Post on 22-Apr-2023
As I reflect on fiscal 2022, I’m extremely proud of how our team pulled together to deliver another strong year, driving record net sales growth, and robust cash flow generation. Our team accomplished this while battling through a series of headwinds, including the second year of the COVID-19 pandemic, supply chain challenges, adverse weather events, rising inflation, and rapidly shifting consumer preferences, to name a few. Through it all, we stayed true to who we are, laser-focused on meeting consumers’ needs, and relentless in our efforts to continue building brands consumers love.
Our strong performance in fiscal 2022 was headlined by our beer business, which delivered its 12th consecutive year of volume growth. Our beer portfolio posted net sales growth of 11% and added 30 million cases of high-end growth, extending our leadership position in IRI channels as the #1 high-end beer supplier, and the #1 dollar share gainer across the U.S. beer market. Modelo Especial became the #2 beer brand in U.S. dollar sales in fiscal 2022 and we believe it continues to have significant opportunities to expand distribution and household penetration in the years ahead. Sales of Corona Extra surged during the year and it continues to be one of the most loved beer brands in the U.S. beer market. Pacifico continued to expand distribution beyond its core base in Southern California, delivering 11% volume growth in fiscal 2022, and we believe it has a great pathway ahead to maintain that momentum over the medium-term.
Modelo Chelada complemented the growth of our core beer brands by continuing to make strides in the flavored malt beverage space as the #1 chelada in the U.S. beer market. And the recent launch of new innovations, including Modelo Chelada Naranja Picosa, Modelo Oro (a premium, sessionable, light cerveza with low calories and carbs), Modelo Cantarito-Style Cerveza, Corona Seltzerita, and our recently announced agreement with The Coca-Cola Company to introduce a new, distinctive line of spirit-based, ready-to-drink cocktails in the U.S. using the well-loved and fast-growing FRESCA® brand, are intended to help sustain our momentum going forward.
One hallmark of success for our beer business over the years has been our strength and continuity of leadership. Earlier this year, we announced that Jim Sabia assumed the role of Executive Vice President & President of our beer division. Jim has played a key role in helping to fuel the growth of our beer business for many years and we look forward to further building on our momentum under his leadership. Separately, we were deeply saddened by the sudden passing of Paul Hetterich, Executive Vice President & Chair of our beer division, in April. Paul was a driving force behind the success of our company for more than 35 years. We will forever be grateful to Paul for his passion and dedication in helping establish Constellation as a leader within the beverage alcohol industry. We are committed to honoring his legacy by striving to continue raising the bar on our performance in the years ahead.
Our wine and spirits business delivered solid gross margin improvement for the fiscal year. Our enhanced focus on premiumization of our wine and spirits portfolio continued to yield benefits, as our higher-end brands outpaced the overall U.S. wine and spirits category, primarily driven by Kim Crawford, Meiomi, and The Prisoner Wine Company.
Our innovation efforts in our wine and spirits business also produced strong results driven by Meiomi Cabernet Sauvignon and Kim Crawford Illuminate Sauvignon Blanc, which held the top two spots among new high-end products introduced over the last two years in IRI channels,(1) as well as The Prisoner varietal expansions, High West ready-to-serve cocktails, and Woodbridge’s Buttery Chardonnay and 3-liter box.
To complement our premiumization efforts, and in line with Constellation’s ambition to be the #1 player in fine wine and among the top five in ultra-luxury and icon wines, we recently acquired the highly acclaimed, Oregon wine brand Lingua Franca. We also acquired the remaining portion of Austin Cocktails, an emerging brand in the fast-growing ready-to-drink segment, which began as one of our first Constellation Ventures “Focus on Female Founders” investments. These transactions, along with our acquisition of the remaining portion of My
DEAR SHAREHOLDERS
Constellation Brands, Inc. FY 2022 Annual Report #WORTHREACHINGFOR
Favorite Neighbor in fiscal 2022, are designed to better position our wine and spirits business in categories with significant growth tailwinds behind them.
We continue to believe that the cannabis market represents a significant long-term growth opportunity and we’re encouraged by the work Canopy is doing to further sharpen its strategy—anchored by the premiumization of its brand portfolio, scaling of CPG brands BioSteel and Storz & Bickel across the U.S., and advancing Canopy’s U.S. THC strategy to unlock the U.S. market upon federal legalization. Canopy plans to continue strengthening its competitive positioning in the U.S. by building and acquiring high-quality brands and by focusing on operational excellence and best-in-class distribution supported by strategic relationships with two profitable multi-state operators (MSO)—Acreage and TerrAscend—which are positioned in high-growth Northeastern markets.
I’m also proud of the strides we’re making as part of our commitment to deliver on an ESG strategy that we believe is good for business and our world. We recently announced new targets to reduce our Scope 1 and Scope 2 greenhouse gas emissions by 15% between the periods fiscal 2020 to fiscal 2025 and to restore more than 1 billion gallons of water withdrawals from critical watersheds, while improving water accessibility in disadvantaged communities where we operate, between the periods fiscal 2023 to fiscal 2025.
As part of our commitment to supporting female- and minority-founded start-ups in the beverage alcohol space,
we invested in La Fête du Rosé (a disruptive rosé geared towards multicultural consumers) and Sapere Aude (a uniquely Californian sparkling wine). Our goal is to help improve female and minority entrepreneurs’ probability of success by providing access to funding, subject matter expertise, and enhanced distributor and retailer support. To date, a majority of participants in these programs are growing ahead of their respective categories.
Furthermore, we returned nearly $2 billion to shareholders in the form of dividends and share repurchases in fiscal 2022 and are on track to meet our commitment to return $5 billion to shareholders by year-end fiscal 2023. We remain committed to our previously stated capital allocation strategy, which includes maintaining our investment-grade credit rating, returning cash to shareholders, reinvesting in our beer business to support robust growth, and small, tuck-in acquisitions to fill portfolio gaps.
To fuel the continued growth of our imported beer portfolio, we plan to deploy an increased level of investment over the next four fiscal years to support construction of a new brewery in Southeast Mexico in the state of Veracruz, as well as continued expansion, optimization, and construction at our existing Nava and Obregon operations. Our beer business continues to significantly outperform the U.S. beer industry driven by robust consumer demand, and it is essential that we invest appropriately to support the expected ongoing growth momentum for our exceptional beer brands.
While we operate in a very dynamic and seemingly everchanging industry, one thing has remained constant over the years. Earlier this year, IRI issued its annual rankings of CPG growth leaders and Constellation was recognized for being one of the top performers yet again. In fact, Constellation has been recognized as an IRI growth leader more than any other CPG company in our peer set over the last 10 years.(2) That’s something we’re extremely proud of and we look forward to keeping this momentum going in our new fiscal year and beyond. I want to thank our employees, distributors, and shareholders for your continued confidence and support as we strive to build a company Worth Reaching For.
Bill Newlands President & CEO
IRI, Total U.S.—Multi-Outlet + Convenience, 52 weeks ending February 20, 2022 source for all market data, unless otherwise noted
Reconciliations of non-GAAP financial measures are contained on the inside back page of this Fiscal Year 2022 Annual Report
(1) IRI, Total U.S.—Multi-Outlet + Convenience, 104 weeks ending February 20, 2022
(2) IRI, Total U.S.—Multi-Outlet + Convenience, 52 weeks ending December 26, 2021; IRI and BCG Analysis
Constellation Brands, Inc. FY 2022 Annual Report #WORTHREACHINGFOR
Constellation Brands, Inc. FY 2022 Annual Report #WORTHREACHINGFOR
FISCAL 2022 HIGHLIGHTS
~$2B
$8.8B RECORD NET SALES
$2.7BTO SHAREHOLDERS
Returned nearly $2 billion to shareholders in FY22 in the form of share repurchases
and dividends as part of our commitment to return $5 billion
to shareholders by FY23.
12th consecutive year of volume growth in Beer businessand strong organic net sales growth in Wine & Spirits business in FY22.
OPERATING CASH FLOWSupporting continued
investment in the growth ofthe business and cash returns
to shareholders.
Source: IRI, Total U.S.—Multi-Outlet + Convenience, 52 weeks ending December 26, 2021; IRI and BCG Analysis
9 CONSECUTIVE YEARSAS A CPG GROWTH LEADER
HIGHEST NUMBER OF CONSECUTIVE YEARS AMONG LARGE CPG COMPANIES
202120202019
201820172016
201520142013
UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION
WASHINGTON,D.C.20549
FORM10-K(MarkOne)
☒ ANNUALREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
ForthefiscalyearendedFebruary28,2022or
☐ TRANSITIONREPORTPURSUANTTOSECTION13OR15(d)OFTHESECURITIESEXCHANGEACTOF1934
Forthetransitionperiodfromto
Commissionfilenumber001-08495
CONSTELLATIONBRANDS,INC.(Exactnameofregistrantasspecifiedinitscharter)
Delaware 16-0716709
(Stateorotherjurisdictionofincorporationororganization) (I.R.S.EmployerIdentificationNo.)
207HighPointDrive,Building100,Victor,NewYork14564
(Addressofprincipalexecutiveoffices)(Zipcode)
Registrant’stelephonenumber,includingareacode(585)678-7100
SecuritiesregisteredpursuanttoSection12(b)oftheAct:
TitleofEachClass TradingSymbol(s) NameofEachExchangeonWhichRegistered
ClassACommonStock STZ NewYorkStockExchange
ClassBCommonStock STZ.B NewYorkStockExchange
SecuritiesregisteredpursuanttoSection12(g)oftheAct:None
Indicatebycheckmarkiftheregistrantisawell-knownseasonedissuer,asdefinedinRule405oftheSecuritiesAct.Yes☒No☐IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.Yes☐No☒Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecurities
ExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes☒No☐
IndicatebycheckmarkwhethertheregistranthassubmittedelectronicallyeveryInteractiveDataFilerequiredtobesubmittedpursuanttoRule405ofRegulationS-T(§232.405ofthischapter)duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtosubmitsuchfiles).Yes☒No☐
Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,asmallerreportingcompany,oranemerginggrowthcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany,”and“emerginggrowthcompany”inRule12b-2oftheExchangeAct.LargeAcceleratedFiler ☒ Acceleratedfiler ☐Non-acceleratedfiler ☐ Smallerreportingcompany ☐
Emerginggrowthcompany ☐Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodfor
complyingwithanyneworrevisedfinancialaccountingstandardsprovidedpursuanttoSection13(a)oftheExchangeAct.☐Indicatebycheckmarkwhethertheregistranthasfiledareportonandattestationtoitsmanagement’sassessmentofthe
effectivenessofitsinternalcontroloverfinancialreportingunderSection404(b)oftheSarbanes-OxleyAct(15U.S.C.7262(b))bytheregisteredpublicaccountingfirmthatpreparedorissueditsauditreport.☒
Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinRule12b-2oftheExchangeAct).Yes☐No☒
TableofContents
Theaggregatemarketvalueofthevotingandnon-votingcommonequityheldbynon-affiliatesoftheregistrant,basedupontheclosingsalespricesoftheregistrant’sClassAandClassBCommonStockasreportedontheNewYorkStockExchangeasofthelastbusinessdayoftheregistrant’smostrecentlycompletedsecondfiscalquarterwas$33.3billion.
ThenumberofsharesoutstandingwithrespecttoeachoftheclassesofcommonstockofConstellationBrands,Inc.,asofApril14,2022,issetforthbelow:
Class NumberofSharesOutstanding
ClassACommonStock,parvalue$.01pershare 162,762,867
ClassBCommonStock,parvalue$.01pershare 23,205,885
Class1CommonStock,parvalue$.01pershare 2,248,714
DOCUMENTSINCORPORATEDBYREFERENCE
PortionsoftheProxyStatementofConstellationBrands,Inc.tobeissuedforthe2022AnnualMeetingofStockholdersareincorporatedbyreferenceinPartIIItotheextentdescribedtherein.
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TABLEOFCONTENTSPage
FORWARD-LOOKINGSTATEMENTS i
DEFINEDTERMS iv
PARTI
Item1. Business 1
Item1A. RiskFactors 17
Item1B. UnresolvedStaffComments NA
Item2. Properties 31
Item3. LegalProceedings 31
Item4. MineSafetyDisclosures NA
PARTII
Item5. MarketforRegistrant’sCommonEquity,RelatedStockholderMatters,andIssuerPurchasesofEquitySecurities
32
Item6. [Reserved] NA
Item7. Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations 33
Item7A. QuantitativeandQualitativeDisclosuresAboutMarketRisk 56
Item8. FinancialStatementsandSupplementaryData 58
Item9. ChangesinandDisagreementsWithAccountantsonAccountingandFinancialDisclosure NA
Item9A. ControlsandProcedures 117
Item9B. OtherInformation NA
Item9C. DisclosureRegardingForeignJurisdictionsthatPreventInspections NA
PARTIII
Item10. Directors,ExecutiveOfficers,andCorporateGovernance 118
Item11. ExecutiveCompensation 118
Item12. SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters 118
Item13. CertainRelationshipsandRelatedTransactions,andDirectorIndependence 119
Item14. PrincipalAccountantFeesandServices 119
PARTIV
Item15. ExhibitsandFinancialStatementSchedules 120
Item16. Form10-KSummary 120
SIGNATURES 127
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ThisForm10-Kcontains“forward-lookingstatements”withinthemeaningofSection27AoftheSecuritiesActandSection21EoftheExchangeAct.Theseforward-lookingstatementsaresubjecttoanumberofrisksanduncertainties,manyofwhicharebeyondourcontrol,whichcouldcauseactualresultstodiffermateriallyfromthosesetforthin,orimpliedby,suchforward-lookingstatements.AllstatementsotherthanstatementsofhistoricalfactincludedinthisForm10-Kareforward-lookingstatements,includingwithoutlimitation:
• ThestatementsunderItem1.“Business”andItem7.“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”regarding:◦ ourbusinessstrategy,futureoperations,innovationstrategyandnewproducts,futurefinancial
position,futurenetsalesandexpectedvolumeandinventorytrends,futuremarketingspend,futureeffectivetaxratesandanticipatedtaxliabilities,prospects,plans,andobjectivesofmanagement;
◦ theanticipatedavailabilityofwater,agriculturalandotherrawmaterials,andpackagingmaterials;
◦ theCOVID-19pandemic;◦ ourESGstrategy,sustainabilityinitiatives,environmentalstewardshiptargets,andhumancapital
andDEIobjectivesandgoals;◦ thepotentialimpacttosupply,productionlevels,andcostsduetoglobalsupplychainlogisticsand
transportation;◦ expectedorpotentialactionsofthirdparties,includingpossiblechangestolaws,rules,and
regulations;◦ anticipatedinflationarypressuresandourresponsesthereto;◦ expectedpurchaseaccountingallocations;◦ thefutureexpectedbalanceofsupplyanddemandforandinventorylevelsofourproducts;◦ therefinementofourwineandspiritsportfolio;◦ theWineandSpiritsDivestitures,includingpotentialamountsofcontingentconsideration;◦ themanner,timing,anddurationofthesharerepurchaseprogramandsourceoffundsforshare
repurchases;and◦ theamountandtimingoffuturedividends.
• Thestatementsregardingourbeerexpansion,optimization,and/orconstructionactivities,includinganticipatedscope,capacity,costs,capitalexpenditures,timeframesforcompletion,discussionswithgovernmentofficialsinMexico,andpotentialfutureimpairmentofnon-recoverablebreweryconstructionassetsandothercostsandexpenses.
• Thestatementsregarding:◦ thevolatilityofthefairvalueofourinvestmentinCanopymeasuredatfairvalue;◦ ouractivitiessurroundingourinvestmentinCanopy;◦ Canopy’sexpectationsandthetransactionwithAcreage;◦ thetimingandsourceoffundsforoperatingactivitiesandexercisesoftheNovember2018Canopy
Warrants,ifany;◦ apotentialfutureimpairmentofourCanopyEquityMethodInvestment;and◦ ourfutureownershiplevelinCanopyandourfutureshareofCanopy’sreportedearningsand
losses.• Thestatementsregardingourtargetednetleverageratio.• ThestatementsregardingthefuturereclassificationofnetgainsfromAOCI.• Thestatementsregardingtheimpactofanypotentialcommonstockdeclassification,includingin
connectionwiththeProposal.
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIi
WhenusedinthisForm10-K,thewords“anticipate,”“intend,”“expect,”andsimilarexpressionsareintendedtoidentifyforward-lookingstatements,althoughnotallforward-lookingstatementscontainsuchidentifyingwords.Allforward-lookingstatementsspeakonlyasofthedateofthisForm10-K.Weundertakenoobligationtoupdateorreviseanyforward-lookingstatements,whetherasaresultofnewinformation,futureevents,orotherwise.Althoughwebelievethattheexpectationsreflectedintheforward-lookingstatementsarereasonable,wecangivenoassurancethatsuchexpectationswillprovetobecorrect.Inadditiontotherisksanduncertaintiesofordinarybusinessoperationsandconditionsinthegeneraleconomyandmarketsinwhichwecompete,ourforward-lookingstatementscontainedinthisForm10-Karealsosubjecttotherisk,uncertainty,andpossiblevariancefromourcurrentexpectationsregarding:
• water,agriculturalandotherrawmaterial,andpackagingmaterialsupply,production,and/orshipmentdifficultieswhichcouldadverselyaffectourabilitytosupplyourcustomers;
• theabilitytorespondtoanticipatedinflationarypressures,includingreductionsinconsumerdiscretionaryincomeandourabilitytopassalongrisingcoststhroughincreasedsellingprices;
• theactualimpacttosupply,productionlevels,andcostsfromglobalsupplychainlogistics,transportationchallenges,wildfires,andsevereweatherevents,dueto,amongotherreasons,actualsupplychainandtransportationperformanceandtheactualseverityandgeographicalreachofwildfiresandsevereweatherevents;
• theactualbalanceofsupplyanddemandforourproductsandpercentageofourportfoliodistributedthroughanyparticulardistributordueto,amongotherreasons,actualrawmaterialandwatersupply,actualshipmentstodistributors,andactualconsumerdemand;
• theactualdemand,netsales,channelproportions,andvolumetrendsforourproductsdueto,amongotherreasons,actualshipmentstodistributorsandactualconsumerdemand;
• beeroperationsexpansion,optimization,and/orconstructionactivities,scope,capacity,costs(includingimpairments),capitalexpenditures,andtimingdueto,amongotherreasons,marketconditions,ourcashanddebtposition,receiptofrequiredregulatoryapprovalsbytheexpecteddatesandontheexpectedterms,resultsofdiscussionswithgovernmentofficialsinMexico,theactualamountofnon-recoverablebreweryconstructionassetsandothercostsandexpenses,andotherfactorsasdeterminedbymanagement;
• thedurationandimpactoftheCOVID-19pandemic,includingbutnotlimitedtotheimpactandseverityofnewvariants,vaccineefficacyandimmunizationrates,theclosureofnon-essentialbusinesses,whichmayincludeourmanufacturingfacilities,andotherassociatedgovernmentalcontainmentactions,andtheincreaseincyber-securityattacksthathaveoccurredwhilenon-productionemployeesworkremotely;
• theimpactofthemilitaryconflictinUkraineandassociatedgeopoliticaltensionsandresponses,includingoninflation,supplychains,commodities,energy,andcyber-security;
• theamount,timing,andsourceoffundsforanysharerepurchasesorfutureexercisesoftheNovember2018CanopyWarrants,ifany,whichmayvaryduetomarketconditions;ourcashanddebtposition;theimpactofthebeeroperationsexpansion,optimization,and/orconstructionactivities;theimpactofourinvestmentinCanopy;andotherfactorsasdeterminedbymanagementfromtimetotime;
• theamountandtimingoffuturedividendswhicharesubjecttothedeterminationanddiscretionofourBoardofDirectorsandmaybeimpactedifourabilitytousecashflowtofunddividendsisaffectedbyunanticipatedincreasesintotalnetdebt,weareunabletogeneratecashflowatanticipatedlevels,orwefailtogenerateexpectedearnings;
• thefairvalueofourinvestmentinCanopyduetomarketandeconomicconditionsinCanopy’smarketsandbusinesslocations;
• theaccuracyofmanagement’sprojectionsrelatingtotheCanopyinvestmentduetoCanopy’sactualresultsandmarketandeconomicconditions;
• thetimeframeandamountofanypotentialfutureimpairmentofourCanopyEquityMethodInvestmentifourexpectationsaboutCanopy’sprospectiveresultsandcashflowsdeclinewhichcouldbeinfluencedbyvariousfactorsincludingadversemarketconditionsorifCanopyrecordsasignificantimpairmentofgoodwillorintangibleassetsorotherlong-livedassets,makessignificantassetsales,orhaschangesinseniormanagement;
• theamountofcontingentconsideration,ifany,receivedintheWineandSpiritsDivestitureswhichwilldependonactualfuturebrandperformance;
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIii
• theexpectedimpactsofwineandspiritsportfoliorefinementactivities;• purchaseaccountingwithrespecttoanytransaction,ortheassumptionsusedregardingtheassets
purchasedandliabilitiesassumedtodeterminetheirfairvalue;• anyimpactofU.S.federallawsonCanopyStrategicTransactionsorupontheimplementationofsuch
CanopyStrategicTransactions,ortheimpactofanyCanopyStrategicTransactionuponourfutureownershiplevelinCanopyorourfutureshareofCanopy’sreportedearningsandlosses;
• whetheradefinitiveagreementinrelationtotheProposalwillbeenteredinto,whattheultimatetermsofanysuchagreementmaybe,whethertherequiredstockholderapprovalwouldbeobtained,andtheimpactofanysuchtransactiononoursharesoutstandingandassociatedfinancialmetrics;and
• ourtargetednetleverageratioduetomarketconditions,ourabilitytogeneratecashflowatexpectedlevels,andourabilitytogenerateexpectedearnings.
Additionalimportantfactorsthatcouldcauseactualresultstodiffermateriallyfromthosesetforthinorimpliedbyourforward-lookingstatementscontainedinthisForm10-KarethosedescribedinItem1A.“RiskFactors”andelsewhereinthisreportandinourotherfilingswiththeSEC.
MarketpositionsandindustrydatadiscussedinthisForm10-Kareasofcalendar2021andhavebeenobtainedorderivedfromindustryandgovernmentpublicationsandourestimates.Theindustryandgovernmentpublicationsinclude:BeerMarketersInsights;BeverageInformationGroup;GrowersNetwork;ImpactDatabankReviewandForecast;InternationalWineandSpiritsResearch(IWSR);IRI;BeerInstitute;andNationalAlcoholBeverageControlAssociation.Wehavenotindependentlyverifiedthedatafromtheindustryandgovernmentpublications.Unlessotherwisenoted,allreferencestomarketpositionsarebasedonequivalentunitvolume.
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIiii
DefinedTerms
Unlessthecontextotherwiserequires,theterms“Company,”“CBI,”“we,”“our,”or“us”refertoConstellationBrands,Inc.anditssubsidiaries.WeusetermsinthisForm10-KandinourNotesthatarespecifictousorareabbreviationsthatmaynotbecommonlyknownorused.
$ U.S.dollars
2.25%July2021SeniorNotes $1,000.0millionprincipalamountof2.25%seniornotesissuedinJuly2021
2.65%November2017SeniorNotes $700.0millionprincipalamountof2.65%seniornotesissuedinNovember2017andredeemedinAugust2021,priortomaturity
2.70%May2017SeniorNotes $500.0millionprincipalamountof2.70%seniornotesissuedinMay2017andredeemedinAugust2021,priortomaturity
2018Authorization authoritytorepurchaseupto$3.0billionofourClassAStockandClassBStock,authorizedinJanuary2018byourBoardofDirectors
2019TermCreditAgreement atermloancreditagreement,datedasofJune28,2019,consistingoftheFive-YearTermFacility,nowsupersededbythe2020TermCreditAgreementandtheJune2021TermCreditAgreement
2020CreditAgreement ninthamendedandrestatedcreditagreement,datedasofMarch26,2020,providedforanaggregaterevolvingcreditfacilityof$2.0billion,nowsupersededbythe2022CreditAgreement
2020RestatementAgreement restatementagreement,datedasofMarch26,2020,thatamendedandrestatedoureighthamendedandrestatedcreditagreement,datedasofSeptember14,2018,whichwasourthen-existingseniorcreditfacility
2020TermCreditAgreement amendedandrestatedtermcreditagreement,datedasofMarch26,2020,nowrepaidinfull
2020TermLoanRestatementAgreement restatementagreement,datedasofMarch26,2020,thatamendedandrestatedthe2019TermCreditAgreement,resultingintheMarch2020TermCreditAgreement
2020U.S.wildfires significantwildfiresthatbrokeoutinCalifornia,Oregon,andWashingtonstateswhichaffectedthe2020U.S.grapeharvest
2021Authorization authoritytorepurchaseupto$2.0billionofourClassAStockandClassBStock,authorizedinJanuary2021byourBoardofDirectors
2022CreditAgreement tenthamendedandrestatedcreditagreement,datedasofApril14,2022,providesforanaggregaterevolvingcreditfacilityof$2.25billion
2022RestatementAgreement restatementagreement,datedasofApril14,2022,thatamendedandrestatedthe2020CreditAgreement,whichwasourthen-existingseniorcreditfacilityasofFebruary28,2022
2022TermCreditAgreement March2020TermCreditAgreement,inclusiveofamendmentsdatedasofJune10,2021,andApril14,2022
3-tier distributionchannelwhereproductsaresoldtoadistributor(wholesaler)whothensellstoaretailer;theretailersellstheproductstoaconsumer
3-tiereCommerce digitalcommerceexperienceforourconsumerstopurchasebeveragealcoholfromretailers
ABA alternativebeveragealcohol
Acreage AcreageHoldings,Inc.
AcreageFinancialInstrument acalloptionforCanopytoacquire70%ofthesharesofAcreageatafixedexchangeratioand30%atafloatingexchangeratio
AcreageTransaction Canopy’sintentiontoacquireAcreageuponU.S.federalcannabislegalization,subjecttocertainconditions
AdministrativeAgent BankofAmerica,N.A.,asadministrativeagentforapplicableseniorcreditfacilitiesandtermcreditagreements
Term Meaning
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIiv
AOCI accumulatedothercomprehensiveincome(loss)
ASR acceleratedsharerepurchaseagreementwithathird-partyfinancialinstitution
AustinCocktails wemadeaninitialinvestmentintheAustinCocktailsbusinessandsubsequentlyacquiredtheremainingownershipinterest
BallastPointDivestiture saleofBallastPointcraftbeerbusiness,includinganumberofitsassociatedproductionfacilitiesandbrewpubs
BlackVelvetDivestiture saleofBlackVelvetCanadianWhiskybusinessandthebrand’sassociatedproductionfacility,alongwithasubsetofCanadianwhiskybrandsproducedatthatfacility,andrelatedinventory
BRG(s) businessresourcegroup(s)
C$ Canadiandollars
Canopy wemadeaninvestmentinCanopyGrowthCorporation,anOntario,Canada-basedpubliccompany
CanopyDebtSecurities convertibledebtsecuritiesissuedbyCanopy
CanopyEquityMethodInvestment November2017CanopyInvestment,November2018CanopyInvestment,andMay2020CanopyInvestment,collectively
CanopyStrategicTransaction(s) anypotentialacquisition,divestiture,investment,orothersimilartransactionmadebyCanopy,includingbutnotlimitedtotheAcreageTransaction
CARESAct CoronavirusAid,Relief,andEconomicSecurityAct
CBInternational CBInternationalFinanceS.àr.l.,awholly-ownedsubsidiaryofours
CDC CentersforDiseaseControlandPrevention
Class1Stock ourClass1ConvertibleCommonStock,parvalue$0.01pershare
ClassAStock ourClassACommonStock,parvalue$0.01pershare
ClassBStock ourClassBConvertibleCommonStock,parvalue$0.01pershare
Coca-Cola TheCoca-ColaCompany
CODM chiefoperatingdecisionmaker
ComparableAdjustments certainitemsaffectingcomparabilitythathavebeenexcludedbymanagement
ConcentrateBusinessDivestiture saleofcertainbrandsusedinourconcentratesandhigh-colorconcentratebusiness,andcertainintellectualproperty,inventory,interestsincertaincontracts,andotherassets
Copper&Kings Copper&KingsAmericanBrandyCompany,acquiredbyus
CPG consumerpackagedgoods
Crown CrownImportsLLC,awholly-ownedsubsidiaryofours
CSR corporatesocialresponsibility
DEI diversity,equity,andinclusion
Depletions representU.S.domesticdistributorshipmentsofourrespectivebrandedproductstoretailcustomers,basedonthird-partydata
DGCL GeneralCorporationLawoftheStateofDelaware
DTC direct-to-consumer;adigitalcommerceexperienceforconsumerstopurchasedirectlyfrombrandwebsiteswithinventorycomingstraightfromthesupplier
EHS Environmental,Health,&Safety
EmpathyWines EmpathyWinesbusiness,includingadigitally-nativewinebrand,acquiredbyus
EmployeeStockPurchasePlan theCompany’semployeestockpurchaseplan,establishedin1989,underwhich9,000,000sharesofClassAStockmaybeissued
ERP enterpriseresourceplanningsystem
ESG environmental,social,andgovernance
ExchangeAct SecuritiesExchangeActof1934,asamended
Term Meaning
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIv
FASB FinancialAccountingStandardsBoard
Fiscal2020 theCompany’sfiscalyearendedFebruary29,2020
Fiscal2021 theCompany’sfiscalyearendedFebruary28,2021
Fiscal2022 theCompany’sfiscalyearendedFebruary28,2022
Fiscal2023 theCompany’sfiscalyearendingFebruary28,2023
Fiscal2024 theCompany’sfiscalyearendingFebruary29,2024
Fiscal2025 theCompany’sfiscalyearendingFebruary28,2025
Fiscal2026 theCompany’sfiscalyearendingFebruary28,2026
Fiscal2027 theCompany’sfiscalyearendingFebruary28,2027
Five-YearTermFacility afive-yeartermloanfacilityunderthe2022TermCreditAgreement
Form10-K thisAnnualReportonForm10-KforFiscal2022unlessotherwisespecified
Gallo E.&J.GalloWinery
GHG greenhousegas
GILTI globalintangiblelow-taxedincome
GlassPlant glassproductionplantinNavaoperatedthroughanequally-ownedjointventurewithOwens-Illinois
June2019WarrantModification June2019modificationofthetermsofthewarrantsandcertainotherrightsoriginallyobtainedinNovember2018whichgaveustheoptiontopurchase139.7millioncommonsharesofCanopy
June2019WarrantModificationLoss ourshareofCanopy’sadditionallossresultingfromtheJune2019WarrantModification
June2021TermCreditAgreement March2020TermCreditAgreement,inclusiveofamendmentdatedasofJune10,2021
Lender BankofAmerica,N.A.,aslenderforthetermcreditagreement
LIBOR LondonInterbankOfferedRate
LinguaFranca LinguaFranca,LLCbusiness,acquiredbyus
Long-TermStockIncentivePlan astockholder-approvedomnibusincentiveplanthatprovidestheabilitytograntvarioustypesofequityandcashawardstoeligibleplanparticipants
March2020TermCreditAgreement amendedandrestatedtermloancreditagreement,datedasofMarch26,2020,thatprovidedforaggregatefacilitiesof$491.3million,consistingoftheFive-YearTermFacility
May2020CanopyInvestment May2020exerciseoftheNovember2017CanopyWarrantsatanexercisepriceofC$12.98perwarrantshare
MD&A Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperationsunderItem7.ofthisForm10-K
MexicaliBrewery suspendedbreweryconstructionprojectlocatedinMexicali,BajaCalifornia,Mexico
MexicoBeerProjects expansion,optimization,and/orconstructionactivitiesattheObregonBrewery,NavaBrewery,andSoutheastMexicoBrewery
MissionBell MissionBellWineryinMadera,California
M&T ManufacturersandTradersTrustCompany
MyFavoriteNeighbor wemadeaninitialinvestmentinMyFavoriteNeighbor,LLCandsubsequentlyacquiredtheremainingownershipinterest
NA notapplicable
Nasdaq TheNasdaqGlobalSelectMarket
Nava Nava,Coahuila,Mexico
NavaBrewery brewerylocatedinNava
Term Meaning
TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIvi
Nelson’sGreenBrier wemadeaninitialinvestmentinNelson’sGreenBrierDistillery,LLCandsubsequentlyincreasedourownershipinterest
Netsales grosssaleslesspromotions,returnsandallowances,andexcisetaxes
NM notmeaningful
NobiloWineDivestiture saleofNewZealand-basedNobiloWinebrandandcertainrelatedassets
Note(s) notestotheconsolidatedfinancialstatementsunderItem8.ofthisForm10-K
November2017CanopyInvestment ourinitialinvestmentfor18.9millioncommonsharesofCanopy
November2017CanopyWarrants warrantswhichgaveustheoptiontopurchase18.9millioncommonsharesofCanopy,exercisedMay1,2020
November2018CanopyInvestment ourincrementalinvestmentfor104.5millioncommonsharesofCanopy
November2018CanopyTransaction November2018CanopyInvestmentandthepurchasebyusoftheNovember2018CanopyWarrants,collectively
November2018CanopyWarrants TrancheAWarrants,TrancheBWarrants,andTrancheCWarrants,collectively
NPD newproductdevelopment
NYSE NewYorkStockExchange
Obregon Obregon,Sonora,Mexico
ObregonBrewery brewerylocatedinObregon
OCI othercomprehensiveincome(loss)
Owens-Illinois O-IGlass,Inc.,theultimateparentofthecompanywithwhichwehaveanequally-ownedjointventuretooperatetheGlassPlant
PaulMassonDivestiture saleofPaulMassonGrandeAmberBrandybrand,relatedinventory,andinterestsincertaincontracts
Proposal non-bindingproposalfromtheSandsfamilyandentitiescontrolledbymembersoftheSandsfamilytodeclassifyourcommonstock
ProxyStatement ProxyStatementforFiscal2022tobeissuedinconnectionwiththe2022AnnualMeetingofStockholdersofourCompany
RTD ready-to-drink
Scope1 directGHGemissionsfromsourcesthatareownedorcontrolledbythecompany,suchasemissionsassociatedwithfurnacesorvehicles
Scope2 indirectGHGemissionsassociatedwiththepurchaseofelectricity,steam,heat,orcooling
SEC SecuritiesandExchangeCommission
SecuritiesAct SecuritiesActof1933,asamended
SKU stock-keepingunit,ascannablebarcode,mostoftenseenprintedonproductlabelsinaretailstore
SOFR securedovernightfinancingrateadministeredbytheFederalReserveBankofNewYork
SoutheastMexicoBrewery anewbreweryintendedtobelocatedinSoutheastMexicointhestateofVeracruz
SOX Section404oftheSarbanes-OxleyActof2002
TCJAct TaxCutsandJobsAct
TermLoanRestatementAgreement restatementagreement,datedasofMarch26,2020,thatamendedandrestatedourtermcreditagreementdatedasofSeptember14,2018,resultinginthe2020TermCreditAgreement
THC tetrahydrocannabinol
TrancheAWarrants warrantswhichgiveustheoptiontopurchase88.5millioncommonsharesofCanopyexpiringNovember1,2023
Term Meaning
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIvii
TrancheBWarrants warrantswhichgiveustheoptiontopurchase38.4millioncommonsharesofCanopyexpiringNovember1,2026
TrancheCWarrants warrantswhichgiveustheoptiontopurchase12.8millioncommonsharesofCanopyexpiringNovember1,2026
TSX TorontoStockExchange
U.S. UnitedStatesofAmerica
U.S.GAAP generallyacceptedaccountingprinciplesintheU.S.
VWAPExercisePrice volume-weightedaverageoftheclosingmarketpriceofCanopy’scommonsharesontheTSXforthefivetradingdaysimmediatelyprecedingtheexercisedate
WHO WorldHealthOrganization
WineandSpiritsDivestiture saleofaportionofourwineandspiritsbusiness,includinglower-margin,lower-growthwineandspiritsbrands,relatedinventory,interestsincertaincontracts,wineries,vineyards,offices,andfacilities
WineandSpiritsDivestitures WineandSpiritsDivestitureandtheNobiloWineDivestiture,collectively
Term Meaning
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORIviii
Item1.Business
Introduction
Weareaninternationalproducerandmarketerofbeer,wine,andspiritswithoperationsintheU.S.,Mexico,NewZealand,andItalywithpowerful,consumer-connected,high-qualitybrandslikeCoronaExtra,ModeloEspecial,theRobertMondaviBrandFamily,KimCrawford,Meiomi,ThePrisonerWineCompany,andHighWest.IntheU.S.,weareoneofthetopgrowthcontributorsatretailamongbeveragealcoholsuppliers.Wearethethird-largestbeercompanyandcontinuetostrengthenourleadershippositionasthe#1high-endbeersupplierandthe#1sharegaineracrosstheU.S.beermarket.Withinwineandspirits,wearemakingsolidprogressintransformingourbrandportfoliotoshifttoahigher-endfocusedbusinesstodelivernetsalesgrowthandmarginexpansion.Thestrengthofourbrandsmakesusasupplierofchoicetomanyofourconsumersandourcustomers,whichincludewholesaledistributors,retailers,andon-premiselocations.Weconductourbusinessthroughentitieswewhollyownaswellasthroughavarietyofjointventuresandotherentities.
