Constellation Brands, Inc 10-Q for FY2022 Q1

Constellation Brands, Inc. (STZ)

10-Q 2021-06-30 For: 2021-05-31

Added on April 08, 2026

About this 10-Q

Constellation Brands, Inc filed this 10-Q on June 30, 2021, covering the quarter ended May 31, 2021 (FY2022 Q1).

Headline figures

Quarter ended May 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.03B; up 3.2% from $1.96B a year earlier
Net loss: $908.1M; compared with a net loss of $177.9M a year earlier

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Delaware			16-0716709
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Common Stock	STZ	New York Stock Exchange
Class B Common Stock	STZ.B	New York Stock Exchange


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


		Page

DEFINED TERMS		i

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Comprehensive Income (Loss)		2
Consolidated Statements of Changes in Stockholders’ Equity		3
Consolidated Statements of Cash Flows		4
Notes to Consolidated Financial Statements
	1. Basis of Presentation	6
	2. Inventories	6
	3. Acquisitions and Divestitures	6
	4. Derivative Instruments	7
	5. Fair Value of Financial Instruments	9
	6. Goodwill	14
	7. Intangible Assets	14
	8. Equity Method Investments	15


	9. Borrowings	16
	10. Income Taxes	17


	11. Stockholders' Equity	18
	12. Net Income (Loss) Per Common Share Attributable to CBI	19
	13. Comprehensive Income (Loss) Attributable to CBI	20
	14. Business Segment Information	21


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		44

PART II – OTHER INFORMATION


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		45
Item 4. Mine Safety Disclosures		NA
Item 6. Exhibits		45

INDEX TO EXHIBITS		46

SIGNATURES		50


Term						Meaning

$						U.S. dollars
2018 Authorization						authority to repurchase up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2018 by our Board of Directors


2019 Five-Year Term Facility						a $491.3 million, five-year term loan facility under the March 2020 Term Credit Agreement, originally entered into in June 2019

2020 Credit Agreement						ninth amended and restated credit agreement, dated as of March 26, 2020, provides for an aggregate revolving credit facility of $2.0 billion



2020 U.S. wildfires						significant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest
2021 Annual Report						our Annual Report on Form 10-K for the fiscal year ended February 28, 2021, unless otherwise specified

2021 Authorization						authority to repurchase up to $2.0 billion of our Class A Common Stock and Class B Convertible Common Stock, authorized in January 2021 by our Board of Directors


ABA						alternative beverage alcohol
Acreage						Acreage Holdings, Inc.
Acreage Financial Instrument						a call option for Canopy Growth Corporation to acquire 70% of the shares of Acreage Holdings, Inc., at a fixed exchange ratio and 30% at a floating exchange ratio.
Acreage Transaction						Canopy Growth Corporation’s intention to acquire Acreage Holdings, Inc. upon U.S. federal cannabis legalization, subject to certain conditions
Administrative Agent						Bank of America, N.A., as administrative agent for the senior credit facility and term credit agreement

AOCI						accumulated other comprehensive income (loss)
ASR						Accelerated share repurchase agreement with a third-party financial institution


Ballast Point Divestiture						sale of Ballast Point craft beer business, including a number of its associated production facilities and brewpubs
Booker Vineyard						My Favorite Neighbor, LLC, also known as Booker Vineyard, a super-luxury, direct-to-consumer focused wine business, we made an investment in My Favorite Neighbor, LLC
C$						Canadian dollars
Canopy						Canopy Growth Corporation
Canopy Debt Securities						convertible debt securities issued by Canopy Growth Corporation
Canopy Equity Method Investment						November 2017 Canopy Investment, November 2018 Canopy Investment, and May 2020 Canopy Investment, collectively
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CB International						CB International Finance S.à r.l., a wholly-owned subsidiary of ours


CODM						chief operating decision maker
Comparable Adjustments						certain items affecting comparability that have been excluded by management
Concentrate Business Divestiture						sale of certain brands used in our concentrates and high-color concentrate business, and certain related intellectual property, inventory, interests in certain contracts, and other assets
Copper & Kings						Copper & Kings American Brandy Company, acquired by us


CSR						corporate social responsibility

Empathy Wines						Empathy Wines business, including a digitally-native wine brand, acquired by us


