalized to construction in progress. We capitalized interest costs of $25.3 million, $31.5 million, and $37.2 million for the years ended February 28, 2022, February 28, 2021, and February 29, 2020, respectively, primarily due to the Mexico Beer Projects.
Lodi Distribution Center
In December 2021, we purchased a previously leased wine and spirits distribution facility located in Lodi, California.
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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 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 an investment in certain equity securities and other rights which provide us with the option to purchase an additional ownership interest in the equity securities of Canopy (see Note 10). This investment is included in securities measured at fair value and is accounted for at fair value, with the net gain (loss) from the changes in fair value of this investment recognized in income (loss) from unconsolidated investments (see Note 7).
The aggregate notional value of outstanding derivative instruments is as follows:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Derivative instruments designated as hedging instruments | | | |
Foreign currency contracts | $ | 1,863.2 | | | $ | 1,558.0 | |
| | | |
| | | |
Swap lock contracts | $ | 100.0 | | | $ | — | |
| | | |
Derivative instruments not designated as hedging instruments | | | |
Foreign currency contracts | $ | 497.6 | | | $ | 704.7 | |
Commodity derivative contracts | $ | 291.1 | | | $ | 221.6 | |
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, treasury lock, and swap lock 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
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 78 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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 (losses) 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 $18.2 million of net gains, net of income tax effect, to be reclassified from AOCI to our results of operations within the next 12 months.
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, and natural gas 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 four 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, 2022, the estimated fair value of derivative instruments in a net liability position due to counterparties was $2.6 million. If we were required to settle the net liability position under these derivative instruments on February 28, 2022, we would have had sufficient available liquidity on hand to satisfy this obligation.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 79 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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 | | Liabilities |
| February 28, 2022 | | February 28, 2021 | | | February 28, 2022 | | February 28, 2021 |
(in millions) | | | | | | | | |
Derivative instruments designated as hedging instruments |
Foreign currency contracts: |
Prepaid expenses and other | $ | 28.6 | | | $ | 32.0 | | | Other accrued expenses and liabilities | $ | 5.9 | | | $ | 3.5 | |
Other assets | $ | 25.1 | | | $ | 41.3 | | | Deferred income taxes and other liabilities | $ | 8.6 | | | $ | 2.7 | |
Swap lock contracts: |
Other assets | $ | — | | | $ | — | | | Deferred income taxes and other liabilities | $ | 0.4 | | | $ | — | |
|
| | | | | | | | |
| | | | | | | | |
Derivative instruments not designated as hedging instruments |
Foreign currency contracts: |
Prepaid expenses and other | $ | 2.7 | | | $ | 3.3 | | | Other accrued expenses and liabilities | $ | 3.3 | | | $ | 3.5 | |
| | | | | | | | |
Commodity derivative contracts: |
Prepaid expenses and other | $ | 61.3 | | | $ | 13.4 | | | Other accrued expenses and liabilities | $ | 0.7 | | | $ | 3.9 | |
Other assets | $ | 29.7 | | | $ | 7.8 | | | Deferred income taxes and other liabilities | $ | 0.2 | | | $ | 1.4 | |
The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as OCI, net of income tax effect, is as follows:
| | | | | | | | | | | | | | | | | | | | |
Derivative Instruments in Designated Cash Flow Hedging Relationships | | Net Gain (Loss) Recognized in OCI | | Location of Net Gain (Loss) Reclassified from AOCI to Income (Loss) | | Net Gain (Loss) Reclassified from AOCI to Income (Loss) |
(in millions) | | | | | | |
For the Year Ended February 28, 2022 | | | | | | |
Foreign currency contracts | | $ | 6.4 | | | Sales | | $ | (1.1) | |
| | | | Cost of product sold | | 37.3 | |
Swap lock contracts | | (0.3) | | | Interest expense | | — | |
| | | | | | |
Treasury lock contracts | | — | | | Interest expense | | (2.3) | |
| | $ | 6.1 | | | | | $ | 33.9 | |
| | | | | | |
For the Year Ended February 28, 2021 | | | | | | |
Foreign currency contracts | | $ | (31.1) | | | Sales | | $ | 1.4 | |
| | | | Cost of product sold | | (25.4) | |
| | | | | | |
Interest rate swap contracts | | (0.6) | | | Interest expense | | (1.1) | |
Treasury lock contracts | | (16.1) | | | Interest expense | | (1.8) | |
| | $ | (47.8) | | | | | $ | (26.9) | |
| | | | | | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 80 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
| | | | | | | | | | | | | | | | | | | | |
Derivative Instruments in Designated Cash Flow Hedging Relationships | | Net Gain (Loss) Recognized in OCI | | Location of Net Gain (Loss) Reclassified from AOCI to Income (Loss) | | Net Gain (Loss) Reclassified from AOCI to Income (Loss) |
(in millions) | | | | | | |
For the Year Ended February 29, 2020 | | | | | | |
Foreign currency contracts | | $ | 66.8 | | | Sales | | $ | — | |
| | | | Cost of product sold | | 20.2 | |
| | | | | | |
Interest rate swap contracts | | (0.5) | | | Interest expense | | — | |
Treasury lock contracts | | (5.7) | | | Interest expense | | — | |
| | $ | 60.6 | | | | | $ | 20.2 | |
The effect of our undesignated derivative instruments on our results of operations is as follows:
| | | | | | | | | | | | | | | | | | | | |
Derivative Instruments Not Designated as Hedging Instruments | | | | Location of Net Gain (Loss) Recognized in Income (Loss) | | Net Gain (Loss) Recognized in Income (Loss) |
(in millions) | | | | | | |
For the Year Ended February 28, 2022 | | | | | | |
Commodity derivative contracts | | | | Cost of product sold | | $ | 109.9 | |
Foreign currency contracts | | | | Selling, general, and administrative expenses | | (16.7) | |
| | | | | | |
| | | | | | $ | 93.2 | |
| | | | | | |
For the Year Ended February 28, 2021 | | | | | | |
Commodity derivative contracts | | | | Cost of product sold | | $ | 25.1 | |
Foreign currency contracts | | | | Selling, general, and administrative expenses | | (17.4) | |
| | | | | | |
| | | | | | $ | 7.7 | |
| | | | | | |
For the Year Ended February 29, 2020 | | | | | | |
Commodity derivative contracts | | | | Cost of product sold | | $ | (49.0) | |
Foreign currency contracts | | | | Selling, general, and administrative expenses | | (7.8) | |
| | | | | | |
| | | | | | $ | (56.8) | |
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 volatility, 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.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 81 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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, entered into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, market commodity prices, interest-rate yield curves, and currency volatilities, as applicable (Level 2 fair value measurement).
Interest rate swap, swap lock, and treasury lock contracts
The fair value is estimated based on quoted market prices from respective counterparties. Quotes are corroborated by using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services (Level 2 fair value measurement).
Canopy investment
Equity securities, Warrants – The November 2018 Canopy Warrants consist of three tranches of warrants, including 88.5 million Tranche A Warrants expiring November 1, 2023, which are currently exercisable, 38.4 million Tranche B Warrants expiring November 1, 2026, and 12.8 million Tranche C Warrants expiring November 1, 2026. The inputs used to estimate the fair value of the November 2018 Canopy Warrants are as follows (1) (2):
| | | | | | | | | | | | | | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
| Tranche A Warrants (3) | | Tranche B Warrants (4) | | Tranche A Warrants (3) | | Tranche B Warrants (4) |
Exercise price (5) | C$ | 50.40 | | | C$ | 76.68 | | | C$ | 50.40 | | | C$ | 76.68 | |
Valuation date stock price (6) | C$ | 9.04 | | | C$ | 9.04 | | | C$ | 41.90 | | | C$ | 41.90 | |
Remaining contractual term (7) | 1.7 years | | 4.7 years | | 2.7 years | | 5.7 years |
Expected volatility (8) | 75.0 | % | | 75.0 | % | | 70.0 | % | | 70.0 | % |
Risk-free interest rate (9) | 1.4 | % | | 1.7 | % | | 0.5 | % | | 1.1 | % |
Expected dividend yield (10) | 0.0 | % | | 0.0 | % | | 0.0 | % | | 0.0 | % |
(1)The exercise price for the Tranche C Warrants is based on the VWAP Exercise Price. The Tranche C Warrants are not included in the table as there is no fair value assigned.
(2)In connection with the Acreage Transaction, we obtained other rights which include a share repurchase credit. If Canopy has not purchased the lesser of 27,378,866 Canopy common shares, or C$1,583.0 million worth of Canopy common shares for cancellation between April 18, 2019, and two-years after the full exercise of the Tranche A Warrants, we will be credited an amount that will reduce the aggregate exercise price otherwise payable upon each exercise of the Tranche B Warrants and Tranche C Warrants. The credit will be an amount equal to the difference between C$1,583.0 million and the actual price paid by Canopy in purchasing its common shares for cancellation. The likelihood of receiving the share repurchase credit if we were to fully exercise the Tranche A Warrants is remote, therefore, no fair value has been assigned.
(3)The fair value is estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement).
(4)The fair value is estimated using Monte Carlo simulations (Level 2 fair value measurement).
(5)Based on the exercise price from the applicable underlying agreements.
(6)Based on the closing market price for Canopy common stock on the TSX as of the applicable date.
(7)Based on the expiration date of the warrants.
(8)Based on consideration of historical and/or implied volatility levels of the underlying equity security and limited consideration of historical peer group volatility levels.
(9)Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expiration date of the applicable warrants.
(10)Based on historical dividend levels.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 82 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Debt securities, Convertible – We have elected the fair value option to account for the Canopy Debt Securities acquired in June 2018 for C$200.0 million, or $150.5 million. Interest income on the Canopy Debt Securities is calculated using the effective interest method and is recognized separately from the changes in fair value in interest expense. The Canopy Debt Securities have a contractual maturity of five years from the date of issuance but may be converted prior to maturity by either party upon the occurrence of certain events. At settlement, the Canopy Debt Securities can be settled at the option of the issuer, in cash, equity shares of the issuer, or a combination thereof. The fair value is estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes an estimate of the credit spread based on market spreads using bond data as of the valuation date.
The inputs used to estimate the fair value of the Canopy Debt Securities are as follows:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
Conversion price (1) | C$ | 48.17 | | | C$ | 48.17 | |
Valuation date stock price (2) | C$ | 9.04 | | | C$ | 41.90 | |
Remaining term (3) | 1.4 years | | 2.4 years |
Expected volatility (4) | 75.0 | % | | 57.6 | % |
Risk-free interest rate (5) | 1.4 | % | | 0.4 | % |
Expected dividend yield (6) | 0.0 | % | | 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 the closing market price for Canopy common stock on the TSX as of the applicable date.
(3)Based on the contractual maturity date of the notes.
(4)Based on consideration of historical and/or implied volatility levels of the underlying equity security, adjusted for certain risks associated with debt securities, as appropriate.
(5)Based on the implied yield currently available on Canadian Treasury zero coupon issues with a term equal to the remaining contractual term of the Canopy Debt Securities.
(6)Based on historical dividend levels.
Short-term borrowings
Our short-term borrowings consist of our commercial paper program and the revolving credit facility under our senior credit facility. The revolving credit facility is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating (as defined in our senior credit facility). For these short-term borrowings the carrying value approximates the fair value.