Ourmissionistobuildbrandsthatpeoplelove.Weplacearelentlessfocusontheconsumerinourpursuittodeliverwhat’snextandcreatenewexperiencesthatelevatehumanconnections.WebelieveitisamissionthatisWorthReachingFor.Itisworthourdedication,hardwork,andthebold,calculatedriskswetaketodelivermoreforouremployees,consumers,tradepartners,stockholders,andcommunitiesinwhichweliveandwork.Itiswhathasmadeusoneofthefastest-growinglargeCPGcompaniesintheU.S.atretail.Ourcorevaluesguideourpursuits:
People–Truestrengthisachievedwheneveryonehasavoice.Thatiswhywebuildourcultureonafoundationthatencouragesinclusionanddiversityofthought,whereeveryonefeelsempoweredtobringtheirtrueselvesanddifferentpointsofviewstodriveusforwardCustomers–Wearerelentlesstoanticipatewhatconsumerswanttoday,tomorrow,andwellintothefutureEntrepreneurship–Asanindustryleader,weactwithabold,calculatedapproachtorealizeourvisionandunlocknewgrowthopportunitiesQuality–OurpromiseistopursuequalityinourprocessandproductsbycontinuouslyenhancingwhatwedoandhowwedoitIntegrity–Itisaboutmorethanachievinggoals.Howweachievethemisjustasimportant.Weactwithhighmoralandethicalstandardsandalwaysdotherightthing,evenwhenitisthehardthing
HeadquarteredinVictor,NewYork,weareaDelawarecorporationincorporatedin1972,asthesuccessortoabusinessfoundedin1945.
Strategy
Ouroverallstrategicvisionistoconsistentlydeliverindustry-leadingtotalstockholderreturnsoverthelong-termthroughafocusonthesekeypillars:
• continuebuildingstrongbrandspeoplelovewithadvantagedroutestomarket;• buildaculturethatisconsumer-obsessedandleveragesrobustinnovationcapabilitiestostayonthe
forefrontofconsumertrends;and• deliveronimpactfulESGinitiativesthatwebelievearenotonlygoodbusiness,butalsogoodforthe
world.
Wewillcontinuetostriveforsuccessbyensuringconsumer-leddecisionmakingdrivesallaspectsofourbusiness;buildingadiversetalentpipelinewithbest-in-classpeopledevelopment;investingindatasystems,architecture,andinfrastructurethatenablesourbusiness;andexemplifyingintentionalandproactivebalancesheetmanagement.Weplacefocusonpositioningourportfolioonhigher-margin,higher-growthcategoriesofthebeveragealcoholindustrytoalignwithconsumer-ledpremiumizationtrends,whichwebelievewillcontinuetodrivefastergrowthratesacrossbeer,wine,andspirits.Tocontinuecapitalizingonconsumer-ledpremiumizationtrends,becomemorecompetitive,andgrowourbusiness,wehaveemployedastrategydedicatedtoorganicgrowthandsupplementedbytargetedinvestmentsandacquisitions.Wealsobelieveakeycomponenttodriving
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fastergrowthratesistoinvestandstrengthenourleadershippositionwithintheDTCand3-tiereCommercechannels.Asaresultofthisstrategy,wehaverealizedimpactsoneachsegmentofourbusiness.
Inourbeerbusiness,wefocusonupholdingourleadershippositioninthehigh-endoftheU.S.beermarketthroughmaintenanceofleadingmargins,enhancementstoourresultsofoperationsandoperatingcashflow,andexploringnewavenuesforgrowth.Weareinvestinginthenextincrementofcapacityadditionsrequiredtosustainourmomentum.Wecontinuetofocusonconsumer-ledinnovationbycreatingnewlineextensionsbehindcelebrated,trustedbrandsandpackageformatsthatmeetemergingneeds.
Inourwineandspiritsbusiness,wecontinuetofocusonhigher-endbrands,improvingmargins,andcreatingoperatingefficiencies.Wecontinuetorefineourportfolioprimarilythroughtheacquisitionofhigher-margin,higher-growthwineandspiritsbrands.Werecentlyreorganizedthisbusinessintotwodistinctcommercialteams,onefocusedonourfinewineandcraftspiritsbrandsandtheotherfocusedonourmainstreamandpremiumbrands.Whileeachteamhasitsowndistinctstrategy,bothremainalignedtothegoalofacceleratingperformancebygrowingnetsalesandexpandingmargins.Inaddition,withintheDTCand3-tiereCommercechannels,weaimtohavethesechannelscollectivelyaccountfor20%ofourwineandspiritsbusinessovertime.
WecomplementourstrategywithourinvestmentinCanopybyexpandingourportfoliointoadjacentcategories.Canopyisaleadingcannabiscompanywithoperationsincountriesacrosstheworld.Thisinvestmentisconsistentwithourlong-termstrategytoidentify,address,andstayaheadofevolvingconsumertrendsandmarketdynamics.OurrelationshipwithCanopyisdesignedtohelppositionittobesuccessfulincannabisproduction,branding,andintellectualproperty.
Forfurtherinformationonourstrategy,see“Overview”withinMD&A.
Investments,acquisitions,anddivestitures
Inconnectionwithexecutingourstrategyasoutlinedabove,duringFiscal2022wecompletedthefollowingtransactions:
WineandSpiritssegment
LodiDistributionCenter December2021
AcquisitionofapreviouslyleaseddistributionfacilitylocatedinLodi,California;consistentwithourstrategicfocustoinvestininfrastructurethatenablesourbusinesstogrow.
MyFavoriteNeighbor November2021
Acquisitionofsuper-luxury,DTC-focusedwinebusinessaswellascertainwholesalesourcedbrands;supportedourfocusonconsumer-ledpremiumizationtrendsandmeetingtheevolvingneedsofourconsumers.
Date StrategicContribution
ForfurtherinformationaboutoursignificantFiscal2022,Fiscal2021,andFiscal2020transactions,referto(i)“Overview”withinMD&Aand(ii)Notes2and5.
Businesssegments
Wehavefourreportablesegments:(i)Beer,(ii)WineandSpirits,(iii)CorporateOperationsandOther,and(iv)Canopy.Thebusinesssegmentsreflecthowouroperationsaremanaged,resourcesareallocated,operatingperformanceisevaluatedbyseniormanagement,andthestructureofourinternalfinancialreporting.OurownershipinterestinCanopyallowsustoexercisesignificantinfluence,butnotcontrol,and,therefore,weaccountforourinvestmentinCanopyundertheequitymethod.AmountsincludedbelowfortheCanopysegmentrepresent100%ofCanopy’sreportedresultsonatwo-monthlag,preparedinaccordancewithU.S.GAAP,andconvertedfromCanadiandollarstoU.S.dollars.Althoughweownlessthan100%oftheoutstandingsharesofCanopy,100%ofitsresultsareincludedintheinformationbelowandsubsequentlyeliminatedtoreconciletoourconsolidatedfinancialstatements.
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Wereportnetsalesintworeportablesegments,asCanopyiseliminatedinconsolidation,asfollows:
FortheYearsEnded
February28,2022
February28,2021
(inmillions)
Beer $ 6,751.6 $ 6,074.6
WineandSpirits:
Wine 1,819.3 2,208.4
Spirits 249.8 331.9
TotalWineandSpirits 2,069.1 2,540.3
Canopy 444.3 378.6
ConsolidationandEliminations (444.3) (378.6)
ConsolidatedNetSales $ 8,820.7 $ 8,614.9
Fiscal2022ConsolidatedNetSales
Beer:76.6%
Wine:20.6%
Spirits:2.8%
Fiscal2021ConsolidatedNetSales
Beer:70.5%
Wine:25.6%
Spirits:3.9%
BeersegmentWearethe#1brewerandsellerofimportedbeerintheU.S.market.Wearealsotheleaderinthehigh-
endsegmentoftheU.S.beermarket,whichincludestheimported,craft,andABAcategories.Wehavetheexclusiverighttoimport,market,andsellthefollowingMexicanbrandsinall50statesoftheU.S.:
CoronaBrandFamily ModeloBrandFamily OtherImportBrands
CoronaExtra CoronaLight ModeloEspecial Pacifico
CoronaPremier CoronaRefresca ModeloNegra Victoria
CoronaFamiliar CoronaHardSeltzer ModeloChelada
Wehavenineofthe15top-sellingimportedbeerbrandsintheU.S.ModeloEspecialisthebest-sellingimportedbeer,secondbest-sellingbeeroverall,andthefastest-growingmajorimportedbeerbrandintheU.S.CoronaExtraisthesecondlargestimportedbeerandfifthbest-sellingbeeroverallintheU.S.
InthepastnineyearswehaveincreasedourproductioncapacityinMexicobyfourfoldallowingustheopportunitytofurtherexpandourleadershippositioninthehigh-endsegmentoftheU.S.beermarket.Sincethe2013acquisitionoftheimportedbeerbusiness,wehaveinvestedover$5.6billionintheMexicoBeerProjects,withapproximately$800millionduringFiscal2022.InearlyFiscal2022,wecompletedpartofaplannedexpansionprojectattheObregonBrewery.Thisprojectincreasedourtotalproductioncapacitytoapproximately39millionhectoliters,whichcontributedtosatisfyingourmedium-termcapacityneeds.Weexpecttospendan
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI3
additional$5.0billionto$5.5billionoverFiscal2023throughFiscal2026,withthemajorityofspendexpectedtooccurinthefirstthreefiscalyearsofthattimeframe.Expansion,optimization,and/orconstructionactivitiescontinueunderourMexicoBeerProjectstosupportexpectedfuturebusinessneeds.ForfurtherinformationaboutourMexicoBeerProjects,referto(i)“Production”below,(ii)MD&A,and(iii)Note7.
Wearealsobuildingonthesuccessofourleadingimportbrandfamiliesthroughourinnovationstrategy.OurModeloCheladabrandshavebecomeanimportantgrowthcontributortoourportfolioastheleadingcheladaintheU.S.beermarket.WecontinuedtobuildonthissuccessfulinnovationplatforminFiscal2022withanewentrant,ModeloCheladaPiñaPicante,whichwaslaunchedinAugust2021andisalreadyatopsharegaineramongimportedbrands.Tocapitalizeontherobustgrowthofthehigh-endABAcategorywelaunchedCoronaRefrescainFiscal2020andCoronaHardSeltzerinFiscal2021.InFiscal2022,weexpandedCoronaHardSeltzerintonewflavorsandrestagedourvarietypackswithconsumer-preferredthematicofferingsandenhancedflavorprofiles.Additionally,wearecontinuingeffortsfocusedonincreasingdistributionofproductsincan,draft,single-serve,andlargerpackagesizeformats.
InDecember2021,weenteredintoabrandauthorizationagreementwithCoca-ColaintheU.S.toextenditsFRESCA®brandintothebeveragealcoholcategoryfortheanticipatedlaunchofRTDvodkaspritzandtequilapalomacocktailsinFiscal2023.WeintendtoincludethenetsalesandoperatingresultsoftheseproductsinourBeersegment.
WineandSpiritssegmentWearealeading,higher-endwineandspiritscompanyintheU.S.market,withaportfoliothatincludes
higher-margin,higher-growthwineandspiritsbrands.Ourwineportfolioissupportedbygrapespurchasedfromindependentgrowers,primarilyintheU.S.andNewZealand,andvineyardholdingsintheU.S.,NewZealand,andItaly.OurwineandspiritsareprimarilymarketedintheU.S.andexportedtoCanadaandothermajorworldmarkets.
IntheU.S.,wehavenineofthe100top-sellinghigh-endwinebrands,withMeiomiandKimCrawfordachievingthefifthandeighthspots,respectively.Someofourwell-knownwineandspiritsbrandsandportfolioofbrandsinclude:
WineBrands WinePortfolioofBrands SpiritsBrands
7Moons Meiomi CharlesSmith CasaNoble MiCAMPO
Cook’sCaliforniaChampagne MountVeeder MyFavoriteNeighbor Copper&Kings Nelson’sGreenBrier
Cooper&Thief Ruffino RobertMondaviWinery HighWest SVEDKA
CraftersUnion SIMI Schrader
KimCrawford TheDreamingTree ThePrisonerWineCompany
InFiscal2022,ourfinewineandcraftspiritsbrandsdeliveredsolidgrowth,drivenprimarilybyThePrisonerWineCompanybrandsandHighWest,aswellasstronggainsinourDTC,3-tiereCommercechannels,
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hospitality,andinternationalbusinesses.Thefocusforourmainstreamandpremiumbrandsisonmaintainingmarketshare,whilecontinuingtodelivergrowththroughpremiumwinebrands,suchasMeiomiandKimCrawford,consistentwithourconsumer-ledpremiumizationstrategy.
Overthelastfewyears,wehavebeenincreasingourinvestmentinsupportofon-trendproductinnovationaswebelievethisisoneofthekeydriversofoverallbeveragealcoholcategorygrowth.Wehavelaunchedseveralinnovationsthatarecreatingmomentumanddrivinggrowthforthebusiness,includingvarietallineextensions,suchasThePrisonercabernetsauvignonandchardonnayvarietals,Woodbridgespiritsbarrelagedvarietals,Meiomicabernetsauvignon,andSVEDKAandHighWestpre-mixedcocktailsintheRTDspace.Additionally,werecentlyextendedsomeofourwell-knownbrandsthroughbettermentlines,suchasKimCrawfordIlluminate,andnewpackageformats,suchasWoodbridge3-literbox.
CorporateOperationsandOthersegmentTheCorporateOperationsandOthersegmentincludestraditionalcorporate-relateditemsincludingcosts
ofexecutivemanagement,corporatedevelopment,corporatefinance,corporategrowthandstrategy,humanresources,internalaudit,investorrelations,legal,publicrelations,andinformationtechnology,aswellasourinvestmentsmadethroughourcorporateventurecapitalfunction.
CanopysegmentTheCanopyEquityMethodInvestmentmakesuptheCanopysegment.
Forfurtherinformationregardingnetsalesandoperatingincome(loss)ofourbusinesssegmentsandgeographicareasseeNote22.
Marketinganddistribution
Tofocusontheirrespectiveproductcategories,buildbrandequity,andincreasesales,weemployfull-time,in-housemarketing,sales,andcustomerservicefunctionsforourBeerandWineandSpiritssegments.Thesefunctionsengageinarangeofmarketingactivitiesandstrategies,includingmarketresearch,consumerandtradeadvertising,pricepromotions,point-of-salematerials,eventsponsorship,on-premisepromotions,andpublicrelations.Whereopportunitiesexist,particularlywithnationalaccountsintheU.S.,weleverageoursalesandmarketingskillsacrosstheorganization.
IntheU.S.,ourproductsareprimarilydistributedbywholesaledistributors,whichgenerallyhaveseparatedistributionnetworksfor(i)ourbeerportfolioand(ii)ourwineandspiritsportfolio.Inaddition,instateswherethegovernmentactsasthedistributor,wedistributeourproductsthroughstatealcoholbeveragecontrolagencies,whichsettheretailpricesofourproducts.Asisthecasewithallotherbeveragealcoholcompanies,productssoldthroughtheseagenciesaresubjecttoobtainingandmaintaininglistingstosellourproductsinthatagency’sstate.Stategovernmentscanalsoaffectpricespaidbyconsumersforourproductsthroughtheimpositionoftaxes.
Trademarksanddistributionagreements
Trademarksareanimportantaspectofourbusiness.Wesellproductsunderanumberoftrademarks,whichweownoruseunderlicense.Wealsohavevariouslicensesanddistributionagreementsforthesale,ortheproductionandsale,ofourproducts,andproductsofothers.Theselicensesanddistributionagreementshavevaryingtermsanddurations.
WithintheBeersegment,wehaveanexclusivesub-licensetousetrademarksrelatedtoourMexicanbeerbrandsintheU.S.Thissub-licenseagreementisperpetual.
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Competition
Thebeveragealcoholindustryishighlycompetitive.Wecompeteonthebasisofquality,price,brandrecognitionandreputation,anddistributionstrength.Ourbeveragealcoholproductscompetewithotheralcoholicandnon-alcoholicbeveragesforconsumerpurchases,aswellasshelfspaceinretailstores,restaurantpresence,andwholesalerattention.Wecompetewithnumerousmultinationalproducersanddistributorsofbeveragealcoholproducts,someofwhichhavegreaterresourcesthanwedo.Ourprincipalcompetitorsinclude:
Beer Anheuser-BuschInBev,TheBostonBeerCompany,Heineken,MarkAnthony,MolsonCoors
Wine DeutschFamilyWine&Spirits,DuckhornPortfolio,E.&J.GalloWinery,Ste.MichelleWineEstates,TreasuryWineEstates,TrincheroFamilyEstates,TheWineGroup
Spirits BacardiUSA,BeamSuntory,Brown-Forman,Diageo,FifthGeneration,PernodRicard,SazeracCompany
Canopyoperatesintherecreationalandmedicinalcannabismarketsand,intheirlargestmarket,theycompetewithnumerouslicensedproducersanddistributorsofcannabisproducts.Intherecreationalmarket,Canopycompetesonthebasisofquality,price,brandrecognition,consistency,andvarietyofcannabisproductswhereasthesesamecompetitivefactorsapplyinthemedicinalmarketaswellasphysicianfamiliarity.
Production
AsofFebruary28,2022,ourproductioncapacityatourMexicanbrewerieswasapproximately39millionhectoliters.BytheendofFiscal2026,weexpecttoincreaseourcapacityinMexicotoapproximately64to69millionhectoliterstosupportthegrowthofourMexicanbeerbrands.ThisincludestheplannedconstructionoftheSoutheastMexicoBrewerywherethereisamplewaterandwewillhaveaskilledworkforcetomeetourlong-termneeds,aswellascontinuedexpansion,optimization,and/orconstructionatourcurrentbrewerylocationsinNavaandObregon.Forfurtherinformationontheseexpansion,optimization,and/orconstructionactivities,referto(i)MD&Aand(ii)Note7.WearecontinuingtoworkwithgovernmentofficialsinMexicotodeterminenextstepsforoursuspendedMexicaliBreweryconstructionproject.
OurDalevillefacility,locatedinRoanoke,Virginia,supportsourcraftandspecialtybusinessinadditiontoourdomesticinnovationinitiatives.InFiscal2023,weexpecttoproduceFRESCATMMixedRTDcocktailsusingrealspiritsatthisfacility.
IntheU.S.,weoperate12wineriesusingmanyvarietiesofgrapesgrownprincipallyintheNapa,Sonoma,Monterey,andSanJoaquinregionsofCalifornia.WealsooperatetwowineriesinNewZealandandsixwineriesinItaly.GrapesarecrushedinAugustthroughNovemberintheU.S.andItaly,andinFebruarythroughMayinNewZealandandstoredaswineuntilpackagedforsaleunderourbrandnamesorsoldinbulk.Theinventoriesofwineareusuallyattheirhighestlevelsduringandafterthecrushofeachyear’sgrapeharvestandarereducedassoldthroughouttheyear.InFiscal2023,weacquiredanadditionalU.S.wineryinOregon.Forfurtherinformationonthisacquisition,referto(i)“Overview”withinMD&Aand(ii)Note2.
WecurrentlyoperatefourdistilleriesintheU.S.fortheproductionofourspirits;twofacilitiesforHighWestwhiskey,onefacilityforCopper&KingsAmericanbrandies,andonefacilityforNelson’sGreenBrierbourbonandwhiskeyproducts.Therequirementsforgrainsandbulkspiritsusedintheproductionofourspiritsarepurchasedfromvarioussuppliers.
Certainofourwinesandspiritsmustbeagedformultipleyears.Therefore,ourinventoriesofwinesandspiritsmaybelargerinrelationtosalesandtotalassetsthaninmanyotherbusinesses.
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Resourcesandavailabilityofproductionmaterials
TheprincipalcomponentsintheproductionofourMexicanandcraftbeerbrandsincludewater;agriculturalproducts,suchasyeastandgrains;andpackagingmaterials,whichincludeglass,aluminum,andcardboard.
ForourMexicanbeerbrands,packagingmaterialsarethelargestcostcomponentofproduction,withglassbottlesrepresentingthelargestcostcomponentofourpackagingmaterials.
ForFiscal2022,thepackageformatmixofourMexicanbeervolumesoldintheU.S.wasasfollows:
Glassbottles:63%
Aluminumcans:34%
Steelkegs:3%
Aspartofoureffortstosolidifyourbeerglasssourcingstrategyoverthelong-term,weformedanequally-ownedjointventurewithOwens-Illinois,oneoftheleadingmanufacturersofglasscontainersintheworld.Thejointventureownsastate-of-the-artGlassPlantadjacenttoourNavaBreweryinMexico.TheGlassPlantcurrentlyhasfiveoperationalglassfurnaceswhichsupplynearly60%ofthetotalannualglassbottlesupplyforourMexicanbeerbrands.Wealsohavelong-termglasssupplyagreementswithotherglassproducers.
TheNavaandObregonbreweriesreceivewateroriginatingfromaquifers.Webelievewehaveadequateaccesstowatertosupportthebreweries’ongoingrequirements,aswellasfuturerequirementsafterthecompletionofplannedexpansion,optimization,and/orconstructionactivities.Bothbreweriesemploycomprehensivewatermanagementpracticesthatfocusonwaterefficiencyandwastewatertreatmentoperationstoreusewaterconsumedaspartoftheproductionprocess.
Theprincipalcomponentsintheproductionofourwineandspiritsproductsareagriculturalproducts,suchasgrapesandgrain,andpackagingmaterials,primarilyglass.
Mostofourannualgraperequirementsaresatisfiedbygrowerpurchasesfromeachyear’sharvestwhichnormallybeginsinAugustandrunsthroughNovemberintheU.S.andItaly,andbeginsinFebruaryandrunsthroughMayinNewZealand.Wereceivegrapesfromapproximately150independentgrowerslocatedintheU.S.and55independentgrowersinNewZealandandItaly.Weenterintopurchaseagreementswithamajorityofthesegrowerswithpricingthatgenerallyvariesyear-to-yearandislargelybasedonthen-currentmarketprices.
AsofFebruary28,2022,weownedorleasedapproximately17,800acresoflandandvineyards,eitherfullybearingorunderdevelopment,intheU.S.,NewZealand,andItaly.Thisacreagesuppliesonlyasmallpercentageofouroveralltotalgrapeneedsforwineproduction.However,mostofthisacreageisusedtosupplyalargeportionofthegrapesusedfortheproductionofcertainofourhigher-endwines.Wecontinuetoconsiderthepurchaseorleaseofadditionalvineyards,andadditionallandforvineyardplantings,tosupplementourgrapesupply.
Webelievethatwehaveadequatesourcesofgrapesuppliestomeetoursalesexpectations.However,whendemandforcertainwineproductsexceedsexpectations,welooktosourcetheextrarequirementsfromthebulkwinemarketsaroundtheworld.
Thedistilledspiritsmanufacturedandimportedbyusrequirevariousagriculturalproducts,neutralgrainspirits,andbulkspirits,whichwefulfillthroughpurchasesfromvarioussourcesbycontractualarrangementandthroughpurchasesontheopenmarket.Webelievethatadequatesuppliesoftheaforementionedproductsareavailableatthepresenttime.
Weutilizeglassandpolyethyleneterephthalatebottlesandothermaterialssuchascaps,corks,capsules,labels,winebags,andcardboardcartonsinthebottlingandpackagingofourwineandspiritsproducts.Aftergrapepurchases,glassbottlesarethelargestcomponentofourcostofproductsold.IntheU.S.,theglassbottleindustryishighlyconcentratedwithonlyasmallnumberofproducers.Wehavetraditionallyobtained,and
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continuetoobtain,ourglassrequirementsfromalimitednumberofproducersunderlong-termsupplyarrangements.Currently,oneproducersuppliesmostofourglasscontainerrequirementsforourU.S.operations.Wehavebeenabletosatisfyourrequirementswithrespecttotheforegoingandconsideroursourcesofsupplytobeadequateatthistime.
Governmentregulations
Wearesubjecttoarangeoflawsandregulationsinthecountriesinwhichweoperate.Whereweproduceproducts,wearesubjecttoenvironmentallawsandregulations,andmayberequiredtoobtainenvironmentalandalcoholbeveragepermitsandlicensestooperateourfacilities.Wherewemarketandsellproducts,wemaybesubjecttolawsandregulationsonbrandregistration,packagingandlabeling,distributionmethodsandrelationships,pricingandpricechanges,salespromotions,advertising,andpublicrelations.Wearealsosubjecttorulesandregulationsrelatingtochangesinofficersordirectors,ownership,orcontrol.
Webelieveweareincomplianceinallmaterialrespectswithallapplicablegovernmentallawsandregulationsinthecountriesinwhichweoperate.Wealsobelievethatthecostofadministrationandcompliancewith,andliabilityunder,suchlawsandregulationsdoesnothave,andisnotexpectedtohave,amaterialadverseimpactonourfinancialcondition,resultsofoperations,orcashflows.
Aspartofourbreweryexpansioneffortsandcommitmenttomakingapositiveimpactonthecommunitieswhereweoperate,weplantocontinueworkingwithlocalauthoritiesandcommunity-basedorganizationsonsustainabilityinitiativesthatbenefitlocalresidents.Criticallocalprojectshavebeenidentifiedthroughcommunitycollaborationandinputandguidancefromthird-partywaterrestorationorganizations.Forexample,toimprovewaterqualityintheNavaarea,wehavepartneredwithPronaturaNoreste,investingina10-yearprojectthatweexpectwillhelprestoretheBravoConchosbasinintheSerraníadelBurro.InObregon,wehaveworkedwithlocalorganizationstoconstructthreedamsalongtheYaquiValleycanalthathelpimprovewatermanagementefficiency,recoveringvolumesofwaterthatplayavitalroleinthesustainabilityoftheregion.Thisisinadditiontootherbenefitsweprovide,includinglocaljobcreationandfuelingeconomicdevelopment.WeplantoworkwithlocalauthoritiesinareasneartheSoutheastMexicoBreweryonsimilarinitiatives.
Seasonality
Thebeveragealcoholindustryissubjecttoseasonalityineachmajorcategory.Asaresult,inresponsetowholesalerandretailerdemandwhichprecedesconsumerpurchases,ourbeersalesaretypicallyhighestduringthefirstandsecondquartersofourfiscalyear,whichcorrespondtotheSpringandSummerperiodsintheU.S.Ourwineandspiritssalesaretypicallyhighestduringthethirdquarterofourfiscalyear,primarilyduetoseasonalholidaybuying.
ForFiscal2021,ourbeernetsaleswerehigherinthesecondandthirdquartersasinventorylevelsinourdistributionchannelswerereplenishedfollowingaCOVID-19relatedproductionslowdownatourmajorbreweriesinMexicoearlierintheyear.
ESG
Duringthecourseofourhistory,wehavebeencommittedtosafeguardingourenvironment,makingapositivedifferenceinourcommunities,andadvocatingforresponsibleconsumptionofbeveragealcoholproducts.OurESGstrategyisalignedwithourbusinessgoalsandstakeholderinterests,reflectsourCompanyvalues,andmoredirectlyaddressespressingsocietalneeds.Specifically,wededicateourresourcestowards:
Servingasgoodstewardsofourenvironmentandnaturalresources–Modelingwaterstewardshipforourindustry;andreducingGHGemissionsthroughenergyconservationandrenewableenergyinitiativesEnhancingsocialequitywithinourindustryandcommunities–Championingtheprofessionaldevelopmentandadvancementofwomeninbeveragealcoholandourcommunities;andenhancingeconomicdevelopmentandprosperityindisadvantagedcommunities
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Promotingresponsiblebeveragealcoholconsumption–Empoweringadultstomakeresponsiblechoicesintheiralcohol(substance)consumptionbysupportingfact-basededucation,engagementprograms,andpolicies
DuringFiscal2022wetookthefollowingstepstoadvanceourESGstrategybykeyarea:
Servingasgoodstewardsofourenvironmentandnaturalresources• developedatargettorestoreapproximately1.1billiongallonsofwaterwithdrawalsfromcritical
watershedsandimprovewateraccessibilityindisadvantagedcommunitieswhereweoperatebetweentheperiodsFiscal2023toFiscal2025
• developedatargettoreduceScope1(direct)andScope2(indirect)GHGemissionsby15%betweentheperiodsFiscal2020toFiscal2025
• revisedtheBoardofDirectors’CorporateGovernanceandResponsibilityCommitteeChartertoincludeoversightofenvironmental,sustainability,andsocialresponsibilityprogramsandgoals
• completedanassessmenttoidentifyandprioritizeESGissuesthataremostimportanttoourwineandspiritsbusiness
• donated$200,000toTheNatureConservancy’sResilientWatershedProject
Enhancingsocialequitywithinourindustryandcommunities• fiveofoureightFocusonFemaleFounderandFocusOnMinorityFounderparticipantsgrewaheadof
theirrespectivecategories.Oursharedsalesteamhelpeddrivegrowthbetweenapproximately160%to420%inkeymarketsforAustinCocktails,DurhamDistillery,LaFêteduRosé,andCatoctinCreek
• ourAASCENDBRGandCSRteamcreatedthe2022MartinLutherKingJr./BlackHistoryMonthFundallowingemployeestheopportunitytolendtheirsupportbycontributingtocommunityorganizationsthatfocusonsocialequity.EmployeeandcompanymatcheddonationswenttotheEqualJusticeInitiative,FacingHistoryandOurselves,andtheSouthernPovertyLawCenter
• ourcompanysupportofDressforSuccessWorldwide,anorganizationwhosemissionistoempowerwomentoachieveeconomicindependence,helpedmorethan1.2millionwomenworldwide(80,000intheU.S.)worktowardsself-sufficiency.Directdollarstoaffiliatesinourmajorofficelocationshelpedmorethan3,500womenworktowardjobplacementandcareeradvancementgoals
• madea$1.75millionmulti-yearcommitmenttotheNationalRestaurantAssociationEducationFoundation's“RestaurantsAdvance”campaigninsupportofrebuildingtheindustryworkforce
• contributed$500,000toUnidosUStostrengthenHispanicfamilies’financialsecuritythroughfinancialempowermentandhomeownershipprograms
Promotingresponsiblebeveragealcoholconsumption• madeaminorityinvestmentinHopWTR,anadaptogenandnootropics-basednon-alcoholicproduct
line• implementedasix-weekwellnesschallengethatprovidedanopportunityforemployeestolearnmore
aboutconsciousconsumptionandhowourportfolioofbrandsplaysacriticalrole• promotedconsciousconsumptionthroughoutourcompanysocialmediaplatformsduringculturally
relevantmomentsandholidayssuchasNewYear’sEveandtheSuperBowl
ForfurtherinformationaboutourESGadvancementsreferto(i)“Humancapitalresources”belowand(ii)“Capitalresources”withinMD&A.
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Humancapitalresources
AsofMarch31,2022,wehadapproximately10,000employees,includingapproximately1,200employeesthroughourequally-ownedjointventurewithOwens-Illinois.Thenumberofemployeesmaychangethroughouttheyear,asweemployadditionalworkersduringthegrapecrushingseasons.Approximately20%oftheemployeesarecoveredbycollectivebargainingagreements.Collectivebargainingagreementsexpiringwithinoneyearareminimal.Weconsiderouremployeerelationsgenerallytobegood.
Employeegeographicdataisasfollows:
U.S.39%
Mexico55%
OtherNon-U.S.6%
COVID-19responseWehaveanexistingCrisisManagementCommitteethat,sinceJanuary2020,hasbeencloselymonitoring
theimpactofthevirusthatcausesCOVID-19onourbusinessandourworkforce.InMarch2020,theWHOrecognizedCOVID-19asapandemic.Inresponse,weimplementedvariousmeasurestoreducethespreadofthevirusincludingworkingfromhome,restrictingvisitorstoourproductionlocations,splittingourproductionworkforces,reducingtheon-siteproductionworkforcelevels,screeningworkersbeforetheyenterfacilities,enforcingsocialdistancing,andencouragingemployeestoadheretopreventionmeasuresrecommendedbytheCDCandtheWHO.ToincentivizeU.S.employeestoreceiveCOVID-19vaccines,weprovidedaone-timeemployeeprotectionbonustoallfull-timeandpart-timeU.S.employeeswhosubmittedproofofbeingfullyvaccinatedorhadapprovedexemptions.InMexico,COVID-19vaccineswerenotasreadilyavailableasintheU.S.Wecreatedprogramstofacilitateaccessthroughfree,voluntaryon-siteclinicsandlocalvaccinationsitesforouremployees,includingthoseattheGlassPlant,theirfamilies,aswellasforotherlocalNavaandObregonbusinesses.Theseeffortscontributedtoachievinganemployeevaccinationrateofmorethan98%atourNavaandObregonbreweries.Additionally,ourChiefMedicalOfficerprovidesongoinghealth-relatedadviceandexpertisetoourexecutiveofficers,CrisisManagementCommittee,andhumanresourcesleadershipteamsastheymakedecisionsdesignedtoprotectthehealthandsafetyofourworkforce.Thepreventativemeasureswehaveimplementedmaybemodifiedand/ordiscontinuedasgovernmentagenciesissuenewguidance,includingduetofluctuationsinCOVID-19caselevels.
Wevaluethecontributionsofourworkforceandconsideredtheimpactsthepandemicwouldhaveontheirwell-being.Forourproductionworkforce,whereemployeeswerenotabletoworkduetotemporaryfacilityclosuresorillness,weprotectedtheirpaytoensuretheyhadacontinuedpaycheck.Forourhospitalityemployees,werecognizedamaterialportionoftheirpaycomesfromcustomergratuitiesandwepaidtheseemployeesanequivalentvalueduringthenecessarytimeaway.Ournon-productionworkforceisabletoworkremotelyusingvarioustechnologytools.Aspartoftheremoteofficeapproach,weprovidereimbursementforhomeofficesupportensuringouremployeeshavetheresourcesneededtobeeffective.WehaveaformalCOVID-19policyandoffervariousprogramstoassistouremployees,includingengagingwiththird-partywellnessproviderstohostdedicatedsessionsonmentalandphysicalwell-being,andincreasedflexibilityandresourcessurroundingpersonalandfamilycommitments.
Diversity,equity,andinclusionOurDEIstrategicprioritiesareasfollows:
Cultivateabest-in-class,diverse,andequitableworkforce–onethatreflectstheuniverseofconsumersthatexistandthecommunitiesinwhichweliveandserveFosterawinninginclusiveculture–createamoreequitableexperienceforunderrepresentedgroups;harnessthebenefitsofdiversityandinclusivityEnhancesocialequity–extendourinfluencetoenhancesocialequitywithinthebeveragealcoholindustryandcommunitiesinwhichweliveandserve
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WeprovideopportunitiesforouremployeestoadvanceourDEIstrategicprioritiesthroughagrowingcommunityofBRGs.OurBRGsaresupportedatthehighestlevelwithsponsorshipsfromourexecutives.See“InformationaboutourExecutiveOfficers”below.EachBRGistaskedwithmakingabusinessimpactonbehalfoftherepresentedgroupandwelcomesallies.InFiscal2022,approximately60%ofourU.S.salariedemployeesweremembersofoneormoreBRG.
MonitoringhumancapitalmetricsisakeycomponenttoensuringweareexecutingonourstrategyandmakingprogressagainstourDEIobjectivesandgoals.InFiscal2022,werevisedourBoardofDirectors’HumanResourceCommitteeChartertospeciallyaddressoversightofemployeeDEImatters.Wemeasuregenderandethnicrepresentationtounderstanddiversityatvariouslevelsacrosstheorganization,assessprogressovertime,anddrivecontinuousimprovement.WehaveestablishedgoalstoenhancebothgenderrepresentationandoverallethnicdiversityamongourU.S.salariedpopulationto50%and30%,respectively,byFiscal2026.Ourself-disclosed,U.S.salariedemployeeinformationisasfollows:
FemaleRepresentation
42% 43%
50% 50%
Fiscal2021
Fiscal2022
EthnicDiversity
20% 22%
30% 30%
Fiscal2021
Fiscal2022
Additionally,inFiscal2022,welaunchedaDEIgrowthdashboardforourU.S.salariedemployeebase,centeredaroundidentifyingandaddressingworkforcediversityrepresentationopportunities,utilizing2020U.S.Censusdataasabenchmark.ThisdashboardissharedwithourexecutivesandwithcertaincommitteesoftheBoardofDirectorsonaquarterlybasisenablingthemtomonitortheprogressmadeandtoprovideguidanceonnecessarynextstepstoattainourrepresentationgoals.Wealsoassessmetricsthroughoutthehumanresourcelifecycletoidentifypotentialbiasandbarriersinourprocesses,includingtalentacquisition,turnover,engagementscores,orparticipationinBRGevents.