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I i


Term						Meaning

ERP						enterprise resource planning system

Financial Statements						our consolidated financial statements and notes thereto included herein
First Quarter 2021						the Company’s three months ended May 31, 2020
First Quarter 2022						the Company’s three months ended May 31, 2021
Fiscal 2021						the Company’s fiscal year ended February 28, 2021
Fiscal 2022						the Company’s fiscal year ending February 28, 2022






Lender						Bank of America, N.A., as lender for the term credit agreement
LIBOR						London Interbank Offered Rate
March 2020 Term Credit Agreement						amended and restated term loan credit agreement, dated as of March 26, 2020, that provides for aggregate facilities of $491.3 million, consisting of the 2019 Five-Year Term Facility
May 2020 Canopy Investment						May 2020 exercise of the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2. of this quarterly report on Form 10-Q
Mexicali Brewery						brewery originally planned to be located in Mexicali, Baja California, Mexico
Mexico Beer Projects						expansion activities at the Obregon Brewery and Nava Brewery

NA						not applicable
Nava Brewery						brewery located in Nava, Coahuila, Mexico
Net sales						gross sales less promotions, returns and allowances, and excise taxes


NM						not meaningful
Nobilo Wine Divestiture						sale of New Zealand-based Nobilo Wine brand and certain related assets
Note(s)						Notes to the Consolidated Financial Statements
November 2017 Canopy Investment						our initial investment for 18.9 million in common shares of Canopy Growth Corporation
November 2017 Canopy Warrants						warrants which gave us the option to purchase 18.9 million common shares of Canopy Growth Corporation, exercised May 1, 2020
November 2018 Canopy Investment						our incremental investment for 104.5 million in common shares of Canopy Growth Corporation
November 2018 Canopy Transaction						November 2018 Canopy Investment and the purchase by us of the November 2018 Canopy Warrants, collectively
November 2018 Canopy Warrants						Tranche A Warrants, Tranche B Warrants, and Tranche C Warrants, collectively
NPD						new product development
Obregon Brewery						brewery located in Obregon, Sonora, Mexico
OCI						other comprehensive income (loss)

Paul Masson Divestiture						sale of Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts


SEC						Securities and Exchange Commission





SKU						stock-keeping unit is a scannable bar code most often seen printed on product labels in a retail store
Tranche A Warrants						warrants which give us the option to purchase 88.5 million common shares of Canopy Growth Corporation expiring November 1, 2023
Tranche B Warrants						warrants which give us the option to purchase 38.4 million common shares of Canopy Growth Corporation expiring November 1, 2026
Tranche C Warrants						warrants which give us the option to purchase 12.8 million common shares of Canopy Growth Corporation expiring November 1, 2026
TSX						Toronto Stock Exchange
U.S.						United States of America
U.S. GAAP						generally accepted accounting principles in the United States of America


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I ii


Term						Meaning

VWAP Exercise Price						volume-weighted average of the closing market price of Canopy’s common shares on the Toronto Stock Exchange for the five trading days immediately preceding the exercise date

Wine and Spirits Divestiture						sale of 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
Wine and Spirits Divestitures						Wine and Spirits Divestiture and the Nobilo Wine Divestiture, collectively


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I iii


	May 31, 2021		February 28, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	503.8	$	460.6
Accounts receivable	922.8		785.3
Inventories	1,377.6		1,291.1
Prepaid expenses and other	508.9		507.5

Total current assets	3,313.1		3,044.5
Property, plant, and equipment	5,392.2		5,821.6
Goodwill	7,808.9		7,793.5
Intangible assets	2,731.8		2,732.1
Equity method investments	2,656.7		2,788.4
Securities measured at fair value	1,075.7		1,818.1
Deferred income taxes	2,591.0		2,492.5

Other assets	623.0		614.1
Total assets	$	26,192.4	$	27,104.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Current maturities of long-term debt	$	529.4	$	29.2
Accounts payable	821.1		460.0
Other accrued expenses and liabilities	712.3		779.9
Total current liabilities	2,062.8		1,269.1
Long-term debt, less current maturities	9,914.8		10,413.1