Long-term debt
The term loan under our term credit agreement is a variable interest rate bearing note with a fixed margin, adjustable based upon our debt rating. The carrying value approximates the fair value of the term loan. The fair value of the remaining fixed interest rate long-term debt is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value as of February 28, 2022, and February 28, 2021, due to the relatively short maturity of these instruments. As of February 28, 2022, the carrying amount of long-term debt, including the current portion, was $10,093.5 million, compared with an estimated fair value of $10,345.3 million. As of February 28, 2021, the carrying amount of long-term debt, including the current portion, was $10,442.3 million, compared with an estimated fair value of $11,580.9 million.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 83 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Recurring basis measurements
The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using | | |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
(in millions) | | | | | | | |
February 28, 2022 | | | | | | | |
Assets: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 56.4 | | | $ | — | | | $ | 56.4 | |
Commodity derivative contracts | $ | — | | | $ | 91.0 | | | $ | — | | | $ | 91.0 | |
November 2018 Canopy Warrants (1) | $ | — | | | $ | 36.3 | | | $ | — | | | $ | 36.3 | |
Canopy Debt Securities (1) | $ | — | | | $ | 146.6 | | | $ | — | | | $ | 146.6 | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 17.8 | | | $ | — | | | $ | 17.8 | |
Commodity derivative contracts | $ | — | | | $ | 0.9 | | | $ | — | | | $ | 0.9 | |
| | | | | | | |
| | | | | | | |
Swap lock contracts | $ | — | | | $ | 0.4 | | | $ | — | | | $ | 0.4 | |
| | | | | | | |
February 28, 2021 | | | | | | | |
Assets: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 76.6 | | | $ | — | | | $ | 76.6 | |
Commodity derivative contracts | $ | — | | | $ | 21.2 | | | $ | — | | | $ | 21.2 | |
November 2018 Canopy Warrants (1) | $ | — | | | $ | 1,639.7 | | | $ | — | | | $ | 1,639.7 | |
Canopy Debt Securities (1) | $ | — | | | $ | 176.3 | | | $ | — | | | $ | 176.3 | |
Liabilities: | | | | | | | |
Foreign currency contracts | $ | — | | | $ | 9.7 | | | $ | — | | | $ | 9.7 | |
Commodity derivative contracts | $ | — | | | $ | 5.3 | | | $ | — | | | $ | 5.3 | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | |
(1) | Unrealized net gain (loss) from the changes in fair value of our securities measured at fair value recognized in income (loss) from unconsolidated investments, are as follows: |
| | | February 28, 2022 | | February 28, 2021 |
| (in millions) | | | |
| November 2017 Canopy Warrants (i) | $ | — | | | $ | (61.8) | |
| November 2018 Canopy Warrants | (1,603.4) | | | 823.3 | |
| Canopy Debt Securities | (41.3) | | | 40.5 | |
| | $ | (1,644.7) | | | $ | 802.0 | |
| | |
| (i) | In May 2020, we exercised the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share for C$245.0 million, or $173.9 million, and received 18.9 million common shares of Canopy. |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 84 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Nonrecurring basis measurements
The following table presents our assets and liabilities measured at estimated fair value on a nonrecurring basis for which an impairment assessment was performed for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements Using | | |
| Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Losses |
(in millions) | | | | | | | |
For the Year Ended February 28, 2022 | | | | | | | |
Long-lived assets | $ | — | | | $ | — | | | $ | 20.0 | | | $ | 665.9 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the Year Ended February 28, 2021 | | | | | | | |
Long-lived assets held for sale | $ | — | | | $ | — | | | $ | — | | | $ | 24.0 | |
Trademarks | — | | | — | | | 4.0 | | | 6.0 | |
| $ | — | | | $ | — | | | $ | 4.0 | | | $ | 30.0 | |
| | | | | | | |
For the Year Ended February 29, 2020 | | | | | | | |
Long-lived assets held for sale | $ | — | | | $ | — | | | $ | 949.3 | | | $ | 449.7 | |
Trademarks (1) | — | | | — | | | — | | | 11.0 | |
| $ | — | | | $ | — | | | $ | 949.3 | | | $ | 460.7 | |
(1) The balance at February 29, 2020, has been reclassified to assets held for sale (see “Trademarks” below for further discussion).
Long-lived assets
In April 2021, our Board of Directors authorized management to sell or abandon the Mexicali Brewery. Subsequently, management determined that we will be unable to use or repurpose certain assets at the Mexicali Brewery. Accordingly, for the first quarter of Fiscal 2022, long-lived assets with a carrying value of $685.9 million were written down to their estimated fair value of $20.0 million, resulting in an impairment of $665.9 million. This impairment was included in impairment of brewery construction in progress within our consolidated results of operations for the year ended February 28, 2022. Our estimate of fair value was determined based on the expected salvage value of the assets. The Mexicali Brewery is a component of the Beer segment. We continue to work with government officials in Mexico to (i) determine next steps for our suspended Mexicali Brewery construction project, (ii) pursue various forms of recovery for capitalized costs and additional expenses incurred in establishing the brewery, however, there can be no assurance of any recoveries, and (iii) explore options to add further capacity at other locations in Mexico, including the construction of the Southeast Mexico Brewery where there is ample water and we will have a skilled workforce to meet our long-term needs. In the medium-term, under normal operating conditions, we have ample capacity at the Nava and Obregon breweries to meet consumer needs based on current growth forecasts and current and planned production capabilities. Expansion, optimization, and/or construction efforts continue at our current brewery locations under our Mexico Beer Projects to align with our anticipated future growth expectations.
Long-lived assets held for sale
For the year ended February 28, 2021, primarily in connection with the Wine and Spirits Divestitures and the Concentrate Business Divestiture, long-lived assets held for sale with a carrying value of $736.4 million were written down to their estimated fair value of $712.4 million, less costs to sell, resulting in a total loss of $24.0 million. This loss was included in impairment of assets held for sale within our consolidated results of operations. These assets consisted primarily of goodwill, intangible assets, and certain winery and vineyard assets which had satisfied the conditions necessary to be classified as held for sale. Our estimated fair value was determined as of November 30, 2020, primarily based on the expected proceeds from the Wine and Spirits
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 85 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Divestitures and the Concentrate Business Divestiture, excluding the contingent consideration, which we will recognize when it is determined to be realizable.
For the year ended February 29, 2020, in connection with the Wine and Spirits Divestitures and the Concentrate Business Divestiture, long-lived assets held for sale with a carrying value of $1,291.2 million were written down to their estimated fair value of $908.2 million, less costs to sell, resulting in a total loss of $407.0 million. This loss was included in impairment of assets held for sale within our consolidated results of operations. These assets consisted primarily of goodwill, intangible assets, and certain winery and vineyard assets which had satisfied the conditions necessary to be classified as held for sale. Our estimate of fair value was determined as of February 29, 2020, based on the expected proceeds from the Wine and Spirits Divestitures and the Concentrate Business Divestiture, excluding the contingent consideration.
For the year ended February 29, 2020, in connection with the Ballast Point Divestiture, long-lived assets held for sale with a carrying value of $81.3 million were written down to their estimated fair value of $41.1 million, less costs to sell. As a result, a loss of $42.7 million, inclusive of costs to sell and other losses was included in impairment of assets held for sale for the year ended February 29, 2020. These assets consisted primarily of intangible assets and certain production and warehouse assets which had satisfied the conditions necessary to be classified as held for sale. Our estimate of fair value was determined based on the expected proceeds from the Ballast Point Divestiture as of February 29, 2020. Ballast Point was a component of the Beer segment and was included in our beer reporting unit through the date of divestiture. Accordingly, goodwill was allocated to the Ballast Point assets held for sale based on the relative fair value of the business being sold compared to the relative fair value of the reporting unit. Goodwill not allocated to assets associated with the Ballast Point Divestiture remained in the beer reporting unit.
Trademarks
For the year ended February 28, 2021, certain negative trends within our Beer segment’s Four Corners craft beer portfolio, including slower growth rates and increased competition, resulted in updated long-term financial forecasts. The updated forecasts indicated it was more likely than not the fair value of our indefinite-lived intangible asset associated with the Four Corners trademark might be below its carrying value. Accordingly, we performed a quantitative assessment for impairment. As a result of this assessment, the Four Corners trademark asset with a carrying value of $10.0 million was written down to its estimated fair value of $4.0 million, resulting in an impairment of $6.0 million. This impairment was included in selling, general, and administrative expenses within our consolidated results of operations for the year ended February 28, 2021.
For the year ended February 29, 2020, certain continuing negative trends within our Beer segment’s Ballast Point craft beer portfolio, including increased rate of revenue decline and increased competition, indicated that it was more likely than not the fair value of our indefinite-lived intangible asset associated with the Ballast Point craft beer trademark might be below its carrying value. Accordingly, we performed a quantitative assessment for impairment. As a result of this assessment, the Ballast Point craft beer trademark asset with a carrying value of $28.0 million was written down to its estimated fair value of $17.0 million, resulting in an impairment of $11.0 million. This impairment was included in selling, general, and administrative expenses within our consolidated results of operations for the year ended February 29, 2020.
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.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 86 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
8. GOODWILL
The changes in the carrying amount of goodwill are as follows:
| | | | | | | | | | | | | | | | | | | |
| Beer | | Wine and Spirits | | | | Consolidated |
(in millions) | | | | | | | |
Balance, February 29, 2020 | $ | 5,163.4 | | | $ | 2,593.7 | | | | | $ | 7,757.1 | |
Purchase accounting allocations (1) | — | | | 14.3 | | | | | 14.3 | |
Foreign currency translation adjustments | (38.7) | | | 15.9 | | | | | (22.8) | |
Reclassified from assets held for sale (2) | 0.9 | | | 44.0 | | | | | 44.9 | |
Balance, February 28, 2021 | 5,125.6 | | | 2,667.9 | | | | | 7,793.5 | |
Purchase accounting allocations (1) (3) | — | | | 79.6 | | | | | 79.6 | |
Foreign currency translation adjustments | (4.9) | | | (5.8) | | | | | (10.7) | |
Balance, February 28, 2022 | $ | 5,120.7 | | | $ | 2,741.7 | | | | | $ | 7,862.4 | |
(1)Purchase accounting allocations associated primarily with the acquisition of Empathy Wines.
(2)Primarily in connection with the Wine and Spirits Divestitures, goodwill associated with the businesses being sold was reclassified from assets held for sale based on the changes to relative fair values of the portion of the business being sold and the remaining wine and spirits and beer portfolios. The relative fair values were determined using the income approach based on assumptions, including projected revenue growth rates, terminal growth rate, and discount rate and other projected financial information.
(3)Preliminary purchase accounting allocations associated with the acquisition of My Favorite Neighbor.
9. INTANGIBLE ASSETS
The major components of intangible assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
| Gross Carrying Amount | | Net Carrying Amount | | Gross Carrying Amount | | Net Carrying Amount |
(in millions) | | | | | | | |
Amortizable intangible assets | | | | | | | |
Customer relationships | $ | 87.1 | | | $ | 21.7 | | | $ | 87.2 | | | $ | 26.3 | |
Other | 20.9 | | | — | | | 21.1 | | | 0.2 | |
Total | $ | 108.0 | | | 21.7 | | | $ | 108.3 | | | 26.5 | |
| | | | | | | |
Nonamortizable intangible assets | | | | | | | |
Trademarks | | | 2,733.5 | | | | | 2,705.6 | |
Total intangible assets | | | $ | 2,755.2 | | | | | $ | 2,732.1 | |
We did not incur costs to renew or extend the term of acquired intangible assets for the years ended February 28, 2022, February 28, 2021, and February 29, 2020. Net carrying amount represents the gross carrying value net of accumulated amortization. Amortization expense for intangible assets was $5.1 million, $5.3 million, and $5.7 million for the years ended February 28, 2022, February 28, 2021, and February 29, 2020, respectively.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 87 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Estimated amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
| | | | | |
(in millions) | |
Fiscal 2023 | $ | 3.2 | |
Fiscal 2024 | $ | 1.4 | |
Fiscal 2025 | $ | 1.4 | |
Fiscal 2026 | $ | 1.4 | |
Fiscal 2027 | $ | 1.4 | |
Thereafter | $ | 12.9 | |
10. EQUITY METHOD INVESTMENTS
Our equity method investments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
| Carrying Value | | Ownership Percentage | | Carrying Value | | Ownership Percentage |
(in millions) | | | | | | | |
Canopy Equity Method Investment (1) (2) | $ | 2,503.5 | | | 36.1 | % | | $ | 2,578.8 | | | 38.1 | % |
Other equity method investments | 185.2 | | | 20%-50% | | 209.6 | | | 20%-50% |
| $ | 2,688.7 | | | | | $ | 2,788.4 | | | |
(1)The fair value based on the closing price of the underlying equity security as of February 28, 2022, and February 28, 2021, was $1,014.8 million and $4,679.3 million, respectively. Refer to discussion below on other-than-temporary impairment considerations.