CompensationandbenefitsWestrivetoprovidepay,benefits,andservicesthatmeettheneedsofouremployees.Therearefour
componentsofcompensation:(i)basepay,(ii)long-termincentivesdependentonanumberoffactorssuchasgeographiclocationandmanagementlevelwhichcanincluderestrictedstockunits,stockoptions,andperformanceshareunits,(iii)short-termincentives,and(iv)recognitionawards.Basecompensationisreviewedonanannualbasisensuringitiscompetitiveinthemarketandgivesemployeesopportunitiestoearnmoreforexceedingexpectations.Ourtotalrewardsprogramalsooffersvaluablebenefits,tools,andresourcesdesignedtohelpemployeesstayhealthyandwell,whileachievingsecurity,growth,satisfaction,andsuccess.
ProfessionaldevelopmentBuildingdiversetalentpipelines,deliveringbest-in-classpeopledevelopment,andchampioning
professionaladvancementarekeycomponentsofourhumancapitalstrategywhichisdesignedtopositionourbusinessforlong-termgrowth.InFiscal2022,wespentapproximately$17millionindevelopmentandtrainingcosts,includingthedeliveryoffourleadershipdevelopmentprogramsandthreewomen’sfocuseddevelopmentprogramsthroughtheUniversityofConstellationBrands,ourlearninganddevelopmentcenter.Wearecommittedtoofferingprograms,resources,andexperiencesthatempoweremployeestogrowtheircareersandkeepreachingforwhat’snext,bothpersonallyandprofessionally.
SuccessionplanningWehaveacomprehensivesuccessionplanningprocess,ledbyourhumanresourcesteamandoverseen
bytheHumanResourcesCommitteeofourBoard.InadditiontotheHumanResourcesCommittee’senhancedfocusonexecutive,seniorleader,andhigh-potentialemployeesuccession,ourfullBoardisalsoinvolvedinChiefExecutiveOfficersuccessionplanningandsuccessionandpeopledevelopmentforthebroaderemployeepopulation.Aspartofthesuccessionplanningprocess,wereviewanddiscusspotentialsuccessorstokeyrolesandexaminebackgrounds,capabilities,andappropriatedevelopmentalopportunities.
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EmployeeengagementWeassessemployeeengagementthroughtargetedpulsesurveys,whichprovidefeedbackonavarietyof
topics,suchascompanydirectionandstrategy,resources,support,workenvironmentpreferences,andwell-being.Duringcalendaryear2021,wehadaresponserateof76%tooursurveyandanengagementmeasurementof86%acrossoursurveyedpopulation.
SafetyWearecommittedtoensuringthesafetyofouremployees.OurglobalEHSpolicydefinesourdedication
toprovidingasafeandhealthyworkingenvironmentanddevelopingaculturewhereallemployeestakeresponsibilityfortheirownsafetyaswellasthesafetyofotherswhileminimizingourimpactontheenvironmentinthecommunitieswhereweliveandwork.WithafocusoncontinuousimprovementwearedevelopingmorerobustEHSmanagementsystems,strengtheningemployeeawarenessandtraining,andensuringseniorleadershipengagementonsafety.Work-relatedinjuriesresultingfromtheproductionofourbeer,wine,andspiritsproductsarewellbelowindustryaverage.Ourrecordableincidentrateascomparedtotheindustryaverageareasfollows:
FortheYearsEnded
February28,2022
February28,2021
PercentChange
Recordableincidentrate(1) 0.79 0.95 (17%)
Industryaverage(2) 3.45 3.50
(1) DefinedastotalnumberofworldwideConstellationwork-relatedinjuries(casesbeyondfirstaid)per100full-timeemployees.
(2) Calculatedbytakingtheweightedaverageofthemostrecent(2020)U.S.BureauofLaborStatisticsdataforwineries,breweries,anddistilleriesbasedonourportfoliomixonFebruary2022andFebruary2021fortheyearsendedFebruary28,2022,andFebruary28,2021,respectively.
EmpoweringouremployeestogivebackGivingbacktoourcommunitiesisavalue
instilledbyourfounder,MarvinSands,andremainscoretoourcompany’sDNA.Weempowerouremployeestoengageinthecommunitieswheretheyliveandworkinavarietyofways,includingvolunteeringtimeandthroughacharitablematchingprogramavailabletoallU.S.employees.
Wematchdonationsrangingfromamaximumof$5,000to$50,000peryear,dependingonmanagementlevel,tocharitableorganizations.
$5.8millionFiscal2022corporatecharitablecontributions,
includingcompanymatchofemployeedonations
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InformationaboutourExecutiveOfficers
ExecutiveofficersoftheCompanyaregenerallychosenorelectedtotheirpositionsannuallyandholdofficeuntiltheearlieroftheirremovalorresignationoruntiltheirsuccessorsarechosenandqualified.InformationwithrespecttoourexecutiveofficersasofApril21,2022,isasfollows:
WilliamA.Newlands,age63,isthePresidentandChiefExecutiveOfficeroftheCompany.HehasservedasChiefExecutiveOfficeroftheCompanyandasadirectorsinceMarch2019andasPresidentsinceFebruary2018.HeservedasChiefOperatingOfficerfromJanuary2017throughFebruary2019andasExecutiveVicePresidentoftheCompanyfromJanuary2015untilFebruary2018.FromJanuary2016toJanuary2017heperformedtheroleofPresident,Wine&SpiritsDivisionandfromJanuary2015throughJanuary2016heperformedtheroleofChiefGrowthOfficer.Mr.NewlandsjoinedtheCompanyinJanuary2015.PriortothatheservedfromOctober2011untilAugust2014asSeniorVicePresidentandPresident,NorthAmericaof
BeamInc.,asSeniorVicePresidentandPresident,NorthAmericaofBeamGlobalSpirits&Wine,Inc.fromDecember2010toOctober2011,andasSeniorVicePresidentandPresident,USAofBeamGlobalSpirits&Wine,Inc.fromFebruary2008toDecember2010.BeamInc.,aproducerandsellerofbrandeddistilledspiritsproducts,mergedwithasubsidiaryofSuntoryHoldingLimited,aJapanesecompany,in2014.PriortoOctober2011,BeamGlobalSpirits&Wine,Inc.wasthespiritsoperatingsegmentofFortuneBrands,Inc.,whichwasaleadingconsumerproductscompanythatmadeandsoldbrandedconsumerproductsworldwideinthedistilledspirits,homeandsecurity,andgolfmarkets.
RobertSands,age63,istheExecutiveChairmanoftheBoardoftheCompany,havingservedintherolesinceMarch2019andasadirectorsinceJanuary1990.Previously,heservedasChiefExecutiveOfficeroftheCompanyfromJuly2007throughFebruary2019.Mr.SandsalsoservedasPresidentoftheCompanyfromDecember2002toFebruary2018,asChiefOperatingOfficerfromDecember2002toJuly2007,asGroupPresidentfromApril2000throughDecember2002,asChiefExecutiveOfficer,InternationalfromDecember1998throughApril2000,asExecutiveVicePresidentfromOctober1993throughApril2000,asGeneralCounselfromJune1986throughMay2000,andasVicePresidentfromJune1990throughOctober1993.HeisthebrotherofRichardSands.
RichardSands,Ph.D.,age71,istheExecutiveViceChairmanoftheBoardoftheCompany,havingservedintherolesinceMarch2019.HepreviouslyservedasChairmanoftheBoardoftheCompanyfromSeptember1999throughFebruary2019.HehasbeenemployedbytheCompanyinvariouscapacitiessince1979.Hehasservedasadirectorsince1982.HeservedasChiefExecutiveOfficerfromOctober1993toJuly2007,asPresidentfromMay1986toDecember2002,asChiefOperatingOfficerfromMay1986toOctober1993,andasExecutiveVicePresidentfrom1982toMay1986.HeisthebrotherofRobertSands.
JamesO.Bourdeau,age57,istheExecutiveVicePresidentandChiefLegalOfficeroftheCompany,havingservedintherolesinceDecember2017andastheCompany’sSecretarysinceApril2017.Priortothat,heservedastheCompany’sSeniorVicePresidentandGeneralCounsel,CorporateDevelopment,havingperformedthatrolefromSeptember2014untilDecember2017.BeforejoiningtheCompanyinSeptember2014,Mr.BourdeauwasanattorneywiththelawfirmofNixonPeabodyLLPfromJuly2000throughSeptember2014,andapartnerfromFebruary2005throughSeptember2014.Mr.Bourdeauwasassociatedwithanotherlawfirmfrom1995to2000.
BRGsponsorship-StellarPRIDEsupportingourLGBTQ+community
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K.KristannCarey,age52,willbetheExecutiveVicePresidentandChiefHumanResourcesOfficeroftheCompany,effectiveMay9,2022.Ms.CareyhasservedastheCompany’sSeniorVicePresident,HumanResources,BeerDivisionsinceFebruary2019.FromJuly2018untilDecember2020,sheperformedtheroleofChiefDiversityOfficer.FromJuly2017untilJanuary2019,sheservedasChiefComplianceOfficerandfromNovember2015untilJanuary2019,sheservedasSeniorVicePresidentandGeneralCounsel,BeerDivision.FromJune2013untilNovember2015,sheservedasVicePresidentandAssociateGeneralCounsel,BeerDivision.BeforejoiningtheCompany,Ms.Careyservedinrolesofincreasingresponsibility
withMcDonald’sCorporationfromJanuary2005untilJune2013,mostrecentlyasSeniorCounsel.PriortojoiningMcDonald’sCorporation,sheworkedatthelawfirmsofSeyfarthShawLLPfromJanuary2003throughJanuary2005andCassiday,Schade&GloorLLPfromOctober1998untilJanuary2003.
BRGsponsorship-SupportingandAttractingLatinosUnitedforDiversityandDevelopment
GarthHankinson,age54,istheExecutiveVicePresidentandChiefFinancialOfficeroftheCompany,havingservedintherolesinceJanuary2020.Priortothat,heservedastheCompany’sSeniorVicePresident,CorporateDevelopment,apositionhehadbeeninsinceFebruary2016,wherehewasresponsibleforleadingalloftheCompany’sfinancialplanning,reporting,andanalysisactivities,aswellasalleffortsrelatedtomergers,acquisitions,venturesinvestments,andstrategicalliances.FromOctober2009untilFebruary2016,heservedastheVicePresident,CorporateDevelopmentoftheCompany.FromOctober2007untilOctober2009,Mr.HankinsonservedastheVicePresident,BusinessDevelopmentforConstellation’sprior
Canadianbusiness,ConstellationBrandsCanada,Inc.,whichwasaCanadiansubsidiaryoftheCompanyduringthattime.FromMarch2004untilOctober2007,heservedastheDirectorofCorporateDevelopment.
BRGsponsorship-VALORsupportingveterans,servicemembers,firstresponders,andtheirfamilies
RobertHanson,age59,istheExecutiveVicePresidentandPresident,Wine&SpiritsDivisionoftheCompany,havingservedintherolesinceJune2019.Priortothat,heservedasChiefExecutiveOfficerofJohnHardyGlobalLimited,aluxuryjewelrybrand,fromAugust2014toJune2019.HecontinuedtoserveasitsChairmanoftheBoarduntilJuly2020.HeservedasChiefExecutiveOfficerandaDirectorofAmericanEagleOutfitters,Inc.,aleadingglobalspecialtyretailerofclothing,accessories,andpersonalcareproductsfromJanuary2012toJanuary2014.HeservedLeviStrauss&Co.from1988to2011inavarietyofimportantleadershiprolesacrossmultiplebrandswhereheledcross-functionalteams,includingmerchandising,product
development,multi-channeloperations,marketingandcreativeteams,inadditiontoafullsupportstaff.Mr.Hanson’srolesatLevi’sincludedservingasGlobalPresidentoftheLevi’sBrandfrom2010to2011;President,Levi’sStraussAmericas/NorthAmericafrom2006to2010;President,Levi’sBrandU.S.from2001to2006;andPresident/VicePresident,Levi’sEurope/Africa/MiddleEastfrom1998to2001.
BRGsponsorship-Win.Inspire.Support.Elevate.supportingourfemalecommunity
ThomasM.Kane,age61,istheExecutiveVicePresidentandChiefHumanResourcesOfficeroftheCompany,havingservedintherolesincejoiningtheCompanyinMay2013throughhisretirementfromsuchrole,whichwillbeeffectiveMay9,2022.Mr.KanepreviouslyservedasSeniorVicePresident,HumanResourcesandGovernmentRelationsofArmstrongWorldIndustries,Inc.,aglobalproducerofflooringproductsandceilingsystems,fromFebruary2012toMay2013,heservedasitsSeniorVicePresident,HumanResourcesfromAugust2010toFebruary2012andservedasitsChiefComplianceOfficerfromFebruary2011toFebruary2012.Priortothat,Mr.KaneservedasGlobalVicePresident,HumanResourcesforBlack&Decker
PowerTools,amanufacturerofpowerandhandtools,from2002to2010.From1999to2002Mr.KaneservedasGlobalHRleaderofGESpecialtyMaterials,alargemanufacturerofsiliconeproducts.
BRGsponsorship-Win.Inspire.Support.Elevate.supportingourfemalecommunity
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MichaelMcGrew,age48,hasbeenanExecutiveVicePresidentoftheCompanysinceApril2020.BeginningDecember2020,Mr.McGrewhasperformedtheroleofExecutiveVicePresident,andChiefCommunications,CSR,andDiversityOfficeroftheCompany.Mr.McGrewjoinedConstellationBrandsin2014asSeniorDirector,CommunicationsfortheCompany’sBeerDivision.HewaspromotedtoVicePresident,Communications–BeerDivisionin2016andassumedtheroleofVicePresident,CorporateCommunicationsin2017.PriortojoiningConstellationBrands,heheldanumberofroleswithincreasingresponsibilityatGrainger,thena$9billionglobalproviderofindustrialsuppliesandequipment.WhileatGrainger,from2011to
2013Mr.McGrewservedasDirector,U.S.BusinessCommunications,fromJanuary2013toOctober2013heservedasSeniorDirector,U.S.Business&GlobalSupplyChainCommunicationsandfromOctober2013toSeptember2014heservedasSeniorDirector,Communications–Americas,amongotherrolesofincreasingresponsibility.
MallikaMonteiro,age43,hasbeenanExecutiveVicePresidentoftheCompanysinceOctober2019.BeginningMarch2021,Ms.MonteirohasperformedtheroleofExecutiveVicePresident,andChiefGrowth,Strategy,andDigitalOfficer.FromOctober2019toFebruary2021sheperformedtheroleofExecutiveVicePresident,ChiefGrowthandStrategyOfficerandfromOctober2018toSeptember2019,sheperformedtheroleofSeniorVicePresident,ChiefGrowthOfficer.ShejoinedConstellationinOctober2016asVicePresident,BeerInnovationandwasgivenadditionalresponsibilitiesasChiefofStafftotheCompany'sExecutiveManagementCommitteeinAugust2018.PriortojoiningConstellation,fromJuly2014toSeptember2016,
Ms.MonteirowasaSeniorMarketingDirectoratAnheuserBuschInBev.PriortojoiningAnheuserBuschInBev,sheservedinrolesofincreasingresponsibilitywithBeamSuntoryInc.,includingasAssociateBrandManager-JimBeamfromJuly2007toJune2009,BrandManager-CognacfromJuly2009toDecember2011,andSeniorBrandManager-Vodka,fromJanuary2012toJune2014.
BRGsponsorship-ConstellationParentsNetwork
JamesA.Sabia,Jr.,age60,istheCompany’sExecutiveVicePresidentandPresident,BeerDivisionaswellasPresidentofCrown,havingperformedtheserolessinceJanuary2022andFebruary2022,respectively.HehasbeenanExecutiveVicePresidentoftheCompanysinceMay2018.FromMarch2021throughJanuary2022heservedasExecutiveVicePresident,ManagingDirector,BeerDivision.FromMay2018throughMarch2021heperformedtheroleofExecutiveVicePresident,ChiefMarketingOfficer.HejoinedtheCompanyinAugust2007asVicePresident,MarketingfortheCompany’sspiritsbusiness.Sincethen,hehasservedinrolesofincreasingresponsibilitywiththeCompany.Since2009,hehasservedastheChiefMarketing
OfficeroftheCompany’sBeerDivision.From2009toJune2013,Mr.SabiawasemployedbyCrown,ofwhichtheCompanyowneda50%interestandwastheCompany’sbeerbusinessduringthatperiod.InJune2013,theCompanyacquiredtheremaining50%ofCrown,whichbecameawholly-ownedindirectsubsidiaryoftheCompanyonthatdate.PriortojoiningtheCompany,Mr.SabiawaswithMolsonCoorsBrewingCompanyfor17years.
BRGsponsorship-AfricanAmericansStrengtheningConstellation’sEngagement,Networking,&Development
CompanyInformation
Ourwebsiteishttps://www.cbrands.com,andourinvestorrelationswebsiteishttps://ir.cbrands.com.OurfilingswiththeSEC,includingourForm10-K,quarterlyreportsonForm10-Q,currentreportsonForm8-Kandamendmentstothosereports,filedorfurnishedpursuanttoSection13(a)or15(d)oftheExchangeAct,areaccessiblefreeofchargeonourinvestorrelationswebsiteassoonasreasonablypracticableafterweelectronicallyfilesuchmaterialwith,orfurnishitto,theSEC.TheSECmaintainsawebsite,https://www.sec.gov,thatcontainsreports,proxy,andinformationstatements,andotherinformationregardingissuers,suchasourselves,thatfileelectronicallywiththeSEC.
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI15
WehaveadoptedaChiefExecutiveOfficerandSeniorFinancialExecutiveCodeofEthicsthatspecificallyappliestoourchiefexecutiveofficer,ourprincipalfinancialofficer,andourcontroller,andisavailableonourinvestorrelationswebsite.ThisChiefExecutiveOfficerandSeniorFinancialExecutiveCodeofEthicsmeetstherequirementsassetforthintheExchangeAct,Item406ofRegulationS-K.WealsohaveadoptedaCodeofBusinessConductandEthicsthatappliestoallemployees,directors,andofficers,includingeachpersonwhoissubjecttotheChiefExecutiveOfficerandSeniorFinancialExecutiveCodeofEthics.TheCodeofBusinessConductandEthicsisavailableonourwebsite,togetherwithourGlobalCodeofResponsiblePracticesforBeverageAlcoholAdvertisingandMarketingathttps://www.cbrands.com/story/policies.Copiesofthesematerialsareavailableinprinttoanystockholderwhorequeststhem.StockholdersshoulddirectsuchrequestsinwritingtoInvestorRelationsDepartment,ConstellationBrands,Inc.,207HighPointDrive,Building100,Victor,NewYork14564,orbytelephoningourInvestorCenterat1-888-922-2150.
OurBoardofDirectorsCorporateGovernanceGuidelinesandtheChartersoftheBoard’sAuditCommittee,HumanResourcesCommittee(whichservesastheBoard’scompensationcommittee)andCorporateGovernanceandResponsibilityCommittee(whichservesastheBoard’snominatingcommittee)areaccessibleonourinvestorrelationswebsite.Amendmentsto,andwaiversgrantedtoourdirectorsandexecutiveofficersunderourcodesofethics,ifany,willbepostedinthisareaofourwebsite.
Theinformationregardingourwebsitesandtheircontentisforyourconvenienceonly.ThecontentofourwebsitesisnotdeemedtobeincorporatedbyreferenceinthisreportorfiledwiththeSEC.
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Item1A.RiskFactors
Inadditiontoinformationdiscussedelsewhereinthisreport,youshouldcarefullyconsiderthefollowingfactors,aswellasadditionalfactorsnotpresentlyknowntousorthatwecurrentlydeemtobeimmaterial,whichcouldmateriallyaffectourbusiness,liquidity,financialcondition,and/orresultsofoperationsinpresentand/orfutureperiods.
OperationalRisksSupplyofqualitywater,agricultural,andotherrawmaterials,certainrawandpackagingmaterials
purchasedundersupplycontracts;inflation;limitedgroupofglassbottlesuppliers;supplychaindisruptionsThequalityandquantityofwateravailableforuseisimportanttothesupplyofouragriculturalraw
materialsandourabilitytooperateourbusiness.Waterisalimitedresourceinmanypartsoftheworldandifclimatepatternschangeanddroughtsbecomemoresevere,theremaybeascarcityofwaterorpoorwaterqualitywhichmayaffectourproductioncostsorimposecapacityconstraints.Wearedependentonsufficientamountsofqualitywaterforoperationofourbreweries,wineries,anddistilleries,aswellastoirrigateourvineyardsandconductourotheroperations.Thesuppliersoftheagriculturalrawmaterialswepurchasearealsodependentuponsufficientsuppliesofqualitywaterfortheirvineyardsandfields.Ifwateravailabletoouroroursuppliers’operationsbecomesscarceorthequalityofthatwaterdeteriorates,wemayincurincreasedproductioncostsorfacemanufacturingconstraints.Inaddition,waterpurificationandwastetreatmentinfrastructurelimitationscouldincreasecostsorconstrainoperationofourproductionfacilitiesandvineyards.Asubstantialreductioninwatersuppliescouldresultinmateriallossesofgrapecropsandvinesorothercrops,suchascorn,barley,orhops,whichcouldleadtoashortageofourproductsupply.
WehavesubstantialbreweryoperationsinMexico,breweryoperationsinTexas,Virginia,andFlorida,andsubstantialwineoperationsinCalifornia,NewZealand,andItaly.Californiahasenduredandcontinuestoexperienceprolongeddroughtconditionswhichhaveresultedintheimpositionofcertainrestrictionsonwaterusage,andiftheseconditionsorrestrictionspersistand/orincreaseinseverity,itcouldhaveanadverseeffectuponthoseoperations.OurNavaBreweryissourcedfromasinglewatersupply.Althoughweanticipateouroperationswillhaveadequatesourcesofqualitywatertosupporttheirongoingrequirements,thereisnoguaranteethatthesourcesofwater,methodsofwaterdelivery,waterquality,orwaterrequirementswillnotchangemateriallyinthefuture.Wemayincuradditionalexpensesforimprovingwaterdelivery,quality,andefficiencyaswellasforsecuringadditionalwatersources.
Ourbreweries,theGlassPlant,ourwineries,andourdistilleriesusealargevolumeofagriculturalandotherrawmaterialstoproducetheirproducts.Theseincludecornstarchandsugars,malt,hops,fruits,yeast,andwaterforourbreweries;sodaashandsilicasandfortheGlassPlant;grapesandwaterforourwineries;andgrainandwaterforourdistilleries.Ourbreweries,wineries,anddistilleriesalluselargeamountsofvariouspackagingmaterials,includingglass,aluminum,cardboard,andotherpaperproducts.Ourproductionfacilitiesalsouseelectricity,naturalgas,anddieselfuelintheiroperations.Certainrawmaterialsandpackagingmaterialsarepurchasedundercontractsofvaryingmaturities.Thesupply,on-timeavailability,andpriceofrawmaterials,packagingmaterials,andenergycanbeaffectedbymanyfactorsbeyondourcontrol,includingmarketdemand,globalgeopoliticaleventsandmilitaryconflicts,suchasrepercussionsfromtherecentconflictinUkraine(includingoncertaincommodities,suchasaluminum,corn,crudeoil,naturalgas,andsteel),droughts,storms,andotherweatherconditionsornaturalorman-madeevents,economicfactorsaffectinggrowthdecisions,plantdiseases,andtheft.Inflationarypressures,includingformaterialcosts,energy,commodities,supplychainlogistics,andlabor,maycontinuetonegativelyimpactus,andwemaybeunabletopassalongrisingcoststoconsumersthroughincreasedsellingprices.
Ourbreweries,wineries,anddistilleriesarealsodependentuponanadequatesupplyofglassbottles,andwehaveexperiencedglassbottlepurchasingshortages,particularlyforbrownglassusedforcertainofourMexicanbeerbrands.Glassbottlecostsareoneofourlargestcomponentsofcostofproductsold.TheGlassPlantproducesamajorityofthetotalannualglassbottlesupplyforourMexicanbeerbrands,andwecurrentlyhaveasmallnumberofothersuppliersofglassbottlesforourMexicanbeerbrands.IntheU.S.,glassbottleshaveonlyasmallnumberofproducers.Currently,oneproducersuppliesamajorityofourglasscontainerrequirementsfor
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ourU.S.wineandspiritsoperationswhileadifferentproducersuppliestheglassbottlesforourcraftbeeroperations.
Supplychaindisruptions,suchaslackofavailabilityandincreasedcostsofoceanfreightshippingcontainersanddelaysatseaand/orlandports,couldcontinuetoimpactourdistributionandproductioncapabilities.Totheextentanyoftheforegoingfactorsincreasesthecostsofourfinishedproductsorleadstoashortageofourproductsupplyorinventorylevels,wecouldexperienceamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
Relianceuponcomplexinformationsystemsandthird-partyglobalnetworks;cyber-attacks;notrealizingbenefitsofournewglobalERP
Wedependoninformationtechnologytoenableustooperateefficientlyandinterfacewithcustomersandsuppliers,maintainfinancialaccuracyandefficiency,andeffectaccurateandtimelygovernmentalreporting.Ifwedonotallocateandeffectivelymanagetheresourcesnecessarytobuildandsustainthepropertechnologyinfrastructure,wecouldbesubjecttotransactionerrors,processinginefficiencies,lossofcustomers,businessdisruptions,lossofordamagetointellectualpropertythroughsecuritybreach,orpenaltiesassociatedwiththefailuretotimelyfilegovernmentalreports.Werecognizethatmanygroupsonaworldwidebasishaveexperiencedincreasesinsecuritybreaches,cyber-attacks,andotherhackingactivitiessuchasdenialofservice,malware,andransomware,andthereisthepossibilityofretaliatorycyber-attacks,includingbystate-sponsoredorganizations,stemmingfromgeopoliticalandeconomicresponsestoRussia’sinvasionofUkraine.Aswithalllargeinformationtechnologysystems,oursystemscouldbepenetratedbyincreasinglysophisticatedoutsidepartiesintentonextractingconfidentialorproprietaryinformation,corruptingourinformation,disruptingourbusinessprocesses,engagingintheunauthorizeduseofstrategicinformationaboutusorouremployees,customers,orconsumers,ordemandingmonetarypayment.Suchunauthorizedaccesscoulddisruptouroperationsandcouldresultinvariouscostsandadverseconsequences,includingthelossofassetsorrevenues,litigation,regulatoryactions,remediationcosts,increasedcyber-securityprotectioncosts,damagetoourreputation,harmtoouremployees,orthefailurebyustoretainorattractcustomersfollowingsuchanevent.
Wehaveoutsourcedvariousfunctionstothird-partyserviceprovidersandmayoutsourceotherfunctionsinthefuture.Werelyonsuchthird-partiestoprovideservicesonatimelyandeffectivebasis,butwedonotultimatelycontroltheirperformance.Inaddition,ourdistributors,wholesalers,suppliers,jointventurepartners,andotherexternalbusinesspartnersutilizetheirowninformationtechnologysystemsthataresubjecttosimilarriskstousasdescribedabove.Theirfailuretoperformasexpectedorasrequiredbycontract,oracyber-attackonthemthatdisruptstheirsystems,couldresultinsignificantdisruptionsandcoststoouroperationsor,inthecaseofthird-partyserviceproviders,apenetrationofoursystems.
InFiscal2022,wecompletedtheimplementationofanewglobalERPacrossourbusinessunitsusingaphasedapproach.WedesignedtheERPtoaccuratelymaintainourfinancialrecords,enhanceoperationalfunctionality,andprovidetimelyinformationtoourmanagementteamrelatedtotheoperationofthebusiness.WeplantomakeenhancementstotheERPandassociatedprocessesandtools,whichwillcontinuetorequiretheinvestmentofpersonnelandfinancialresources.IfourERPdoesnotoperateasintendedortheanticipatedbenefitsfromthisimplementationarenotfullyrealized,wemayexperiencedelays,increasedcosts,andotherdifficultiesthatmayinterferewithbeingabletooperateourbusinessandtheeffectivenessofourinternalcontroloverfinancialreportingcouldbeadverselyaffected.
Totheextentanyoftheforegoingfactorsresultinsignificantdisruptionsandcoststoouroperationsorreducetheeffectivenessofourinternalcontroloverfinancialreporting,wecouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
EconomicandotheruncertaintiesassociatedwithourinternationaloperationsOurproductsareproducedandsoldinnumerouscountries,wehaveemployeesinvariouscountries,and
wehaveproductionfacilitiescurrentlyintheU.S.,Mexico,NewZealand,andItaly.
Thecountriesinwhichweoperateimposeduties,excisetaxes,and/orothertaxesonbeveragealcoholproducts,and/oroncertainrawmaterialsusedtoproduceourbeveragealcoholproducts,invaryingamounts.
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Governmentalbodiesmayproposechangestointernationaltradeagreements,treaties,tariffs,taxes,andothergovernmentrulesandregulationsincludingbutnotlimitedtoenvironmentaltreatiesandregulations.TherecentmilitaryconflictinUkraineandescalatinggeopoliticaltensionsresultingfromsuchconflicthaveresultedandmaycontinuetoresultinsanctions,tariffs,andimport-exportrestrictionswhich,whencombinedwithanyretaliatoryactionsthatmaybetakenbyRussia,couldcausefurtherinflationarypressuresandeconomicandsupplychaindisruptions(includingimpactsonpricesandsupplyofcertaincommodities,suchasaluminum,corn,crudeoil,naturalgas,andsteel).Significantincreasesinimportandexcisedutiesorothertaxeson,orthatimpact,beveragealcoholproductsaswellasanytariffs,particularlyonimportsfromMexicoandanyretaliatorytariffsimposedbytheMexicangovernment,couldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
Inaddition,governmentalagenciesextensivelyregulatethebeveragealcoholproductsindustryconcerningsuchmattersaslicensing,warehousing,tradeandpricingpractices,permittedandrequiredlabeling,advertisingandrelationswithwholesalersandretailers.Certainregulationsalsorequirewarninglabelsandsignage.Wemaybesubjecttoneworrevisedregulationsorincreasedlicensingfees,requirements,ortaxes.Additionally,variousjurisdictionsmayseektoadoptsignificantadditionalproductlabelingorwarningrequirementsorlimitationsonthemarketingorsaleofourproductsbecauseofwhatourproductscontainorallegationsthatourproductscauseadversehealtheffects.Ifthesetypesofrequirementsbecomeapplicabletooneormoreofourmajorproductsundercurrentorfutureenvironmentalorhealthlawsorregulations,theymayinhibitsalesofsuchproducts.
Theseuncertaintiesandchanges,aswellasthedecisions,policies,andeconomicstrengthofoursuppliersanddistributors,couldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
DependenceonlimitedfacilitiesforproductionofourMexicanbeerbrands,andexpansion,optimization,andconstructionissues
WearedependentonourNavaandObregonbreweriesasoursolesourcesofsupplytofulfillourMexicanbeerbrandsproductrequirements,bothnowaswellasforthenear-term.
Expansion,optimization,and/orconstructionactivitiescontinueatourNavaandObregonbreweries,andweareexploringconstructionoftheSoutheastMexicoBrewery.WehavesuspendedMexicaliBreweryconstructionactivitiesfollowinganegativeresultfromapublicconsultationheldinMexico.WecontinuetoworkwithMexicangovernmentofficialsto(i)determinenextstepsforoursuspendedMexicaliBreweryconstructionproject,(ii)pursuevariousformsofrecoveryforcapitalizedcostsandadditionalexpensesincurredinestablishingtheMexicaliBrewery,and(iii)exploreoptionstoaddfurthercapacityelsewhereinMexico,includingtheconstructionoftheSoutheastMexicoBrewery,tomeetourlong-termneeds.Thesearemulti-billion-dollaractivities,withrisksofcompletiondelays,costoverruns,andfurtherassetimpairments.ThereisalsonoassuranceofanyrecoverywithrespecttothesuspendedMexicaliBrewery.
Expansionandoptimizationofcurrentproductionfacilitiesandconstructionofnewproductionfacilitiesaresubjecttovariousregulatoryanddevelopmentalrisks,includingbutnotlimitedto:(i)ourabilitytoobtaintimelycertificateauthorizations,necessaryapprovalsandpermitsfromregulatoryagenciesatallorontermsthatareacceptabletous;(ii)potentialchangesinfederal,state,andlocallawsandregulations,includingenvironmentalrequirements,thatpreventaprojectfromproceedingorincreasetheanticipatedcostoftheproject;(iii)inabilitytoacquirerights-of-wayorlandorwaterrightsonatimelybasisontermsthatareacceptabletous;(iv)inabilitytoacquirethenecessaryenergysupplies,includingelectricity,naturalgas,anddieselfuel;or(v)ahaltordelayinexpansion,optimization,orconstructionactivitiesduetoCOVID-19.Anyoftheseeventscoulddelaytheexpansion,optimization,orconstructionofourproductionfacilities.
WemaynotbeabletosatisfyourproductsupplyrequirementsfortheMexicanbeerbrandsintheeventof(i)asignificantdisruptionorthepartialortotaldestructionoftheNavaorObregonbreweriesortheGlassPlant,(ii)difficultyshippingrawmaterialsandproductintooroutoftheU.S.,or(iii)atemporaryinabilitytoproduceourproductduetoclosureorlowerproductionlevelsofoneormoreofourMexicanbreweries,includingasaresultofCOVID-19.Also,ifthecontemplatedexpansion,optimization,and/orconstructionactivitiesatthe
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NavaandObregonbreweriesandconstructionofadditionalbrewerycapacityinMexicoareabandonedornototherwisecompletedbytheirtargetedcompletiondates,wemaynotbeabletoproducesufficientquantitiesofourMexicanbeertosatisfyourneeds.Undersuchcircumstances,wemaybeunabletoobtainourMexicanbeeratareasonablepricefromanothersource,ifatall.AsignificantdisruptionatourNavaorObregonbreweries,ortheGlassPlant,evenonashort-termbasis,couldimpairourabilitytoproduceandshipproductstomarketonatimelybasis.Alternativefacilitieswithsufficientcapacityorcapabilitiesmaynotreadilybeavailable,maycostsubstantiallymore,ormaytakeasignificanttimetostartproduction,anyofwhichcouldhaveamaterialadverseeffectonourproductsupply,business,liquidity,financialcondition,and/orresultsofoperations.
Operationaldisruptionsorcatastrophiclosstobreweries,wineries,otherproductionfacilities,ordistributionsystems
AllofourMexicanbeerbrandsproductsupplyiscurrentlyproducedatourNavaandObregonbreweries.Manyoftheworkersatthesebreweriesarecoveredbycollectivebargainingagreements.TheGlassPlanthasfiveoperationalglassfurnaceswhichproduceamajorityofthetotalannualglassbottlesupplyforourMexicanbeerbrands.Severalofourvineyardsandproductionanddistributionfacilities,includingcertainCaliforniaandOregonwineries,areinareaspronetoseismicactivity.Additionally,wehavevariousvineyardsandwineriesinCaliforniaandOregonwhichhaverecentlyexperiencedwildfiresand/orlandslides.
Ifanyoftheseorotherofourpropertiesandproductionfacilitiesweretoexperienceasignificantoperationaldisruptionorcatastrophicloss,itcoulddelayordisruptproduction,shipments,andrevenue,andresultinpotentiallysignificantexpensestorepairorreplacethesepropertiesorfindsuitablealternativeproviders.Also,ourproductionfacilitiesareassetintensive.Asouroperationsareconcentratedinalimitednumberofproductionanddistributionfacilities,wearemorelikelytoexperienceasignificantoperationaldisruptionorcatastrophiclossinanyonelocationfromactsofwarorterrorism,fires,floods,earthquakes,severewinterstormsorfrosts,hurricanes,pandemics,laborstrikesorotherlaboractivities,cyber-attacksandotherattemptstopenetrateourorourthird-partyserviceproviders’informationtechnologysystemsortheinformationtechnologyusedbyournon-productionemployeeswhoworkremotelyduringtheCOVID-19pandemic,unavailabilityofraworpackagingmaterials,orothernaturalorman-madeevents.GeopoliticalandeconomicresponsestoRussia’sinvasionofUkrainecouldimpactglobalenergypricesandsupply,particularlyforcrudeoilandnaturalgas,aswellasresultinretaliatorycyber-attacks.Ifasignificantoperationaldisruptionorcatastrophiclossweretooccur,wecouldbreachagreements,ourreputationcouldbeharmed,andourbusiness,liquidity,financialcondition,and/orresultsofoperationscouldbeadverselyaffectedby,amongotheritems,highermaintenancecharges,unexpectedcapitalspending,orproductsupplyconstraints.