Deferred income taxes and other liabilities	1,617.2		1,493.5
Total liabilities	13,594.8		13,175.7
Commitments and contingencies
CBI stockholders’ equity:
Class A Common Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 187,247,721 shares and 187,204,280 shares, respectively	1.9		1.9
Class B Convertible Common Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,227,478 shares and 28,270,288 shares, respectively	0.3		0.3
Additional paid-in capital	1,619.2		1,604.2
Retained earnings	14,063.6		15,117.8
Accumulated other comprehensive income (loss)	(236.6)		(335.5)
	15,448.4		16,388.7
Less: Treasury stock –
Class A Common Stock, at cost, 18,577,123 shares and 17,070,550 shares, respectively	(3,184.6)		(2,787.6)
Class B Convertible Common Stock, at cost, 5,005,800 shares	(2.2)		(2.2)
	(3,186.8)		(2,789.8)
Total CBI stockholders’ equity	12,261.6		13,598.9
Noncontrolling interests	336.0		330.2
Total stockholders’ equity	12,597.6		13,929.1
Total liabilities and stockholders’ equity	$	26,192.4	$	27,104.8


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 1


	For the Three Months Ended May 31,
	2021		2020
Sales	$	2,188.3	$	2,131.7
Excise taxes	(161.8)		(168.3)
Net sales	2,026.5		1,963.4
Cost of product sold	(907.2)		(975.1)
Gross profit	1,119.3		988.3
Selling, general, and administrative expenses	(378.3)		(353.3)
Impairment of brewery construction in progress	(665.9)		—
Impairment of assets held for sale	—		(25.0)

Operating income (loss)	75.1		610.0
Income (loss) from unconsolidated investments	(899.2)		(571.2)
Interest expense	(86.7)		(100.0)
Loss on extinguishment of debt	—		(7.0)
Income (loss) before income taxes	(910.8)		(68.2)
(Provision for) benefit from income taxes	13.5		(104.4)
Net income (loss)	(897.3)		(172.6)
Net income (loss) attributable to noncontrolling interests	(10.8)		(5.3)
Net income (loss) attributable to CBI	$	(908.1)	$	(177.9)

Comprehensive income (loss)	$	(792.8)	$	(964.9)
Comprehensive (income) loss attributable to noncontrolling interests	(16.4)		30.9
Comprehensive income (loss) attributable to CBI	$	(809.2)	$	(934.0)

Net income (loss) per common share attributable to CBI:
Basic and Diluted – Class A Common Stock	$	(4.74)	$	(0.94)
Basic and Diluted – Class B Convertible Common Stock	$	(4.31)	$	(0.86)




Weighted average common shares outstanding:
Basic and Diluted – Class A Common Stock	170.602		169.604
Basic and Diluted – Class B Convertible Common Stock	23.247		23.293




Cash dividends declared per common share:
Class A Common Stock	$	0.76	$	0.75
Class B Convertible Common Stock	$	0.69	$	0.68


FINANCIAL STATEMENTS			Table of Contents


FINANCIAL STATEMENTS			Table of Contents


FINANCIAL STATEMENTS			Table of Contents


FINANCIAL STATEMENTS			Table of Contents


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 2


CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited)
	Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non-controlling Interests		Total
	Class A		Class B
Balance at February 28, 2021	$	1.9	$	0.3	$	1,604.2	$	15,117.8	$	(335.5)	$	(2,789.8)	$	330.2	$	13,929.1

Comprehensive income (loss):
Net income (loss)	—		—		—		(908.1)		—		—		10.8		(897.3)
Other comprehensive income (loss), net of income tax effect	—		—		—		—		98.9		—		5.6		104.5
Comprehensive income (loss)															(792.8)
Repurchase of shares	—		—		—		—		—		(400.8)		—		(400.8)
Dividends declared	—		—		—		(146.1)		—		—		—		(146.1)
Noncontrolling interest distributions	—		—		—		—		—		—		(10.6)		(10.6)
Shares issued under equity compensation plans	—		—		(0.9)		—		—		3.8		—		2.9
Stock-based compensation	—		—		15.9		—		—		—		—		15.9
Balance at May 31, 2021	$	1.9	$	0.3	$	1,619.2	$	14,063.6	$	(236.6)	$	(3,186.8)	$	336.0	$	12,597.6























Balance at February 29, 2020	$	1.9	$	0.3	$	1,514.6	$	13,695.3	$	(266.3)	$	(2,814.0)	$	342.5	$	12,474.3

Comprehensive income (loss):
Net income (loss)	—		—		—		(177.9)		—		—		5.3		(172.6)
Other comprehensive income (loss), net of income tax effect	—		—		—		—		(756.1)		—		(36.2)		(792.3)
Comprehensive income (loss)															(964.9)

Dividends declared	—		—		—		(143.3)		—		—		—		(143.3)