(2)Includes the following:
| | | | | | | | | | | | | | | |
| Common Shares | | Purchase Price | | | | |
(in millions) | | | | | | | |
November 2017 Canopy Investment | 18.9 | | | $ | 130.1 | | | | | |
November 2018 Canopy Investment | 104.5 | | | 2,740.3 | | | | | |
May 2020 Canopy Investment | 18.9 | | | 173.9 | | | | | |
| 142.3 | | | $ | 3,044.3 | | | | | |
Canopy Equity Method Investment
We complement our beverage alcohol strategy with our investment in Canopy, a leading provider of medicinal and recreational cannabis products. Equity in earnings (losses) from the Canopy Equity Method Investment and related activities (see table below) include, among other items, restructuring and other strategic business development costs, 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, unrealized gains (losses) associated with changes in our Canopy ownership percentage resulting from periodic equity issuances made by Canopy, and our share of Canopy’s additional loss resulting from the June 2019 Warrant Modification of $409.0 million. Amounts included in our consolidated results of operations for each period are as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Equity in earnings (losses) from Canopy and related activities | $ | (73.6) | | | $ | (679.0) | | | $ | (575.9) | |
In June 2019, Canopy shareholders approved the modification of the terms of the warrants originally obtained in November 2018 and certain other rights, and the other required approvals necessary for the
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 88 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
modifications to be effective were granted. Accordingly, we recognized a $1,176.0 million unrealized gain from unconsolidated investments within our consolidated results of operations for the second quarter of Fiscal 2020 from the June 2019 Warrant Modification. These changes were the result of Canopy’s intention to acquire Acreage upon U.S. federal cannabis legalization, subject to certain conditions. The inputs used to estimate the fair value of the November 2018 Canopy Warrants as of the June 27, 2019 modification date, were as follows:
| | | | | | | | | | | |
| Tranche A Warrants (1) | | Tranche B Warrants (1) |
Exercise price | $ | 50.40 | | | $ | 76.68 | |
Valuation date stock price | $ | 53.36 | | | $ | 53.36 | |
Remaining contractual term | 4.3 years | | 7.3 years |
Expected volatility | 66.7 | % | | 66.7 | % |
Risk-free interest rate | 1.4 | % | | 1.4 | % |
Expected dividend yield | 0.0 | % | | 0.0 | % |
(1)Refer to Note 7 for input descriptions.
In May 2020, we exercised the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share for C$245.0 million, or $173.9 million. We entered into foreign currency forward contracts to fix the U.S. dollar cost of the May 2020 Canopy Investment. For the year ended February 28, 2021, we recognized net losses on the foreign currency forward contracts of $7.5 million, in selling, general, and administrative expenses within our consolidated results of operations. The payment at maturity of the derivative instruments is reported as cash flows from investing activities in investments in equity method investees and securities for the year ended February 28, 2021.
Canopy has various equity and convertible debt securities outstanding, including primarily equity awards granted to its employees, and options and warrants issued to various third parties, including our November 2018 Canopy Warrants, Canopy Debt Securities, and the Acreage Financial Instrument (a call option for Canopy to acquire 70% of the shares of Acreage, at a fixed exchange ratio and 30% at a floating exchange ratio). As of February 28, 2022, the exercise and/or conversion of certain of these outstanding securities could have a significant effect on our share of Canopy’s reported earnings or losses and our ownership interest in Canopy.
We have evaluated the Canopy Equity Method Investment as of February 28, 2022, and determined that there was not an other-than-temporary impairment. Our conclusion was based on several contributing factors, including: (i) the period of time for which the fair value has been less than the carrying value, (ii) an expectation that Canopy’s results will improve, (iii) an expectation that the Canopy stock price will recover in the near-term, and (iv) our ability and intent to hold the investment until that recovery. We will continue to review the Canopy Equity Method Investment for an other-than-temporary impairment. If Canopy’s stock price does not recover above our carrying value in the near-term, it may result in an impairment of our Canopy Equity Method Investment. There may also be a future impairment of our Canopy Equity Method Investment if our expectations about Canopy’s prospective results and cash flows decline, which could be influenced by a variety of factors including adverse market conditions or if Canopy records a significant impairment of goodwill or intangible or other long-lived assets, makes significant asset sales, or has changes in senior management.
The following tables present summarized financial information for Canopy prepared in accordance with U.S. GAAP. We recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of Canopy’s earnings (losses) for the periods (i) January through December 2021 in our year ended February 28, 2022 results, (ii) January through December 2020 in our year ended February 28, 2021 results, and (iii) January through December 2019 in our year ended February 29, 2020 results. The amounts shown represent 100% of Canopy’s financial position and results of operations, for the respective periods, however, the results of operations for the year ended February 29, 2020, exclude the impact of the June 2019 Warrant Modification Loss because it was recorded by Canopy within equity. The year ended February 28, 2021, includes substantial costs designed to improve Canopy’s organizational focus, streamline operations, and align production capability with projected demand.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 89 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Current assets | $ | 1,573.3 | | | $ | 1,706.6 | |
Noncurrent assets | $ | 3,419.2 | | | $ | 3,251.5 | |
Current liabilities | $ | 189.3 | | | $ | 273.7 | |
Noncurrent liabilities | $ | 1,470.4 | | | $ | 1,308.8 | |
Noncontrolling interests | $ | 3.3 | | | $ | 179.0 | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Net sales | $ | 444.3 | | | $ | 378.6 | | | $ | 290.2 | |
Gross profit (loss) | $ | (18.6) | | | $ | (14.1) | | | $ | 45.4 | |
Net income (loss) | $ | (274.3) | | | $ | (1,775.3) | | | $ | (327.0) | |
Net income (loss) attributable to Canopy | $ | 328.7 | | | $ | (1,750.0) | | | $ | (312.6) | |
Other equity method investments
My Favorite Neighbor
In April 2020, we invested in My Favorite Neighbor, which we accounted for under the equity method. We recognized our share of their equity in earnings (losses) in our consolidated financial statements in the Wine and Spirits segment up to the date we acquired the remaining ownership interest.
Corporate investment
In February 2022, we sold an investment made through our corporate venture capital function. We recognized a $51.0 million gain for the year ended February 28, 2022, related to the sale of our previously held equity interest in this investment. This gain is included in income (loss) from unconsolidated investments within our consolidated results of operations. Additionally, we recognized our share of their equity in earnings (losses) in our consolidated financial statements in the Corporate Operations and Other segment up to the date we sold our ownership interest.
11. OTHER ACCRUED EXPENSES AND LIABILITIES
The major components of other accrued expenses and liabilities are as follows:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Salaries, commissions, and payroll benefits and withholdings | $ | 256.3 | | | $ | 232.1 | |
Promotions and advertising | 172.3 | | | 159.9 | |
Accrued interest | 85.1 | | | 93.4 | |
Operating lease liability | 80.4 | | | 68.8 | |
Accrued excise taxes | 44.6 | | | 19.9 | |
Deferred revenue | 32.0 | | | 16.3 | |
Income taxes payable | 21.5 | | | 24.7 | |
Other | 179.1 | | | 164.8 | |
| $ | 871.3 | | | $ | 779.9 | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 90 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
12. BORROWINGS
Borrowings consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
| Current | | Long-term | | Total | | Total |
(in millions) | | | | | | | |
Short-term borrowings | | | | | | | |
| | | | | | | |
Commercial paper | $ | 323.0 | | | | | | | $ | — | |
| | | | | | | |
| $ | 323.0 | | | | | | | $ | — | |
| | | | | | | |
Long-term debt | | | | | | | |
| | | | | | | |
Term loan credit facilities | $ | — | | | $ | 300.0 | | | $ | 300.0 | | | $ | 454.4 | |
Senior notes | 599.0 | | | 9,174.6 | | | 9,773.6 | | | 9,972.4 | |
Other | 6.3 | | | 13.6 | | | 19.9 | | | 15.5 | |
| $ | 605.3 | | | $ | 9,488.2 | | | $ | 10,093.5 | | | $ | 10,442.3 | |
Bank facilities
Senior credit facility
In March 2020, the Company, CB International, certain of the Company’s subsidiaries as guarantors, the Administrative Agent, and certain other lenders entered into the 2020 Restatement Agreement that amended and restated our then-existing senior credit facility (as amended and restated by the 2020 Restatement Agreement, the 2020 Credit Agreement). The 2020 Credit Agreement provided for an aggregate revolving credit facility of $2.0 billion. The principal changes effected by the 2020 Restatement Agreement were:
•the removal of the subsidiary guarantees and termination of the guarantee agreement;
•the inclusion of the parent guaranty provisions in connection with the termination of the guarantee agreement;
•the removal of certain provisions pertaining to term loans since no term loans are outstanding; and
•the revision of the LIBOR successor rate provisions to permit the use of rates based on the SOFR.
Upon removal of all subsidiary guarantors from our 2020 Credit Agreement, the subsidiary guarantors were automatically released from the indentures relating to our outstanding senior notes. The 2020 Credit Agreement has been superseded by the 2022 Credit Agreement, as described below.
2020 Term Credit Agreement
In March 2020, the Company, certain of the Company’s subsidiaries as guarantors, the Administrative Agent, and certain other lenders entered into the Term Loan Restatement Agreement that amended and restated our then-existing term credit agreement (as amended and restated by the Term Loan Restatement Agreement, the 2020 Term Credit Agreement). The 2020 Term Credit Agreement provided for aggregate credit facilities of $1.5 billion, consisting of a $500.0 million three-year term loan facility and a $1.0 billion five-year term loan facility. During Fiscal 2021, we repaid the outstanding term loan facility borrowings under our 2020 Term Credit Agreement.
June 2021 Term Credit Agreement
In June 2019, the Company and the Administrative Agent and Lender entered into the 2019 Term Credit Agreement. The 2019 Term Credit Agreement provided for the creation of a $491.3 million five-year term loan facility. 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.
In March 2020, the Company, certain of the Company’s subsidiaries as guarantors, and the Lender entered into the 2020 Term Loan Restatement Agreement that amended and restated the 2019 Term Credit Agreement (as
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 91 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
amended and restated by the 2020 Term Loan Restatement Agreement, the March 2020 Term Credit Agreement). The principal changes effected by the 2020 Term Loan Restatement Agreement were:
•the removal of the subsidiary guarantees and termination of the respective guarantee agreements; and
•the revision of the LIBOR successor rate provisions to permit the use of rates based on SOFR.
In June 2021, the Company and the Administrative Agent and Lender amended the March 2020 Term Credit Agreement. The principal change effected by the amendment was a reduction in LIBOR margin from 0.88% to 0.63% from June 1, 2021 through December 31, 2021. The June 2021 Term Credit Agreement has been superseded by the 2022 Term Credit Agreement, as described below.
General
We and our subsidiaries are subject to covenants that are contained in the 2020 Credit Agreement and the June 2021 Term Credit Agreement, including those restricting the incurrence of additional subsidiary indebtedness, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions, and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net leverage ratio.
Our senior credit facility permits us to elect, subject to the willingness of existing or new lenders to fund such increase and other customary conditions, to increase the revolving credit commitments. The increased commitments may be an unlimited amount so long as our net 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, 2022, aggregate credit facilities under the 2020 Credit Agreement and the June 2021 Term Credit Agreement consist of the following:
| | | | | | | | | | | |
| Amount | | Maturity |
(in millions) | | | |
2020 Credit Agreement | | | |
Revolving credit facility (1) (2) | $ | 2,000.0 | | | Sept 14, 2023 |
| | | |
| | | |
| | | |
| | | |
| | | |
June 2021 Term Credit Agreement | | | |
Five-Year Term Facility (1) (3) | $ | 491.3 | | | Jun 28, 2024 |
(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 Five-Year Term Facility.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 92 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
As of February 28, 2022, information with respect to borrowings under the 2020 Credit Agreement and the June 2021 Term Credit Agreement is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding borrowings | | Interest rate | | LIBOR margin | | Outstanding letters of credit | | Remaining borrowing capacity (1) |
(in millions) | | | | | | | | | |
2020 Credit Agreement | | | | | | | | | |
Revolving credit facility | $ | — | | | — | % | | — | % | | $ | 12.2 | | | $ | 1,664.8 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
June 2021 Term Credit Agreement | | | | | | | | | |
Five-Year Term Facility (2) | $ | 300.0 | | | 1.0 | % | | 0.88 | % | | | | |
(1)Net of outstanding revolving credit facility borrowings, outstanding letters of credit under the 2020 Credit Agreement, and outstanding borrowings under our commercial paper program of $323.0 million (excluding unamortized discount) (see “Commercial paper program” below).