Ourinsurancepoliciesdonotcovercertaintypesofcatastrophesandmaynotcovercertaineventssuchaspandemics.Economicconditionsanduncertaintiesinglobalmarketsmayadverselyaffectthecostandothertermsuponwhichweareabletoobtainpropertydamageandbusinessinterruptioninsurance.Ifourinsurancecoverageisadverselyaffected,ortotheextentwehaveelectedtoself-insure,wemaybeatgreaterriskthatwemayexperienceanadverseimpacttoourbusiness,liquidity,financialcondition,and/orresultsofoperations.
COVID-19orotherpandemics,outbreaksofcommunicableinfectionsordiseases,orotherpublichealthconcernsinthemarketsinwhichourconsumersoremployeesliveand/orinwhichweorourdistributors,retailers,andsuppliersoperate
Diseaseoutbreaks,includingtheCOVID-19pandemic,andotherpublichealthconditionshaveresultedandcouldcontinuetoresultindisruptionsanddamagetoourbusinesscausedbypotentialnegativeconsumerpurchasingbehavioraswellasdisruptiontooursupplychains,productionprocesses,andoperations.Consumerpurchasingbehaviormaybeimpactedbyreducedconsumptionbyconsumerswhomaynotbeabletoleavehomeorotherwiseshopinanormalmannerasaresultofgovernmentalcontainmentactions,quarantines,orothercancellationsofpubliceventsandotheropportunitiestopurchaseourproducts,frombar,restaurant,andvenueclosuresorcapacityrestrictions,orfromareductioninconsumerdiscretionaryincomeduetoreducedorlimitedworkandlayoffs.Supplydisruptionmayresultfromrestrictionsontheabilityofemployeesandothersinthesupplychaintotravelandwork,suchascausedbyquarantineorindividualillness,orwhichmayresultfromborderclosuresimposedbygovernmentstodeterthespreadofcommunicableinfectionordisease,ordeterminationsbyusoroursuppliersordistributorstotemporarilysuspendoperationsinaffectedareas,orotheractionswhichrestricttheabilitytodistributeourproductsorwhichmayotherwisenegativelyimpactourabilityto
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produce,package,andshipourproducts,forourdistributorstodistributeourproducts,orforoursupplierstoprovideusourrawmaterials.Portsorchannelsofentrymaybeclosedoroperateatonlyaportionofcapacity,ortransportationofproductwithinaregionorcountrymaybelimited,ifworkersareunabletoreporttoworkduetotravelrestrictionsorpersonalillness.Ouroperationsandtheoperationsofoursuppliersmaybecomelessefficientorotherwisebecomenegativelyimpactedifourexecutiveleadersorotherpersonnelcriticaltoouroperationsareunabletoworkorifasignificantpercentageoftheworkforceisunabletoworkorisrequiredtoworkremotely.Aprolongedquarantineorborderclosurecouldresultintemporaryorlonger-termdisruptionsofsalespatterns,consumptionandtradepatterns,supplychains,productionprocesses,andoperations.Awidespreadhealthcrisis,suchastheCOVID-19pandemic,couldnegativelyaffecttheeconomiesandfinancialmarketsofmanycountriesresultinginaglobaleconomicdownturnwhichcouldnegativelyimpactdemandforourproductsandourabilitytoborrowmoney.Anyoftheseeventscouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
Climatechange;environmentalregulatorycomplianceandemissionsandstewardshiptargetsOurbusinessdependsuponagriculturalactivityandnaturalresources.Therehasbeenmuchpublic
discussionrelatedtoconcernsthatcarbondioxideandotherGHGsintheatmospheremayhaveanadverseimpactonglobaltemperatures,weatherpatterns,andthefrequencyandseverityofextremeweatherandnaturaldisasters.Severeweathereventsandnaturaldisasters,suchasourexperienceswithdrought,flooding,and/orwildfiresinCalifornia,Oregon,orWashington,anunexpectedseverewinterstorminTexasorMexico,oralatefrostinNewZealand,andclimatechangemaynegativelyaffectagriculturalproductivityintheregionsfromwhichwepresentlysourceourvariousagriculturalrawmaterialsortheenergysupplypoweringourproductionfacilities.Decreasedavailabilityofourrawmaterialsmayincreaseourcostofproductsold.Severeweathereventsandnaturaldisastersorchangesinthefrequencyorintensityofweathereventsornaturaldisasterscanalsoimpactproductqualityanddisruptoursupplychains,whichmayaffectproductionoperations,insurancecostandcoverage,aswellasdeliveryofourproductstowholesalers,retailers,andconsumers.Naturaldisasterssuchasseverestorms,floods,andearthquakesmayalsonegativelyimpacttheabilityofconsumerstopurchaseourproducts.
Wemayexperiencesignificantfutureincreasesinthecostsassociatedwithenvironmentalregulatorycompliance,includingfees,licenses,andthecostofcapitalimprovementsforouroperatingfacilitiestomeetenvironmentalregulatoryrequirements.Inaddition,wemaybepartytovariousenvironmentalremediationobligationsarisinginthenormalcourseofourbusinessorrelatingtohistoricalactivitiesofbusinessesweacquire.Duetoregulatorycomplexities,governmentalorcontractualrequirements,uncertaintiesinherentinlitigation,andtheriskofunidentifiedcontaminantsinourcurrentandformerproperties,thepotentialexistsforremediation,liability,indemnification,andothercoststodiffermateriallyfromthecoststhatwehaveestimated.Wemayincurcostsassociatedwithenvironmentalcompliancearisingfromeventswecannotcontrol,suchasunusuallyseverefloods,hurricanes,earthquakes,orfires.WehavealsodisclosedtargetsrelatedtorestorationofwaterwithdrawalsandScope1andScope2GHGemissions,theachievementofwhichwillrequireustomakeinvestmentsandallocateresources.Wecannotassurethatwehaveallottedsufficientresourcestoattain,orthatweultimatelywillachieve,thesetargetsorthatourcostsinrelationtoanyoftheforegoingmatterswillnotexceedourprojections,whichcouldhaveamaterialadverseeffectuponourbusiness,liquidity,financialcondition,and/orresultsofoperations.
Relianceonwholesaledistributors,majorretailers,andgovernmentagenciesLocalmarketstructuresanddistributionchannelsvaryworldwide.WithinourprimarymarketintheU.S.,
weofferarangeofbeveragealcoholproductswithgenerallyseparatedistributionnetworksutilizedforourbeerportfolioandourwineandspiritsportfolio.IntheU.S.,wesellourproductsprincipallytowholesalersforresaletoretailoutletsanddirectlytogovernmentagencies.WehaveanexclusivearrangementwithonewholesalerthatgeneratesalargeportionofourbrandedU.S.wineandspiritsnetsales,andwehaveonewholesalerforourbeerportfoliowhich,throughmultipleentities,representsroughlyone-fifthofourconsolidatednetsales.Wholesalersandretailersofourproductsofferproductswhichcompetedirectlywithourproductsforretailshelfspace,promotionalsupportandconsumerpurchases,andwholesalersorretailersmaygivehigherprioritytoproductsofourcompetitors.Thereplacementorpoorperformanceofourmajorwholesalers,retailers,orgovernmentagenciescouldresultintemporaryorlonger-termsalesdisruptionsorcouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
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Contaminationanddegradationofproductqualityfromdiseases,pests,andweatherandclimateconditions
Contamination,whetherarisingaccidentallyorthroughdeliberatethird-partyaction,orothereventsthatharmtheintegrityorconsumersupportforourbrands,couldadverselyaffectsales.Variousdiseases,pests,fungi,viruses,drought,frosts,andcertainotherweatherconditionsortheeffectsofclimateconditions,suchassmoketaintfromwildfires,couldaffectthequalityandquantityofbarley,hops,grapes,andotheragriculturalrawmaterialsavailable,decreasingthesupplyandqualityofourproducts.Similarly,powerdisruptionsduetoweatherconditionscouldadverselyimpactourproductionprocessesandthequalityofourproducts.Wecannotguaranteethatweand/oroursuppliersofagriculturalrawmaterialswillsucceedinpreventingcontaminationinexistingand/orfuturevineyardsorfields.Futuregovernmentrestrictionsregardingtheuseofcertainmaterialsusedingrowinggrapesorotheragriculturalrawmaterialsmayincreasevineyardcostsand/orreduceproductionofgrapesorothercrops.Itisalsopossiblethatasuppliermaynotprovidematerialsorproductcomponentswhichmeetourrequiredstandardsormayfalsifydocumentationassociatedwiththefulfillmentofthoserequirements.
Productcontaminationortamperingorthefailuretomaintainourstandardsforproductquality,safety,andintegrity,includingwithrespecttorawmaterials,naturallyoccurringcompounds,packagingmaterials,orproductcomponentsobtainedfromsuppliers,mayalsoreducedemandforourproductsorcauseproductionanddeliverydisruptions.Contaminantsorotherdefectsinrawmaterials,packagingmaterials,orproductcomponentspurchasedfromthirdpartiesandusedintheproductionofourbeer,wine,orspiritsproducts,ordefectsinthefermentationordistillationprocesscouldleadtolowbeveragequalityaswellasillnessamong,orinjuryto,consumersofourproductsandmayresultinreducedsalesoftheaffectedbrandorallourbrands.
Ifanyofourproductsbecomeunsafeorunfitforconsumption,aremisbranded,orcauseinjury,wemayhavetoengageinaproductrecalland/orbesubjecttoliabilityandincuradditionalcosts.Awidespreadproductrecall,multipleproductrecalls,orasignificantproductliabilityjudgmentcouldcauseourproductstobeunavailableforaperiod,whichcouldreduceconsumerdemandandbrandequityandresultinreputationalharm.
MarijuanaiscurrentlyillegalunderU.S.federallawandinotherjurisdictions;wedonotcontrolCanopy’sbusinessoroperations
TheabilityofCanopytoachieveitsbusinessobjectivesiscontingent,inpart,uponthelegalityofthecannabisindustry,Canopy’scompliancewithregulatoryrequirementsenactedbyvariousgovernmentalauthorities,andCanopyobtainingallregulatoryapprovals,wherenecessary,fortheproductionandsaleofitsproducts.Thelawsandregulationsgoverningmedicinalandrecreationalcannabisarestilldeveloping,includinginwaysthatwemaynotforesee.Canopy’ssuccesswilldependon,amongotherthings,theabilityofCanopytooperatesuccessfullyinthecannabismarketspaceandthepresenceofsufficientretailoutlets.Therearealsoconcernsabouthealthissuesassociatedwithcertaintypesofformfactorsforcannabisproducts,suchasthoseusedininhalables.Theseissuesmayresultinalessrobustconsumerdemandforcertainformfactors.ThereisnoassurancearobustcannabisconsumermarketwilldevelopconsistentwithourexpectationsorthatconsumerswillpurchaseanyCanopyproducts.AlthoughtheAgricultureImprovementActof2018hastakenhempandhempderivedcannabinoidsoutofthemostrestrictiveclassofcontrolledsubstances,marijuanaisaschedule-1controlledsubstanceintheU.S.andiscurrentlyillegalunderU.S.federallaw.EveninthoseU.S.statesinwhichtherecreationaluseofmarijuanahasbeenlegalized,itsuseremainsaviolationofU.S.federallaw.SinceU.S.federallawscriminalizingtheuseofmarijuanapreemptstatelawsthatlegalizeitsuse,continuationofU.S.federallawinitscurrentstateregardingmarijuanawouldlikelylimittheexpansionofCanopy’sbusinessintotheU.S.Similarissuesofillegalityapplyinothercountries.Anyamendmenttoorreplacementofexistinglawstomakethemmoreonerous,ordelaysinamendingorreplacingexistinglawstoliberalizethelegalpossessionanduseofcannabis,ordelaysinobtaining,orthefailuretoobtain,anynecessaryregulatoryapprovalsmaysignificantlydelayornegativelyimpactCanopy’smarkets,products,andsalesinitiativesandcouldhaveamaterialadverseeffectonCanopy’sbusiness,liquidity,financialcondition,and/orresultsofoperations.Werethattooccur,wemaynotbeabletorecoverthevalueofourinvestmentinCanopy.
WehavetherighttonominatefourmembersoftheCanopyboardofdirectors.WhilewedonotcontrolCanopy’sbusinessoroperations,wedorelyonCanopy’sinternalcontrolsandproceduresforoperationofthatbusiness.Nevertheless,ourfinancingarrangementsrequireustocertify,amongotherthings,thattoourknowledge(i)CanopyisproperlylicensedandoperatinginaccordancewithCanadianlawsinallmaterialrespects;
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(ii)Canopydoesnotknowinglyorintentionallypurchase,manufacture,distribute,import,and/orsellmarijuana,oranyothercontrolledsubstanceinorfromtheU.S.oranyotherjurisdiction,ineachcase,wheresuchpurchase,manufacture,distribution,importation,orsaleofmarijuanaorsuchothercontrolledsubstanceisillegal,exceptincompliancewithallapplicablefederal,state,local,orforeignlaws,rules,andregulations;and(iii)Canopydoesnotknowinglyorintentionallypartnerwith,investin,ordistributemarijuanaoranyothercontrolledsubstancetoanythird-partythatknowinglyorintentionallypurchases,sells,manufactures,ordistributesmarijuanaoranyothercontrolledsubstanceintheU.S.oranyotherjurisdiction,ineachcase,wheresuchpurchase,sale,manufacture,ordistributionofmarijuanaorsuchothercontrolledsubstanceisillegal,exceptincompliancewithallapplicablefederal,state,local,orforeignlaws,rules,andregulations.WerewetoknowthatCanopywasknowinglyorintentionallyviolatinganyoftheseapplicablelaws,wewouldbeunabletomaketherequiredcertificationunderourfinancingarrangements,whichcouldleadtoadefaultunderthosefinancingarrangements.
StrategicRisksPotentialdeclineintheconsumptionofproductswesell;dependenceonsalesofourMexicanbeerbrandsOurbusinessdependsuponconsumers’consumptionofourbeer,wine,andspiritsbrands,andsalesof
ourMexicanbeerbrandsintheU.S.areasignificantportionofourbusiness.Consumerpreferencesmayshiftduetoavarietyoffactors,includingchangesintastepreferencesandleisure,dining,andbeverageconsumptionpatterns,demographicorsocialtrends,perceivedvalue,andpublichealthpoliciesputintoeffecttomitigatethespreadofCOVID-19.Further,alimitedorgeneraldeclineinconsumptioninoneormoreofourproductcategoriescouldoccurinthefutureduetoavarietyoffactors,including:
• ageneraldeclineineconomicorgeopoliticalconditions;• concernaboutthehealthconsequencesofconsumingbeveragealcoholproductsandaboutdrinking
anddriving;• ageneraldeclineintheconsumptionofbeveragealcoholproductsinon-premiseestablishments,
whichmayresultfromstricterlawsrelatingtodrivingwhileundertheinfluenceofalcohol;• theincreasedactivityofanti-alcoholgroupsorotherbodiesadvocatingmeasuresdesignedtoreduce
theconsumptionofbeveragealcoholproducts,suchastheWHO;• increasedfederal,state,provincial,andforeignexcise,orothertaxesonbeveragealcoholproducts
andpossiblerestrictionsonbeveragealcoholadvertisingandmarketing;• increasedregulationrestrictingthepurchaseorconsumptionofbeveragealcoholproducts;• inflation,includingtheimpactofreduceddiscretionaryincomeofconsumersavailabletopurchaseour
productsandincreasedcommoditiescosts;and• wars,healthepidemicsorpandemics,quarantines,weather,andnaturalorman-madedisasters.
Iftheseoranyotherfactorscauseadeclineinthegrowthrate,amount,orprofitabilityofoursalesoftheMexicanbeerbrandsintheU.S.oranymaterialshiftinconsumerpreferencesandtasteinourmajormarketsawayfromourbeer,wine,andspiritsbrands,andourMexicanbeerbrandsinparticular,orfromthecategoriesinwhichtheycompete,itcouldadverselyaffectourbusiness,liquidity,financialcondition,and/orresultsofoperations.
Acquisition,divestiture,investment,andNPDstrategiesFromtimetotime,weacquirebusinesses,assets,orsecuritiesofcompaniesthatwebelievewillprovidea
strategicfitwithourbusiness.Weintegrateacquiredbusinesseswithourexistingoperations;ouroverallinternalcontroloverfinancialreportingprocesses;andourfinancial,operations,andinformationsystems.Ifthefinancialperformanceofourbusiness,assupplementedbytheassetsandbusinessesacquired,doesnotmeetourexpectations,itmaymakeitmoredifficultforustoserviceourdebtobligationsandourresultsofoperationsmayfailtomeetmarketexpectations.Wemaynoteffectivelyassimilatethebusinessorproductofferingsofacquiredcompaniesintoourbusinessorwithintheanticipatedcostsortimeframes,retainkeycustomersandsuppliersorkeyemployeesofacquiredbusinesses,orsuccessfullyimplementourbusinessplanforthecombinedbusiness.Inaddition,ourfinaldeterminationsandappraisalsoftheestimatedfairvalueofassetsacquiredandliabilitiesassumedinouracquisitionsmayvarymateriallyfromearlierestimatesandwemayfailtofullyrealizeanticipatedcostsavings,growthopportunities,orotherpotentialsynergies.Wecannotassurethatthefairvalueofacquiredbusinessesorinvestmentswillremainconstant.
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Wemayalsodivestourselvesofbusinesses,assets,orsecuritiesofcompanies,includingthosethatwebelievenolongerprovideastrategicfitwithourbusiness.Wemayprovidevariousindemnificationsinconnectionwithdivestituresofbusinessesorassets.Theamountofcontingentconsideration,ifany,receivedindivestitures,includingintheWineandSpiritsDivestitures,mayvarybasedonvariousfactorsincludingactualfuturebrandperformance.Divestituresofportionsofourbusinessmayalsoresultincostsstrandedinourremainingbusiness.Delaysindevelopingorimplementingplanstoaddresssuchcostscoulddelayorpreventtheaccomplishmentofourfinancialobjectives.
Wehavealsoacquiredorretainedownershipinterestsincompanieswhichwedonotcontrol,suchasourjointventuretooperatetheGlassPlant,ourinterestinCanopy,andinvestmentsmadethroughourcorporateventurecapitalfunction,andwehaveacquiredcontrolofcompanieswhichwedonotwhollyown,suchasour75%interestinNelson’sGreenBrier.Ourjointventurepartnersortheotherpartiesthatholdtheremainingownershipinterestsincompanieswhichwedonotcontrolmayatanytimehaveeconomic,business,orlegalinterestsorgoalsthatareinconsistentwithourgoalsorthegoalsofthejointventuresorthosecompanies.Ourjointventurearrangementsandthearrangementsthroughwhichweacquiredorholdourotherequityormembershipinterestsmayrequireus,amongothermatters,topaycertaincosts,tomakecapitalinvestments,tofulfillaloneourjointventurepartners’obligations,ortopurchaseotherparties’interests.Theentitiesinwhichwehaveaninterestmaybesubjecttolitigationwhichmayhaveanadverseimpactontheirabilitytodobusinessorunderwhichtheymayincurcostsandexpenseswhichcouldhaveamaterialadverseimpactontheiroperationsorfinancialconditionwhich,inturn,couldnegativelyimpactthevalueofourinvestment.
WepreviouslyincreasedourinvestmentinCanopythroughexerciseofourwarrantsinCanopyandwemayfurtherincreaseourinvestmentinthefuture.Whilewewillnotdevelop,distribute,manufacture,orsellcannabisproductsintheU.S.,oranywhereelseintheworld,unlesslegallypermissibletodosoatallgovernmentallevelsintheparticularjurisdiction,thisinvestmentcouldaffectconsumerperceptionofourexistingbrandsandourreputationwithvariousconstituencies.
Inaddition,ourcontinuedsuccessdepends,inpart,onourabilitytodevelopnewproducts.Thelaunchandongoingsuccessofnewproductsareinherentlyuncertain,especiallywithrespecttoconsumerappeal.Anewproductlaunchcangiverisetoavarietyofcosts.Anunsuccessfullaunch,amongotherthings,canaffectconsumerperceptionofexistingbrandsandourreputation.Unsuccessfulimplementationorshort-livedpopularityofourproductinnovationshasresultedandmayinthefutureresultininventorywrite-offsandothercosts.
Wecannotassurethatwewillrealizetheexpectedbenefitsofacquisitions,divestitures,investments,ornewproducts.Wehaverecognizedimpairmentlossesand/orwrite-offsinconnectionwithacquiredanddivestedbusinessesandinvestments,andwemaydosoagaininthefuture.Wealsocannotassurethatouracquisitions,investments,orjointventureswillbeprofitableorthatforecastsregardingacquisition,divestiture,orinvestmentactivitieswillbeaccurateorthattheinternalcontroloverfinancialreportingofentitieswhichwemustconsolidateasaresultofourinvestmentactivitiesbutdonotcontrolorwhollyownwillbeasrobustasourinternalcontroloverfinancialreporting.Ourfailuretoadequatelymanagetherisksassociatedwithacquisitions,divestitures,investments,ornewproducts,orthefailureofanentityinwhichwehaveanequityormembershipinterest,couldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
OurCanopyinvestmentisdependentuponanemergingmarketandlegalsalesofcannabisproductsThelegalcannabismarketisanemergingmarket.ThelegislativeframeworkpertainingtotheCanadian
cannabismarket,aswellascannabismarketsinothercountries,isuncertain.ThesuccessoftheCanopytransactionswilldependon,amongotherthings,theabilityofCanopytocreateastrongplatformtooperatesuccessfullyinthecannabismarketspace,consumerdemandforitsproducts,andthepresenceofsufficientretailoutlets.ThereisnoassurancearobustcannabisconsumermarketwilldevelopconsistentwithourexpectationsorthatconsumerswillpurchaseanyCanopyproducts.
Thechanginglegallandscapeandthelackofconsumermarketdatamakesitdifficulttopredictthepaceatwhichthecannabismarketmaygrow,ifatall,andtheproductsthatconsumerswillpurchaseinthecannabismarketplace.Forexample,theCanadianCannabisActprohibitstestimonials,lifestylebrandingandpackagingthatisappealingtoyouth.Therestrictionsonadvertising,marketing,andtheuseoflogosandbrandnamescouldhave
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amaterialadverseeffectonCanopy’sbusiness,liquidity,financialcondition,and/orresultsofoperations,andourinvestmentinCanopy.Additionally,CanopymustrelyonitsownmarketresearchandinternaldatatoforecastsalesasdetailedforecastsmaynotbefullyavailableatthisearlystageinthecannabisindustryinCanadaandglobally.Marketresearchrelatingtotheadult-userecreationallegalcannabisindustryisinitsearlystagesand,assuch,trendscanonlybeforecasted.
AfailureinthedemandforCanopy’sproductstomaterializeasaresultofcompetition,consumerdesire,competitionfromlegalandillegalmarketentrantsorotherproducts,orotherfactorscouldhaveamaterialadverseeffectonCanopy’sbusiness,liquidity,financialcondition,and/orresultsofoperations.Thechanginglegallandscapeandthelackofconsumermarketdatamakesitdifficulttopredictthepaceatwhichthecannabismarketmaygrow,ifatall,andtheproductsthatconsumerswillpurchaseinthecannabismarketplace.
Dependenceupontrademarksandproprietaryrights,failuretoprotectourintellectualpropertyrightsOurfuturesuccessdependssignificantlyonourabilitytoprotectourcurrentandfuturebrandsand
productsandtodefendourintellectualpropertyrights.Wehavebeengrantednumeroustrademarkregistrationsandusecertaintrademarksunderlicensecoveringourbrandsandproducts,andwehavefiled,andexpecttocontinuetofileorhavefiledonourbehalf,trademarkapplicationsseekingtoprotectnewlydevelopedbrandsandproducts.Wecannotbesurethattrademarkregistrationswillbeissuedwithrespecttoanyofsuchtrademarkapplications.Wecouldalso,byomission,failtotimelyreneworprotectatrademarkandourcompetitorscouldchallenge,invalidate,orcircumventanyexistingorfuturetrademarksissuedto,orlicensedby,us.SeveralofoursubsidiariesaredefendantsinalawsuitoriginallyfiledinU.S.DistrictCourtfortheSouthernDistrictofNewYorkinFebruary2021andamendedinDecember2021,whichalleges,amongotherthings,thatoursublicenseofthetrademarksforourMexicanbeerbrandsshouldnotpermitustousetheCoronabrandnameonourCoronaHardSeltzerortheModelobrandnameonourModeloRanchWater.Whilewebelievethislawsuitiswithoutmerit,ifwearenotsuccessful,wemaynotbeabletomarketourhardseltzerproductinitscurrentformulationundertheCoronabrandnameorourranchwaterproductinitscurrentformulationundertheModelobrandnamewhichmayhaveanadverseeffectonourbusinessandfinancialcondition.Wemaybesubjecttootherlitigationrelatedtoourtrademarksandintellectualpropertyrights.Asubstantialadversejudgmentorotherunfavorableresolutionofthesemattersorourfailuretootherwiseprotectourintellectualpropertyrightscouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
FinancialRisksIndebtednessWehaveincurredindebtednesstofinanceinvestmentsandacquisitions,fundbeeroperationsexpansion,
optimization,andconstructionactivities,paycashdividends,andrepurchasesharesofourcommonstock.Inthefuture,wemaycontinuetoincuradditionalindebtednessforanyoralloftheseactivitiesaswellastofundothergeneralcorporatepurposes.Wecannotassurethatourbusinesswillgeneratesufficientcashflowfromoperationstomeetallourdebtservicerequirements;returnvaluetostockholderssuchasthroughpaymentofdividendsorrepurchaseofsharesofourcommonstock;andfundourgeneralcorporateandcapitalrequirements.
Ourcurrentandfuturedebtserviceobligationsandcovenantscouldhaveimportantconsequences.Theseconsequencesinclude,ormayinclude,thefollowing:
• ourabilitytoobtainfinancingforfutureworkingcapitalneedsorinvestments/acquisitionsorotherpurposesmaybelimited;
• ourfundsavailableforoperations,expansions,andconstruction,dividends,orotherdistributions,orsharerepurchasesmaybereducedbecausewededicateasignificantportionofourcashflowfromoperationstothepaymentofprincipalandinterestonourindebtedness;
• ourabilitytoconductourbusinesscouldbelimitedbyrestrictivecovenants;and• ourvulnerabilitytoadverseeconomicconditionsmaybegreaterthanlessleveragedcompetitorsand,
thus,ourabilitytowithstandcompetitivepressuresmaybelimited.
Additionally,anyfailuretomeetrequiredpaymentsonourdebt,orfailuretocomplywithanycovenantsintheinstrumentsgoverningourdebt,couldresultinaneventofdefaultunderthetermsofthoseinstrumentsandadowngradetoourcreditratings.Adowngradeinourcreditratingswouldincreaseourborrowingcostsand
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couldaffectourabilitytoissuecommercialpaper.Certainofourdebtfacilitiesalsocontainchangeofcontrolprovisionswhich,iftriggered,mayresultinanaccelerationofourobligationtorepaythedebt.Inaddition,certainofourcurrentandfuturedebtandderivativefinancialinstrumentshave,orinthefuture,couldhaveinterestratesthataretiedtoreferencerates,suchasSOFR.Thevolatilityandavailabilityofsuchreferencerates,includingestablishmentofalternativereferencerates,isoutofourcontrol.Changestoortheunavailabilityofsuchratesorthemannerforcalculationofsuchreferencerates,couldresultinincreasestothecostofourdebt.
Ifwedonotcomplywiththeobligationscontainedinourseniorcreditfacility,ourexistingorfutureindentures,orotherloanagreements,wecouldbeindefaultundersuchdebtfacilitiesoragreements.Insuchanevent,theholdersofourdebtcouldelecttodeclareasdueandpayableallamountsoutstandingunderthoseinstruments.Adefaultcouldalsorequiretheimmediaterepaymentofoutstandingobligationsunderotherdebtfacilitiesoragreementsthatcontaincross-accelerationorcross-defaultprovisions.Ifthatoccurred,wemightnothaveavailablefundstosatisfyourrepaymentobligations.
SecuritiesmeasuredatfairvalueThevalueofthewarrantsandconvertibledebtweholdinCanopythroughoursubsidiariesissubjectto
thevolatilityofthemarketpriceofCanopy’scommonstock.Thisvolatilitysubjectsourfinancialstatementstovolatility.ThemarketpriceofCanopy’scommonstockhasexperiencedsignificantvolatility,andthatvolatilitymaycontinueinthefutureandmayalsobesubjecttowidefluctuationsinresponsetomanyfactorsbeyondthecontrolofCanopy,orofus.Thesefactorsinclude,butarenotlimitedto:
• actualoranticipatedfluctuationsinCanopy’sreportedresultsofoperationsorfinancialposition,includingduetoasignificantimpairmentofgoodwill,intangibleassets,orotherlong-livedassets;
• recommendationsandreportsbysecuritiesandindustryanalysts;• impactofCOVID-19onCanopy’soperations,revenues,andabilitytoaccessfinancialmarketsaswell
as,onthecannabisindustrygenerally;• significantacquisitions,investments,and/orequityissuancesbyCanopy;• changesintheperformanceormarketvaluationsofcompaniesinCanopy’sindustry;• announcementofdevelopmentsandmaterialeventsbyCanopyoritscompetitors;• fluctuationsinthecostsofvitalproductionmaterialsandservices;• additionordepartureofCanopyexecutiveofficersorotherkeypersonnel;• speculativetradingactivitybycertaininvestors;• newsreportsrelatingtotrends,concerns,technological,orcompetitivedevelopments,regulatory
changesandotherrelatedissuesinCanopy’sindustryortargetmarkets;• legalandregulatorychangesaffectingthecannabisindustrygenerallyandCanopy’sbusinessand
operations;and• administrativeobligationsassociatedwithHealthCanadarequirementsandcompliancewithall
associatedrulesandregulationsincluding,butnotlimitedto,theCanadianCannabisAct.
WecurrentlyaccountforourinvestmentinCanopyundertheequitymethod.TheremaybeafutureimpairmentofourCanopyEquityMethodInvestmentifCanopy’sstockpriceremainsbelowourcarryingvalueofthatinvestmentanddoesnotrecoverinthenear-termorifourexpectationsaboutCanopy’sprospectiveresultsandcashflowsdecline,whichcouldbeinfluencedbyavarietyoffactorsincludingthoselistedabove.WerecognizeourequityinCanopy’searningsonatwo-monthlagprimarilybecauseoftheavailabilityofCanopy’sfinancialresultssinceCanopy’sfiscalyearendsannuallyMarch31whileourfiscalyearendsannuallyonthelastdayofFebruary.
Canopy’scorporategovernanceandvaluationCanopy’sbusinessissubjecttoevolvingcorporategovernanceandpublicdisclosureregulationsthatmay
fromtimetotimeincreasebothCanopy’scompliancecostsandtheriskofitsnon-compliance.Theseincludechangingrulesandregulationspromulgatedbyanumberofgovernmentalandself-regulatedorganizations,including,butnotlimitedto,theCanadianSecuritiesAdministrators,theTSX,theInternationalAccountingStandardsBoard,theSEC,andNasdaq.TheserulescontinuetoevolveinscopeandcomplexitycreatingnewrequirementsforCanopy.CanopyisrequiredtocomplywithapplicableNasdaqlistingstandardsandSOXrequirements.Inthefuture,Canopy’sinternalcontrolsmaynotbeadequate,orCanopymaynotbeableto
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maintainadequateandeffectiveinternalcontrolsoverfinancialreportingasrequiredbySOX,oronanongoingbasisifstandardsaremodified,supplemented,oramendedfromtimetotime.Ifnotmaintained,investorscouldloseconfidenceinthereliabilityofitsfinancialstatements,whichcouldharmCanopy’sbusinessandhaveanegativeimpactonthetradingpriceormarketvalueofCanopysecurities.
Inaddition,werecordasequityinearningsourproportionalshareofCanopy’sresultsofoperations.WecouldhaveamaterialweaknessintheeventtheproportionalshareofCanopy’sresultsofoperationsthatwerecordcontainsanerrorasaresultofanerrorinCanopy’sfinancialstatementsthatwedonotdetect.
AlthoughwedonotcontrolCanopy,wedohavesignificantinfluenceoverCanopy.IfwecontrolledCanopy,wewouldhavetoconsolidateCanopyintoourfinancialstatements,andifCanopyhadamaterialweakness,wewouldinheritCanopy’smaterialweaknessthroughconsolidation.Insuchanevent,evenifCanopy’sfinancialstatementswerecorrect,thefactthatCanopyhadamaterialweaknesscouldresultinamaterialweaknessforus.
Classactionorotherlitigationrelatingtoabuseofourproducts,themisuseofourproducts,productliability,ormarketingorsalespractices,includingproductlabeling
Therehasbeenpublicattentiondirectedatthebeveragealcoholindustry,whichwebelieveisduetoconcernoverproblemsrelatedtoharmfuluseofalcohol,includingdrinkinganddriving,underagedrinking,andhealthconsequencesfromthemisuseofalcohol.Wecouldbeexposedtolawsuitsrelatingtoproductliabilityormarketingorsalespractices,includingproductlabeling.Adversedevelopmentsinlawsuitsconcerningthesetypesofmattersorasignificantdeclineinthesocialacceptabilityofbeveragealcoholproductsthatmayresultfromlawsuitscouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
OtherRisksControlbytheSandsfamily;ProposalfromtheSandsfamilytodeclassifyourcommonstockOurClassBStockisprincipallyheldbymembersoftheSandsfamily,eitherdirectlyorthroughentities
controlledbymembersoftheSandsfamily.HoldersofClassAStockareentitledtoonevotepershareandholdersofClassBStockareentitledto10votespershare.HoldersofClass1Stockgenerallydonothavevotingrights.ThestockownershipoftheSandsfamilyandentitiescontrolledbymembersoftheSandsfamilyrepresentsamajorityofthecombinedvotingpowerofallclassesofourcommonstockasofthedateofthisForm10-K,votingasasingleclass.Consequently,theSandsfamilycurrentlyhasthepowertoelectamajorityofourdirectorsandapproveactionsrequiringtheapprovalofthestockholdersoftheCompanyvotingasasingleclass.
OnApril2,2022,wereceivedtheProposalwhichproposesthateachshareofClassBStockwouldbeconvertedinto1.35sharesofClassAStock.ItisexpectedthattheSandsfamilyandentitiescontrolledbymembersoftheSandsfamilywillcontinuetobeourlargeststockholderifatransactionwereconsummatedonthetermsproposed.OurBoardofDirectorshasestablishedaSpecialCommitteetoevaluatetheProposal.AnydefinitiveagreementwiththeSandsfamilyandentitiescontrolledbymembersoftheSandsfamilywithrespecttothepotentialtransactionmustbeapprovedbytheSpecialCommitteeaswellasourBoardofDirectors.PursuanttothetermsoftheProposal,anypotentialtransactionwouldalsorequiretheapprovalofholdersofamajorityofthesharesofClassAStockthatdonotalsoholdsharesofClassBStock.Wecannotassureyouthatadefinitiveagreementwillbeenteredinto,includingbecausetheSpecialCommitteeortheBoardofDirectorsdoesnotapproveanysuchtransaction,orwhattheultimatetermsofanysuchagreementmaybe.Inaddition,evenifanagreementisapprovedbytheSpecialCommitteeandtheBoardofDirectors,atransactionstillmaynotbecompletedifsuchtransactionisnotapprovedbytheholdersofamajorityofthesharesofClassAStockthatdonotalsoholdsharesofClassBStock.
TheSandsfamilyandentitiescontrolledbymembersoftheSandsfamilyhavepledgedsharesofClassAStockandClassBStocktosecurevariouscreditfacilities.Intheeventofnoncompliancewithcertaincovenantsunderthecreditfacilities,thefinancialinstitutionstowhichsuchstockispledgedhavecertainremedies,includingtherighttosellthepledgedshares(whichwouldrequiretheconversionofClassBStockintoClassAStockpriortoanysales)subjecttocertainprotectionsaffordedtotheborrowersandpledgors.Thesalebysuchfinancialinstitutionsofasubstantialamountofthepledgedsharescoulddepress,orresultinvolatilityin,thetradingprice
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ofourClassAStockand/orresultintheSandsfamilyandentitiescontrolledbymembersoftheSandsfamilyceasingtoownsharesrepresentingamajorityofthecombinedvotingpowerofallclassesofourcommonstockvotingasasingleclass.Inaddition,ifsignificantstockindicesdecidetoprohibittheinclusionofcompanieswithdualclassstructures,thepriceofourClassAStockcouldbenegativelyimpactedandcouldbecomemorevolatile.