Shares issued under equity compensation plans	—		—		(6.0)		—		—		2.8		—		(3.2)
Stock-based compensation	—		—		14.7		—		—		—		—		14.7
Balance at May 31, 2020	$	1.9	$	0.3	$	1,523.3	$	13,374.1	$	(1,022.4)	$	(2,811.2)	$	311.6	$	11,377.6


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 3


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 4


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 5


	May 31, 2021		February 28, 2021
(in millions)
Raw materials and supplies	$	169.8	$	151.1
In-process inventories	706.1		735.9
Finished case goods	501.7		404.1
	$	1,377.6	$	1,291.1


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 6


(in millions)
Cash received from buyer	$	272.4
Net assets sold	(206.4)
Contract termination	(4.0)
Direct costs to sell	(3.2)

Gain on sale of business	$	58.8


(in millions)
Cash received from buyer	$	667.4
Net assets sold	(669.1)
Transition services agreements	(13.0)
Direct costs to sell	(8.3)
AOCI reclassification adjustments, primarily foreign currency translation	(5.1)
Other	(5.2)
Loss on sale of business	$	(33.3)


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 7


Assets					Liabilities
	May 31, 2021		February 28, 2021			May 31, 2021		February 28, 2021
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	47.9	$	32.0	Other accrued expenses and liabilities	$	3.2	$	3.5
Other assets	$	44.9	$	41.3	Deferred income taxes and other liabilities	$	2.7	$	2.7









Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	1.8	$	3.3	Other accrued expenses and liabilities	$	1.9	$	3.5
Commodity derivative contracts:
Prepaid expenses and other	$	24.7	$	13.4	Other accrued expenses and liabilities	$	1.2	$	3.9
Other assets	$	14.9	$	7.8	Deferred income taxes and other liabilities	$	0.4	$	1.4


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 8


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 Three Months Ended May 31, 2021
Foreign currency contracts	$	19.3	Sales	$	(0.2)
			Cost of product sold	9.0


Treasury lock contracts	—		Interest expense	(0.6)
	$	19.3		$	8.2

For the Three Months Ended May 31, 2020
Foreign currency contracts	$	(193.4)	Sales	$	0.4
			Cost of product sold	(8.5)
Interest rate swap contracts	(0.3)		Interest expense	(0.4)
Treasury lock contracts	(16.1)		Interest expense	—
	$	(209.8)		$	(8.5)


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 Three Months Ended May 31, 2021
Commodity derivative contracts	Cost of product sold	$	24.1
Foreign currency contracts	Selling, general, and administrative expenses	(2.2)

		$	21.9

For the Three Months Ended May 31, 2020
Commodity derivative contracts	Cost of product sold	$	(26.8)
Foreign currency contracts	Selling, general, and administrative expenses	(25.9)

		$	(52.7)


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 9


	May 31, 2021						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$	30.25		C$	30.25		C$	41.90		C$	41.90
Remaining contractual term (7)	2.4 years			5.4 years			2.7 years			5.7 years
Expected volatility (8)	70.0		%	70.0		%	70.0		%	70.0		%
Risk-free interest rate (9)	0.4		%	1.0		%	0.5		%	1.1		%
Expected dividend yield (10)	0.0		%	0.0		%	0.0		%	0.0		%


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 10


	May 31, 2021			February 28, 2021
Conversion price (1)	C$	48.17		C$	48.17
Valuation date stock price (2)	C$	30.25		C$	41.90
Remaining term (3)	2.1 years			2.4 years
Expected volatility (4)	70.0		%	57.6		%
Risk-free interest rate (5)	0.3		%	0.4		%
Expected dividend yield (6)	0.0		%	0.0		%


Constellation Brands, Inc. Q1 FY 2022 Form 10-Q			#WORTHREACHINGFOR I 11


	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)
May 31, 2021
Assets:
Foreign currency contracts	$	—	$	94.6	$	—	$	94.6
Commodity derivative contracts	$	—	$	39.6	$	—	$	39.6

Equity securities (1)	$	—	$	903.5	$	—	$	903.5
Canopy Debt Securities (1)	$	—	$	170.1	$	—	$	170.1

Liabilities:
Foreign currency contracts	$	—	$	7.8	$	—	$	7.8
Commodity derivative contracts	$	—	$	1.6	$	—	$	1.6




February 28, 2021
Assets:
Foreign currency contracts	$	—	$	76.6	$	—	$	76.6
Commodity derivative contracts	$	—	$	21.2	$	—	$	21.2
Equity securities (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