(2)Outstanding term loan facility borrowings are net of unamortized debt issuance costs and reflect a partial prepayment of $142.1 million made in June 2021.
Commercial paper program
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 2020 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility. As of February 28, 2021, we had no outstanding borrowings under our commercial paper program. Information with respect to our outstanding commercial paper borrowings as of February 28, 2022, is as follows:
| | | | | | | |
| | | |
(in millions) | | | |
Outstanding borrowings (1) | $ | 323.0 | | | |
Weighted average annual interest rate | 0.5 | % | | |
Weighted average remaining term | 4 days | | |
(1)Outstanding commercial paper borrowings are net of unamortized discount.
Interest rate swap contracts
In June 2019, we entered into interest rate swap agreements, which were designated as cash flow hedges for $375.0 million of our floating LIBOR rate debt. As a result of these hedges, we fixed our interest rates on $375.0 million of our floating LIBOR rate debt at an average rate of 1.9% (exclusive of borrowing margins) from July 1, 2019, through July 1, 2020.
Swap lock and treasury lock contracts
In February 2022, we entered into a swap lock agreement, which was designated as a cash flow hedge. As a result, we have hedged the treasury rate volatility on $100.0 million of future debt issuances.
In February and March 2020, we entered into treasury lock agreements, which were designated as cash flow hedges. As a result of these hedges, we fixed our 10-year treasury rates on $500.0 million of future debt issuances at an average rate of 1.2% (exclusive of borrowing margins). In April 2020, prior to the issuance of the 2.875% Senior Notes and 3.75% Senior Notes, we settled all outstanding treasury lock contracts, and recognized an unrealized loss, net of income tax effect, of $21.8 million in accumulated other comprehensive income (loss) within our consolidated balance sheets. This loss is being amortized over 10 years to interest expense within our consolidated results of operations. See “Senior notes” below.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 93 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Senior notes
Our outstanding senior notes are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Date of | | Outstanding Balance (1) |
| Principal | | Issuance | | Maturity | | Interest Payments | | February 28, 2022 | | February 28, 2021 |
(in millions) | | | | | | | | | | | |
4.25% Senior Notes (2) (3) | $ | 1,050.0 | | | May 2013 | | May 2023 | | May/Nov | | 1,048.6 | | | 1,047.5 | |
| | | | | | | | | | | |
4.75% Senior Notes (2) (3) | $ | 400.0 | | | Nov 2014 | | Nov 2024 | | May/Nov | | 398.2 | | | 397.6 | |
4.75% Senior Notes (2) (3) | $ | 400.0 | | | Dec 2015 | | Dec 2025 | | Jun/Dec | | 397.5 | | | 396.9 | |
3.70% Senior Notes (2) (4) | $ | 600.0 | | | Dec 2016 | | Dec 2026 | | Jun/Dec | | 597.1 | | | 596.5 | |
2.70% Senior Notes (2) (5) | $ | 500.0 | | | May 2017 | | May 2022 | | May/Nov | | — | | | 498.8 | |
3.50% Senior Notes (2) (4) | $ | 500.0 | | | May 2017 | | May 2027 | | May/Nov | | 497.2 | | | 496.5 | |
4.50% Senior Notes (2) (4) | $ | 500.0 | | | May 2017 | | May 2047 | | May/Nov | | 493.4 | | | 493.1 | |
| | | | | | | | | | | |
2.65% Senior Notes (2) (6) | $ | 700.0 | | | Nov 2017 | | Nov 2022 | | May/Nov | | — | | | 697.1 | |
3.20% Senior Notes (2) (4) | $ | 600.0 | | | Feb 2018 | | Feb 2023 | | Feb/Aug | | 599.0 | | | 598.0 | |
3.60% Senior Notes (2) (4) | $ | 700.0 | | | Feb 2018 | | Feb 2028 | | Feb/Aug | | 695.7 | | | 695.0 | |
4.10% Senior Notes (2) (4) | $ | 600.0 | | | Feb 2018 | | Feb 2048 | | Feb/Aug | | 592.6 | | | 592.3 | |
4.40% Senior Notes (2) (4) | $ | 500.0 | | | Oct 2018 | | Nov 2025 | | May/Nov | | 497.3 | | | 496.6 | |
4.65% Senior Notes (2) (4) | $ | 500.0 | | | Oct 2018 | | Nov 2028 | | May/Nov | | 496.2 | | | 495.6 | |
5.25% Senior Notes (2) (4) | $ | 500.0 | | | Oct 2018 | | Nov 2048 | | May/Nov | | 493.3 | | | 493.1 | |
3.15% Senior Notes (2) (4) | $ | 800.0 | | | Jul 2019 | | Aug 2029 | | Feb/Aug | | 794.7 | | | 793.9 | |
2.875% Senior Notes (2) (4) | $ | 600.0 | | | Apr 2020 | | May 2030 | | May/Nov | | 594.9 | | | 594.3 | |
3.75% Senior Notes (2) (4) | $ | 600.0 | | | Apr 2020 | | May 2050 | | May/Nov | | 589.9 | | | 589.6 | |
2.25% Senior Notes (2) (4) | $ | 1,000.0 | | | Jul 2021 | | Aug 2031 | | Feb/Aug | | 988.0 | | | — | |
| | | | | | | | | $ | 9,773.6 | | | $ | 9,972.4 | |
(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.
(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.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 94 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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| Redemption |
| Stated Redemption Date | | Stated Basis Points |
3.70% Senior Notes due December 2026 | Sept 2026 | | 25 |
3.50% Senior Notes due May 2027 | Feb 2027 | | 20 |
4.50% Senior Notes due May 2047 | Nov 2046 | | 25 |
3.20% Senior Notes due February 2023 | Jan 2023 | | 13 |
3.60% Senior Notes due February 2028 | Nov 2027 | | 15 |
4.10% Senior Notes due February 2048 | Aug 2047 | | 20 |
4.40% Senior Notes due November 2025 | Sept 2025 | | 20 |
4.65% Senior Notes due November 2028 | Aug 2028 | | 25 |
5.25% Senior Notes due November 2048 | May 2048 | | 30 |
3.15% Senior Notes due August 2029 | May 2029 | | 20 |
2.875% Senior Notes due May 2030 | Feb 2030 | | 35 |
3.75% Senior Notes due May 2050 | Nov 2049 | | 40 |
2.25% Senior Notes due August 2031 | May 2031 | | 15 |
(5)Redeemed prior to maturity in August 2021 at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment of $7.7 million. The make-whole payment is included in loss on extinguishment of debt within our consolidated results of operations.
(6)Redeemed prior to maturity in August 2021 at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment of $18.9 million. The make-whole payment is included in loss on extinguishment of debt within our consolidated results of operations.
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 $64.5 million and $61.2 million as of February 28, 2022, and February 28, 2021, respectively. As of February 28, 2022, and February 28, 2021, amounts outstanding under these arrangements were $19.9 million and $15.5 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. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions.
Debt payments
As of February 28, 2022, the required principal repayments under long-term debt obligations (excluding unamortized debt issuance costs and unamortized discounts of $57.7 million and $18.7 million, respectively) for each of the five succeeding fiscal years and thereafter are as follows:
| | | | | |
(in millions) | |
Fiscal 2023 | $ | 606.8 | |
Fiscal 2024 | 1,056.2 | |
Fiscal 2025 | 703.9 | |
Fiscal 2026 | 902.0 | |
Fiscal 2027 | 600.9 | |
Thereafter | 6,300.1 | |
| $ | 10,169.9 | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 95 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Subsequent events
2022 Credit Agreement
In April 2022, the Company, CB International, the Administrative Agent, and certain other lenders entered into the 2022 Restatement Agreement that amended and restated the 2020 Credit Agreement (as amended and restated by the 2022 Restatement Agreement, the 2022 Credit Agreement). The principal changes effected by the 2022 Restatement Agreement were:
•The refinance and increase of the existing revolving credit facility from $2.0 billion to $2.25 billion and extension of its maturity to April 14, 2027;
•The refinement of certain negative covenants; and
•The replacement of LIBOR rates with rates based on term SOFR.
2022 Term Credit Agreement
In April 2022, the Company, the Administrative Agent, and the Lender amended the June 2021 Term Credit Agreement (as amended the 2022 Term Credit Agreement). The principal changes effected by the amendment were the refinement of certain negative covenants and replacement of LIBOR rates with rates based on term SOFR.
Swap lock contracts
During the first quarter of Fiscal 2023, we entered into additional swap lock agreements, which were designated as cash flow hedges, for $150.0 million of future debt issuances. As a result of the additional swap locks, we have hedged the treasury rate volatility on $250.0 million of future debt issuances.
13. INCOME TAXES
Income (loss) before income taxes was generated as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Domestic | $ | (1,334.4) | | | $ | 495.2 | | | $ | (2,230.1) | |
Foreign | 1,644.8 | | | 2,047.7 | | | 1,284.9 | |
| $ | 310.4 | | | $ | 2,542.9 | | | $ | (945.2) | |
The income tax provision (benefit) consisted of the following:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Current | | | | | |
Federal | $ | 229.3 | | | $ | 74.0 | | | $ | 66.5 | |
State | 31.4 | | | 19.1 | | | 12.1 | |
Foreign | (36.1) | | | 81.6 | | | 108.5 | |
Total current | 224.6 | | | 174.7 | | | 187.1 | |
| | | | | |
Deferred | | | | | |
Federal | (10.1) | | | 152.8 | | | (459.9) | |
State | (5.5) | | | 28.3 | | | (118.3) | |
Foreign | 100.4 | | | 155.3 | | | (575.5) | |
Total deferred | 84.8 | | | 336.4 | | | (1,153.7) | |
Income tax provision (benefit) | $ | 309.4 | | | $ | 511.1 | | | $ | (966.6) | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 96 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
A reconciliation of the total tax provision (benefit) to the amount computed by applying the statutory U.S. federal income tax rate to income before provision for (benefit from) income taxes is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
| Amount | | % of Pretax Income (Loss) | | Amount | | % of Pretax Income (Loss) | | Amount | | % of Pretax Income (Loss) |
(in millions, except % of pretax income (loss) data) | | | | | | | | | | |
Income tax provision (benefit) at statutory rate | $ | 65.2 | | | 21.0 | % | | $ | 534.0 | | | 21.0 | % | | $ | (198.5) | | | 21.0 | % |
State and local income taxes, net of federal income tax benefit (1) | (77.8) | | | (25.0 | %) | | 39.0 | | | 1.5 | % | | (82.3) | | | 8.7 | % |
| | | | | | | | | | | |
Net income tax provision (benefit) from legislative changes (2) | 11.9 | | | 3.8 | % | | 10.9 | | | 0.4 | % | | (547.4) | | | 57.9 | % |
Earnings taxed at other than U.S. statutory rate (3) | (33.2) | | | (10.7 | %) | | (84.4) | | | (3.2 | %) | | (46.5) | | | 5.0 | % |
| | | | | | | | | | | |
Excess tax benefits from stock-based compensation awards (4) | (48.0) | | | (15.5 | %) | | (29.4) | | | (1.2 | %) | | (56.2) | | | 5.9 | % |
Net income tax provision (benefit) recognized for adjustment to valuation allowance (5) | 385.5 | | | 124.2 | % | | 27.1 | | | 1.1 | % | | (32.8) | | | 3.5 | % |
Miscellaneous items, net | 5.8 | | | 1.9 | % | | 13.9 | | | 0.5 | % | | (2.9) | | | 0.3 | % |
Income tax provision (benefit) at effective rate | $ | 309.4 | | | 99.7 | % | | $ | 511.1 | | | 20.1 | % | | $ | (966.6) | | | 102.3 | % |
(1)Includes differences resulting from adjustments to the current and deferred state effective tax rates.