Choice-of-forumprovisioncontainedinby-lawsregardingcertainstockholderlitigationOurby-lawsprovidethat,unlessweconsentinwritingtotheselectionofanalternativeforum,(i)the
CourtofChanceryofDelaware(orifsuchcourtlackssubjectmatterjurisdiction,thefederaldistrictcourtofDelaware)will,tothefullestextentpermittedbylaw,bethesoleandexclusiveforumforanyderivativeactionorproceedingbroughtonbehalfoftheCompany;anyactionassertingaclaimofbreachofafiduciarydutyowedbyanyofourcurrentorformerdirectors,officers,orstockholderstotheCompanyorourstockholders;anyactionassertingaclaimarisingpursuanttoanyprovisionoftheDGCL,ourcertificateofincorporation,orourby-lawsorastowhichtheDGCLconfersjurisdictionontheCourtofChanceryofDelaware;oranyactionassertingaclaimgovernedbytheinternalaffairsdoctrine,and(ii)thefederaldistrictcourtsoftheU.S.will,tothefullestextentpermittedbylaw,bethesoleandexclusiveforumforanycomplaintassertingacauseofactionarisingundertheSecuritiesAct.
Tothefullestextentpermittedbylaw,thischoice-of-forumprovisionwillapplytostateandfederallawclaims,includingclaimsunderthefederalsecuritieslaws(includingtheSecuritiesActandtheExchangeAct),althoughourstockholderswillnotbedeemedtohavewaivedourcompliancewiththefederalsecuritieslawsandtherulesandregulationsthereunder.Thischoice-of-forumprovisionmayincreasecostsforastockholderpursuinganysuchclaim,discourageclaimsorlimitastockholder’sabilitytobringaclaiminajudicialforumthatsuchstockholderfindsfavorablefordisputeswithusorourdirectors,officers,otherstockholders,orotheremployeeswhichmaydiscouragesuchlawsuitseventhoughanaction,ifsuccessful,mightbenefitourstockholders.Inaddition,thecourtslocatedinDelawaremayreachdifferentjudgmentsorresultsthanwouldothercourts,includingcourtswhereastockholderwouldotherwisechoosetobringtheaction,andsuchjudgmentsorresultsmaybemorefavorabletousthantoourstockholders.Ifacourtweretofindthischoice-of-forumprovisioninapplicableorunenforceableinanaction,wemayincuradditionalcostsassociatedwithresolvingsuchactioninotherjurisdictionswhichcouldadverselyaffectourbusiness,liquidity,financialcondition,and/orresultsofoperations.Anypersonorentitypurchasingorotherwiseacquiringorholdinganyinterestinsharesofourcapitalstockwillbedeemedtohavenoticeofandconsentedtotheprovisionsofourby-lawsdescribedabove.
GeneralRisksInternationaloperations,worldwideandregionaleconomictrendsandfinancialmarketconditions,
geopoliticaluncertainty,interestratefluctuations,orothergovernmentalrulesandregulationsRisksassociatedwithinternationaloperations,anyofwhichcouldhaveamaterialadverseeffectonour
business,liquidity,financialcondition,and/orresultsofoperations,include:
• changesinlocalpolitical,economic,social,andlaborconditions;• potentialdisruptionfromwarsandmilitaryconflicts,includingRussia’sinvasionofUkraine,terrorism,
kidnapping,anddrug-relatedorothertypesofviolence;• restrictionsonforeignownershipandinvestmentsoronrepatriationofcashearnedincountries
outsidetheU.S.;• importandexportrequirementsandborderaccessibility;• protectionisttradepolicies,sanctions,andtariffs;• currencyexchangeratefluctuations;• alessdevelopedandlesscertainlegalandregulatoryenvironmentinsomecountries,which,among
otherthings,cancreateuncertaintyregardingcontractenforcement,intellectualpropertyrights,privacyobligations,realpropertyrights,andliabilityissues;and
• inadequatelevelsofcompliancewithapplicabledomesticandforeignanti-briberyandanti-corruptionlaws,includingtheForeignCorruptPracticesAct.
Unfavorableglobalorregionaleconomicconditions,includingeconomicslowdownorrecessionandthedisruption,volatility,andtighteningofcreditandcapitalmarkets,aswellasunemployment,taxincreases,governmentalspendingcuts,orcontinuinghighlevelsofinflation,couldaffectconsumerspendingpatternsand
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purchasesofourproducts.Thesecouldalsocreateorexacerbatecreditissues,cashflowissues,andotherfinancialhardshipsforusandoursuppliers,distributors,retailers,andconsumers.Theinabilityofsuppliers,distributors,andretailerstoaccessliquiditycouldimpactourabilitytoproduceanddistributeourproducts.
Wearealsoexposedtorisksassociatedwithinterestratefluctuations.Wecouldexperiencechangesinourabilitytomanagefluctuationsininterestratesand,accordingly,therecanbenoassurancethatwewillbesuccessfulinreducingthoserisks.
Wecouldalsobeaffectedbynationalizationofourinternationaloperations,unstablegovernments,unfamiliarorbiasedlegalsystems,intergovernmentaldisputesoranimusagainsttheU.S.AnydeterminationthatouroperationsoractivitiesdidnotcomplywithapplicableU.S.orforeignlawsorregulationscouldresultintheimpositionoffinesandpenalties,interruptionsofbusiness,terminationsofnecessarylicensesandpermits,andotherlegalandequitablesanctions.
DamagetoourreputationThesuccessofourbrandsdependsuponthepositiveimagethatconsumershaveofthosebrandsand
maintainingagoodreputationiscriticaltosellingourbrandedproducts.Ourreputationcouldalsobeimpactednegativelybypublicperception,adversepublicity(whetherornotvalid,suchasthesimilarityofthenameofcertainofourbrandsortrademarksandatypeofvirus),negativecommentsinsocialmedia,orourresponsesrelatingto:
• aperceivedfailuretomaintainhighethicalstandardsandresponsibleoperatingpracticestoachievebusinessgoalsforallouroperationsandactivities,includingthoserelatedtoourESGandDEIstrategies,initiatives,andtargetsaswellasassociatedreportingregulations,standards,frameworks,andratings;
• aperceivedfailuretoaddressconcernsrelatingtothequality,safety,orintegrityofourproducts,includingfromcontamination,whetherarisingaccidentallyorthroughdeliberatethird-partyaction;
• allegationsthatwe,orpersonscurrentlyorformerlyassociatedwithus,haveviolatedapplicablelawsorregulations,includingbutnotlimitedtothoserelatedtosafety,employment,discrimination,harassment,whistle-blowing,privacy,corporatecitizenship,improperbusinesspractices,orcyber-security;
• ourenvironmentalimpact,includinguseofagriculturalmaterials,packaging,waterandenergyuse,andwastemanagement;or
• effortsthatareperceivedasinsufficienttopromotetheresponsibleuseofalcoholorcannabis.
Failuretocomplywithapplicablelawsandregulations,maintainaneffectivesystemofinternalcontrols,provideaccurateandtimelyfinancialstatementinformation,orprotectourinformationsystemsagainstserviceinterruptions,misappropriationofdata,orbreachesofsecurity,couldalsohurtourreputation.Damagetoourreputationorlossofconsumerconfidenceinourproductsforanyoftheseorotherreasonscouldresultindecreaseddemandforourproductsandcouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations,aswellasrequireadditionalresourcestorebuildourreputation,competitiveposition,andbrandequityandrenewinvestorconfidence.
CompetitionWeoperateinahighlycompetitiveindustry,andoursalesandprofitabilitycouldbenegativelyaffectedby
numerousfactorsincluding:
• ourinabilitytomaintainorincreaseprices;• newentrantsinourmarketorcategories;• theconsolidationofdistributors,wholesalers,retailers,andsuppliers;• thedecisionofwholesalers,retailers,orconsumerstopurchasecompetitors’productsinsteadofours;• ageneraldeclineinbeveragealcoholconsumptionduetoconsumerdietarypreferencechangesor
consumerssubstitutinglegalizedmarijuanaorothersimilarproductsinlieuofbeveragealcohol;or• pricing,purchasing,financing,operational,advertising,orpromotionaldecisionsmadebywholesalers,
stateandotherlocalagencies,andretailerswhichcouldaffecttheirsupplyof,orconsumerdemandfor,ourproducts.
PARTI ITEM1A.RISKFACTORS TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI29
Ourcontinuedsuccessalsodependsonourabilitytoattractandretainahigh-qualityanddiverseworkforceinacompetitiveenvironmentfortalent.Wecouldalsoexperiencehigherthanexpectedselling,general,andadministrativeexpensesifwefinditnecessarytoincreasethenumberofourpersonnelorouradvertisingormarketingexpenditurestomaintainourcompetitiveposition,duetoemployeeturnoverincludingasaresultoftheongoing“greatresignation”occurringintheU.S.economy,orforotherreasons.Wecannotguaranteethatwewillbeabletoincreaseourpricestopassalongtoourcustomersanyincreasedcostsweincur.
Intangibleassets,suchasgoodwillandtrademarksWehaveasignificantamountofintangibleassetssuchasgoodwillandtrademarksandmayacquiremore
intangibleassetsinthefuture.Intangibleassetsaresubjecttoaperiodicimpairmentevaluationunderapplicableaccountingstandards.Thewrite-downofanyoftheseintangibleassetscouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
Changestotaxlaws,fluctuationsinoureffectivetaxrate,accountingfortaxpositions,theresolutionoftaxdisputes,andchangestoaccountingstandards,elections,assertions,orpolicies
Changestofederal,state,provincial,local,orforeigntaxlaws,couldresultinincreasedtaxesonourproducts,business,customers,orconsumers.Variousproposalstoincreasetaxesonbeveragealcoholproductshavebeenmadeatthefederalandstatelevelsoratothergovernmentalbodiesinrecentyears.Federal,state,provincial,local,orforeigngovernmentalentitiesmayconsiderincreasingtaxesuponbeveragealcoholproductsastheyexploreavailablealternativesforraisingfunds,includingtooffsetbudgetorotherdeficits.
Inaddition,significantjudgmentisrequiredtodetermineoureffectivetaxrateandevaluateourtaxpositions.Ourprovisionforincometaxesincludesaprovisionforuncertaintaxpositions.Fluctuationsinfederal,state,local,andforeigntaxes,orachangetouncertaintaxpositions,includingrelatedinterestandpenalties,mayimpactoureffectivetaxrateandourfinancialresults.Whentaxmattersarise,severalyearsmayelapsebeforesuchmattersareauditedandfinallyresolved.Unfavorableresolutionofanytaxmattercouldincreaseoureffectivetaxrateandresolutionofataxissuemayrequiretheuseofcashintheyearofresolution.
U.S.taxchangesorchangesinhowinternationalcorporationsaretaxed,includingchangesinhowexistingtaxlawsareinterpretedorenforced,orchangestoaccountingstandards,elections,orassertionsaswellasouraccountingpoliciescouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
Cashdividendsandsharerepurchasesaresubjecttoanumberofuncertainties,andmayaffectthepriceofourcommonstock
Ourcapitalallocationstrategycontemplatesquarterlycashdividendsandperiodicsharerepurchasesunderoursharerepurchaseprogram.Wefundourcashdividendsandsharerepurchasesthroughacombinationofcashflowfromoperations,borrowings,anddivestitureproceeds.However,wearenotrequiredtodeclaredividendsortomakeanysharerepurchasesunderoursharerepurchaseprogram.Wemaydiscontinue,limit,suspend,increase,ordelayourdividendsandsharerepurchasesatanytimewithoutpriornotice.Evenifnotdiscontinued,theamountofsuchdividendsandrepurchasesmaybechanged,andtheamount,timing,andfrequencyofsuchdividendsandrepurchasesmayvaryfromhistoricalpracticeorfromourstatedexpectations.DecisionswithrespecttodividendsandsharerepurchasesaresubjecttothediscretionofourBoardofDirectorsandwillbebasedonavarietyoffactors.Importantfactorsthatcouldcauseustodiscontinue,limit,suspend,increase,ordelayourcashdividendsorsharerepurchasesincludemarketconditions,thepriceofourcommonstock,thenatureandtimingofotherinvestmentopportunities,changesinourbusinessstrategy,thetermsofourfinancingarrangements,ouroutlookastoourabilitytoobtainfinancingatattractiverates,theimpactonourcreditratings,andtheavailabilityofcash.Thereductionoreliminationofourcashdividend,orlongersuspensionoreliminationofoursharerepurchaseprogramcouldadverselyaffectthemarketpricesofourcommonstock.Additionally,therecanbenoassurancethatanysharerepurchaseswillenhancestockholdervaluebecausethemarketpricesofourcommonstockmaydeclinebelowthelevelsatwhichwerepurchasedsharesofcommonstock,andshort-termstockpricefluctuationscouldreducetheprogram’seffectiveness.
PARTI ITEM1A.RISKFACTORS TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI30
Item2.Properties
Weoperatebreweries,wineries,distilleries,andbottlingplants,manyofwhichincludewarehousinganddistributionfacilitiesonthepremises,andthroughajointventure,weoperateaglassproductionplant.Inadditiontoourprincipalphysicalpropertiesdescribedbelow,certainofourbusinessesmaintainofficespaceforsalesandsimilaractivitiesandoffsitewarehouseanddistributionfacilitiesinavarietyofgeographiclocations.
OurcorporateheadquartersarelocatedinleasedofficesinVictor,NewYork.WeplantorelocateourcorporateheadquarterstoaleasedofficeinRochester,NewYorkinFiscal2024.OursegmentsalsomaintainleasedofficespacesinotherlocationsintheU.S.andinternationally.
Webelievethatourfacilities,takenasawhole,areingoodconditionandworkingorder.WithintheBeersegment,wehaveadequatecapacitytomeetourcurrentneedsandwehaveundertakenactivitiestoincreaseourproductioncapacitytoaddressouranticipatedfuturedemand.WithintheWineandSpiritssegment,wehaveadequatecapacitytomeetourneedsfortheforeseeablefuture.AsofFebruary28,2022,ourprincipalphysicalpropertiesbysegment,excludingCanopy,allofwhichareowned,consistof:
Beer WineandSpirits
Breweries
• NavaBreweryinNava,Coahuila,Mexico• ObregonBreweryinObregon,Sonora,Mexico
Productionfacility
• GlassPlantinNava,Coahuila,Mexico
Wineries
• GonzalesWineryinGonzales,California,U.S.• MissionBellWineryinMadera,California,U.S.• WoodbridgeWineryinAcampo,California,U.S.• KimCrawfordWineryinMarlborough,SouthIsland,NewZealand
Warehouse,distribution,andotherproductionfacilities
• LodiDistributionCenterinLodi,California,U.S.• PontassieveWineryinFlorence,Italy
WithinourWineandSpiritssegment,asofFebruary28,2022,weowned,leased,orhadinterestsinapproximately9,700acresofvineyardsinCalifornia(U.S.),6,700acresofvineyardsinNewZealand,and1,400acresofvineyardsinItaly.InFiscal2023,weacquiredtheLinguaFrancabusinesswhichincludedavineyardandaproductionfacilityinOregon(U.S.).Forfurtherinformationonthisacquisition,referto(i)“Overview”withinMD&Aand(ii)Note2.
Item3.LegalProceedings
ForinformationregardingLegalProceedings,seeRiskFactorsandNote16.
PARTI OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI31
Item5.MarketforRegistrant’sCommonEquity,RelatedStockholderMatters,andIssuerPurchasesofEquitySecurities
OurClassAStockandClassBStocktradeontheNYSEunderthesymbolsSTZandSTZ.B,respectively.ThereisnopublictradingmarketforourClass1Stock.AtApril14,2022,thenumberofholdersofrecordofourClassAStock,ClassBStock,andClass1Stockwere478,91,and18,respectively.
ForinformationregardingarecentdevelopmentrelatedtoaproposeddeclassificationofourClassBStock,dividends,andsharerepurchaseprograms,see(i)MD&Aand(ii)Note17.
Forinformationonsecuritiesauthorizedforissuanceunderourequitycompensationplans,seeSecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMattersunderItem12.ofthisForm10-K.
PARTII OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI32
Item7.Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations
Introduction
Wehaveelectedtoomitdiscussionontheearliestofthethreeyearscoveredbytheconsolidatedfinancialstatementspresented.RefertoItem7.“Management’sDiscussionandAnalysisofFinancialConditionandResultsofOperations”and“LiquidityandCapitalResources”locatedinourForm10-KforthefiscalyearendedFebruary28,2021,filedonApril20,2021,forreferencetodiscussionofthefiscalyearendedFebruary29,2020,theearliestofthethreefiscalyearspresented.ThisMD&A,whichshouldbereadinconjunctionwithourFinancialStatements,isorganizedasfollows:
Overview.Thissectionprovidesageneraldescriptionofourbusiness,whichwebelieveisimportantinunderstandingtheresultsofouroperations,financialcondition,andpotentialfuturetrends.
Strategy.Thissectionprovidesadescriptionofourstrategyandadiscussionofrecentdevelopments,COVID-19andglobalsupplychainrelatedimpacts,andsignificantinvestments,acquisitions,anddivestitures.
Resultsofoperations.Thissectionprovidesananalysisofourresultsofoperationspresentedonabusinesssegmentbasis.Inaddition,abriefdescriptionofsignificanttransactionsandotheritemsthataffectthecomparabilityoftheresultsisprovided.
Liquidityandcapitalresources.Thissectionprovidesananalysisofourcashflows,outstandingdebt,liquidityposition,andcommitments.Includedintheanalysisofoutstandingdebtisadiscussionofthefinancialcapacityavailabletofundourongoingoperationsandfuturecommitments,aswellasadiscussionofotherfinancingarrangements.
Criticalaccountingpoliciesandestimates.Thissectionidentifiesaccountingpoliciesthatareconsideredimportanttoourresultsofoperationsandfinancialcondition,requiresignificantjudgment,andinvolvesignificantmanagementestimates.Oursignificantaccountingpolicies,includingthoseconsideredtobecriticalaccountingpolicies,aresummarizedinNote1.
Overview
Ourinternalmanagementfinancialreportingconsistsofthreebusinessdivisions:(i)Beer,(ii)WineandSpirits,and(iii)Canopyandwereportouroperatingresultsinfoursegments:(i)Beer,(ii)WineandSpirits,(iii)CorporateOperationsandOther,and(iv)Canopy.OurCanopyEquityMethodInvestmentmakesuptheCanopysegment.
IntheBeersegment,ourportfolioconsistsofhigh-endimportedbeerbrands,craftbeer,andABAs.Wehaveanexclusiveperpetualbrandlicensetoimport,market,andsellourMexicanbeerportfoliointheU.S.IntheWineandSpiritssegment,wesellaportfoliothatincludeshigher-margin,higher-growthwinebrandscomplementedbycertainhigher-endspiritsbrands.AmountsincludedintheCorporateOperationsandOthersegmentconsistofcostsofexecutivemanagement,corporatedevelopment,corporatefinance,corporategrowthandstrategy,humanresources,internalaudit,investorrelations,legal,publicrelations,andinformationtechnology,aswellasourinvestmentsmadethroughourcorporateventurecapitalfunction.AllcostsincludedintheCorporateOperationsandOthersegmentaregeneralcoststhatareapplicabletotheconsolidatedgroupandare,therefore,notallocatedtotheotherreportablesegments.AllcostsreportedwithintheCorporateOperationsandOthersegmentarenotincludedinourCODM’sevaluationoftheoperatingincome(loss)performanceoftheotherreportablesegments.Thebusinesssegmentsreflecthowouroperationsaremanaged,howresourcesareallocated,howoperatingperformanceisevaluatedbyseniormanagement,andthestructureofourinternalfinancialreporting.
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI33
Strategy
OurbusinessstrategyfortheBeersegmentfocusesonupholdingourleadershippositioninthehigh-endsegmentoftheU.S.beermarketthroughmaintenanceofleadingmargins,enhancementstoourresultsofoperationsandoperatingcashflow,andexploringnewavenuesforgrowth.ThisincludescontinuedfocusongrowingourbeerportfoliointheU.S.throughexpandingdistributionforkeybrands,includingwithintheDTCand3-tiereCommercechannels,aswellascontinuedexpansion,optimization,and/orconstructionactivitiesforourMexicobeeroperations.Additionally,inanefforttomorefullycompeteingrowingsectorsofthehigh-endsegmentoftheU.S.beermarket,wehaveleveragedourinnovationcapabilitiestocreatenewlineextensionsbehindcelebrated,trustedbrandsandpackageformatsthatmeetemergingneeds.
WehaveincreasedourproductioncapacityinMexicobyfourfoldsincethe2013acquisitionoftheimportedbeerbusiness.InearlyFiscal2022,wecompletedpartofaplannedexpansionattheObregonBrewery,increasingourproductioncapacitytoapproximately39millionhectoliters.Expansion,optimization,and/orconstructionactivitiescontinueunderourMexicoBeerProjectstoalignwithouranticipatedfuturegrowthexpectations.Atthistime,wehavesuspendedallMexicaliBreweryconstructionactivities,followinganegativeresultfromapublicconsultationheldinMexico.See“Capitalexpenditures”below.
OurbusinessstrategyfortheWineandSpiritssegmentfocusesongrowingindustry-leading,higher-endwineandspiritsbrandsthroughmarginimprovementsandcreationofoperatingefficiencies.Wefocusourinvestmentdollarson(i)buildingandrefreshingexistingbrandswithinourportfoliothroughconsumerinsights,sensoryexpertise,andinnovation,and(ii)refiningourportfoliothroughtargetedacquisitionsofhigher-margin,higher-growthwineandspiritsbrands.Werecentlyreorganizedthisbusinessintotwodistinctcommercialteams,onefocusedonourfinewineandcraftspiritsbrandsandtheotherfocusedonourmainstreamandpremiumbrands.Whileeachteamhasitsowndistinctstrategy,bothremainalignedtothegoalofacceleratingperformancebygrowingnetsalesandexpandingmargins.Additionally,wecontinuetostrengthenourleadershippositionandinvestinDTCand3-tiereCommercechannels.Inmarketswhereitisfeasible,weenteredintocontractualarrangementstoconsolidateourU.S.distributioninordertoobtaindedicateddistributorsellingresourceswhichfocusonourU.S.wineandspiritsportfoliotodriveorganicgrowth.ThisU.S.distributorcurrentlyrepresentsabout70%ofourbrandedwineandspiritsvolumeintheU.S.
Marketing,sales,anddistributionofourproductsareprimarilymanagedonageographicbasisallowingustoleverageleadingmarketpositions.Inaddition,marketdynamicsandconsumertrendsvaryacrosseachofourmarkets.WithinourprimarymarketintheU.S.,weofferarangeofbeveragealcoholproductsacrosstheimportedbeer,craftbeer,ABA,brandedwine,andspiritscategories,withgenerallyseparatedistributionnetworksutilizedfor(i)ourbeerportfolioand(ii)ourwineandspiritsportfolio.Theenvironmentforourproductsiscompetitiveineachofourmarkets.
WecomplementourstrategywithourinvestmentinCanopybyexpandingourportfoliointoadjacentcategories.Canopyisaleadingcannabiscompanywithoperationsincountriesacrosstheworld.Thisinvestmentisconsistentwithourlong-termstrategytoidentify,address,andstayaheadofevolvingconsumertrendsandmarketdynamics.OurstrategicrelationshipwithCanopyisdesignedtohelppositionittobesuccessfulincannabisproduction,branding,andintellectualproperty.
Weremaincommittedtoourlong-termfinancialmodelof:growingsales,expandingmargins,andincreasingcashflowinordertoachieveearningspersharegrowth,maintainourtargetednetleverageratio,anddeliverreturnstostockholdersthroughthepaymentofdividendsandperiodicsharerepurchases.OurresultsofoperationsandfinancialconditionhavebeenaffectedbyinflationandchangingpricesandweexpecttheseimpactstocontinueinFiscal2023.OurFiscal2023resultsofoperationscouldalsobeimpactedbyreductionsindiscretionaryincomeofconsumersavailabletopurchaseourproducts.Weintendtopassalongrisingcoststhroughincreasedsellingprices,subjecttonormalcompetitiveconditions.Inaddition,wecontinuetoidentifyongoingcostsavingsinitiatives,includingourcommodityhedgeprogram.However,therecanbenoassurancesthatwewillbeabletofullymitigaterisingcoststhroughincreasedsellingpricesand/orcostsavingsinitiatives.Furthermore,totheextentclimate-relatedevents,suchasthe2020U.S.wildfiresorthelatefrostinNewZealand,
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI34
continuetooccuroraccelerateinfutureperiods,itcouldhaveamaterialimpactonourresultsofoperationsandfinancialcondition.
RecentDevelopments
ClassBStockdeclassificationproposalInApril2022,wereceivedtheProposalwhichproposesthateachshareofClassBStockwouldbe
convertedinto1.35sharesofClassAStock.OurBoardofDirectorshasestablishedaSpecialCommitteetoevaluatetheProposal.AnydefinitiveagreementwithrespecttothepotentialtransactionmustbeapprovedbytheSpecialCommitteeaswellasourBoardofDirectors.Inaddition,pursuanttothetermsoftheProposal,anypotentialtransactionwouldrequiretheapprovalofholdersofamajorityofthesharesofourClassAStockthatdonotalsoholdsharesofClassBStock.
OtheracquisitionsDuringthefirstquarterofFiscal2023,wecompletedtheacquisitionsofotherbusinesses,consistingof
LinguaFranca,whichincludedacollectionofluxurywines,avineyard,andaproductionfacility,andtheremaining73%ownershipinterestinAustinCocktails,whichincludedaportfolioofsmallbatch,RTDcocktails.Thepurchasepriceforeachacquisitionincludesanearn-outbasedontheperformanceoftherespectivebrands.TheresultsofoperationsoftheseacquiredbusinesseswillbereportedintheWineandSpiritssegmentandwillbeincludedinourconsolidatedresultsofoperationsfromtheirrespectivedateofacquisition.
COVID-19andGlobalSupplyChainRelatedImpacts
COVID-19containmentmeasuresaffecteduspredominantlyinthefirsthalfofFiscal2021primarilyinthereductionof(i)depletionvolumeonourproductsintheon-premisebusinessduetobarandrestaurantclosuresand(ii)shipmentvolumerelatedtothereducedproductionactivityatourmajorbreweriesinMexicowhichwewereabletorectifyinthesecondhalfofFiscal2021.Theon-premisebusinesshashistoricallybeenabout10%to15%ofourdepletionvolumeforbeer,wine,andspirits.Ouron-premisedepletionvolumesforFiscal2022were,andinFiscal2023maycontinuetobe,impactedbyregionalCOVID-19caselevels,vaccineimmunizationrates,newCOVID-19variants,andvaccineefficacyagainstnewCOVID-19variants.Currently,ourbreweries,wineries,distilleries,andbottlingfacilitiesareopenandoperational.
Asreflectedinthediscussionbelow,wehaveseenconsumersshiftmoreoftheirtotalshoppingspendtoonlinechannelssincetheCOVID-19outbreak,whichhasledtoincreasedeCommercesales,includingDTC,forourbusiness.Fiscal2022wasimpactedbychallengeswithbothglobalsupplychainlogisticsandtransportationwhichcontributedtolowerproductinventorylevelsandhighercostofproductsold.Forexample,wineproducedinNewZealandandItalyandsubsequentlyshippedtotheU.S.fordistributioncontinuestobeaffectedbythelackofavailabilityandincreasedcostsofoceanfreightshippingcontainersandportdelayscausingincreasedstoragecharges.Inaddition,duringFiscal2022,weexperiencedabrownglasspurchasingshortage,whichimpactedcertainofourimportedbeerbrands.ThissupplyreturnedtonormallevelsinearlyFiscal2023.Totheextentthesecircumstancescontinuetooccuroraccelerateinfutureperiodsitcouldhaveamaterialimpactonourresultsofoperations.
InresponsetoCOVID-19,wehaveensuredourongoingliquidityandfinancialflexibilitythroughcashpreservationinitiatives,capitalmanagementadjustments,andcostcontrolmeasures.WehaveusedopportunitiestodefersomepaymentsincludingcertainpayrolltaxesundertheCARESActaffordedtousearlierinthepandemic.Wearenotabletoestimatethelong-termimpactofCOVID-19onourbusiness,financialcondition,resultsofoperations,and/orcashflow.Webelievewehavesufficientliquidityavailablefromoperatingcashflow,cashonhand,andavailabilityunderourrevolvingcreditfacility.Weexpecttohavecontinuedaccesstocapitalmarketsandtobeabletocontinuetoreturnvaluetostockholdersthroughdividendsandperiodicsharerepurchases.
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI35
Investments,Acquisitions,andDivestitures
BeersegmentBallastPointDivestitureInMarch2020,wesoldtheBallastPointcraftbeerbusiness,includinganumberofitsassociated
productionfacilitiesandbrewpubs.Accordingly,ourconsolidatedresultsofoperationsincludetheresultsofoperationsofourBallastPointcraftbeerbusinessthroughthedateofdivestiture.
WineandSpiritssegmentMyFavoriteNeighboracquisitionInNovember2021,weacquiredtheremaining65%ownershipinterestinMyFavoriteNeighbor,which
primarilyincludedtheacquisitionofgoodwill,trademarks,inventory,andproperty,plant,andequipment.TheresultsofoperationsofMyFavoriteNeighborarereportedintheWineandSpiritssegmentandhavebeenincludedinourconsolidatedresultsofoperationsfromthedateofacquisition.InApril2020,wemadeaninitialinvestmentinMyFavoriteNeighborthatwasaccountedforundertheequitymethod.Werecognizedourshareoftheirequityinearnings(losses)inourconsolidatedfinancialstatementsintheWineandSpiritssegmentuptothedateweacquiredtheremainingownershipinterest.TheMyFavoriteNeighborinvestmentandsubsequentacquisitionsupportedourstrategicfocusonconsumer-ledpremiumizationtrendsandmeetingtheevolvingneedsofourconsumers.
PaulMassonDivestitureInJanuary2021,wesoldthePaulMassonGrandeAmberBrandybrand,relatedinventory,andinterestsin
certaincontracts.Wereceivedcashproceedsof$267.4million,netofpost-closingadjustments.Thenetcashproceedswereusedforgeneralcorporatepurposes.Werecognizedanetgainof$58.4milliononthesaleofthebusinessprimarilyfortheyearendedFebruary28,2021.
WineandSpiritsDivestituresInJanuary2021,wesoldaportionofourwineandspiritsbusiness,includinglower-margin,lower-growth
wineandspiritsbrands,relatedinventory,interestsincertaincontracts,wineries,vineyards,offices,andfacilities.Wereceivednetcashproceedsof$538.4million,netofpost-closingadjustments.Inaddition,wehavethepotentialtoearnanincremental$250millionofcontingentconsiderationifcertainbrandperformancetargetsaremetoveratwo-yearperiodafterclosing.
InJanuary2021,wealsosoldtheNewZealand-basedNobiloWinebrandandcertainrelatedassets.Wereceivedcashproceedsof$129.0million,netofpost-closingadjustments.
ThecashproceedsfromtheWineandSpiritsDivestitureswereutilizedtoreduceoutstandingdebtandforothergeneralcorporatepurposes.Werecognizedanetlossof$33.6millionontheWineandSpiritsDivestituresprimarilyfortheyearendedFebruary28,2021.
ConcentrateBusinessDivestitureInDecember2020,wesoldcertainbrandsusedinourconcentratesandhigh-colorconcentratebusiness,
andcertainrelatedintellectualproperty,inventory,interestsincertaincontracts,andotherassets.
ThefollowingpresentsselectedfinancialinformationincludedinourhistoricalconsolidatedfinancialstatementsthatarenolongerpartofourconsolidatedresultsofoperationsfollowingthePaulMassonDivestiture,WineandSpiritsDivestitures,andConcentrateBusinessDivestiture:
Fiscal2021
(inmillions)
Netsales $ 642.3Grossprofit $ 252.9
Marketing(1) $ 14.5
(1) Includedinselling,general,andadministrativeexpenseswithinourconsolidatedresultsofoperations.
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Copper&KingsacquisitionInSeptember2020,weacquiredtheremainingownershipinterestinCopper&Kingswhichprimarily
includedtheacquisitionofinventoryandproperty,plant,andequipment.Thisacquisitionincludedacollectionoftraditionalandcraftbatch-distilledAmericanbrandiesandotherselectspirits.TheresultsofoperationsofCopper&KingsarereportedintheWineandSpiritssegmentandhavebeenincludedinourconsolidatedresultsofoperationsfromthedateofacquisition.
EmpathyWinesacquisitionInJune2020,weacquiredEmpathyWines,whichprimarilyincludedtheacquisitionofgoodwill,
trademarks,andinventory.Thisacquisition,whichincludedadigitally-nativewinebrand,strengthenedourpositionintheDTCandothereCommercemarkets.TheresultsofoperationsofEmpathyWinesarereportedintheWineandSpiritssegmentandhavebeenincludedinourconsolidatedresultsofoperationsfromthedateofacquisition.
CorporateOperationsandOthersegmentCorporateinvestmentInFebruary2022,wesoldaninvestmentmadethroughourcorporateventurecapitalfunction.We
recognizedourshareoftheirequityinearnings(losses)inourconsolidatedfinancialstatementsintheCorporateOperationsandOthersegmentuptothedatewesoldourownershipinterest.
CanopysegmentCanopyinvestmentInMay2020,weexercisedtheNovember2017CanopyWarrantsatanexercisepriceofC$12.98per
warrantshareforC$245.0million,or$173.9million.
Foradditionalinformationontheserecentdevelopments,investments,acquisitions,anddivestitures,refertoNotes2,7,10,and17.
ResultsofOperations
FinancialHighlights
ReferencestoorganicthroughoutthefollowingdiscussionexcludetheimpactofthebrandsdivestedinJanuary2021,asappropriate.
ForFiscal2022comparedwithFiscal2021:
• Ourresultsofoperationswerenegativelyimpactedby(i)anunrealizednetlossfromthechangesinfairvalueofourinvestmentinCanopyascomparedwiththeunrealizednetgaininFiscal2021,(ii)animpairmentoflong-livedassetsforFiscal2022inconnectionwithcertainassetsattheMexicaliBrewery,(iii)adecreaseinWineandSpiritsnetsalesduelargelytothedivestitures,and(iv)anincreaseinoperationalcostswithintheBeersegment,partiallyoffsetbyanincreaseinBeernetsales,aswellasadecreaseinequityinlossesfromCanopy’sresults.
• Netsalesincreased2%asanincreaseinBeernetsales,drivenpredominantlybyshipmentvolumegrowthandfavorableimpactfrompricing,wasoffsetbythedecreaseinWineandSpiritsnetsales,duelargelytothedivestitures.
• Operatingincomedecreased16%largelydueto(i)theimpairmentoflong-livedassets,(ii)thedecreaseinWineandSpiritsnetsales,(iii)anincreaseincostofproductsoldwithintheBeersegment,and(iv)anincreaseinmarketingspendfortheBeersegment,drivenbyaplannedincreasetosupportthegrowthofourbrands,partiallyoffsetbytheincreaseinBeernetsales.
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• Netincome(loss)attributabletoCBIanddilutednetincome(loss)percommonshareattributabletoCBIdecreasedlargelyduetotheitemsdiscussedabove,partiallyoffsetbylowerprovisionforincometaxes.
ComparableAdjustments
ManagementexcludesitemsthataffectcomparabilityfromitsevaluationoftheresultsofeachoperatingsegmentastheseComparableAdjustmentsarenotreflectiveofcoreoperationsofthesegments.Segmentoperatingperformanceandtheincentivecompensationofsegmentmanagementareevaluatedbasedoncoresegmentoperatingincome(loss)whichdoesnotincludetheimpactoftheseComparableAdjustments.