(2)The year ended February 28, 2022, represents a net income tax provision resulting from the remeasurement of our deferred tax assets in connection with a legislative update in Switzerland. The year ended February 28, 2021, represents a net income tax provision resulting from initiatives under the CARES Act. The year ended February 29, 2020, represents the recognition of a net income tax benefit resulting from the remeasurement of our deferred tax assets in connection with the September 2019 enactment of tax reform in Switzerland.
(3)Consists of the following (i) difference between the U.S. statutory rate and local jurisdiction tax rates, (ii) the provision for incremental U.S. taxes on earnings of certain foreign subsidiaries offset by foreign tax credits, (iii) the non-U.S. portion of tax provision (benefit) recorded on the unrealized net gain (loss) from the changes in fair value of our investment in Canopy, and (iv) the non-U.S. portion of tax benefits recorded on the Canopy equity in earnings (losses) and related activities.
(4)Represents the recognition of the income tax effect of stock-based compensation awards in the income statement when the awards vest or are settled.
(5)Consists primarily of valuation allowances on the unrealized net gain (loss) from changes in fair value of our investment in Canopy and Canopy equity in earnings (losses).
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.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 97 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Significant components of deferred tax assets (liabilities) consist of the following:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Deferred tax assets | | | |
Intangible assets | $ | 2,188.8 | | | $ | 1,852.0 | |
Loss carryforwards | 349.8 | | | 233.1 | |
Stock-based compensation | 22.9 | | | 30.1 | |
Lease liabilities | 69.0 | | | 83.1 | |
Inventory | 51.8 | | | 26.6 | |
| | | |
| | | |
| | | |
| | | |
Investments in unconsolidated investees | 541.0 | | | 36.7 | |
Other accruals | 67.8 | | | 33.7 | |
Gross deferred tax assets | 3,291.1 | | | 2,295.3 | |
Valuation allowances | (552.1) | | | (78.6) | |
Deferred tax assets, net | 2,739.0 | | | 2,216.7 | |
| | | |
Deferred tax liabilities | | | |
Intangible assets | (522.1) | | | — | |
Property, plant, and equipment | (186.0) | | | (200.3) | |
Investments in unconsolidated investees | (58.9) | | | — | |
Provision for unremitted earnings | (26.0) | | | (23.0) | |
| | | |
| | | |
| | | |
Right-of-use assets | (59.8) | | | (70.6) | |
Other accruals | (50.5) | | | — | |
Total deferred tax liabilities | (903.3) | | | (293.9) | |
Deferred tax assets (liabilities), net | $ | 1,835.7 | | | $ | 1,922.8 | |
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 as well as tax planning strategies. 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, 2022, operating loss carryforwards, which are primarily state and foreign, totaling $3.2 billion 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, $1.8 billion will expire by fiscal 2029, $900.0 million will expire between fiscal 2030 and fiscal 2042, and $500.0 million may be carried forward indefinitely in certain jurisdictions.
We have recognized valuation allowances for operating loss carryforwards and other deferred tax assets when we believe it is more likely than not that these items will not be realized. The increase in our valuation allowances as of February 28, 2022, primarily related to the unrealized net gain (loss) from changes in fair value of our investment in Canopy and Canopy equity in earnings (losses).
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 98 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Balance as of March 1 | $ | 236.1 | | | $ | 249.4 | | | $ | 224.3 | |
Increases as a result of tax positions taken during a prior period | 16.5 | | | 3.1 | | | 11.4 | |
Decreases as a result of tax positions taken during a prior period | (0.1) | | | (15.4) | | | (14.8) | |
Increases as a result of tax positions taken during the current period | 29.5 | | | 15.2 | | | 29.0 | |
Decreases related to settlements with tax authorities | (2.6) | | | (10.2) | | | (0.1) | |
Decreases related to lapse of applicable statute of limitations | (0.4) | | | (6.0) | | | (0.4) | |
Balance as of last day of February | $ | 279.0 | | | $ | 236.1 | | | $ | 249.4 | |
As of February 28, 2022, and February 28, 2021, we had $322.6 million and $268.9 million, respectively, of unrecognized tax benefit liabilities, including interest and penalties, recognized on our balance sheets. These liabilities are primarily recorded as non-current as of the balance sheet date.
As of February 28, 2022, and February 28, 2021, we had $279.0 million and $236.1 million, respectively, of unrecognized tax benefit liabilities that, if recognized, would decrease the effective tax rate in the year of resolution.
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, 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 12 months as a result of these examinations or the expiration of statutes of limitation. As of February 28, 2022, we estimate that unrecognized tax benefit liabilities could change by a range of $1 million to $5 million. With few exceptions, we are no longer subject to U.S. federal, state, local, or foreign income tax examinations for fiscal years prior to February 28, 2015.
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.
14. DEFERRED INCOME TAXES AND OTHER LIABILITIES
The major components of deferred income taxes and other liabilities are as follows:
| | | | | | | | | | | |
| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Deferred income taxes | $ | 515.8 | | | $ | 569.7 | |
Operating lease liability | 457.3 | | | 471.1 | |
Unrecognized tax benefit liabilities | 317.7 | | | 268.9 | |
Deferred revenue | 104.1 | | | 1.5 | |
Long-term income tax payable | 76.0 | | | 86.1 | |
Other | 150.1 | | | 96.2 | |
| $ | 1,621.0 | | | $ | 1,493.5 | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 99 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
15. LEASES
General
We primarily lease certain vineyards, office and production facilities, warehouses, production equipment, and vehicles. We have concluded that certain grape purchasing arrangements associated with the purchase of grape production yielded from a specified block of a vineyard and certain third-party logistics arrangements contain a lease.
Balance sheet location
A summary of lease right-of-use assets and liabilities are as follows:
| | | | | | | | | | | | | | |
| Balance Sheet Classification | February 28, 2022 | | February 28, 2021 |
(in millions) | | | | |
Assets | | | | |
Operating lease | Other assets | $ | 478.9 | | | $ | 477.9 | |
Finance lease | Property, plant, and equipment | 21.8 | | | 17.0 | |
Total right-of-use assets | | $ | 500.7 | | | $ | 494.9 | |
| | | | |
Liabilities | | | | |
Current: | | | | |
Operating lease | Other accrued expenses and liabilities | $ | 80.4 | | | $ | 68.8 | |
Finance lease | Current maturities of long-term debt | 6.3 | | | 4.6 | |
Non-current: | | | | |
Operating lease | Deferred income taxes and other liabilities | 457.3 | | | 471.1 | |
Finance lease | Long-term debt, less current maturities | 13.6 | | | 10.9 | |
Total lease liabilities | | $ | 557.6 | | | $ | 555.4 | |
Lease cost
The components of total lease cost are as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Operating lease cost | $ | 89.5 | | | $ | 93.4 | | | $ | 98.9 | |
Finance lease cost: | | | | | |
Amortization of right-of-use assets | 5.8 | | | 11.0 | | | 12.2 | |
Interest on lease liabilities | 0.5 | | | 0.5 | | | 0.7 | |
Short-term lease cost | 8.4 | | | 9.2 | | | 8.6 | |
Variable lease cost (1) | 202.5 | | | 216.5 | | | 403.3 | |
Total lease cost | $ | 306.7 | | | $ | 330.6 | | | $ | 523.7 | |
(1)Higher variable lease costs for the year ended February 29, 2020, was primarily driven by the transfer of grape purchasing agreements in connection with our Wine and Spirits Divestitures.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 100 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Lease maturities
As of February 28, 2022, minimum payments due for lease liabilities for each of the five succeeding fiscal years and thereafter are as follows:
| | | | | | | | | | | | | |
| Operating Leases | | Finance Leases | | |
(in millions) | | | | | |
Fiscal 2023 | $ | 95.1 | | | $ | 7.3 | | | |
Fiscal 2024 | 89.1 | | | 6.6 | | | |
Fiscal 2025 | 73.3 | | | 4.2 | | | |
Fiscal 2026 | 50.5 | | | 2.1 | | | |
Fiscal 2027 | 43.0 | | | 0.9 | | | |
Thereafter | 290.6 | | | 0.1 | | | |
Total lease payments | 641.6 | | | 21.2 | | | |
Less: Interest | (103.9) | | | (1.3) | | | |
Total lease liabilities | $ | 537.7 | | | $ | 19.9 | | | |
Related party transaction
We have entered into a lease for office space with an affiliate of an executive officer and director that has not yet commenced. As of February 28, 2022, the aggregate minimum payments for this operating lease totaled $38.4 million on an undiscounted basis.
Supplemental information
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
Operating cash flows from operating leases | $ | 92.7 | | | $ | 93.9 | | | $ | 100.7 | |
Operating cash flows from finance leases | $ | 0.5 | | | $ | 0.5 | | | $ | 0.7 | |
Financing cash flows from finance leases | $ | 5.9 | | | $ | 10.5 | | | $ | 13.8 | |
| | | | | |
| | | | | |
| | | | | |
Right-of-use assets obtained in exchange for new lease liabilities: | | | | | |
Operating leases | $ | 93.8 | | | $ | 66.3 | | | $ | 34.3 | |
Finance leases | $ | 10.5 | | | $ | 11.6 | | | $ | 10.7 | |
| | | | | |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
Weighted-average remaining lease term: (1) | | | | | |
Operating leases | 12.1 years | | 12.8 years | | 11.7 years |
Finance leases | 3.3 years | | 2.9 years | | 3.2 years |
| | | | | |
Weighted-average discount rate: | | | | | |
Operating leases | 3.0 | % | | 3.2 | % | | 3.5 | % |
Finance leases | 3.4 | % | | 1.2 | % | | 2.6 | % |
(1)Our leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 101 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
16. COMMITMENTS AND CONTINGENCIES
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) transportation, marketing, warehousing, and bottling services, (iii) IT contracts, (iv) certain energy requirements, and (v) property, plant, and equipment and related contractor and manufacturing services. As of February 28, 2022, the estimated aggregate minimum purchase commitments under these contracts are as follows:
| | | | | | | | | | | |
| Type | Length of Commitment | Amount |
(in millions) | | | |
Raw materials and supplies (1) | Packaging, grapes, hops, corn, and malts | through December 2037 | $ | 3,159.0 | |
| | | |
Contract services | Transportation, marketing, warehousing, and bottling services, and IT and energy contracts | through December 2030 | 765.4 | |
Capital expenditures (2) | Property, plant, and equipment and contractor and manufacturing services | through January 2024 | 489.8 | |
In-process inventories | Bulk wine and spirits | through April 2025 | 50.6 | |
Other | Finished wine case goods | through May 2029 | 19.7 | |
| | | $ | 4,484.5 | |
(1)Certain grape purchasing arrangements include the purchase of grape production yielded from specified blocks of a vineyard. The actual tonnage and price of grapes that we purchase will vary each year depending on certain factors, including weather, time of harvest, overall market conditions, and the agricultural practices and location of the vineyard. Amounts included herein for the estimated aggregate minimum grape purchase commitments consist of estimates for the purchase of the grapes and the implicit leases of the land. Certain grape purchasing arrangements classified as leases have not resulted in the recognition of right-of-use assets and lease liabilities on our balance sheet due to their variable nature.
(2)Consists of purchase commitments entered into primarily in connection with the Mexico Beer Projects.
Additionally, we have entered into various contractual arrangements with affiliates of Owens-Illinois, a related party entity, primarily for the purchase of glass bottles used largely in our imported and craft beer portfolios. Amounts purchased under these arrangements for the years ended February 28, 2022, February 28, 2021, and February 29, 2020, were $123.5 million, $154.7 million, and $166.6 million, respectively.
Indemnification liabilities
In connection with prior divestitures, we have indemnified respective parties against certain liabilities that may arise subsequent to the divestiture. As of February 28, 2022, and February 28, 2021, these liabilities consist primarily of indemnifications related to certain income tax matters and lease contracts. As of February 28, 2022, and February 28, 2021, the carrying amount of our indemnification liabilities was $16.6 million and $17.0 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 ordinary course of our business, we are subject to lawsuits, arbitration, claims, and other legal proceedings in connection with our business. Some of the legal actions include claims for substantial or unspecified compensatory and/or punitive damages and/or injunctive relief. A substantial adverse judgment or other unfavorable resolution of these matters could have a material adverse effect on our financial condition, results of operations, or cash flows. Management believes that we have 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 our financial condition, results of operations, or cash flows. However, we are unable to predict the outcome of these matters.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 102 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Regulatory matters
We 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 our financial condition, results of operations, or cash flows. However, we are unable to predict the outcome of these matters.
17. STOCKHOLDERS’ EQUITY
Common stock
We have two classes of common stock with a material number of shares outstanding: Class A Stock and Class B Stock. Class B Stock shares are convertible into shares of Class A Stock on a one-to-one basis at any time at the option of the holder. Holders of Class B Stock are entitled to 10 votes per share. Holders of Class A Stock are entitled to one vote per share and a cash dividend premium. If we pay a cash dividend on Class B Stock, each share of Class A Stock will receive an amount at least 10% greater than the amount of the cash dividend per share paid on Class B Stock. In addition, the Board of Directors may declare and pay a dividend on Class A Stock without paying any dividend on Class B 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 Stock. Shares of Class 1 Stock generally have no voting rights. Class 1 Stock shares are convertible into shares of Class A 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 Stock acquired upon conversion. Because shares of Class 1 Stock are convertible into shares of Class A Stock, for each share of Class 1 Stock issued, we must reserve one share of Class A Stock for issuance upon the conversion of the share of Class 1 Stock. Holders of Class 1 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 Stock, each share of Class A Stock will receive an amount at least 10% greater than the amount of cash dividend per share paid on Class 1 Stock. In addition, the Board of Directors may declare and pay a dividend on Class A Stock without paying a dividend on Class 1 Stock. The cash dividends declared and paid on Class B Stock and Class 1 Stock must always be the same.
The number of shares of common stock issued and treasury stock, and associated share activity, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock |
| Class A | | Class B | | Class 1 | | Class A | | Class B |
Balance at February 28, 2019 | 185,740,178 | | | 28,322,419 | | | 1,149,624 | | | 18,927,966 | | | 5,005,800 | |
| | | | | | | | | |
Share repurchases | — | | | — | | | — | | | 265,593 | | | — | |
Conversion of shares | 350,567 | | | (22,213) | | | (328,354) | | | — | | | — | |
Exercise of stock options | — | | | — | | | 870,957 | | | (747,527) | | | — | |
Employee stock purchases | — | | | — | | | — | | | (69,324) | | | — | |
| | | | | | | | | |
Vesting of restricted stock units (1) | — | | | — | | | — | | | (91,311) | | | — | |
Vesting of performance share units (1) | — | | | — | | | — | | | (29,015) | | | — | |
Cancellation of restricted shares | — | | | — | | | — | | | 444 | | | — | |
Balance at February 29, 2020 | 186,090,745 | | | 28,300,206 | | | 1,692,227 | | | 18,256,826 | | | 5,005,800 | |
| | | | | | | | | |
| | | | | | | | | |
Conversion of shares | 1,113,535 | | | (29,918) | | | (1,083,617) | | | — | | | — | |
Exercise of stock options | — | | | — | | | 4,326 | | | (1,020,853) | | | — | |
Employee stock purchases | — | | | — | | | — | | | (67,801) | | | — | |
| | | | | | | | | |
Vesting of restricted stock units (1) | — | | | — | | | — | | | (80,287) | | | — | |
Vesting of performance share units (1) | — | | | — | | | — | | | (17,335) | | | — | |
Balance at February 28, 2021 | 187,204,280 | | | 28,270,288 | | | 612,936 | | | 17,070,550 | | | 5,005,800 | |
| | | | | | | | | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 103 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Treasury Stock |
| Class A | | Class B | | Class 1 | | Class A | | Class B |
Share repurchases | — | | | — | | | — | | | 6,179,015 | | | — | |
Conversion of shares | 59,579 | | | (57,948) | | | (1,631) | | | — | | | — | |
Exercise of stock options | — | | | — | | | 1,637,374 | | | (287,873) | | | — | |
Employee stock purchases | — | | | — | | | — | | | (57,738) | | | — | |
| | | | | | | | | |
Vesting of restricted stock units (1) | — | | | — | | | — | | | (71,413) | | | — | |
Vesting of performance share units (1) | — | | | — | | | — | | | (7,934) | | | — | |
| | | | | | | | | |
Balance at February 28, 2022 | 187,263,859 | | | 28,212,340 | | | 2,248,679 | | | 22,824,607 | | | 5,005,800 | |
(1)Net of the following shares withheld to satisfy tax withholding requirements:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
Restricted Stock Units | 36,213 | | 37,933 | | 49,900 |
Performance Share Units | 4,565 | | 9,433 | | 17,439 |
Stock repurchases
In January 2018, our Board of Directors authorized the repurchase of up to $3.0 billion of our Class A Stock and Class B Stock. In January 2021, our Board of Directors authorized an additional repurchase of up to $2.0 billion of our Class A Stock and Class B Stock. The Board of Directors did not specify a date upon which these authorizations would expire. Shares may be repurchased through open market or privately negotiated transactions. Shares repurchased under these authorizations will become treasury shares.
A summary of share repurchase activity is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Class A Common Shares Repurchased |
| | | For the Years Ended |
| | February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
| | | | | Dollar Value | | Number of Shares | | Dollar Value | | Number of Shares | | Dollar Value | | Number of Shares |
(in millions, except share data) |
2018 Authorization | | | | | $ | 1,390.5 | | | 6,179,015 | | | $ | — | | | — | | | $ | 50.0 | | | 265,593 | |
2021 Authorization | | | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | $ | 1,390.5 | | | 6,179,015 | | | $ | — | | | — | | | $ | 50.0 | | | 265,593 | |
Subsequent events
Stock repurchases
On April 7, 2022, we entered into an ASR to repurchase $500.0 million of our Class A Stock. We utilized short-term borrowings and cash on hand to pay the dollar value for shares repurchased in this ASR under the 2018 Authorization. Pursuant to the terms of this ASR, an initial installment of 1.7 million shares of Class A Stock were delivered.
As of April 21, 2022, total shares repurchased under our board authorizations are as follows:
| | | | | | | | | | | | | | | | | |
| | | Class A Common Shares |
| Repurchase Authorization | | Dollar Value of Shares Repurchased | | Number of Shares Repurchased |
(in millions, except share data) | | | | | |
| | | | | |
2018 Authorization | $ | 3,000.0 | | | $ | 2,936.4 | | | 12,802,171 |
2021 Authorization | $ | 2,000.0 | | | $ | — | | | — |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 104 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
Common stock dividends
In April 2022, our Board of Directors declared a quarterly cash dividend of $0.80 per share of Class A Stock, $0.72 per share of Class B Stock, and $0.72 per share of Class 1 Stock payable in the first quarter of Fiscal 2023.
Class B Stock declassification proposal
In April 2022, we received the Proposal which proposes that each share of Class B Stock would be converted into 1.35 shares of Class A Stock. Our Board of Directors has established a Special Committee to evaluate the Proposal. Any definitive agreement with respect to the potential transaction must be approved by the Special Committee as well as our Board of Directors. In addition, pursuant to the terms of the Proposal, any potential transaction would require the approval of holders of a majority of the shares of our Class A Stock that do not also hold shares of Class B Stock.
18. STOCK-BASED EMPLOYEE COMPENSATION
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:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Total compensation cost recognized in our results of operations | $ | 44.9 | | | $ | 63.0 | | | $ | 60.4 | |
Income tax benefit related thereto recognized in our results of operations | $ | 6.6 | | | $ | 9.2 | | | $ | 9.5 | |
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 Stock and Class 1 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 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 10 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 stockholder return relative to other companies as defined in the applicable performance share unit agreement. The actual number of shares to be awarded upon vesting of a performance share unit award will range between 0% and 200% of the target award, based upon the measure of performance as certified by the Committee.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 105 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
A summary of stock option activity under our Long-Term Stock Incentive Plan is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
| Number of Options | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price | | Number of Options | | Weighted Average Exercise Price |
Outstanding as of March 1 | 4,399,807 | | | $ | 131.89 | | | 4,525,418 | | | $ | 108.87 | | | 5,691,219 | | | $ | 81.87 | |
Granted | 513,829 | | | $ | 237.85 | | | 973,286 | | | $ | 154.62 | | | 639,957 | | | $ | 206.76 | |
Exercised | (1,925,247) | | | $ | 86.92 | | | (1,025,179) | | | $ | 47.42 | | | (1,618,484) | | | $ | 41.77 | |
Forfeited | (75,917) | | | $ | 192.96 | | | (56,897) | | | $ | 185.59 | | | (175,917) | | | $ | 201.44 | |
Expired | (6,130) | | | $ | 226.46 | | | (16,821) | | | $ | 221.16 | | | (11,357) | | | $ | 224.07 | |
Outstanding as of last day of February | 2,906,342 | | | $ | 178.62 | | | 4,399,807 | | | $ | 131.89 | | | 4,525,418 | | | $ | 108.87 | |
Exercisable | 1,410,693 | | | $ | 161.53 | | | 2,754,888 | | | $ | 104.94 | | | 3,330,164 | | | $ | 75.61 | |
As of February 28, 2022, the aggregate intrinsic value of our options outstanding and exercisable was $123.1 million and $79.8 million, respectively. In addition, the weighted average remaining contractual life for our options outstanding and exercisable was 6.7 years and 5.1 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:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Fair value of stock options vested | $ | 23.9 | | | $ | 21.1 | | | $ | 21.1 | |
Intrinsic value of stock options exercised | $ | 269.1 | | | $ | 142.1 | | | $ | 255.0 | |
Tax benefit realized from stock options exercised | $ | 62.9 | | | $ | 33.9 | | | $ | 60.4 | |
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:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
Grant-date fair value | $ | 59.27 | | | $ | 31.26 | | | $ | 44.90 | |
Expected life (1) | 6.3 years | | 6.3 years | | 6.0 years |
Expected volatility (2) | 27.8 | % | | 26.6 | % | | 22.1 | % |
Risk-free interest rate (3) | 1.2 | % | | 0.5 | % | | 2.5 | % |
Expected dividend yield (4) | 1.3 | % | | 1.9 | % | | 1.5 | % |
(1)Based on historical experience of employees’ exercise behavior for similar type awards.