AsmorefullydescribedhereinandintherelatedNotes,theComparableAdjustmentsthatimpactedcomparabilityinoursegmentresultsforeachperiodareasfollows:
Costofproductsold
Netgain(loss)onundesignatedcommodityderivativecontracts $ 109.9 $ 25.1
Netflowthroughofreservedinventory 12.1 —
Settlementsofundesignatedcommodityderivativecontracts (35.9) 31.6
Strategicbusinessdevelopmentcosts (2.6) (29.8)
Recoveryof(losson)inventorywrite-down (1.0) (70.4)
Flowthroughofinventorystep-up (0.1) (0.4)
COVID-19incrementalcosts — (7.6)
Accelerateddepreciation — (0.1)
Totalcostofproductsold 82.4 (51.6)
Selling,general,andadministrativeexpenses
Transitionservicesagreementsactivity (19.2) 0.4
Transaction,integration,andotheracquisition-relatedcosts (1.4) (7.6)
Restructuringandotherstrategicbusinessdevelopmentcosts 0.6 (23.9)
Netgain(loss)onforeigncurrencyderivativecontracts — (8.0)
Impairmentofintangibleassets — (6.0)
COVID-19incrementalcosts — (4.8)
Othergains(losses) (2.3) 14.3
Totalselling,general,andadministrativeexpenses (22.3) (35.6)
Impairmentofbreweryconstructioninprogress (665.9) —
Impairmentofassetsheldforsale — (24.0)
Gain(loss)onsaleofbusiness 1.7 14.2
ComparableAdjustments,Operatingincome(loss) $ (604.1) $ (97.0)
Income(loss)fromunconsolidatedinvestments $ (1,488.2) $ 265.2
Fiscal2022
Fiscal2021
(inmillions)
CostofproductsoldUndesignatedcommodityderivativecontractsNetgain(loss)onundesignatedcommodityderivativecontractsrepresentsanetgain(loss)fromthe
changesinfairvalueofundesignatedcommodityderivativecontracts.Thenetgain(loss)isreportedoutsideofsegmentoperatingresultsuntilsuchtimethattheunderlyingexposureisrecognizedinthesegmentoperatingresults.Atsettlement,thenetgain(loss)fromthechangesinfairvalueoftheundesignatedcommodityderivativecontractsisreportedintheappropriateoperatingsegment,allowingtheresultsofouroperatingsegmentsto
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI38
reflecttheeconomiceffectsofthecommodityderivativecontractswithouttheresultingunrealizedmarktofairvaluevolatility.
NetflowthroughofreservedinventoryWesoldreservedinventorypreviouslywrittendowninFiscal2021followingthe2020U.S.wildfires.
StrategicbusinessdevelopmentcostsWerecognizedcostsprimarilyinconnectionwithlossesonwrite-downsofexcessinventoryandcontract
terminationsresultingfromourinitiativestooptimizeourportfolio,gainefficiencies,andreduceourcoststructurewithintheWineandSpiritssegment.
Recoveryof(losson)inventorywrite-downWerecognizedalossprimarilyonthewrite-downofbulkwineinventoryandcertaingrapesasaresultof
smokedamagesustainedduringthe2020U.S.wildfires(Fiscal2021).
COVID-19incrementalcostsWerecognizedcostsforincrementalwagesandhazardpaymentstoemployees,purchasesofpersonal
protectiveequipment,morefrequentandthoroughcleaningandsanitizationofourfacilities,andcostsassociatedwiththeunusedbeerkegreimbursementprogramwithdistributors.
Selling,general,andadministrativeexpensesTransitionservicesagreementsactivityWerecognizedcostsinconnectionwithtransitionservicesagreementsrelatedtotheWineandSpirits
Divestitures(Fiscal2022).
Transaction,integration,andotheracquisition-relatedcostsWerecognizedtransaction,integration,andotheracquisition-relatedcostsinconnectionwithour
investments,acquisitions,anddivestitures.
RestructuringandotherstrategicbusinessdevelopmentcostsWerecognizedcostsprimarilyinconnectionwithinitiativestooptimizeourportfolio,gainefficiencies,and
reduceourcoststructurewithintheWineandSpiritssegment(Fiscal2021).
Netgain(loss)onforeigncurrencyderivativecontractsWerecognizedanetlossprimarilyinconnectionwiththesettlementofforeigncurrencyforward
contractsenteredintotofixtheU.S.dollarcostoftheMay2020CanopyInvestment.
ImpairmentofintangibleassetsWerecognizedtrademarkimpairmentlossesrelatedtoourBeersegment’sFourCornerscraftbeer
trademarkasset.Foradditionalinformation,refertoNote7.
COVID-19incrementalcostsWerecognizedcostsforpaymentstothird-partygeneralcontractorstomaintaintheirworkforcefor
expansionactivitiesattheObregonBreweryandrecognizedcostsforincrementalwagesandhazardpaymentstoemployees.
Othergains(losses)Werecognizedothergains(losses)primarilyinconnectionwith(i)againrecognizedonthe
remeasurementofourpreviouslyheldequityinterestinMyFavoriteNeighbortotheacquisition-datefairvalue(Fiscal2022),(ii)apropertytaxsettlement(Fiscal2022),(iii)anadjustmenttounderstatedexcisetaxaccrualsprimarilyrelatedtoapriorperiodacquisition(Fiscal2022),(iv)netincrease(decrease)inestimatedfairvalueofcontingentliabilitiesassociatedwithpriorperiodacquisitions(Fiscal2022,Fiscal2021),and(v)againrecognizedonthesaleofavineyard(Fiscal2021).
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI39
ImpairmentofbreweryconstructioninprogressWerecognizedanimpairmentoflong-livedassetsinconnectionwithcertainassetsattheMexicali
Brewery.Foradditionalinformation,refertoNote7.
ImpairmentofassetsheldforsaleWerecognizedimpairmentsoflong-livedassetsheldforsaleinconnectionwiththeWineandSpirits
DivestituresandtheConcentrateBusinessDivestiture.Foradditionalinformation,refertoNote7.
Gain(loss)onsaleofbusinessWerecognizedanetgain(loss)primarilyonthecompletionofthePaulMassonDivestitureandtheWine
andSpiritsDivestitures.Foradditionalinformation,refertoNote2.
Income(loss)fromunconsolidatedinvestmentsWerecognizedincome(loss)primarilyfrom(i)anunrealizedgain(loss)fromthechangesinfairvalueof
oursecuritiesmeasuredatfairvalue,(ii)equityinearnings(losses)fromCanopy’sresults,includingequityinlossesfromCanopylargelyrelatedtocostsdesignedtoimprovetheirorganizationalfocus,streamlineoperations,andalignproductioncapabilitywithprojecteddemand,and(iii)anetgainrecognizedfromthesaleofanequitymethodinvestmentmadethroughourcorporateventurecapitalfunction(Fiscal2022).Foradditionalinformation,refertoNotes7and10.
BusinessSegments
Netsales
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)
Beer $ 6,751.6 $ 6,074.6 $ 677.0 11%
WineandSpirits:
Wine 1,819.3 2,208.4 (389.1) (18%)
Spirits 249.8 331.9 (82.1) (25%)
TotalWineandSpirits 2,069.1 2,540.3 (471.2) (19%)
Canopy 444.3 378.6 65.7 17%
Consolidationandeliminations (444.3) (378.6) (65.7) (17%)
Consolidatednetsales $ 8,820.7 $ 8,614.9 $ 205.8 2%
Beersegment
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions,brandedproduct,24-pack,12-ouncecaseequivalents)
Netsales $ 6,751.6 $ 6,074.6 $ 677.0 11%
Shipments 364.2 334.6 8.8%
Depletions 8.9%
TheincreaseinBeernetsalesislargelydueto(i)$534.8millionofvolumegrowthwithinourMexicanbeerportfolio,whichbenefitedfromcontinuedconsumerdemandandareturntoon-premise,includingbarsandrestaurants,and(ii)$182.4millionoffavorableimpactfrompricinginselectmarketswithinourMexicanbeerportfolio,partiallyoffsetby$45.5millionofunfavorableproductmixprimarilyfromanincreaseinon-premisekegsalesandashiftinpackagetypes.Productinventoriesinour3-tierdistributionchannelreturnedtomorenormallevelsbytheendofFiscal2022.
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI40
WineandSpiritssegment
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions,brandedproduct,9-litercaseequivalents)
Netsales $ 2,069.1 $ 2,540.3 $ (471.2) (19%)
Shipments
Total 29.9 45.0 (33.6%)
Organic(1)(2) 29.9 29.1 2.7%
U.S.Domestic 26.3 41.5 (36.6%)
OrganicU.S.Domestic(1)(2) 26.3 25.8 1.9%
Depletions(1)(2) (5.8%)
(1) IncludesanadjustmenttoremovevolumeassociatedwiththeWineandSpiritsDivestituresfortheperiodMarch1,2020,throughJanuary4,2021.
(2) IncludesanadjustmenttoremovevolumeassociatedwiththePaulMassonDivestiturefortheperiodMarch1,2020,throughJanuary11,2021.
ThedecreaseinWineandSpiritsnetsalesisdueto$642.3millionfromthedivestitures,partiallyoffsetbya$171.1millionincreaseinorganicnetsales.Theincreaseinorganicnetsalesisdrivenby(i)$62.7millionincreasefromfavorableproductmixshift,(ii)$40.3millionoffavorableimpactfrompricingdrivenbydistributortransitionandpriceincreases,(iii)$37.7millionincreaseprimarilyfrombulkwineandnon-brandednetsales,and(iv)$28.2millionincreaseinbrandedwineandspiritsshipmentvolumeattributabletoourcontinuedfocusongrowingourbrandsandanoverlapoflowershipmentvolumesinFiscal2021.Theincreaseinorganicnetsaleswasnegativelyimpactedbyglobalsupplychainlogisticsandroutetomarketchanges.ForFiscal2022,theorganicU.S.shipmentvolumewasaheadofthedepletionvolumelargelydrivenbyachallengingoverlapduetoconsumerpantryloadingbehaviorinthefirsthalfofFiscal2021andtimingrelatedtotransitionactivitieswithdistributorsthatoccurredattheendofFiscal2021.
Canopysegment
OurownershipinterestinCanopyallowsustoexercisesignificantinfluence,butnotcontrol,and,therefore,weaccountforourinvestmentinCanopyundertheequitymethod.AmountsincludedfortheCanopysegmentrepresent100%ofCanopy’sreportedresultsonatwo-monthlag.Accordingly,werecognizedourshareofCanopy’searnings(losses)fromJanuarythroughDecember2021,inourFiscal2022resultsandJanuarythroughDecember2020,inourFiscal2021results.Althoughweownlessthan100%oftheoutstandingsharesofCanopy,100%ofitsresultsareincludedandsubsequentlyeliminatedtoreconciletoourconsolidatedfinancialstatements.See“Income(loss)fromunconsolidatedinvestments”belowforadiscussionofCanopy’snetsales,grossprofit(loss),selling,general,andadministrativeexpenses,andoperatingincome(loss).
GrossprofitFiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)
Beer $ 3,677.0 $ 3,402.4 $ 274.6 8%
WineandSpirits 947.9 1,115.2 (167.3) (15%)
Canopy (18.6) (14.1) (4.5) (32%)
Consolidationandeliminations 18.6 14.1 4.5 32%
ComparableAdjustments 82.4 (51.6) 134.0 NM
Consolidatedgrossprofit $ 4,707.3 $ 4,466.0 $ 241.3 5%
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI41
TheincreaseinBeerisprimarilydueto$301.3millionofshipmentvolumegrowthandthe$182.4millionfavorableimpactfrompricing,partiallyoffsetby$200.1millionofhighercostofproductsold.Thehighercostofproductsoldispredominantlyduetohigheroperationalcostsincluding(i)a$78.2millionincreaseinobsolescenceprimarilyfromexcessinventoryofhardseltzerslargelyresultingfromaslowdownintheoverallcategory,(ii)$66.3millionofbrewerycostsprimarilydrivenbyhighercompensationandbenefits,largelyresultingfromincreasedheadcounttosupportthegrowthofourMexicanbeerportfolio,andincreasedutilitycosts,(iii)$61.5millionofhighermaterialcosts,includingpallets,cartons,steel,corn,andaluminum,and(iv)$44.3millionofhigherdepreciation,partiallyoffsetby(i)$47.8millionoffavorablefixedcostabsorptionprimarilyasaresultofincreasedproductionlevelsforFiscal2022and(ii)$20.1millionofforeigncurrencytransactionalbenefits.
ThedecreaseinWineandSpiritsisduetoadecreaseof$252.9millionfromthedivestitures,partiallyoffsetbya$85.6millionincreaseinorganicgrossprofit.Theincreaseinorganicgrossprofitisattributableto(i)the$40.3millionoffavorablepricing,(ii)$35.7millionincreasefromfavorableproductmixshift,and(iii)$9.6millionprimarilyrelatedtofavorablebulkwineandnon-brandednetsales,partiallyoffsetby$2.9millionofhighercostofproductsold.Theincreasedcostofproductsoldwaslargelyattributableto$29.0millionofincreasedtransportationcostsresultingfromglobalsupplychainchallenges,includinginflation,androutetomarketchanges,partiallyoffsetby(i)$16.5millionofnetfavorablefixedcostabsorptionand(ii)approximately$10millionoflowergraperawmaterialsandothercostsavingsinitiatives.ThenetfavorablefixedcostabsorptioninFiscal2022primarilyresultedfromtheimpactofthe2020U.S.wildfires,partiallyoffsetbydecreasedproductionlevelsatcertainfacilitiesasaresultofalatefrostinNewZealandwhichreducedthegrapeharvest.
Grossprofitasapercentofnetsalesincreasedto53.4%forFiscal2022comparedwith51.8%forFiscal2021.Thiswaslargelyduetoapproximately(i)150basispointsoffavorablechangeinComparableAdjustments,(ii)95basispointsoffavorableimpactfromthelower-marginwineandspiritsdivestitures,and(iii)95basispointsoffavorableimpactfromBeerpricinginselectmarkets,partiallyoffsetbyapproximately220basispointsofratedeclinefromcostofproductsoldwithintheBeersegment,drivenbytheincreaseinoperationalcosts.
Selling,general,andadministrativeexpenses
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)
Beer $ 973.7 $ 908.1 $ 65.6 7%
WineandSpirits 477.2 492.8 (15.6) (3%)
CorporateOperationsandOther 238.2 228.6 9.6 4%
Canopy 611.5 1,481.9 (870.4) (59%)
Consolidationandeliminations (611.5) (1,481.9) 870.4 59%
ComparableAdjustments 22.3 35.6 (13.3) (37%)
Consolidatedselling,general,andadministrativeexpenses $ 1,711.4 $ 1,665.1 $ 46.3 3%
TheincreaseinBeerisprimarilydueto$35.3millionofhighermarketingspendand$29.3millionofincreasedgeneralandadministrativeexpenses.ThehighermarketingspendwasdrivenbyourplannedinvestmentstosupportthegrowthofourMexicanbeerportfoliothroughmediaandeventsponsorships.Theincreaseingeneralandadministrativeexpenseswasprimarilydrivenbyincreasedlegalexpense,increaseddepreciationandothercostsrelatedtotheimplementationofanewERP,unfavorableforeigncurrencytransactionlosses,andhighercompensationandbenefits.
ThedecreaseinWineandSpiritsisprimarilydueto$14.0millionoflowermarketingspendasaresultofthedivestitures.
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI42
TheincreaseinCorporateOperationsandOtherislargelyduetoanapproximate(i)$12millionincreaseinconsultingandthird-partyservices,largelyrelatedtostrategicinitiatives,(ii)$5millionincreaseintravelascomparedtoreducedtravelinFiscal2021resultingfromCOVID-19containmentmeasures,and(iii)$4millionincreaseindepreciationexpense,primarilyrelatedtotheimplementationofanewERP,partiallyoffsetbyanapproximate(i)$6milliondecreaseincompensationandbenefits,primarilyrelatedtothereversalofstock-basedcompensationforaperformanceawardtiedtoearningsfromourinvestmentinCanopythatdidnotachieveathresholdlevelofperformanceand(ii)$5millionoffavorableforeigncurrencyimpact.
Selling,general,andadministrativeexpensesasapercentofnetsalesincreasedto19.4%forFiscal2022ascomparedwith19.3%forFiscal2021.Theincreaseisdrivenlargelybyapproximately35basispointsofrategrowthinconnectionwiththewineandspiritsdivestitures,largelyoffsetbyapproximately15pointsofratedeclineintheBeersegmentastheincreaseinBeernetsalesexceededtheincreaseinselling,general,andadministrativeexpensesandadecreaseintheWineandSpiritssegmentselling,general,andadministrativeexpenses,whichresultedinapproximately10basispointsofratedecline.
Operatingincome(loss)Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)
Beer $ 2,703.3 $ 2,494.3 $ 209.0 8%
WineandSpirits 470.7 622.4 (151.7) (24%)
CorporateOperationsandOther (238.2) (228.6) (9.6) (4%)
Canopy (630.1) (1,496.0) 865.9 58%
Consolidationandeliminations 630.1 1,496.0 (865.9) (58%)
ComparableAdjustments (604.1) (97.0) (507.1) NM
Consolidatedoperatingincome(loss) $ 2,331.7 $ 2,791.1 $ (459.4) (16%)
TheincreaseinBeerislargelyattributabletothestrongshipmentvolumegrowthwithinourMexicanbeerportfolioandfavorablepricingimpact,partiallyoffsetbyhigheroperationalcosts,marketingspend,andgeneralandadministrativeexpenses,asdiscussedabove.
ThedecreaseinWineandSpiritsislargelyattributabletothedivestitures,partiallyoffsetbytheincreaseinorganicnetsales,ledbyfavorableimpactsfromproductmixshiftandpricing,bulkwinenetsales,andbrandedwineandspiritsshipmentvolumegrowth.
Aspreviouslydiscussed,theCorporateOperationsandOtherincreaseinoperatinglossislargelyduetotheincreasesinconsultingandthird-partyservicesandtravelexpenseascomparedtoFiscal2021,partiallyoffsetbyfavorableimpactsfromthereversalofstock-basedcompensationandforeigncurrency.
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI43
Income(loss)fromunconsolidatedinvestmentsGeneral
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)
Unrealizednetgain(loss)onsecuritiesmeasuredatfairvalue $ (1,644.7) $ 802.0 $ (2,446.7) NMEquityinearnings(losses)fromCanopyandrelatedactivities(1) (73.6) (679.0) 605.4 89%Equityinearnings(losses)fromotherequitymethodinvestees 31.8 27.3 4.5 16%
Netgain(loss)onsaleofunconsolidatedinvestment(2) 51.0 — 51.0 NM
$ (1,635.5) $ 150.3 $ (1,785.8) NM
(1) Includes$82.4millionand$359.6millionofcostsdesignedtoimprovetheirorganizationalfocus,streamlineoperations,andalignproductioncapabilitywithprojecteddemandforFiscal2022andFiscal2021,respectively.
(2) Representsthesaleofourpreviouslyheldequityinterestinaninvestmentmadethroughourcorporateventurecapitalfunction.
Foradditionalinformationregardingourequitymethodinvestments,refertoNote10.
Canopysegment
Canopynetsalesincreasedto$444.3millionforFiscal2022from$378.6millionforFiscal2021.Thisincreaseof$65.7million,or17%,isprimarilyattributabletoanincreaseinotherconsumerproductsalesandCanadianTHCrecreationalsales.Theincreaseinotherconsumerproductsaleslargelyresultedfrom(i)salesofsportsnutritionbeveragesandmixesbyBioSteelSportsNutritionInc.,astheyexpandedtheirU.S.distributionandintroducednewRTDproductsand(ii)salesofvaporizersbyStorz&BickelGmbH&Co.KGalsoincreasedduetocontinuedU.S.distributionexpansion,partiallyoffsetbysupplychainchallengesandshippingrestrictions.CanadianTHCrecreationalsalesbenefitedfromCanopy’sFiscal2022acquisitionsincludingtheSupremeCannabisCompany,Inc.andAVCannabisInc.(“AceValley”),partiallyoffsetbylowersupplyofhighdemandproductsandunfavorableimpactsfromproductmixshiftandpricing.Canopygrossprofit(loss)declinedto$(18.6)millionforFiscal2022from$(14.1)millionforFiscal2021.Thisincreaseinlossof$4.5millionisprimarilydrivenby(i)higherinventorywrite-downsforFiscal2022ascomparedwithFiscal2021,(ii)pricecompressionintheCanadianrecreationalchannelandforCanopy’s,nowformer,internationalpharmaceuticalbusiness,C3,(iii)shiftsinbusinessmix,(iv)unfavorablefixedcostabsorptionforcertainofitsbusinesses,and(v)highershippingandwarehousingcostsinNorthAmerica.ThedeclineinCanopy’sgrossprofit(loss)waspartiallyoffsetbypayrollsubsidiesreceivedfromtheCanadiangovernmentinFiscal2022pursuanttoaCOVID-19reliefprogram.Canopyselling,general,andadministrativeexpensesdecreased$870.4millionprimarilyfromareductionin(i)assetimpairmentandrestructuringchargesrelatedtoitspreviousyeardecisiontoclosegreenhousefacilitiesaswellasotherchangesrelatedtoitsorganizationalandstrategicreviewoftheirbusiness,(ii)expectedcreditlossesonfinancialassetsandrelatedcharges,(iii)stock-basedcompensationexpense,and(iv)salesandmarketingexpenses.Thecombinationofthesefactorswerethemaincontributorstothe$865.9milliondecreaseinoperatingloss.
InterestexpenseInterestexpensedecreasedto$356.4millionforFiscal2022from$385.7millionforFiscal2021.This
decreaseof$29.3million,or8%,isduetoapproximately$1.2billionofloweraverageborrowings,partiallyoffsetbyapproximately10basispointsofhigherweightedaverageinterestrates.TheloweraverageborrowingsareprimarilyattributabletothepartialrepaymentoffinancingenteredintoinconnectionwiththeNovember2018CanopyTransaction.
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI44
LossonextinguishmentofdebtLossonextinguishmentofdebtprimarilyconsistsofamake-wholepaymentinconnectionwiththeearly
redemptionofour(i)2.70%May2017SeniorNotesand2.65%November2017SeniorNotes(Fiscal2022)and(ii)2.25%November2017seniornotes(Fiscal2021).
(Provisionfor)benefitfromincometaxesThe(provisionfor)benefitfromincometaxesdecreasedto$(309.4)millionforFiscal2022from
$(511.1)millionforFiscal2021.OureffectivetaxrateforFiscal2022was99.7%ascomparedwith20.1%forFiscal2021.Incomparisontoprioryear,ourtaxeswereimpactedprimarilyby:
• valuationallowancesonaportionoftheunrealizednetlossfromthechangesinfairvalueofourinvestmentinCanopyandCanopyequityinearnings(losses);
• theeffectivetaxratesapplicabletoourforeignbusinesses,includingtheimpactofthelong-livedassetimpairmentofbreweryconstructioninprogress;and
• anetincometaxbenefitfromstock-basedcompensationawardactivityforFiscal2022fromchangesinoptionexerciseactivity.
Foradditionalinformation,refertoNote13.
Weexpectourreportedeffectivetaxrateforthenextfiscalyeartobeintherangeof19%to21%.Sinceestimatesarenotcurrentlyavailable,thisrangedoesnotreflectanyfuturechangesinthefairvalueofourCanopyinvestmentmeasuredatfairvalueandanyfutureequityinearnings(losses)andrelatedactivitiesfromtheCanopyEquityMethodInvestment.
Netincome(loss)attributabletoCBINetincome(loss)attributabletoCBIdecreasedto$(40.4)millionforFiscal2022from$1,998.0millionfor
Fiscal2021.Thisdecreaseof$2,038.4millionislargelyattributableto(i)theunrealizednetlossfromthechangesinfairvalueofourinvestmentinCanopyascomparedwithanunrealizednetgaininFiscal2021,(ii)animpairmentoflong-livedassetsforFiscal2022inconnectionwithcertainassetsattheMexicaliBrewery,(iii)thedecreaseinWineandSpiritsnetsalesduelargelytothedivestitures,and(iv)higheroperationalcostswithintheBeersegment,partiallyoffsetbystrongshipmentvolumegrowthwithintheBeersegmentandthedecreaseintheprovisionforincometaxes.
LiquidityandCapitalResources
General
Ourprimarysourceofliquidityhasbeencashflowfromoperatingactivities.Ourabilitytoconsistentlygeneraterobustcashflowfromouroperationsisoneofourmostsignificantfinancialstrengths;itenablesustoinvestinourpeopleandourbrands,makecapitalinvestmentsandstrategicacquisitions,provideacashdividendprogram,andfromtime-to-time,repurchasesharesofourcommonstock.Ourlargestuseofcashinouroperationsisforpurchasingandcarryinginventoriesandcarryingseasonalaccountsreceivable.Historically,wehaveusedthiscashflowtorepayourshort-termborrowingsandfundcapitalexpenditures.Additionally,ourcommercialpaperprogramisusedtofundourshort-termborrowingrequirementsandtomaintainouraccesstothecapitalmarkets.Weuseourshort-termborrowings,includingourcommercialpaperprogram,tosupportourworkingcapitalrequirementsandcapitalexpenditures.
Weseektomaintainadequateliquiditytomeetworkingcapitalrequirements,fundcapitalexpenditures,andrepayscheduledprincipalandinterestpaymentsondebt.Absentdeteriorationofmarketconditions,webelievethatcashflowsfromoperatingandfinancingactivities,primarilyshort-termborrowings,willprovideadequateresourcestosatisfyourworkingcapital,scheduledprincipalandinterestpaymentsondebt,anticipateddividendpayments,periodicsharerepurchases,andanticipatedcapitalexpenditurerequirementsforbothourshort-termandlong-termcapitalneeds.
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI45
InDecember2021,weenteredintoanagreementwithafinancialinstitutionforpayableservices.WeplantofacilitateavoluntarysupplychainfinanceprogramthroughthisparticipatingfinancialinstitutioninFiscal2023.Theprogramwillbeavailabletocertainofoursuppliersallowingthemtheoptiontomanagetheircashflow.Wewillnotbeapartytotheagreementsbetweentheparticipatingfinancialinstitutionandthesuppliersinconnectionwiththeprogram.Ourrightsandobligationstooursuppliers,includingamountsdueandscheduledpaymentterms,willnotbeimpacted.Wearestillevaluatingtheimpactofthisprogramonfutureliquidity.
AsofFebruary28,2022,theexerciseofallCanopywarrantsheldbyuswouldhaverequiredacashoutflowofapproximately$5.9billionbasedonthetermsoftheNovember2018CanopyWarrants.
CashFlows
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)
Netcashprovidedby(usedin):
Operatingactivities $ 2,705.4 $ 2,806.5 $ (101.1) (4)%
Investingactivities (1,035.8) (87.9) (947.9) NM
Financingactivities (1,929.5) (2,346.6) 417.1 18%Effectofexchangeratechangesoncashandcashequivalents (1.3) 7.2 (8.5) (118)%
Netincrease(decrease)incashandcashequivalents $ (261.2) $ 379.2 $ (640.4) (169)%
OperatingactivitiesThedecreaseinnetcashprovidedby(usedin)operatingactivitiesconsistsof:
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)
Netincome(loss) $ 1.0 $ 2,031.8 $ (2,030.8) (100)%
Unrealizednet(gain)lossonsecuritiesmeasuredatfairvalue 1,644.7 (802.0) 2,446.7 NM
Deferredtaxprovision(benefit) 84.8 336.4 (251.6) (75)%
Equityin(earnings)lossesofequitymethodinvesteesandrelatedactivities,netofdistributedearnings 61.6 673.4 (611.8) (91)%
Impairmentofbreweryconstructioninprogress 665.9 — 665.9 NM
Othernon-cashadjustments 433.0 418.6 14.4 3%
Changeinoperatingassetsandliabilities,netofeffectsfrompurchaseandsaleofbusiness (185.6) 148.3 (333.9) NM
Netcashprovidedby(usedin)operatingactivities $ 2,705.4 $ 2,806.5 $ (101.1) (4)%
Thenetchangeinoperatingassetsandliabilitieswaslargelydrivenby(i)higherFiscal2022inventorylevelsfortheBeerandWineandSpiritssegmentsascomparedtoFiscal2021inventorylevelswhichwerenegativelyimpactedbyclimate-relatedevents,(ii)increasedaccountsreceivablefortheBeerandWineandSpiritssegments,and(iii)higherincometaxpaymentsinFiscal2022ascomparedtoFiscal2021.Thiswaspartiallyoffsetbybenefitsfrom(i)accountspayableprimarilyattributabletothetimingofpaymentsforboththeBeerandWineandSpiritssegmentsand(ii)anexclusivitypaymentreceivedinFiscal2022relatedtodistributionarrangementsforourU.S.wineandspiritsbrandportfolio.
InvestingactivitiesNetcashusedininvestingactivitiesforFiscal2022increasedprimarilydueto$994.9millionoflower
proceedsfromsaleofbusinessand$162.2millionofhighercapitalexpendituresforFiscal2022ascomparedwithFiscal2021.Theincreaseinnetcashusedininvestingactivitieswaspartiallyoffsetbythe$173.9millionexerciseoftheNovember2017CanopyWarrantsinMay2020.
PARTII ITEM7.MD&A TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI46
Businessinvestments,acquisitions,anddivestituresconsistprimarilyofthefollowing:
Investments Acquisitions Divestitures
Fiscal2022
• MyFavoriteNeighbor • Corporateinvestment
Fiscal2021
• May2020CanopyInvestment • Copper&Kings • PaulMassonGrandeAmberBrandy
• MyFavoriteNeighbor • EmpathyWines • WineandSpiritsDivestiture
• NobiloWine
• Concentratesandhigh-colorconcentrates
• BallastPoint
Foradditionalinformationontheseinvestments,acquisitions,anddivestitures,refertoNotes2,7,and10.
FinancingactivitiesThedecreaseinnetcashprovidedby(usedin)financingactivitiesconsistsof:
Fiscal2022
Fiscal2021
DollarChange
PercentChange
(inmillions)Netproceedsfrom(paymentsof)debt,currentandlong-term,andrelatedactivities $ (81.3) $ (1,787.8) $ 1,706.5 95%
Dividendspaid (573.0) (575.0) 2.0 0%
Purchasesoftreasurystock (1,390.5) — (1,390.5) NM
Netcashprovidedbystock-basedcompensationactivities 167.8 51.2 116.6 NM
Distributionstononcontrollinginterests (52.5) (35.0) (17.5) (50)%
Netcashprovidedby(usedin)financingactivities $ (1,929.5) $ (2,346.6) $ 417.1 18%
Debt
TotaldebtoutstandingasofFebruary28,2022,amountedto$10,416.5million,adecreaseof$25.8millionfromFebruary28,2021.Thisdecreaseconsistedof:
$(in
millions)
$10,442.3
$(697.1)
$(498.8)
$(154.4)
$988.0
$323.0 $13.5 $10,416.5
Feb28,2021 2.65%November2017Senior
Notes
2.70%May2017
SeniorNotes
Five-YearTermFacility
2.25%July2021
SeniorNotes
Commercialpaper
Other Feb28,20228,500
9,000
9,500
10,000
10,500
Debtrepayment Debtissuance
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BankfacilitiesInJune2021,theCompanyandtheAdministrativeAgentandLenderamendedtheMarch2020Term
CreditAgreement.TheprincipalchangeeffectedbytheJune2021amendmentwasareductioninLIBORmarginfrom0.88%to0.63%fromJune1,2021,throughDecember31,2021.
InApril2022,weenteredintothe2022RestatementAgreementthatamendedandrestatedthe2020CreditAgreement.The2022RestatementAgreementresultedin(i)therefinanceandincreaseoftheexistingrevolvingcreditfacilityfrom$2.0billionto$2.25billionandextensionofitsmaturitytoApril14,2027,(ii)therefinementofcertainnegativecovenants,and(iii)thereplacementofLIBORrateswithratesbasedontermSOFR.Therearenoborrowingsoutstandingunderthe2022CreditAgreement.
InApril2022,theCompanyandtheAdministrativeAgentandLenderamendedtheJune2021TermCreditAgreement.TheprincipalchangeseffectedbytheApril2022amendmentweretherefinementofcertainnegativecovenantsandreplacementofLIBORrateswithratesbasedontermSOFR.
SeniornotesInJuly2021,weissuedthe2.25%July2021SeniorNotes.Proceedsfromthisoffering,netofdiscountand
debtissuancecosts,of$987.2millionwereusedtowardstherepaymentofour2.70%May2017SeniorNotesand2.65%November2017SeniorNotes.
GeneralThemajorityofouroutstandingborrowingsasofFebruary28,2022,consistedoffixed-ratesenior
unsecurednotes,withmaturitiesrangingfromcalendar2023tocalendar2050,andavariable-rateseniorunsecuredtermloanfacilityunderourJune2021TermCreditAgreementwithacalendar2024maturitydateasfollows:
CalendarYearDebtMaturities
$(in
millions)
June2021TermCreditAgreement Seniornotes
2023 2024 2025 2026 2027 2028 2029 2030 2031 2047 2048 20500
250
500
750
1,000
1,250
1,500
1,750
Additionally,wehaveacommercialpaperprogramwhichprovidesfortheissuanceofuptoanaggregateprincipalamountof$2.0billionofcommercialpaper.Ourcommercialpaperprogramisbackedbyunusedcommitmentsunderourrevolvingcreditfacilityunderour2022CreditAgreement.Accordingly,outstandingborrowingsunderourcommercialpaperprogramreducetheamountavailableunderourrevolvingcreditfacility.
Wedonothavepurchasecommitmentsfrombuyersforourcommercialpaperand,therefore,ourabilitytoissuecommercialpaperissubjecttomarketdemand.Ifthecommercialpapermarketisnotavailabletousforanyreasonwhencommercialpaperborrowingsmature,wewillutilizeunusedcommitmentsunderourrevolvingcreditfacilityunderour2022CreditAgreementtorepaycommercialpaperborrowings.Wedonotexpectthat
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fluctuationsindemandforcommercialpaperwillaffectourliquiditygivenourborrowingcapacityavailableunderourrevolvingcreditfacility.
Wehadthefollowingremainingborrowingcapacityavailableunderour2020CreditAgreementand2022CreditAgreement,respectively:
February28,2022
April14,2022
(inmillions)
Revolvingcreditfacility(1) $ 1,664.8 $ 1,678.0
(1) Netofoutstandingrevolvingcreditfacilityborrowingsandoutstandinglettersofcreditunderour2020CreditAgreementand2022CreditAgreement,respectively,andoutstandingborrowingsunderourcommercialpaperprogram.
Thefinancialinstitutionsparticipatinginour2022CreditAgreementhavecompliedwithpriorfundingrequestsandwebelievetheywillcomplywithanyfuturefundingrequests.However,therecanbenoassurancesthatanyparticularfinancialinstitutionwillcontinuetodoso.
AsofFebruary28,2022,weandoursubsidiariesweresubjecttocovenantsthatarecontainedinour2020CreditAgreement,includingthoserestrictingtheincurrenceofadditionalsubsidiaryindebtedness,additionalliens,mergersandconsolidations,transactionswithaffiliates,andsaleandleasebacktransactions,ineachcasesubjecttonumerousconditions,exceptions,andthresholds.Thefinancialcovenantsarelimitedtoaminimuminterestcoverageratioandamaximumnetleverageratio,bothasdefinedinour2020CreditAgreement.AsofFebruary28,2022,underour2020CreditAgreement,theminimuminterestcoverageratiowas2.5xandthemaximumnetleverageratiowas4.0x.
Therepresentations,warranties,covenants,andeventsofdefaultsetforthinourJune2021TermCreditAgreementaresubstantiallysimilartothosesetforthinour2020CreditAgreement.
Ourindenturesrelatingtoouroutstandingseniornotescontaincertaincovenants,including,butnotlimitedto:(i)alimitationonliensoncertainassets,(ii)alimitationoncertainsaleandleasebacktransactions,and(iii)restrictionsonmergers,consolidations,andthetransferofallorsubstantiallyallofourassetstoanotherperson.
AsofFebruary28,2022,wewereincompliancewithourcovenantsunderour2020CreditAgreement,ourJune2021TermCreditAgreement,andourindentures,andhavemetalldebtpaymentobligations.
Forfurtherdiscussionandpresentationofourborrowingsandavailablesourcesofborrowing,refertoNote12.
CommonStockDividends
OnApril6,2022,ourBoardofDirectorsdeclaredaquarterlycashdividendof$0.80pershareofClassAStock,$0.72pershareofClassBStock,and$0.72pershareofClass1StockpayableonMay19,2022,tostockholdersofrecordofeachclassasofthecloseofbusinessonMay5,2022.Weexpecttoreturnapproximately$600milliontostockholdersinFiscal2023throughcashdividends.
Wecurrentlyexpecttocontinuetopayaregularquarterlycashdividendtostockholdersofourcommonstockinthefuture,butsuchpaymentsaresubjecttoapprovalofourBoardofDirectorsandaredependentuponourfinancialcondition,resultsofoperations,capitalrequirements,andotherfactors,includingthosesetforthunderItem1A.“RiskFactors”ofthisForm10-K.
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ShareRepurchaseProgram
OurBoardofDirectorsauthorizedtherepurchaseofupto$3.0billionofourClassAStockandClassBStockunderthe2018Authorizationandanadditionalrepurchaseofupto$2.0billionofourClassAStockandClassBStockunderthe2021Authorization.Noshareshavebeenrepurchasedunderthe2021Authorization.