(2)Based primarily on historical volatility levels of our Class A 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 Stock at date of grant using the current fiscal year projected annualized dividend distribution rate.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 106 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
A summary of restricted stock and performance share activity under our Long-Term Stock Incentive Plan is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
| Number | | Weighted Average Grant-Date Fair Value | | Number | | Weighted Average Grant-Date Fair Value | | Number | | Weighted Average Grant-Date Fair Value |
Restricted Stock Awards | | | | | | | | | | | |
Outstanding balance as of March 1, Nonvested | — | | | $ | — | | | — | | | $ | — | | | 3,914 | | | $ | 214.29 | |
Granted | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
Vested | — | | | $ | — | | | — | | | $ | — | | | (3,470) | | | $ | 214.34 | |
Forfeited | — | | | $ | — | | | — | | | $ | — | | | (444) | | | $ | 213.85 | |
Outstanding balance as of last day of February, Nonvested | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
| | | | | | | | | | | |
Restricted Stock Units | | | | | | | | | | | |
Outstanding balance as of March 1, Nonvested | 311,358 | | | $ | 183.74 | | | 271,143 | | | $ | 196.58 | | | 314,252 | | | $ | 181.62 | |
Granted | 113,686 | | | $ | 236.19 | | | 178,550 | | | $ | 165.57 | | | 138,472 | | | $ | 203.32 | |
Vested | (107,626) | | | $ | 184.81 | | | (118,220) | | | $ | 185.75 | | | (141,211) | | | $ | 168.68 | |
Forfeited | (26,247) | | | $ | 196.41 | | | (20,115) | | | $ | 183.77 | | | (40,370) | | | $ | 200.87 | |
Outstanding balance as of last day of February, Nonvested | 291,171 | | | $ | 202.68 | | | 311,358 | | | $ | 183.74 | | | 271,143 | | | $ | 196.58 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Performance Share Units | | | | | | | | | | | |
Outstanding balance as of March 1, Nonvested | 226,463 | | | $ | 223.85 | | | 221,749 | | | $ | 231.49 | | | 259,464 | | | $ | 213.27 | |
Granted | 27,029 | | | $ | 318.71 | | | 39,781 | | | $ | 202.53 | | | 60,031 | | | $ | 253.72 | |
Performance achievement (1) | (148,495) | | | $ | 210.36 | | | (1,517) | | | $ | 250.30 | | | (17,035) | | | $ | 168.00 | |
Vested | (12,499) | | | $ | 279.67 | | | (26,768) | | | $ | 250.30 | | | (46,454) | | | $ | 156.80 | |
Forfeited | (5,857) | | | $ | 229.81 | | | (6,782) | | | $ | 238.06 | | | (34,257) | | | $ | 239.48 | |
Outstanding balance as of last day of February, Nonvested | 86,641 | | | $ | 268.12 | | | 226,463 | | | $ | 223.85 | | | 221,749 | | | $ | 231.49 | |
(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 stock and performance share awards is as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Restricted stock awards | $ | — | | | $ | — | | | $ | 0.7 | |
Restricted stock units | $ | 25.8 | | | $ | 19.2 | | | $ | 29.9 | |
Performance share units | $ | 3.0 | | | $ | 4.3 | | | $ | 9.9 | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 107 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
Grant-date fair value | $ | 318.71 | | | $ | 202.53 | | | $ | 319.56 | |
Grant-date price | $ | 238.31 | | | $ | 153.02 | | | $ | 205.46 | |
Performance period | 2.9 years | | 2.9 years | | 2.8 years |
Expected volatility (1) | 35.0 | % | | 31.7 | % | | 23.1 | % |
Risk-free interest rate (2) | 0.3 | % | | 0.2 | % | | 2.3 | % |
Expected dividend yield (3) | 0.0 | % | | 0.0 | % | | 0.0 | % |
(1)Based primarily on historical volatility levels of our Class A 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 an Employee Stock Purchase Plan under which 9,000,000 shares of Class A Stock may be issued. Under the terms of the plan, eligible employees may purchase shares of our Class A 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, 2022, February 28, 2021, and February 29, 2020, employees purchased 57,738 shares, 67,801 shares, and 69,324 shares, respectively, under this plan.
Other
As of February 28, 2022, there was $64.3 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 2.2 years. With respect to the issuance of shares under any of our stock-based compensation plans, we have the option to issue authorized but unissued shares or treasury shares.
19. NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CBI
The computation of basic and diluted net income (loss) per common share is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
| Class A Stock | | Class B Stock | | Class A Stock | | Class B Stock | | Class A Stock | | Class B Stock |
(in millions, except per share data) | | | | | | | | | | | |
Net income (loss) attributable to CBI allocated – basic | $ | (35.8) | | | $ | (4.6) | | | $ | 1,777.2 | | | $ | 220.8 | | | $ | (10.2) | | | $ | (1.6) | |
Conversion of Class B common shares into Class A common shares | — | | | — | | | 220.8 | | | — | | | — | | | — | |
Effect of stock-based awards on allocated net income (loss) | — | | | — | | | — | | | (1.5) | | | — | | | — | |
Net income (loss) attributable to CBI allocated – diluted | $ | (35.8) | | | $ | (4.6) | | | $ | 1,998.0 | | | $ | 219.3 | | | $ | (10.2) | | | $ | (1.6) | |
| | | | | | | | | | | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 108 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
| Class A Stock | | Class B Stock | | Class A Stock | | Class B Stock | | Class A Stock | | Class B Stock |
(in millions, except per share data) | | | | | | | | | | | |
Weighted average common shares outstanding – basic | 167.431 | | | 23.225 | | | 170.239 | | | 23.280 | | | 168.329 | | | 23.313 | |
Conversion of Class B common shares into Class A common shares (1) | — | | | — | | | 23.280 | | | — | | | — | | | — | |
Stock-based awards, primarily stock options (1) | — | | | — | | | 1.789 | | | — | | | — | | | — | |
Weighted average common shares outstanding – diluted | 167.431 | | | 23.225 | | | 195.308 | | | 23.280 | | | 168.329 | | | 23.313 | |
| | | | | | | | | | | |
Net income (loss) per common share attributable to CBI – basic | $ | (0.22) | | | $ | (0.20) | | | $ | 10.44 | | | $ | 9.48 | | | $ | (0.07) | | | $ | (0.07) | |
Net income (loss) per common share attributable to CBI – diluted | $ | (0.22) | | | $ | (0.20) | | | $ | 10.23 | | | $ | 9.42 | | | $ | (0.07) | | | $ | (0.07) | |
| | | | | | | | | | | | | | | | | | | |
(1) | We have excluded the following weighted average common shares outstanding from the calculation of diluted net income (loss) per common share, as the effect of including these would have been anti-dilutive: |
| | | For the Years Ended | | |
| | | February 28, 2022 | | February 29, 2020 | | |
| | (in millions) | | | | | |
| | | | | | | |
| | Class B Stock | 23.225 | | | 23.313 | | | |
| | Stock-based awards, primarily stock options | 1.566 | | | 3.239 | | | |
| | | | | | | |
| | | |
20. ACCUMULATED OTHER COMPREHENSIVE INCOME (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 29, 2020 | | | | | |
Other comprehensive income (loss) attributable to CBI: | | | | | |
Foreign currency translation adjustments: | | | | | |
Net gain (loss) | $ | 83.4 | | | $ | — | | | $ | 83.4 | |
Reclassification adjustments | (22.6) | | | — | | | (22.6) | |
Net gain (loss) recognized in other comprehensive income (loss) | 60.8 | | | — | | | 60.8 | |
Unrealized gain (loss) on cash flow hedges: | | | | | |
Net derivative gain (loss) | 48.0 | | | 6.4 | | | 54.4 | |
Reclassification adjustments | (15.3) | | | (1.7) | | | (17.0) | |
Net gain (loss) recognized in other comprehensive income (loss) | 32.7 | | | 4.7 | | | 37.4 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Pension/postretirement adjustments: | | | | | |
Net actuarial gain (loss) | (3.1) | | | 0.9 | | | (2.2) | |
Reclassification adjustments | 1.8 | | | (0.1) | | | 1.7 | |
Net gain (loss) recognized in other comprehensive income (loss) | (1.3) | | | 0.8 | | | (0.5) | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 109 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
| | | | | | | | | | | | | | | | | |
| Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount |
(in millions) | | | | | |
Share of OCI of equity method investments: | | | | | |
Net gain (loss) | (13.3) | | | 3.2 | | | (10.1) | |
Reclassification adjustments | — | | | — | | | — | |
Net gain (loss) recognized in other comprehensive income (loss) | (13.3) | | | 3.2 | | | (10.1) | |
Other comprehensive income (loss) attributable to CBI | $ | 78.9 | | | $ | 8.7 | | | $ | 87.6 | |
| | | | | |
For the Year Ended February 28, 2021 | | | | | |
Other comprehensive income (loss) attributable to CBI: | | | | | |
Foreign currency translation adjustments: | | | | | |
Net gain (loss) | $ | (51.9) | | | $ | — | | | $ | (51.9) | |
Reclassification adjustments | 5.1 | | | — | | | 5.1 | |
Net gain (loss) recognized in other comprehensive income (loss) | (46.8) | | | — | | | (46.8) | |
Unrealized gain (loss) on cash flow hedges: | | | | | |
Net derivative gain (loss) | (48.1) | | | 3.2 | | | (44.9) | |
Reclassification adjustments | 28.8 | | | (2.9) | | | 25.9 | |
Net gain (loss) recognized in other comprehensive income (loss) | (19.3) | | | 0.3 | | | (19.0) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Pension/postretirement adjustments: | | | | | |
Net actuarial gain (loss) | (2.3) | | | 0.7 | | | (1.6) | |
Reclassification adjustments | — | | | — | | | — | |
Net gain (loss) recognized in other comprehensive income (loss) | (2.3) | | | 0.7 | | | (1.6) | |
Share of OCI of equity method investments: | | | | | |
Net gain (loss) | (1.6) | | | (0.2) | | | (1.8) | |
Reclassification adjustments | — | | | — | | | — | |
Net gain (loss) recognized in other comprehensive income (loss) | (1.6) | | | (0.2) | | | (1.8) | |
Other comprehensive income (loss) attributable to CBI | $ | (70.0) | | | $ | 0.8 | | | $ | (69.2) | |
| | | | | |
For the Year Ended February 28, 2022 | | | | | |
Other comprehensive income (loss) attributable to CBI: | | | | | |
Foreign currency translation adjustments: | | | | | |
Net gain (loss) | $ | (38.9) | | | $ | — | | | $ | (38.9) | |
Reclassification adjustments | — | | | — | | | — | |
Net gain (loss) recognized in other comprehensive income (loss) | (38.9) | | | — | | | (38.9) | |
Unrealized gain (loss) on cash flow hedges: | | | | | |
Net derivative gain (loss) | 12.6 | | | (7.5) | | | 5.1 | |
Reclassification adjustments | (34.0) | | | 2.9 | | | (31.1) | |
Net gain (loss) recognized in other comprehensive income (loss) | (21.4) | | | (4.6) | | | (26.0) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Pension/postretirement adjustments: | | | | | |
Net actuarial gain (loss) | 2.3 | | | (0.6) | | | 1.7 | |
Reclassification adjustments | (2.1) | | | 0.6 | | | (1.5) | |
Net gain (loss) recognized in other comprehensive income (loss) | 0.2 | | | — | | | 0.2 | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 110 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
| | | | | | | | | | | | | | | | | |
| Before Tax Amount | | Tax (Expense) Benefit | | Net of Tax Amount |
(in millions) | | | | | |
Share of OCI of equity method investments: | | | | | |
Net gain (loss) | (16.2) | | | 3.7 | | | (12.5) | |
Reclassification adjustments | — | | | — | | | — | |
Net gain (loss) recognized in other comprehensive income (loss) | (16.2) | | | 3.7 | | | (12.5) | |
Other comprehensive income (loss) attributable to CBI | $ | (76.3) | | | $ | (0.9) | | | $ | (77.2) | |
Accumulated other comprehensive income (loss), net of income tax effect, includes the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustments | | Unrealized Net Gain (Loss) on Derivative Instruments | | | | Pension/ Postretirement Adjustments | | Share of OCI of Equity Method Investments | | Accumulated Other Comprehensive Income (Loss) |
(in millions) | | | | | | | | | | | |
Balance, February 28, 2021 | $ | (392.5) | | | $ | 43.5 | | | | | $ | (4.2) | | | $ | 17.7 | | | $ | (335.5) | |
Other comprehensive income (loss): | | | | | | | | | | | |
Other comprehensive income (loss) before reclassification adjustments | (38.9) | | | 5.1 | | | | | 1.7 | | | (12.5) | | | (44.6) | |
Amounts reclassified from accumulated other comprehensive income (loss) | — | | | (31.1) | | | | | (1.5) | | | — | | | (32.6) | |
Other comprehensive income (loss) | (38.9) | | | (26.0) | | | | | 0.2 | | | (12.5) | | | (77.2) | |
Balance, February 28, 2022 | $ | (431.4) | | | $ | 17.5 | | | | | $ | (4.0) | | | $ | 5.2 | | | $ | (412.7) | |
21. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Net sales to our 10 largest customers represented approximately half of our net sales for the years ended February 28, 2022, February 28, 2021, and February 29, 2020, and 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:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
Reyes Beer Division entities | | | | | |
Net sales | 21.0 | % | | 18.6 | % | | 16.1 | % |
Accounts receivable | 11.1 | % | | 12.7 | % | | 10.6 | % |
| | | | | |
Southern Glazer’s Wine and Spirits | | | | | |
Net sales | 14.4 | % | | 10.5 | % | | 10.5 | % |
Accounts receivable | 35.2 | % | | 28.7 | % | | 27.2 | % |
Net sales for the above customers are primarily reported within the Beer and Wine and Spirits segments, respectively. 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.