DuringFiscal2022,werepurchased6,179,015sharesofClassAStockpursuanttothe2018Authorizationatanaggregatecostof$1,390.5million,oranaveragecostof$225.04pershare,throughacombinationofopenmarkettransactionsandanASR.PursuanttotheASRannouncedinJune2021,werepurchased2,240,397sharesofClassAStockatanaveragepurchasepricepaidof$223.17pershare.Weprimarilyusedcashonhandtopaythepurchasepricefortherepurchasedshares.
OnApril7,2022,weenteredintoanadditionalASRtorepurchase$500.0millionofourClassAStock.Weutilizedshort-termborrowingsandcashonhandtopaythedollarvalueforsharesrepurchasedinthisASRunderthe2018Authorization.
AsofApril21,2022,totalsharesrepurchasedunderthe2018Authorizationandthe2021Authorizationareasfollows:
ClassACommonShares
RepurchaseAuthorization
DollarValueofShares
Repurchased
NumberofShares
Repurchased
(inmillions,exceptsharedata)
2018Authorization $ 3,000.0 $ 2,936.4 12,802,171
2021Authorization $ 2,000.0 $ — —
Sharerepurchasesunderthe2018Authorizationand2021Authorizationmaybeaccomplishedatmanagement’sdiscretionfromtimetotimebasedonmarketconditions,ourcashanddebtposition,andotherfactorsasdeterminedbymanagement.Sharesmayberepurchasedthroughopenmarketorprivatelynegotiatedtransactions.Wemayfundfuturesharerepurchaseswithcashgeneratedfromoperationsand/orproceedsfromborrowings.Anyrepurchasedshareswillbecometreasuryshares,includingsharesrepurchasedunderthe2018Authorization.
Wecurrentlyexpecttocontinuetorepurchasesharesinthefuture,butsuchrepurchasesaredependentuponourfinancialcondition,resultsofoperations,capitalrequirements,andotherfactors,includingthosesetforthunderItem1A.“RiskFactors”ofthisForm10-K.
Foradditionalinformation,refertoNote17.
CapitalResources
Wehavemaintainedadequateliquiditytomeetworkingcapitalrequirements,fundcapitalexpenditures,andrepayscheduledprincipalandinterestpaymentsondebt.Absentdeteriorationofmarketconditions,webelievethatcashflowsfromoperatingandfinancingactivities,primarilyshort-termborrowings,willprovideadequateresourcestosatisfyourworkingcapital,scheduledprincipalandinterestpaymentsondebt,anticipateddividendpayments,periodicsharerepurchases,andanticipatedcapitalexpenditurerequirementsforbothourshort-termandlong-termcapitalneeds.
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ThefollowingsetsforthinformationaboutouroutstandingobligationsatFebruary28,2022.Foradetaileddiscussionoftheitemsnotedinthefollowingtable,refertoNotes11,12,13,14,15,and16.
Contractualobligations:
Short-termborrowings $ 323.0 $ — $ 323.0
Long-termdebt(excludingunamortizeddebtissuancecostsandunamortizeddiscounts) $ 606.8 $ 9,563.1 $ 10,169.9
Interestpaymentsonlong-termdebt(1) $ 375.3 $ 3,526.0 $ 3,901.3
Operatingleases $ 95.1 $ 546.5 $ 641.6
Otherlong-termliabilities(2) $ 63.1 $ 353.1 $ 416.2
Purchaseobligations
Rawmaterialsandsupplies $ 874.3 $ 2,284.7 $ 3,159.0
Contractservices $ 222.3 $ 543.1 $ 765.4
Capitalexpenditures(3) $ 272.5 $ 217.3 $ 489.8
In-processinventories $ 19.1 $ 31.5 $ 50.6
Otherpurchaseobligations $ 8.8 $ 10.9 $ 19.7
Other:
Returnvaluetostockholders(4) $ 1,842.3 $ — $ 1,842.3
Investmentsinbusinesses(5) $ 19.8 $ 131.9 $ 151.7
Short-termpayments
Long-termpayments Total
(inmillions)
(1) Interestpaymentsonlong-termdebtdonotincludeinterestrelatedtofinanceleaseobligationsasamountsarenotmaterial.
(2) Otherlong-termliabilitiesdonotincludepaymentsforunrecognizedtaxbenefitliabilitiesof$246.5millionduetotheuncertaintyofthetimingoffuturecashflowsassociatedwiththeseunrecognizedtaxbenefitliabilities.Inaddition,otherlong-termliabilitiesdonotincludeexpectedpaymentsforinterestandpenaltiesassociatedwithunrecognizedtaxbenefitliabilitiesasamountsarenotmaterial.Foradetaileddiscussionoftheseitems,refertoNote13.
(3) ContractstopurchaseequipmentandservicesprimarilyrelatedtotheMexicoBeerProjects.Forfurtherinformationaboutthesepurchaseobligations,referto“Capitalexpenditures”below.
(4) Publiclyannouncedintenttoreturn$5billioninvaluetostockholdersthroughdividendsandsharerepurchasestobemadefromFiscal2020throughFiscal2023.Wehavereturned$3,157.7millionthroughFiscal2022.
(5) Publiclyannouncedintenttoinvest(i)$100millioninfemale-foundedorledcompaniesthroughourFocusonFemaleFoundersprogramovera10-yearperiodconcludinginfiscal2029and(ii)$100milliontosupportminority-ownedcompaniesinthebeveragealcoholspaceandrelatedcategoriesthroughourFocusonMinorityFounderVentureprogramovera10-yearperiodconcludinginfiscal2031.Wehaveinvested$42.7millionand$5.6millionthroughFiscal2022infemale-foundedorledcompaniesandminority-ownedcompanies,respectively.
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CapitalExpenditures
DuringFiscal2022,weincurred$1,026.8millionforcapitalexpenditures,including$849.5millionfortheBeersegmentprimarilyfortheMexicoBeerProjects.
Weplantospendfrom$1.3billionto$1.4billionforcapitalexpendituresinFiscal2023,includingapproximately$1.2billionfortheBeersegmentassociatedprimarilywiththeMexicoBeerProjects.TheremainingplannedFiscal2023capitalexpendituresconsistofimprovementstoexistingoperatingfacilitiesandreplacementsofexistingequipmentand/orbuildings.TheMexicoBeerProjectsareexpectedtobesubstantiallycompletedbyFiscal2026.Accordingly,fortheBeersegment,weexpecttospend$5.0billionto$5.5billionoverFiscal2023throughFiscal2026,withthemajorityofspendexpectedtooccurinthefirstthreefiscalyearsofthattimeframe.Managementreviewsthecapitalexpenditureprogramperiodicallyandmodifiesitasrequiredtomeetcurrentandprojectedfuturebusinessneeds.
Fiscal2022MexicoBeerProjectsSpend
ObregonBrewery70%
NavaBrewery22%
SoutheastMexicoBrewery6%
GlassPlant2%
Infiscal2017,webeganconstructionoftheMexicaliBrewery.InMarch2020,apublicconsultationwasheldontheconstructionofourMexicaliBrewery.Followingthenegativeresultofthepublicconsultation,wecontinuetoworkwithgovernmentofficialsinMexicoto(i)determinenextstepsforoursuspendedMexicaliBreweryconstructionproject,(ii)pursuevariousformsofrecoveryforcapitalizedcostsandadditionalexpensesincurredinestablishingthebrewery,however,therecanbenoassuranceofanyrecoveries,and(iii)exploreoptionstoaddfurthercapacityatotherlocationsinMexico,includingtheconstructionoftheSoutheastMexicoBrewerywherethereisamplewaterandwewillhaveaskilledworkforcetomeetourlong-termneeds.SeeNote7forfurtherdiscussion.
CriticalAccountingPoliciesandEstimates
OursignificantaccountingpoliciesaremorefullydescribedinNote1.Certainpoliciesareparticularlyimportanttotheportrayalofourfinancialpositionandresultsofoperationsandrequiretheapplicationofsignificantjudgmentbymanagementtodetermineappropriateassumptionstobeusedincertainestimates;asaresult,theyaresubjecttoaninherentdegreeofuncertainty.Estimatesarebasedonhistoricalexperience,observanceoftrendsintheindustry,informationprovidedbyourcustomersandinformationavailablefromotheroutsidesources,asappropriate.Wereviewestimatestoensurethattheyappropriatelyreflectchangesinourbusinessonanongoingbasis.Ourcriticalaccountingestimatesinclude:
• Equitymethodinvestments.Wemonitorourequitymethodinvestmentsforfactorsindicatingother-than-temporaryimpairment.Weconsiderseveralfactorswhenevaluatingourinvestments,including,butnotlimitedto,(i)theperiodoftimeforwhichthefairvaluehasbeenlessthanthecarryingvalue,(ii)operatingandfinancialperformanceoftheinvestee,(iii)theinvestee’sfuturebusinessplansandprojections,(iv)recenttransactionsandmarketvaluationsofpubliclytradedcompanies,whereavailable,(v)discussionswiththeirmanagement,and(vi)ourabilityandintenttoholdtheinvestmentuntilitrecoversinvalue.
CanopyEquityMethodInvestment–monitoredforother-than-temporaryimpairmentateachreportingdate,ormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvalueoftheinvestmentmaynotberecoverable.AsofFebruary28,2022,thecarryingvalueofourCanopyEquityMethodInvestmentexceededthefairvalueby$1,488.7million.IfCanopy’sstock
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pricedoesnotrecoveraboveourC$22.34carryingvalueinthenear-term,itmayresultinanimpairmentofourCanopyEquityMethodInvestment.TheremayalsobeafutureimpairmentofourCanopyEquityMethodInvestmentifourexpectationsaboutCanopy’sprospectiveresultsandcashflowsdecline,whichcouldbeinfluencedbyavarietyoffactorsincludingadversemarketconditionsorifCanopyrecordsasignificantimpairmentofgoodwillorintangibleorotherlong-livedassets,makessignificantassetsales,orhaschangesinseniormanagement.
• Fairvalueoffinancialinstruments.Management’sestimateoffairvaluerequiressignificantjudgmentandissubjecttoahighdegreeofvariabilitybaseduponmarketconditionsandtheavailabilityofspecificinformation.Thefairvaluesofourfinancialinstrumentsthatrequiretheapplicationofsignificantjudgmentbymanagementareasfollows:
CanopyinvestmentEquitysecurities,Warrants–estimatedusingtheBlack-Scholesoption-pricingmodel(Level2fairvaluemeasurement)andMonteCarlosimulations(Level2fairvaluemeasurement).Thesevaluationmodelsusevariousmarket-basedinputs,includingstockprice,remainingcontractualterm,expectedvolatility,risk-freeinterestrate,andexpecteddividendyield,asapplicable.Managementappliessignificantjudgmentinitsdeterminationofexpectedvolatility.Weconsiderbothhistoricalandimpliedvolatilitylevelsoftheunderlyingequitysecurityandapplylimitedconsiderationofhistoricalpeergroupvolatilitylevels.
Debtsecurities,Convertible–estimatedusingabinomiallatticeoption-pricingmodel(Level2fairvaluemeasurement),whichincludesanestimateofthecreditspreadbasedonmarketspreadsusingbonddataasofthevaluationdate.Thisvaluationmodelusesvariousmarket-basedinputs,includingstockprice,remainingterm,expectedvolatility,risk-freeinterestrate,andexpecteddividendyield,asapplicable.
• Goodwillandotherintangibleassets.Goodwillandotherintangibleassetsareclassifiedintothreecategories:(i)goodwill,(ii)intangibleassetswithdefinitelivessubjecttoamortization,and(iii)intangibleassetswithindefinitelivesnotsubjecttoamortization.Forintangibleassetswithdefinitelives,impairmenttestingisrequiredifconditionsexistthatthecarryingvaluemaynotberecoverable.Forintangibleassetswithindefinitelivesandforgoodwill,impairmenttestingisrequiredatleastannuallyormorefrequentlyifeventsorcircumstancesindicatethattheseassetsmightbeimpaired.Wemayperformaqualitativeevaluationpriortoaquantitativetesttodetermineifanimpairmentexists.However,iftheresultsofthequalitativeevaluationareinconclusiveorsuggestanimpairmentmayexist,wemustproceedtothequantitativetest.Thequalitativeevaluationisanassessmentoffactors,includingmarketconditions,industrychanges,actualresultsascomparedtoforecastedresults,orthetimingofrecentacquisitionsand/ordivestitures.Thequantitativetestestimatesthefairvalueutilizingassumptionsandprojectionsregardingitemssuchasfuturecashflows,revenues,earnings,andotherfactors.Thefactorsandassumptionsusedreflectmanagement’sestimatesandarebasedonhistoricaltrends,projectionsandassumptions,includingexpectationsoffutureeconomicandcompetitiveconditionsthatareusedincurrentstrategicoperatingplans,however,thesearesubjecttochangeasaresultofchangingmarketconditions.Iftheseestimatesortheirrelatedassumptionschangeinthefuture,wemayberequiredtorecognizeanimpairmentlossfortheseassets.Therecognitionofanyresultingimpairmentlosscouldhaveamaterialadverseimpactonourfinancialstatements.
Weperformannualimpairmenttestsandre-evaluatetheusefullivesofotherintangibleassetswithindefinitelivesattheannualimpairmenttestmeasurementdateofJanuary1orwhencircumstancesarisethatindicateapossibleimpairmentorchangeinusefullifemightexist.
Goodwill–OurreportingunitswithgoodwillincludetheBeersegmentandtheWineandSpiritssegment.InthefourthquarterofFiscal2022,weperformedourannualgoodwillimpairmentanalysisusingthequalitativeassessment.Wedetermineditismorelikelythannotthefairvalueofeachofourreportingunitswithgoodwillexceededtheircarryingvalue,andthereforenogoodwillimpairmentwasrecognizedrelatedtothistest.ForFiscal2021andFiscal2020,asa
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resultofourannualgoodwillimpairmentanalyses,weconcludedthattherewerenoindicationsofimpairmentforeitherofourreportingunits.
Otherintangibleassets–Ourintangibleassetsconsistprimarilyofcustomerrelationshipsandtrademarksobtainedthroughbusinessacquisitions.Customerrelationshipsareamortizedovertheirestimatedusefullives.Thetrademarksthatweredeterminedtohaveindefiniteusefullivesarenotamortized.InthefourthquarterofFiscal2022,weperformedourannualtrademarkimpairmentanalysisusingboththequalitativeandquantitativeassessments.Noindicationofimpairmentwasnotedforourtrademarkunitsutilizingthequalitativeassessment,withtheexceptionoftheFourCornerstrademark.WeproceededwithaquantitativeimpairmenttestfortheFourCornerstrademarkascertaincontinuednegativetrendsindicatedthefairvaluemaynotexceeditscarryingvalue.Whenusingthequantitativeassessment,theestimatedfairvalueoftrademarkiscalculatedbasedonanincomeapproachusingtherelieffromroyaltymethod.Themostsignificantassumptionusedindeterminingtheestimatedfairvaluewastheannualrevenueprojection.Noindicationofimpairmentwasnotedusingthequantitativetest,astheestimatedfairvalueoftheFourCornerstrademarkwasequaltoits$4.0millioncarryingamount.
DuringthefourthquarterofFiscal2021,certainnegativetrendswithinourFourCornerscraftbeerportfolio,includingslowergrowthratesandincreasedcompetition,resultedinupdatedlong-termfinancialforecastsindicatinglowerrevenueandcashflowgenerationfortherelatedportfolio.Thischangeinfinancialforecastsindicateditwasmorelikelythannotthefairvalueofourindefinite-livedintangibleassetassociatedwiththeFourCornerstrademarkmightbebelowitscarryingvalue.Accordingly,weperformedaquantitativeassessmentforimpairment.Asaresultofthisassessment,theBeersegment’sFourCornerscraftbeerbusinessrecognizeda$6.0millionimpairmentlossinconnectionwithitstrademarkasset.DuringthesecondquarterofFiscal2020,certaincontinuingnegativetrendswithinourBeersegment’sBallastPointcraftbeerportfolio,includingincreasedrateofrevenuedeclineandincreasedcompetition,indicatedthatitwasmorelikelythannotthefairvalueofourindefinite-livedintangibleassetassociatedwiththeBallastPointcraftbeertrademarksmightbebelowitscarryingvalue.Accordingly,weperformedaquantitativeassessmentforimpairment.Asaresultofthisassessment,theBallastPointcraftbeertrademarkassetrecognizedanimpairmentlossof$11.0million.RefertoNote7forfurtherdiscussion.
Divestitures–Whensome,butnotallofareportingunitisdisposedof,someofthegoodwillofthereportingunitshouldbeallocatedtotheportionofthereportingunitbeingdisposedof,ifthatportionconstitutesabusiness.Theallocationofgoodwillisbasedontherelativefairvaluesoftheportionofthereportingunitbeingdisposedofandtheportionofthereportingunitremaining.Thisapproachrequiresadeterminationofthefairvalueofboththebusinessbeingdisposedandthebusinessesretainedwithinthereportingunit.
ForFiscal2021,ourestimateoffairvalueforthePaulMassonDivestiture,theWineandSpiritsDivestitures,theConcentrateBusinessDivestiture,andtheBallastPointDivestiturewasdeterminedbasedontheexpectedproceedsfromthetransactions.ThecomponentssoldwereapartoftheWineandSpiritsorBeersegmentandwereincludedinthosereportingunitsthroughthedateofdivestiture.Goodwillwasallocatedtotheassetsheldforsalebasedontherelativefairvalueofthebusinessesbeingsoldcomparedtotherelativefairvalueofthereportingunit.Goodwillnotallocatedtoassetsassociatedwiththerespectivedivestituresremainedinthewineandspiritsorbeerreportingunit.
• Accountingforincometaxes.Weestimateourdeferredtaxassetsandliabilities,incometaxespayable,provisionforincometaxes,andunrecognizedtaxbenefitliabilitiesbaseduponvariousfactorsincluding,butnotlimitedto,historicalpretaxoperatingincome,futureestimatesofpretaxoperatingincome,differencesbetweenbookandtaxtreatmentofvariousitemsofincomeandexpense,interpretationoftaxlaws,andtaxplanningstrategies.WearesubjecttoincometaxesinCanada,Mexico,Switzerland,theU.S.,andotherjurisdictions.Weareregularlyauditedbyfederal,state,and
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foreigntaxauthorities,butanumberofyearsmayelapsebeforeanuncertaintaxpositionisauditedandfinallyresolved.
Webelievealltaxpositionsarefullysupported.WerecognizetaxassetsandliabilitiesinaccordancewiththeFASBguidanceforincometaxaccounting.Accordingly,werecognizeataxbenefitfromanuncertaintaxpositionwhenitismorelikelythannotthepositionwillbesustaineduponexaminationbasedonthelargestbenefitthathasagreaterthan50%likelihoodofbeingrealizeduponultimatesettlement.Duetothecomplexityofsomeoftheseuncertainties,theultimateresolutionmayresultinapaymentthatismateriallydifferentfromourcurrentestimateoftheunrecognizedtaxbenefitliabilities.Inaddition,changesinexistingtaxlawsorratescouldsignificantlychangeourcurrentestimateofourunrecognizedtaxbenefitliabilities.Thesedifferenceswillbereflectedasincreasesordecreasestoincometaxexpenseintheperiodinwhichtheyaredetermined.Changesincurrentestimates,ifsignificant,couldhaveamaterialadverseimpactonourfinancialstatements.
Werecognizeourdeferredtaxassetsandliabilitiesbasedupontheexpectedfuturetaxoutcomeofamountsrecognizedinourresultsofoperations.Ifnecessary,werecognizeavaluationallowanceondeferredtaxassetswhenitismorelikelythannottheywillnotberealized.Weevaluateourabilitytorealizethetaxbenefitsassociatedwithdeferredtaxassetsbyassessingtheadequacyoffutureexpectedtaxableincome,historical,andprojectedoperatingresults,andtheavailabilityofprudentandfeasibletaxplanningstrategies.Therealizationofdeferredtaxassetsisevaluatedbyjurisdictionandtherealizabilityoftheseassetscanvarybasedonthecharacterofthetaxattributeandthecarryforwardperiodsspecifictoeachjurisdiction.Webelieveitismorelikelythannottheresultsoffutureoperationswillgeneratesufficienttaxableincometorealizeourexistingdeferredtaxassets,netofvaluationallowances.Changesintherealizabilityofourdeferredtaxassetswillbereflectedinoureffectivetaxrateintheperiodinwhichtheyaredetermined.
ChangeinAccountingGuidance
AccountingguidanceadoptedforFiscal2022didnothaveamaterialimpactonourconsolidatedfinancialstatements.
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Item7A.QuantitativeandQualitativeDisclosuresAboutMarketRisk
Asaresultofourglobaloperating,investment,acquisition,divestiture,andfinancingactivities,weareexposedtomarketriskassociatedwithchangesinforeigncurrencyexchangerates,commodityprices,interestrates,andequityprices.Tomanagethevolatilityrelatingtotheserisks,weperiodicallypurchaseand/orsellderivativeinstrumentsincludingforeigncurrencyforwardandoptioncontracts,commodityswapcontracts,interestrateswapcontracts,treasurylockcontracts,andswaplockcontracts.Weusederivativeinstrumentstoreduceearningsandcashflowvolatilityresultingfromshiftsinmarketrates,aswellastohedgeeconomicexposures.Wedonotenterintoderivativeinstrumentsfortradingorspeculativepurposes.
ForeigncurrencyandcommoditypriceriskForeigncurrencyderivativeinstrumentsareormaybeusedtohedgeexistingforeigncurrency
denominatedassetsandliabilities,forecastedforeigncurrencydenominatedsales/purchasesto/fromthirdpartiesaswellasintercompanysales/purchases,intercompanyprincipalandinterestpayments,andinconnectionwithinvestments,acquisitions,ordivestituresoutsidetheU.S.AsofFebruary28,2022,wehadexposurestoforeigncurrencyriskprimarilyrelatedtotheMexicanpeso,euro,Canadiandollar,andNewZealanddollar.Approximately100%ofourbalancesheetexposuresand72%ofourforecastedtransactionalexposuresfortheyearendingFebruary28,2023,werehedgedasofFebruary28,2022.
Commodityderivativeinstrumentsareormaybeusedtohedgeforecastedcommoditypurchasesfromthirdpartiesaseithereconomichedgesoraccountinghedges.AsofFebruary28,2022,exposurestocommoditypriceriskwhichwearecurrentlyhedgingincludealuminum,corn,dieselfuel,andnaturalgasprices.Approximately69%ofourforecastedtransactionalexposuresfortheyearendingFebruary28,2023,werehedgedasofFebruary28,2022.
Wehaveperformedasensitivityanalysistoestimateourexposuretomarketriskofforeignexchangeratesandcommoditypricesreflectingtheimpactofahypothetical10%adversechangeintheapplicablemarket.Thevolatilityoftheapplicableratesandpricesisdependentonmanyfactorswhichcannotbeforecastedwithreliableaccuracy.Gainsorlossesfromtherevaluationorsettlementoftherelatedunderlyingpositionswouldsubstantiallyoffsetsuchgainsorlossesonthederivativeinstruments.Theaggregatenotionalvalue,estimatedfairvalue,andsensitivityanalysisforouropenforeigncurrencyandcommodityderivativeinstrumentsaresummarizedasfollows:
AggregateNotionalValue
FairValue,NetAsset(Liability)
Increase(Decrease)inFairValue–Hypothetical
10%AdverseChange
February28,2022
February28,2021
February28,2022
February28,2021
February28,2022
February28,2021
(inmillions)
Foreigncurrencycontracts $ 2,360.8 $ 2,262.7 $ 38.6 $ 66.9 $ (145.1) $ (129.7)
Commodityderivativecontracts $ 291.1 $ 221.6 $ 90.1 $ 15.9 $ (35.1) $ (22.5)
InterestrateriskTheestimatedfairvalueofourfixedinterestratedebtissubjecttointerestraterisk,creditrisk,and
foreigncurrencyrisk.Inaddition,wealsohavevariableinterestratedebtoutstanding(primarilyLIBOR-based),certainofwhichincludesafixedmarginsubjecttothesamerisksidentifiedforourfixedinterestratedebt.
AsofFebruary28,2022,wehada$100.0millionoutstandingcashflowdesignatedswaplockagreementwhichourfixed10-yearinterestratestominimizeinterestratevolatilityonourfuturedebtissuances.Wehadnootheroutstandingcashflowdesignatedorundesignatedinterestrateswapcontracts,treasurylockcontracts,orswaplockcontractsoutstandingasofFebruary28,2022,andFebruary28,2021.
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI56
Wehaveperformedasensitivityanalysistoestimateourexposuretomarketriskofinterestratesreflectingtheimpactofahypothetical1%increaseintheprevailinginterestrates.Thevolatilityoftheapplicableratesisdependentonmanyfactorswhichcannotbeforecastedwithreliableaccuracy.
Theaggregatenotionalvalue,estimatedfairvalue,andsensitivityanalysisforouroutstandingfixed-ratedebt,includingcurrentmaturitiesandopeninterestratederivativeinstruments,aresummarizedasfollows:
AggregateNotionalValue
FairValueNetAsset(Liability)
Increase(Decrease)inFairValue–Hypothetical
1%RateIncrease
February28,2022
February28,2021
February28,2022
February28,2021
February28,2022
February28,2021
(inmillions)
Fixedinterestratedebt $ 9,869.9 $ 10,065.5 $ (10,045.3) $ (11,126.5) $ (709.7) $ (805.3)
Swaplockcontracts $ 100.0 $ — $ (0.4) $ — $ (8.6) $ —
A1%hypotheticalchangeintheprevailinginterestrateswouldhaveincreasedinterestexpenseonourvariableinterestratedebtby$4.6millionand$12.4millionfortheyearsendedFebruary28,2022,andFebruary28,2021,respectively.
EquitypriceriskTheestimatedfairvalueofourinvestmentintheNovember2018CanopyWarrantsandtheCanopyDebt
Securitiesaresubjecttoequitypricerisk,interestraterisk,creditrisk,andforeigncurrencyrisk.Thisinvestmentisrecognizedatfairvalueutilizingvariousoption-pricingmodelsandhasthepotentialtofluctuatefrom,amongotheritems,changesinthequotedmarketpriceoftheunderlyingequitysecurity.Wemanageourequitypriceriskexposurebycloselymonitoringthefinancialcondition,performance,andoutlookofCanopy.
AsofFebruary28,2022,thefairvalueofourinvestmentintheNovember2018CanopyWarrantsandtheCanopyDebtSecuritieswas$182.9million,withanunrealizednetgain(loss)onthisinvestmentof$(1,644.7)millionrecognizedinourresultsofoperationsfortheyearendedFebruary28,2022.Wehaveperformedasensitivityanalysistoestimateourexposuretomarketriskoftheequitypricereflectingtheimpactofahypothetical10%adversechangeinthequotedmarketpriceoftheunderlyingequitysecurity.AsofFebruary28,2022,suchahypothetical10%adversechangewouldhaveresultedinadecreaseinfairvalueof$10.0million.
Foradditionaldiscussiononourmarketrisk,refertoNotes6and7.
PARTII ITEM7A.QUANTITATIVEANDQUALITATIVEDISCLOSURES TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI57
Item8.FinancialStatementsandSupplementaryData
CONSTELLATIONBRANDS,INC.ANDSUBSIDIARIESINDEXTOCONSOLIDATEDFINANCIALSTATEMENTS
FEBRUARY28,2022
Page
Management’sAnnualReportonInternalControlOverFinancialReporting 59
ReportsofIndependentRegisteredPublicAccountingFirm(PCAOBID185) 60ConsolidatedBalanceSheets 64ConsolidatedStatementsofComprehensiveIncome(Loss) 65ConsolidatedStatementsofChangesinStockholders’Equity 66ConsolidatedStatementsofCashFlows 67
NotestoConsolidatedFinancialStatements1. DescriptionofBusiness,BasisofPresentation,andSummaryofSignificantAccountingPolicies 69
2. AcquisitionsandDivestitures 74
3. Inventories 76
4. PrepaidExpensesandOther 77
5. Property,Plant,andEquipment 77
6. DerivativeInstruments 78
7. FairValueofFinancialInstruments 81
8. Goodwill 87
9. IntangibleAssets 87
10. EquityMethodInvestments 88
11. OtherAccruedExpensesandLiabilities 90
12. Borrowings 91
13. IncomeTaxes 96
14. DeferredIncomeTaxesandOtherLiabilities 99
15. Leases 100
16. CommitmentsandContingencies 102
17. Stockholders'Equity 103
18. Stock-BasedEmployeeCompensation 105
19. NetIncome(Loss)PerCommonShareAttributabletoCBI 108
20. AccumulatedOtherComprehensiveIncome(Loss) 109
21. SignificantCustomersandConcentrationofCreditRisk 111
22. BusinessSegmentInformation 112
23. SelectedQuarterlyFinancialInformation(unaudited) 116
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI58
Management’sAnnualReportonInternalControlOverFinancialReporting
ManagementofConstellationBrands,Inc.andsubsidiaries(theCompany)isresponsibleforestablishingandmaintaininganadequatesystemofinternalcontroloverfinancialreporting.ThissystemisdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithU.S.generallyacceptedaccountingprinciples.
TheCompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(i)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsoftheCompany;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresoftheCompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsoftheCompany;and(iii)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionoftheCompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
Becauseofitsinherentlimitations,asystemofinternalcontroloverfinancialreportingcanprovideonlyreasonableassuranceandmaynotpreventordetectmisstatements.Further,becauseofchangesinconditions,effectivenessofinternalcontrolsoverfinancialreportingmayvaryovertime.
ManagementconductedanevaluationoftheeffectivenessofthesystemofinternalcontroloverfinancialreportingbasedontheframeworkinInternalControl–IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizations(COSO)oftheTreadwayCommission.Basedonthatevaluation,managementconcludedthattheCompany’sinternalcontroloverfinancialreportingwaseffectiveasofFebruary28,2022.
TheeffectivenessoftheCompany’sinternalcontroloverfinancialreportinghasbeenauditedbyKPMGLLP,anindependentregisteredpublicaccountingfirm,asstatedintheirreportwhichisincludedherein.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI59
ReportofIndependentRegisteredPublicAccountingFirm
TotheStockholdersandBoardofDirectorsConstellationBrands,Inc.:
OpiniononInternalControlOverFinancialReportingWehaveauditedConstellationBrands,Inc.andsubsidiaries’(theCompany)internalcontroloverfinancial
reportingasofFebruary28,2022,basedoncriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.Inouropinion,theCompanymaintained,inallmaterialrespects,effectiveinternalcontroloverfinancialreportingasofFebruary28,2022,basedoncriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission.
Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates)(PCAOB),theconsolidatedbalancesheetsoftheCompanyasofFebruary28,2022andFebruary28,2021,therelatedconsolidatedstatementsofcomprehensiveincome(loss),changesinstockholders’equity,andcashflowsforeachofthefiscalyearsinthethree-yearperiodendedFebruary28,2022,andtherelatednotes(collectively,theconsolidatedfinancialstatements),andourreportdatedApril21,2022expressedanunqualifiedopiniononthoseconsolidatedfinancialstatements.
BasisforOpinionTheCompany’smanagementisresponsibleformaintainingeffectiveinternalcontroloverfinancial
reportingandforitsassessmentoftheeffectivenessofinternalcontroloverfinancialreporting,includedintheaccompanyingManagement’sAnnualReportonInternalControlOverFinancialReporting.OurresponsibilityistoexpressanopinionontheCompany’sinternalcontroloverfinancialreportingbasedonouraudit.WeareapublicaccountingfirmregisteredwiththePCAOBandarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethereffectiveinternalcontroloverfinancialreportingwasmaintainedinallmaterialrespects.Ourauditofinternalcontroloverfinancialreportingincludedobtaininganunderstandingofinternalcontroloverfinancialreporting,assessingtheriskthatamaterialweaknessexists,andtestingandevaluatingthedesignandoperatingeffectivenessofinternalcontrolbasedontheassessedrisk.Ourauditalsoincludedperformingsuchotherproceduresasweconsiderednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropinion.
DefinitionandLimitationsofInternalControlOverFinancialReportingAcompany’sinternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonable
assuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithgenerallyacceptedaccountingprinciples.Acompany’sinternalcontroloverfinancialreportingincludesthosepoliciesandproceduresthat(1)pertaintothemaintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofthecompany;(2)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciples,andthatreceiptsandexpendituresofthecompanyarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofthecompany;and(3)providereasonableassuranceregardingpreventionortimelydetectionofunauthorizedacquisition,use,ordispositionofthecompany’sassetsthatcouldhaveamaterialeffectonthefinancialstatements.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI60
Becauseofitsinherentlimitations,internalcontroloverfinancialreportingmaynotpreventordetectmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmaydeteriorate.
/s/KPMGLLP
Rochester,NewYorkApril21,2022
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI61
ReportofIndependentRegisteredPublicAccountingFirm
TotheStockholdersandBoardofDirectorsConstellationBrands,Inc.:
OpinionontheConsolidatedFinancialStatementsWehaveauditedtheaccompanyingconsolidatedbalancesheetsofConstellationBrands,Inc.and
subsidiaries(theCompany)asofFebruary28,2022andFebruary28,2021,therelatedconsolidatedstatementsofcomprehensiveincome(loss),changesinstockholders’equity,andcashflowsforeachofthefiscalyearsinthethree-yearperiodendedFebruary28,2022,andtherelatednotes(collectively,theconsolidatedfinancialstatements).Inouropinion,theconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheCompanyasofFebruary28,2022andFebruary28,2021,andtheresultsofitsoperationsanditscashflowsforeachofthefiscalyearsinthethree-yearperiodendedFebruary28,2022,inconformitywithU.S.generallyacceptedaccountingprinciples.
Wealsohaveaudited,inaccordancewiththestandardsofthePublicCompanyAccountingOversightBoard(UnitedStates)(PCAOB),theCompany’sinternalcontroloverfinancialreportingasofFebruary28,2022,basedoncriteriaestablishedinInternalControl-IntegratedFramework(2013)issuedbytheCommitteeofSponsoringOrganizationsoftheTreadwayCommission,andourreportdatedApril21,2022expressedanunqualifiedopinionontheeffectivenessoftheCompany’sinternalcontroloverfinancialreporting.
BasisforOpinionTheseconsolidatedfinancialstatementsaretheresponsibilityoftheCompany’smanagement.Our
responsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudits.WeareapublicaccountingfirmregisteredwiththePCAOBandarerequiredtobeindependentwithrespecttotheCompanyinaccordancewiththeU.S.federalsecuritieslawsandtheapplicablerulesandregulationsoftheSecuritiesandExchangeCommissionandthePCAOB.
WeconductedourauditsinaccordancewiththestandardsofthePCAOB.Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreeofmaterialmisstatement,whetherduetoerrororfraud.Ourauditsincludedperformingprocedurestoassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetoerrororfraud,andperformingproceduresthatrespondtothoserisks.Suchproceduresincludedexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresintheconsolidatedfinancialstatements.Ourauditsalsoincludedevaluatingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.Webelievethatourauditsprovideareasonablebasisforouropinion.
CriticalAuditMattersThecriticalauditmatterscommunicatedbelowaremattersarisingfromthecurrentperiodauditofthe
consolidatedfinancialstatementsthatwerecommunicatedorrequiredtobecommunicatedtotheauditcommitteeandthat:(1)relatetoaccountsordisclosuresthatarematerialtotheconsolidatedfinancialstatementsand(2)involvedourespeciallychallenging,subjective,orcomplexjudgments.Thecommunicationofcriticalauditmattersdoesnotalterinanywayouropinionontheconsolidatedfinancialstatements,takenasawhole,andwearenot,bycommunicatingthecriticalauditmattersbelow,providingseparateopinionsonthecriticalauditmattersorontheaccountsordisclosurestowhichtheyrelate.
Other-than-temporaryimpairmentassessmentforequitymethodinvestmentinCanopyAsdiscussedinNotes1and10totheconsolidatedfinancialstatements,theCompanyhada36.1%equitymethodinvestmentinCanopyGrowthCorporation(Canopy)asofFebruary28,2022.TheCompanyreviewsitsequitymethodinvestmentinCanopyforimpairmentbycomparingthefairvalueofitsinvestmenttoitscarryingvalue.Ifthecarryingvalueoftheinvestmentexceedsitsfairvalueandthelossinvalueisotherthantemporary,theinvestmentisreducedtofairvalueandtheimpairmentisrecognizedintheperiodidentified.AsofFebruary28,2022,thecarryingvalueandfairvalueoftheCompany’sequitymethodinvestmentinCanopywas$2,503.5millionand$1,014.8million,respectively.TheCompany
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI62
evaluateditsequitymethodinvestmentinCanopyasofFebruary28,2022,anddeterminedthattherewasnotanother-than-temporaryimpairment.ThefactorsusedbytheCompanytomakethisdeterminationincluded:(i)theperiodoftimeforwhichthefairvaluehasbeenlessthanthecarryingvalue,(ii)anexpectationthatCanopy’sfinancialresultswillimprove,(iii)anexpectationthattheCanopystockpricewillrecoverinthenear-term,and(iv)theCompany’sabilityandintenttoholdtheinvestmentuntilrecovery.