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 111 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
22. BUSINESS SEGMENT INFORMATION
Our internal management financial reporting consists of three business divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy and we report our operating results in four segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate Operations and Other, and (iv) Canopy. The Canopy Equity Method Investment makes up the Canopy segment.
In the Beer segment, our portfolio consists of high-end imported beer brands, craft beer, and ABAs. We have an exclusive perpetual brand license to import, market, and sell our Mexican beer portfolio in the U.S. 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 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 CODM’s evaluation of the operating income (loss) 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. Long-lived tangible assets and total asset information by segment is not provided to, or reviewed by, our CODM as it is not used to make strategic decisions, allocate resources, or assess performance.
In addition, management excludes 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 the incentive compensation of segment management are evaluated based on core segment operating income (loss) which does 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:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Cost of product sold | | | | | |
Net gain (loss) on undesignated commodity derivative contracts | $ | 109.9 | | | $ | 25.1 | | | $ | (49.0) | |
Net flow through of reserved inventory | 12.1 | | | — | | | — | |
Settlements of undesignated commodity derivative contracts | (35.9) | | | 31.6 | | | 11.7 | |
Strategic business development costs | (2.6) | | | (29.8) | | | (124.5) | |
Recovery of (loss on) inventory write-down | (1.0) | | | (70.4) | | | 8.6 | |
Flow through of inventory step-up | (0.1) | | | (0.4) | | | (1.5) | |
COVID-19 incremental costs | — | | | (7.6) | | | — | |
Accelerated depreciation | — | | | (0.1) | | | (7.6) | |
| | | | | |
Total cost of product sold | 82.4 | | | (51.6) | | | (162.3) | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 112 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Selling, general, and administrative expenses | | | | | |
Transition services agreements activity | (19.2) | | | 0.4 | | | — | |
Transaction, integration, and other acquisition-related costs | (1.4) | | | (7.6) | | | (9.2) | |
Restructuring and other strategic business development costs | 0.6 | | | (23.9) | | | (25.3) | |
Net gain (loss) on foreign currency derivative contracts | — | | | (8.0) | | | (1.8) | |
Impairment of intangible assets | — | | | (6.0) | | | (11.0) | |
COVID-19 incremental costs | — | | | (4.8) | | | — | |
| | | | | |
| | | | | |
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Other gains (losses) (1) | (2.3) | | | 14.3 | | | 7.3 | |
Total selling, general, and administrative expenses | (22.3) | | | (35.6) | | | (40.0) | |
| | | | | |
Impairment of brewery construction in progress | (665.9) | | | — | | | — | |
Impairment of assets held for sale | — | | | (24.0) | | | (449.7) | |
Gain (loss) on sale of business | 1.7 | | | 14.2 | | | 74.1 | |
Comparable Adjustments, Operating income (loss) | $ | (604.1) | | | $ | (97.0) | | | $ | (577.9) | |
| | | | | | | | | | | | | | | | | | | | | |
(1) | Includes the following: | | | | | | |
| | For the Years Ended | |
| | February 28, 2022 | | February 28, 2021 | | February 29, 2020 | |
| | | | | | | |
| Adjustment to understated excise tax accruals primarily related to a prior period acquisition | $ | (13.3) | | | $ | — | | | $ | — | | |
| Decrease (increase) in estimated fair value of contingent liabilities associated with prior period acquisitions | $ | (9.6) | | | $ | 9.7 | | | $ | (11.4) | | |
| Increase in our ownership interest in My Favorite Neighbor (Fiscal 2022) and Nelson’s Green Brier (Fiscal 2020) | $ | 13.5 | | | $ | — | | | $ | 11.8 | | |
| Property tax settlement | $ | 10.4 | | | $ | — | | | $ | — | | |
| Sale of certain non-core assets | $ | — | | | $ | 8.8 | | | $ | (0.3) | | |
| | | | | | | |
| Recognition of previously deferred gain upon release of a related guarantee | $ | — | | | $ | — | | | $ | 6.2 | | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 113 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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. Amounts included below for the Canopy segment represent 100% of Canopy’s reported results on a two-month lag, prepared in accordance with U.S. GAAP, and converted from Canadian dollars to U.S. dollars. Although we own less than 100% of the outstanding shares of Canopy, 100% of its results are included in the information below and subsequently eliminated in order to reconcile to our consolidated financial statements. Segment information is as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Beer | | | | | |
Net sales | $ | 6,751.6 | | | $ | 6,074.6 | | | $ | 5,615.9 | |
Segment operating income (loss) | $ | 2,703.3 | | | $ | 2,494.3 | | | $ | 2,247.9 | |
| | | | | |
| | | | | |
Capital expenditures | $ | 849.5 | | | $ | 693.9 | | | $ | 571.7 | |
Depreciation and amortization | $ | 248.7 | | | $ | 194.7 | | | $ | 204.3 | |
| | | | | |
Wine and Spirits | | | | | |
Net sales: | | | | | |
Wine | $ | 1,819.3 | | | $ | 2,208.4 | | | $ | 2,367.5 | |
Spirits | 249.8 | | | 331.9 | | | 360.1 | |
Net sales | $ | 2,069.1 | | | $ | 2,540.3 | | | $ | 2,727.6 | |
Segment operating income (loss) | $ | 470.7 | | | $ | 622.4 | | | $ | 708.4 | |
Income (loss) from unconsolidated investments | $ | 34.4 | | | $ | 31.7 | | | $ | 36.4 | |
| | | | | |
Equity method investments (1) | $ | 97.2 | | | $ | 125.7 | | | $ | 87.7 | |
| | | | | |
Capital expenditures | $ | 154.7 | | | $ | 107.5 | | | $ | 92.7 | |
Depreciation and amortization | $ | 80.7 | | | $ | 89.9 | | | $ | 98.7 | |
| | | | | |
Corporate Operations and Other | | | | | |
| | | | | |
Segment operating income (loss) | $ | (238.2) | | | $ | (228.6) | | | $ | (223.9) | |
Income (loss) from unconsolidated investments | $ | (3.5) | | | $ | (0.4) | | | $ | (3.2) | |
| | | | | |
Equity method investments | $ | 88.0 | | | $ | 83.9 | | | $ | 94.5 | |
| | | | | |
Capital expenditures | $ | 22.6 | | | $ | 63.2 | | | $ | 62.1 | |
Depreciation and amortization | $ | 13.0 | | | $ | 14.4 | | | $ | 21.6 | |
| | | | | |
Canopy | | | | | |
Net sales | $ | 444.3 | | | $ | 378.6 | | | $ | 290.2 | |
Segment operating income (loss) | $ | (630.1) | | | $ | (1,496.0) | | | $ | (685.8) | |
Capital expenditures | $ | 50.4 | | | $ | 172.6 | | | $ | 572.8 | |
Depreciation and amortization | $ | 90.0 | | | $ | 103.3 | | | $ | 81.4 | |
| | | | | |
Consolidation and Eliminations | | | | | |
Net sales | $ | (444.3) | | | $ | (378.6) | | | $ | (290.2) | |
Operating income (loss) | $ | 630.1 | | | $ | 1,496.0 | | | $ | 685.8 | |
Income (loss) from unconsolidated investments | $ | (178.2) | | | $ | (146.2) | | | $ | (221.7) | |
Equity method investments | $ | 2,503.5 | | | $ | 2,578.8 | | | $ | 2,911.7 | |
Capital expenditures | $ | (50.4) | | | $ | (172.6) | | | $ | (572.8) | |
Depreciation and amortization | $ | (90.0) | | | $ | (103.3) | | | $ | (81.4) | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 114 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Comparable Adjustments | | | | | |
| | | | | |
Operating income (loss) | $ | (604.1) | | | $ | (97.0) | | | $ | (577.9) | |
Income (loss) from unconsolidated investments | $ | (1,488.2) | | | $ | 265.2 | | | $ | (2,480.1) | |
Depreciation and amortization | $ | — | | | $ | 0.1 | | | $ | 7.6 | |
| | | | | |
Consolidated | | | | | |
Net sales | $ | 8,820.7 | | | $ | 8,614.9 | | | $ | 8,343.5 | |
Operating income (loss) | $ | 2,331.7 | | | $ | 2,791.1 | | | $ | 2,154.5 | |
Income (loss) from unconsolidated investments (2) | $ | (1,635.5) | | | $ | 150.3 | | | $ | (2,668.6) | |
| | | | | |
Equity method investments (1) | $ | 2,688.7 | | | $ | 2,788.4 | | | $ | 3,093.9 | |
| | | | | |
Capital expenditures | $ | 1,026.8 | | | $ | 864.6 | | | $ | 726.5 | |
Depreciation and amortization | $ | 342.4 | | | $ | 299.1 | | | $ | 332.2 | |
| | | | | | | | | | | | | | | | | | | | | | | |
(1) | Equity method investments balance at February 29, 2020, excludes amounts reclassified to assets held for sale. |
(2) | Income (loss) from unconsolidated investments consists of: | | | | | |
| | | For the Years Ended |
| | February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
| (in millions) | | | | | |
| Unrealized net gain (loss) on securities measured at fair value | $ | (1,644.7) | | | $ | 802.0 | | | $ | (2,126.4) | |
| Equity in earnings (losses) from Canopy and related activities (i) | (73.6) | | | (679.0) | | | (575.9) | |
| Equity in earnings (losses) from other equity method investees | 31.8 | | | 27.3 | | | 33.3 | |
| Net gain (loss) on sale of unconsolidated investment | 51.0 | | | — | | | 0.4 | |
| | | | | | |
| | | $ | (1,635.5) | | | $ | 150.3 | | | $ | (2,668.6) | |
| | | | | | | |
| (i) | The year ended February 29, 2020, includes the June 2019 Modification Loss. |
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 and Italy for the Wine and Spirits segment. Revenues are attributed to countries based on the location of the customer.
Geographic data is as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| February 28, 2022 | | February 28, 2021 | | February 29, 2020 |
(in millions) | | | | | |
Net sales | | | | | |
U.S. | $ | 8,585.8 | | | $ | 8,396.5 | | | $ | 8,116.2 | |
Non-U.S. (primarily Canada) | 234.9 | | | 218.4 | | | 227.3 | |
| $ | 8,820.7 | | | $ | 8,614.9 | | | $ | 8,343.5 | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 115 |
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PART II | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | Table of Contents |
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| February 28, 2022 | | February 28, 2021 |
(in millions) | | | |
Long-lived tangible assets | | | |
U.S. | $ | 1,092.0 | | | $ | 1,005.3 | |
Non-U.S. (primarily Mexico) | 4,967.6 | | | 4,816.3 | |
| $ | 6,059.6 | | | $ | 5,821.6 | |
23. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of selected quarterly financial information is as follows:
| | | | | | | | | | | |
| For the Three Months Ended |
| February 28, 2022 | | February 28, 2021 |
(in millions, except per share data) | | | |
Net sales | $ | 2,102.5 | | | $ | 1,953.0 | |
Gross profit | $ | 1,132.6 | | | $ | 993.7 | |
Net income (loss) attributable to CBI (1) | $ | 395.4 | | | $ | 382.9 | |
Net income (loss) per common share attributable to CBI (1): | | | |
Basic – Class A Stock | $ | 2.11 | | | $ | 2.00 | |
Basic – Class B Stock | $ | 1.92 | | | $ | 1.81 | |
Diluted – Class A Stock | $ | 2.07 | | | $ | 1.95 | |
Diluted – Class B Stock | $ | 1.91 | | | $ | 1.80 | |
| | | | | | | | | | | | | | |
(1) | Includes the following: | | | |
| | For the Three Months Ended |
| | February 28, 2022 | | February 28, 2021 |
| (in millions, net of income tax effect) | | | |
| | | | |
| Unrealized net gain (loss) on securities measured at fair value | $ | (135.2) | | | $ | 206.3 | |
| Equity in earnings (losses) from Canopy | $ | (31.9) | | | $ | (189.5) | |
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Constellation Brands, Inc. FY 2022 Form 10-K | #WORTHREACHINGFOR I 116 |
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PART II | OTHER KEY INFORMATION | Table of Contents |