Weidentifiedtheother-than-temporaryimpairmentassessmentfortheCompany’sequitymethodinvestmentinCanopyasacriticalauditmatter.AhighdegreeofsubjectiveauditorjudgmentwasrequiredtoevaluatetheCompany’sexpectationsthatCanopy’sfinancialresultswillimproveandthattheCanopystockpricewillrecoverinthenear-term.
Thefollowingaretheprimaryproceduresweperformedtoaddressthiscriticalauditmatter.WeevaluatedthedesignandtestedtheoperatingeffectivenessofaninternalcontrolrelatedtotheidentificationandevaluationoffactorsusedintheCompany’sother-than-temporaryimpairmentassessmentforitsinvestmentinCanopy.WeassessedtheCompany’sexpectationsthatCanopy’sfinancialresultswillimproveandthattheCanopystockpricewillrecoverinthenear-termbyevaluatingwhetherthoseexpectationswereconsistentwith(i)Canopy’sidentificationofimpairmenttriggersasofaninterimdate,(ii)externalmarket,regulatoryandindustryinformation,(iii)Canopy’sexternalcommunicationswithinvestors,and(iv)evidenceobtainedinotherareasoftheaudit.
UnrecognizedtaxbenefitsAsdiscussedinNotes1and13totheconsolidatedfinancialstatements,theCompanyrecognizesataxbenefitfromanuncertaintaxpositionwhenitismorelikelythannotthatthepositionwillbesustaineduponexamination.TheCompanyhasrecordedunrecognizedtaxbenefitsof$279.0millionasofFebruary28,2022.
WeidentifiedtheevaluationofcertainoftheCompany’sunrecognizedtaxbenefitsasacriticalauditmatter.Specifically,complexauditorjudgment,includingtheinvolvementoftaxandvaluationprofessionalswithspecializedskillsandknowledge,wasrequiredinevaluatingtheCompany’sinterpretationoftaxlawanditsestimateoftheultimateresolutionofitstaxpositions.
Thefollowingaretheprimaryproceduresweperformedtoaddressthiscriticalauditmatter.WeevaluatedthedesignandtestedtheoperatingeffectivenessofcertaininternalcontrolsrelatedtotheCompany’sprocesstoevaluateuncertaintaxpositions.Thisincludedcontrolsrelatedtotheinterpretationoftaxlaw,itsapplicationintheliabilityestimationprocess,andthereviewofactivitythatcouldresultinchangestotheCompany’sunrecognizedtaxbenefits.Weinvolvedtaxprofessionalswithspecializedskillsandknowledge,whoassistedinevaluatingtheCompany’sinterpretationoftaxlawandtaxauthorityrulingsandinperforminganindependentassessmentofcertainoftheCompany’staxpositionsandtheamountofunrecognizedtaxbenefit,ifany,andcomparingtheresultstotheCompany’sassessment.Wealsoinvolvedvaluationprofessionalswithspecializedskillsandknowledge,whoassistedinassessingcertaintransferpricingstudiesforcompliancewithapplicablelawsandregulations.
/s/KPMGLLP
WehaveservedastheCompany’sauditorsince2002.
Rochester,NewYorkApril21,2022
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI63
CONSTELLATIONBRANDS,INC.ANDSUBSIDIARIESCONSOLIDATEDBALANCESHEETS
(inmillions,exceptshareandpersharedata)February28,
2022February28,
2021
ASSETSCurrentassets:
Cashandcashequivalents $ 199.4 $ 460.6
Accountsreceivable 899.0 785.3
Inventories 1,573.2 1,291.1
Prepaidexpensesandother 658.1 507.5
Totalcurrentassets 3,329.7 3,044.5
Property,plant,andequipment 6,059.6 5,821.6
Goodwill 7,862.4 7,793.5
Intangibleassets 2,755.2 2,732.1
Equitymethodinvestments 2,688.7 2,788.4
Securitiesmeasuredatfairvalue 191.4 1,818.1
Deferredincometaxes 2,351.5 2,492.5
Otherassets 617.3 614.1
Totalassets $ 25,855.8 $ 27,104.8
LIABILITIESANDSTOCKHOLDERS’EQUITYCurrentliabilities:
Short-termborrowings $ 323.0 $ —
Currentmaturitiesoflong-termdebt 605.3 29.2
Accountspayable 899.2 460.0
Otheraccruedexpensesandliabilities 871.3 779.9
Totalcurrentliabilities 2,698.8 1,269.1
Long-termdebt,lesscurrentmaturities 9,488.2 10,413.1
Deferredincometaxesandotherliabilities 1,621.0 1,493.5
Totalliabilities 13,808.0 13,175.7
Commitmentsandcontingencies(Note16)CBIstockholders’equity:
PreferredStock,$0.01parvalue–Authorized,1,000,000shares;Issued,none — —
ClassAStock,$0.01parvalue–Authorized,322,000,000shares;Issued,187,263,859sharesand187,204,280shares,respectively 1.9 1.9
ClassBStock,$0.01parvalue–Authorized,30,000,000shares;Issued,28,212,340sharesand28,270,288shares,respectively 0.3 0.3
Class1Stock,$0.01parvalue–Authorized,25,000,000shares;Issued,2,248,679sharesand612,936shares,respectively — —
Additionalpaid-incapital 1,808.9 1,604.2
Retainedearnings 14,505.4 15,117.8
Accumulatedothercomprehensiveincome(loss) (412.7) (335.5) 15,903.8 16,388.7
Less:Treasurystock–ClassAStock,atcost,22,824,607sharesand17,070,550shares,respectively (4,169.7) (2,787.6)
ClassBStock,atcost,5,005,800shares (2.2) (2.2) (4,171.9) (2,789.8)
TotalCBIstockholders’equity 11,731.9 13,598.9
Noncontrollinginterests 315.9 330.2
Totalstockholders’equity 12,047.8 13,929.1
Totalliabilitiesandstockholders’equity $ 25,855.8 $ 27,104.8
Theaccompanyingnotesareanintegralpartofthesestatements.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI64
CONSTELLATIONBRANDS,INC.ANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFCOMPREHENSIVEINCOME(LOSS)
(inmillions,exceptpersharedata)FortheYearsEnded
February28,2022
February28,2021
February29,2020
Sales $ 9,529.1 $ 9,355.7 $ 9,113.0Excisetaxes (708.4) (740.8) (769.5)Netsales 8,820.7 8,614.9 8,343.5Costofproductsold (4,113.4) (4,148.9) (4,191.6)Grossprofit 4,707.3 4,466.0 4,151.9Selling,general,andadministrativeexpenses (1,711.4) (1,665.1) (1,621.8)Impairmentofbreweryconstructioninprogress (665.9) — —Impairmentofassetsheldforsale — (24.0) (449.7)Gain(loss)onsaleofbusiness 1.7 14.2 74.1Operatingincome(loss) 2,331.7 2,791.1 2,154.5Income(loss)fromunconsolidatedinvestments (1,635.5) 150.3 (2,668.6)Interestexpense (356.4) (385.7) (428.7)Lossonextinguishmentofdebt (29.4) (12.8) (2.4)Income(loss)beforeincometaxes 310.4 2,542.9 (945.2)(Provisionfor)benefitfromincometaxes (309.4) (511.1) 966.6Netincome(loss) 1.0 2,031.8 21.4Net(income)lossattributabletononcontrollinginterests (41.4) (33.8) (33.2)Netincome(loss)attributabletoCBI $ (40.4) $ 1,998.0 $ (11.8)
Netincome(loss)percommonshareattributabletoCBI:Basic–ClassAStock $ (0.22) $ 10.44 $ (0.07)Basic–ClassBStock $ (0.20) $ 9.48 $ (0.07)Diluted–ClassAStock $ (0.22) $ 10.23 $ (0.07)Diluted–ClassBStock $ (0.20) $ 9.42 $ (0.07)Weightedaveragecommonsharesoutstanding:Basic–ClassAStock 167.431 170.239 168.329Basic–ClassBStock 23.225 23.280 23.313Diluted–ClassAStock 167.431 195.308 168.329Diluted–ClassBStock 23.225 23.280 23.313Cashdividendsdeclaredpercommonshare:ClassAStock $ 3.04 $ 3.00 $ 3.00ClassBStock $ 2.76 $ 2.72 $ 2.72
Comprehensiveincome(loss):Netincome(loss) $ 1.0 $ 2,031.8 $ 21.4Othercomprehensiveincome(loss),netofincometaxeffect:
Foreigncurrencytranslationadjustments (40.4) (56.0) 60.8Unrealizedgain(loss)oncashflowhedges (27.8) (20.9) 40.4Pension/postretirementadjustments 0.3 (1.6) (0.6)Shareofothercomprehensiveincome(loss)ofequitymethodinvestments (12.5) (1.8) (10.1)
Othercomprehensiveincome(loss),netofincometaxeffect (80.4) (80.3) 90.5Comprehensiveincome(loss) (79.4) 1,951.5 111.9Comprehensive(income)lossattributabletononcontrollinginterests (38.2) (22.7) (36.1)Comprehensiveincome(loss)attributabletoCBI $ (117.6) $ 1,928.8 $ 75.8
Theaccompanyingnotesareanintegralpartofthesestatements.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI65
CONSTELLATIONBRANDS,INC.ANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFCHANGESINSTOCKHOLDERS’EQUITY
(inmillions)
BalanceatFebruary28,2019 $ 1.9 $ 0.3 $ 1,410.8 $14,276.2 $ (353.9) $ (2,784.3) $ 286.2 $12,837.2
Comprehensiveincome(loss):
Netincome(loss) — — — (11.8) — — 33.2 21.4
Othercomprehensiveincome(loss),netofincometaxeffect — — — — 87.6 — 2.9 90.5
Comprehensiveincome(loss) 111.9
Repurchaseofshares — — — — — (50.0) — (50.0)
Dividendsdeclared — — — (569.1) — — — (569.1)
Initialrecognitionofnon-controllinginterest — — — — — — 20.2 20.2
Sharesissuedunderequitycompensationplans — — 43.8 — — 20.3 — 64.1
Stock-basedcompensation — — 60.0 — — — — 60.0
BalanceatFebruary29,2020 1.9 0.3 1,514.6 13,695.3 (266.3) (2,814.0) 342.5 12,474.3
Comprehensiveincome(loss):
Netincome(loss) — — — 1,998.0 — — 33.8 2,031.8
Othercomprehensiveincome(loss),netofincometaxeffect — — — — (69.2) — (11.1) (80.3)
Comprehensiveincome(loss) 1,951.5
Dividendsdeclared — — — (575.5) — — — (575.5)
Noncontrollinginterestdistributions — — — — — — (35.0) (35.0)
Sharesissuedunderequitycompensationplans — — 27.0 — — 24.2 — 51.2
Stock-basedcompensation — — 62.6 — — — — 62.6
BalanceatFebruary28,2021 1.9 0.3 1,604.2 15,117.8 (335.5) (2,789.8) 330.2 13,929.1
Comprehensiveincome(loss):
Netincome(loss) — — — (40.4) — — 41.4 1.0
Othercomprehensiveincome(loss),netofincometaxeffect — — — — (77.2) — (3.2) (80.4)
Comprehensiveincome(loss) (79.4)
Repurchaseofshares — — — — — (1,390.5) — (1,390.5)
Dividendsdeclared — — — (572.0) — — — (572.0)
Noncontrollinginterestdistributions — — — — — — (52.5) (52.5)
Sharesissuedunderequitycompensationplans — — 159.9 — — 8.4 — 168.3
Stock-basedcompensation — — 44.8 — — — — 44.8
BalanceatFebruary28,2022 $ 1.9 $ 0.3 $ 1,808.9 $14,505.4 $ (412.7) $ (4,171.9) $ 315.9 $12,047.8
StockAdditionalPaid-inCapital
RetainedEarnings
AccumulatedOther
ComprehensiveIncome(Loss)
TreasuryStock
Non-controllingInterests TotalClassA ClassB
Theaccompanyingnotesareanintegralpartofthesestatements.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI66
CASHFLOWSFROMOPERATINGACTIVITIES
Netincome(loss) $ 1.0 $ 2,031.8 $ 21.4Adjustmentstoreconcilenetincome(loss)tonetcashprovidedbyoperatingactivities:
Unrealizednet(gain)lossonsecuritiesmeasuredatfairvalue 1,644.7 (802.0) 2,126.4
Deferredtaxprovision(benefit) 84.8 336.4 (1,153.7)
Depreciation 337.3 293.8 326.5
Stock-basedcompensation 44.9 63.0 60.4Equityin(earnings)lossesofequitymethodinvesteesandrelatedactivities,netofdistributedearnings 61.6 673.4 560.8
Noncashleaseexpense 81.9 83.3 88.3
Impairmentandamortizationofintangibleassets 5.1 11.3 16.7Amortizationofdebtissuancecostsandlossonextinguishmentofdebt 39.9 24.3 16.1
Net(gain)lossonsaleofunconsolidatedinvestment (51.0) — (0.4)
Impairmentofbreweryconstructioninprogress 665.9 — —
Impairmentofassetsheldforsale — 24.0 449.7
(Gain)lossonsaleofbusiness (1.7) (14.2) (74.1)Lossoninventoryandrelatedcontractsassociatedwithbusinessoptimization — 25.8 123.0
Lossonsettlementoftreasurylockcontracts — (29.3) —Changeinoperatingassetsandliabilities,netofeffectsfrompurchaseandsaleofbusiness:
Accountsreceivable (114.0) 59.6 (22.0)
Inventories (261.3) 193.7 (29.5)
Prepaidexpensesandothercurrentassets (113.2) 65.7 8.1
Accountspayable 213.7 (95.7) 16.8
Deferredrevenue 118.0 — 1.4
Otheraccruedexpensesandliabilities (28.8) (75.0) (58.5)
Other (23.4) (63.4) 73.7
Totaladjustments 2,704.4 774.7 2,529.7
Netcashprovidedby(usedin)operatingactivities 2,705.4 2,806.5 2,551.1
CASHFLOWSFROMINVESTINGACTIVITIES
Purchaseofproperty,plant,andequipment (1,026.8) (864.6) (726.5)
Purchaseofbusiness,netofcashacquired (53.5) (19.9) (36.2)
Investmentsinequitymethodinvesteesandsecurities (36.6) (222.4) (48.2)
Proceedsfromsaleofassets 4.1 18.9 8.3
Proceedsfromsaleofunconsolidatedinvestment 74.4 — 1.5
Proceedsfromsaleofbusiness 4.6 999.5 269.7
Otherinvestingactivities (2.0) 0.6 0.4
Netcashprovidedby(usedin)investingactivities (1,035.8) (87.9) (531.0)
CONSTELLATIONBRANDS,INC.ANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFCASHFLOWS
(inmillions)
FortheYearsEnded
February28,2022
February28,2021
February29,2020
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CASHFLOWSFROMFINANCINGACTIVITIES
Proceedsfromissuanceoflong-termdebt 995.6 1,194.7 1,291.3
Principalpaymentsoflong-termdebt (1,365.3) (2,721.3) (2,195.3)
Netproceedsfrom(repaymentsof)short-termborrowings 323.0 (238.9) (552.6)
Dividendspaid (573.0) (575.0) (569.2)
Purchaseoftreasurystock (1,390.5) — (50.0)
Proceedsfromsharesissuedunderequitycompensationplans 177.6 58.9 78.2Paymentsofminimumtaxwithholdingsonstock-basedpaymentawards (9.8) (7.7) (14.3)Paymentsofdebtissuance,debtextinguishment,andotherfinancingcosts (34.6) (22.3) (8.2)
Distributionstononcontrollinginterests (52.5) (35.0) —
Paymentofcontingentconsideration — — (11.3)
Netcashprovidedby(usedin)financingactivities (1,929.5) (2,346.6) (2,031.4)
Effectofexchangeratechangesoncashandcashequivalents (1.3) 7.2 (0.9)
Netincrease(decrease)incashandcashequivalents (261.2) 379.2 (12.2)
Cashandcashequivalents,beginningofyear 460.6 81.4 93.6
Cashandcashequivalents,endofyear $ 199.4 $ 460.6 $ 81.4
SUPPLEMENTALDISCLOSURESOFCASHFLOWINFORMATION
Cashpaidduringtheyear
Interest,netofinterestcapitalized $ 368.5 $ 418.5 $ 448.9
Incometaxes,netofrefundsreceived $ 324.7 $ 189.7 $ 85.3
Noncashinvestingandfinancingactivities
Additionstoproperty,plant,andequipment $ 304.0 $ 101.1 $ 70.4
CONSTELLATIONBRANDS,INC.ANDSUBSIDIARIESCONSOLIDATEDSTATEMENTSOFCASHFLOWS
(inmillions)
FortheYearsEnded
February28,2022
February28,2021
February29,2020
Theaccompanyingnotesareanintegralpartofthesestatements.
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CONSTELLATIONBRANDS,INC.ANDSUBSIDIARIESNOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
FEBRUARY28,2022
1. DESCRIPTIONOFBUSINESS,BASISOFPRESENTATION,ANDSUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES
DescriptionofbusinessWeoperateprimarilyinthebeveragealcoholindustrywithoperationsintheU.S.,Mexico,NewZealand,
andItalyproducingapowerfulportfolioofconsumer-connected,high-endimportedbeerbrands,andhigher-endwineandspiritsbrands.
BasisofpresentationPrinciplesofconsolidationOurconsolidatedfinancialstatementsincludeouraccountsandourmajority-ownedandcontrolled
domesticandforeignsubsidiaries.Inaddition,wehaveanequally-ownedjointventurewithOwens-Illinois.Thejointventureownsandoperatesastate-of-the-artglassproductionplantwhichprovidesbottlesexclusivelyfortheNavaBrewery.Wehavedeterminedthatwearetheprimarybeneficiaryofthisvariableinterestentityandaccordingly,theresultsofoperationsofthejointventurearereportedintheBeersegmentandareincludedinourconsolidatedresultsofoperations.Allintercompanyaccountsandtransactionsareeliminatedinconsolidation.
EquitymethodinvestmentsIfwearenotrequiredtoconsolidateourinvestmentinanotherentity,weusetheequitymethodwhen
we(i)canexercisesignificantinfluenceovertheotherentityand(ii)holdcommonstockand/orin-substancecommonstockoftheotherentity.Undertheequitymethod,investmentsarecarriedatcost,plusorminusourequityintheincreasesanddecreasesintheinvestee’snetassetsafterthedateofacquisition.Wemonitorourequitymethodinvestmentsforfactorsindicatingother-than-temporaryimpairment.Dividendsreceivedfromtheinvesteereducethecarryingamountoftheinvestment.
Management’suseofestimatesThepreparationoffinancialstatementsinconformitywithU.S.GAAPrequiresmanagementtomake
estimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.
SummaryofsignificantaccountingpoliciesRevenuerecognitionOurrevenue(referredtoinourfinancialstatementsas“sales”)consistsprimarilyofthesaleofbeer,wine,
andspiritsdomesticallyintheU.S.Salesofproductsareforcashorotherwiseagreed-uponcreditterms.Ourpaymenttermsvarybylocationandcustomer,however,thetimeperiodbetweenwhenrevenueisrecognizedandwhenpaymentisdueisnotsignificant.Ourcustomersconsistprimarilyofwholesaledistributors.Ourrevenuegeneratingactivitieshaveasingleperformanceobligationandarerecognizedatthepointintimewhencontroltransfersandourobligationhasbeenfulfilled,whichiswhentherelatedgoodsareshippedordeliveredtothecustomer,dependinguponthemethodofdistribution,andshippingterms.Wehaveelectedtotreatshippingasafulfillmentactivity.Revenueismeasuredastheamountofconsiderationweexpecttoreceiveinexchangeforthesaleofourproduct.Oursalestermsdonotallowforarightofreturnexceptformattersrelatedtoanymanufacturingdefectsonourpart.Amountsbilledtocustomersforshippingandhandlingareincludedinsales.
Asnoted,themajorityofourrevenuesaregeneratedfromthedomesticsaleofbeer,wine,andspiritstowholesaledistributorsintheU.S.Ourotherrevenuegeneratingactivitiesincludetheexportofcertainofourproductstoselectinternationalmarkets,aswellasthesaleofourproductsthroughstatealcoholbeveragecontrolagencies,on-premise,retaillocationsincertainmarkets,andeCommerce,includingDTC.Wehaveevaluatedtheseotherrevenuegeneratingactivitiesunderthedisaggregationdisclosurecriteriaandconcludedthattheyareimmaterialforseparatedisclosure.SeeNote22fordisclosureofnetsalesbyproducttype.
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Salesreflectreductionsattributabletoconsiderationgiventocustomersinvariouscustomerincentiveprograms,includingpricingdiscountsonsingletransactions,volumediscounts,promotionalandadvertisingallowances,coupons,andrebates.Thisvariableconsiderationisrecognizedasareductionofthetransactionpricebaseduponexpectedamountsatthetimerevenueforthecorrespondingproductsaleisrecognized.Forexample,customerpromotionaldiscountprogramsareenteredintowithcertaindistributorsforcertainperiodsoftime.Theamountultimatelyreimbursedtodistributorsisdeterminedbaseduponagreed-uponpromotionaldiscountswhichareappliedtodistributors’salestoretailers.Othercommonformsofvariableconsiderationincludevolumerebatesformeetingestablishedsalestargets,andcouponsandmail-inrebatesofferedtotheendconsumer.Thedeterminationofthereductionofthetransactionpriceforvariableconsiderationrequiresthatwemakecertainestimatesandassumptionsthataffectthetimingandamountsofrevenueandliabilitiesrecognized.Weestimatethisvariableconsiderationbytakingintoaccountfactorssuchasthenatureofthepromotionalactivity,historicalinformation,andcurrenttrends,availabilityofactualresultsandexpectationsofcustomerandconsumerbehavior.
Excisetaxesremittedtotaxauthoritiesaregovernment-imposedexcisetaxesonourbeveragealcoholproducts.Excisetaxesareshownonaseparatelineitemasareductionofsalesandarerecognizedinourresultsofoperationswhentherelatedproductsaleisrecognized.Excisetaxesarerecognizedasacurrentliabilityinotheraccruedexpensesandliabilities,withtheliabilitysubsequentlyreducedwhenthetaxesareremittedtothetaxauthority.
CostofproductsoldThetypesofcostsincludedincostofproductsoldarerawmaterials,packagingmaterials,manufacturing
costs,plantadministrativesupportandoverheads,andfreightandwarehousecosts(includingdistributionnetworkcosts).Distributionnetworkcostsincludeinboundfreightchargesandoutboundshippingandhandlingcosts,purchasingandreceivingcosts,inspectioncosts,warehousingandinternaltransfercosts.
Selling,general,andadministrativeexpensesThetypesofcostsincludedinselling,general,andadministrativeexpensesconsistpredominatelyof
advertisingandnon-manufacturingadministrativeandoverheadcosts.Distributionnetworkcostsareincludedincostofproductsold.Weexpenseadvertisingcostsasincurred,shown,ordistributed.AdvertisingexpensefortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020,was$826.4million,$805.0million,and$769.5million,respectively.
ForeigncurrencytranslationThefunctionalcurrencyofourforeignsubsidiariesisgenerallytherespectivelocalcurrency.The
translationfromtheapplicableforeigncurrenciestoU.S.dollarsisperformedforbalancesheetaccountsusingexchangeratesineffectatthebalancesheetdateandforrevenueandexpenseaccountsusingaweightedaverageexchangeratefortheperiod.TheresultingtranslationadjustmentsarerecognizedasacomponentofAOCI.Gainsorlossesresultingfromforeigncurrencydenominatedtransactionsareincludedinselling,general,andadministrativeexpenses.
CashandcashequivalentsCashequivalentsconsistofhighlyliquidinvestmentswithanoriginalmaturitywhenpurchasedofthree
monthsorlessandarestatedatcost,whichapproximatesfairvalue.
InventoriesInventoriesarestatedatthelowerofcost(primarilycomputedinaccordancewiththefirst-in,first-out
method)ornetrealizablevalue.Elementsofcostincludematerials,labor,andoverhead.
Bulkwineinventoriesareincludedasin-processinventorieswithincurrentassets,inaccordancewiththegeneralpracticesofthewineindustry,althoughaportionofsuchinventoriesmaybeagedforperiodsgreaterthanoneyear.Asubstantialportionofbarreledwhiskeyandbrandywillnotbesoldwithinoneyearbecauseofthedurationoftheagingprocess.Allbarreledwhiskeyandbrandyareclassifiedasin-processinventoriesandare
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includedincurrentassets,inaccordancewithindustrypractice.Warehousing,insurance,valueaddedtaxes,andothercarryingchargesapplicabletobarreledwhiskeyandbrandyheldforagingareincludedininventorycosts.
Weassessthevaluationofourinventoriesandreducethecarryingvalueofthoseinventoriesthatareobsoleteorinexcessofourforecastedusagetotheirestimatednetrealizablevaluebasedonanalysesandassumptionsincluding,butnotlimitedto,historicalusage,futuredemand,andmarketrequirements.
Property,plant,andequipmentProperty,plant,andequipmentisstatedatcost.Majoradditionsandimprovementsarerecognizedasan
increasetothepropertyaccounts,whilemaintenanceandrepairsareexpensedasincurred.Thecostofpropertiessoldorotherwisedisposedofandtherelatedaccumulateddepreciationareeliminatedfromthebalancesheetaccountsatthetimeofdisposalandresultinggainsandlossesareincludedasacomponentofoperatingincome.
Interestincurredrelatingtoexpansion,optimization,andconstructionoffacilitiesiscapitalizedtoconstructioninprogress.Weceasethecapitalizationofinterestwhenconstructionactivitiesaresubstantiallycompletedandthefacilityandrelatedassetsareavailablefortheirintendeduse.Atthispoint,constructioninprogressistransferredtotheappropriateassetclass.
DepreciationDepreciationiscomputedprimarilyusingthestraight-linemethodoverthefollowingestimateduseful
lives:Years
Landimprovements 15to32Vineyards 16to26Buildingsandimprovements 10to50Machineryandequipment 3to35Motorvehicles 3to8
DerivativeinstrumentsWeenterintoderivativeinstrumentstomanageourexposuretofluctuationsinforeigncurrencyexchange
rates,commodityprices,andinterestrates.Weenterintoderivativesforriskmanagementpurposesonly,includingderivativesdesignatedinhedgeaccountingrelationshipsaswellasthosederivativesutilizedaseconomichedges.Wedonotenterintoderivativesfortradingorspeculativepurposes.Werecognizeallderivativesaseitherassetsorliabilitiesandmeasurethoseinstrumentsatestimatedfairvalue(seeNotes6and7).Wepresentourderivativepositionsgrossonourbalancesheets.
Thechangeinthefairvalueofoutstandingcashflowhedgesisdeferredinstockholders’equityasacomponentofAOCI.Forallperiodspresentedherein,gainsorlossesdeferredinstockholders’equityasacomponentofAOCIarerecognizedinourresultsofoperationsinthesameperiodinwhichthehedgeditemsarerecognizedandonthesamefinancialstatementlineitemasthehedgeditems.
Changesinfairvaluesforderivativeinstrumentsnotdesignatedinahedgeaccountingrelationshiparerecognizeddirectlyinourresultsofoperationseachperiodandonthesamefinancialstatementlineitemasthehedgeditem.Forpurposesofmeasuringsegmentoperatingperformance,thenetgain(loss)fromthechangesinfairvalueofourundesignatedcommodityderivativecontracts,priortosettlement,isreportedoutsideofsegmentoperatingresultsuntilsuchtimethattheunderlyingexposureisrecognizedinthesegmentoperatingresults.Uponsettlement,thenetgain(loss)fromthechangesinfairvalueoftheundesignatedcommodityderivativecontractsisreportedintheappropriateoperatingsegment,allowingouroperatingsegmentresultstoreflecttheeconomiceffectsofthecommodityderivativecontractswithouttheresultingunrealizedmarktofairvaluevolatility.
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Cashflowsfromthesettlementofderivatives,includingbotheconomichedgesandthosedesignatedinhedgeaccountingrelationships,appearonourstatementsofcashflowsinthesamecategoriesasthecashflowsofthehedgeditems.
FairvalueoffinancialinstrumentsWecalculatetheestimatedfairvalueoffinancialinstrumentsusingquotedmarketpriceswhenever
available.Whenquotedmarketpricesarenotavailable,weusestandardpricingmodelsforvarioustypesoffinancialinstruments(suchasforwards,options,swaps,andconvertibledebt)whichtakeintoaccountthepresentvalueofestimatedfuturecashflows(seeNote7).
GoodwillandotherintangibleassetsGoodwillisallocatedtothereportingunitinwhichthebusinessthatcreatedthegoodwillresides.A
reportingunitisanoperatingsegment,orabusinessunitonelevelbelowthatoperatingsegment,forwhichdiscretefinancialinformationispreparedandregularlyreviewedbysegmentmanagement.Wereviewourgoodwillandindefinite-livedintangibleassetsannuallyforimpairment,orsooner,ifeventsorchangesincircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.WeuseJanuary1asourannualimpairmenttestmeasurementdate.Indefinite-livedintangibleassetsconsistprincipallyoftrademarks.Intangibleassetsdeterminedtohaveafinitelife,primarilycustomerrelationships,areamortizedovertheirestimatedusefullivesandaresubjecttoreviewforimpairmentwheneventsorcircumstancesindicatethatthecarryingamountofanassetmaynotberecoverable.Note9providesasummaryofintangibleassetssegregatedbetweenamortizableandnonamortizableamounts.
IncometaxesWeusetheassetandliabilitymethodofaccountingforincometaxes.Thismethodaccountsfordeferred
incometaxesbyapplyingstatutoryratesineffectatthebalancesheetdatetothedifferencebetweenthefinancialreportingandtaxbasesofassetsandliabilities.Certainincomeearnedbyforeignsubsidiaries,GILTI,issubjecttoU.S.tax.WetreatthetaxeffectofGILTIasacurrentperiodtaxexpensewhenincurred.Weprovidedeferredincometaxes,consistingprimarilyofforeignwithholdingandstatetaxes,onallapplicableunremittedearningsofourforeignsubsidiaries.Interestandpenaltiesarerecognizedasacomponentof(provisionfor)benefitfromincometaxes.
Werecognizeataxbenefitfromanuncertaintaxpositionwhenitismorelikelythannotthepositionwillbesustaineduponexamination.Wemeasureandrecognizethetaxbenefitfromsuchapositionbasedonthelargestbenefitthathasagreaterthan50%likelihoodofbeingrealizeduponultimatesettlement.Duetothecomplexityofsomeoftheseuncertainties,theultimateresolutionmayresultinapaymentthatismateriallydifferentfromourcurrentestimateoftheunrecognizedtaxbenefitliabilities.Inaddition,changesinexistingtaxlawsorratescouldsignificantlychangeourcurrentestimateofourunrecognizedtaxbenefitliabilities.Thesedifferenceswillbereflectedasincreasesordecreasestoincometaxexpenseintheperiodinwhichtheyaredetermined.Changesincurrentestimates,ifsignificant,couldhaveamaterialadverseimpactonourfinancialstatements.
LeasesWerecognizeright-of-useassetsandleaseliabilitiesonourbalancesheet.Weassessservice
arrangementstodetermineifanassetisexplicitlyorimplicitlyspecifiedintheagreementandifwehavetherighttocontroltheuseoftheidentifiedasset.
Theright-of-useassetandleaseliabilityareinitiallymeasuredatthepresentvalueoffutureleasepayments,discountedusingtheinterestrateimplicitintheleaseor,ifthatratecannotbereadilydetermined,oursecuredincrementalborrowingrate.Theincrementalborrowingratesaredeterminedusingaportfolioapproachbasedonpubliclyavailableinformationinconnectionwithourunsecuredborrowingrates.Weelectedtorecognizeexpensesforleaseswithatermof12monthsorlessonastraight-linebasisovertheleasetermandnottorecognizetheseshort-termleasesonthebalancesheet.
Theright-of-useassetandleaseliabilityarecalculatedincludingoptionstoextendortoterminatetheleasewhenwedeterminethatitisreasonablycertainthatwewillexercisethoseoptions.Inmakingthat
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determination,weconsidervariousexistingeconomicandmarketfactors,businessstrategiesaswellasthenature,length,andtermsoftheagreement.Basedonourevaluationusingthesefactors,weconcludedthattheexerciseofrenewaloptionsorearlyterminationoptionswouldnotbereasonablycertainindeterminingtheleasetermatcommencementforleaseswecurrentlyhaveinplace.Assumptionsmadeatthecommencementdatearere-evaluateduponoccurrenceofcertaineventssuchasaleasemodification.
Certainofourcontractualarrangementsmaycontainbothleaseandnon-leasecomponents.Weelectedtomeasuretheleaseliabilitybycombiningtheleaseandnon-leasecomponentsasasingleleasecomponentforallassetclasses.
Certainofourleasesincludevariableleasepayments,includingpaymentsthatdependonanindexorrate,aswellasvariablepaymentsforitemssuchasrawmaterials,labor,propertytaxes,insurance,maintenance,andotheroperatingexpensesassociatedwithleasedassets.Certaingrapepurchasingarrangementsincludevariablepaymentsbasedonactualtonnageandpriceofgrapes.Inaddition,certainthird-partylogisticsarrangementsincludevariablepaymentsthatvarydependingonthroughput.Suchvariableleasepaymentsareexcludedfromthecalculationoftheright-of-useassetandtheleaseliabilityandarerecognizedintheperiodinwhichtheobligationisincurred.
IndemnificationliabilitiesWehaveindemnifiedrespectivepartiesagainstcertainliabilitiesthatmayariseinconnectionwithcertain
acquisitionsanddivestitures.Indemnificationliabilitiesarerecognizedwhenprobableandestimableandincludedindeferredincometaxesandotherliabilities(seeNote16).
Stock-basedemployeecompensationWehavetwostock-basedemployeecompensationplans(seeNote18).Weapplygrantdatefair-value-
basedmeasurementmethodsinaccountingforourstock-basedpaymentarrangementsandrecognizeallcostsresultingfromstock-basedpaymenttransactions,netofexpectedforfeitures,ratablyovertherequisiteserviceperiod.Stock-basedawardsaresubjecttospecificvestingconditions,generallytimevesting,oruponretirement,disability,ordeathoftheemployee(asdefinedbytheplan),ifearlier.Forawardsgrantedtoretirement-eligibleemployees,werecognizecompensationexpenseratablyovertheperiodfromthedateofgranttothedateofretirement-eligibility.
Netincome(loss)percommonshareattributabletoCBIWehavetwoclassesofcommonstockwithamaterialnumberofsharesoutstanding:ClassAStockand
ClassBStock(seeNote17).Inaddition,wehaveanotherclassofcommonstockwithanimmaterialnumberofsharesoutstanding:Class1Stock(seeNote17).IfwepayacashdividendonClassBStock,eachshareofClassAStockwillreceiveanamountatleast10%greaterthantheamountofthecashdividendpersharepaidonClassBStock.ClassBStocksharesareconvertibleintosharesofClassAStockonaone-to-onebasisatanytimeattheoptionoftheholder.
Weusethetwo-classmethodforthecomputationandpresentationofnetincome(loss)percommonshareattributabletoCBI(hereafterreferredtoas“netincome(loss)percommonshare”)(seeNote19).Thetwo-classmethodisanearningsallocationformulathatcalculatesbasicanddilutednetincome(loss)percommonshareforeachclassofcommonstockseparatelybasedondividendsdeclaredandparticipationrightsinundistributedearningsasifallsuchearningshadbeendistributedduringtheperiod.Underthetwo-classmethod,ClassAStockisassumedtoreceivea10%greaterparticipationinundistributedearnings(losses)thanClassBStock,inaccordancewiththerespectiveminimumdividendrightsofeachclassofstock.
Netincome(loss)percommonshare–basicexcludestheeffectofcommonstockequivalentsandiscomputedusingthetwo-classmethod.Netincome(loss)percommonshare–dilutedforClassAStockreflectsthepotentialdilutionthatcouldresultifsecuritiesorothercontractstoissuecommonstockwereexercisedorconvertedintocommonstock.Netincome(loss)percommonshare–dilutedforClassAStockiscomputedusingthemoredilutiveoftheif-convertedortwo-classmethod.Netincome(loss)percommonshare–dilutedforClassAStockiscomputedusingtheif-convertedmethodfortheyearendedFebruary28,2021,andassumestheexerciseofstockoptionsusingthetreasurystockmethodandtheconversionofClassBStockasthismethodis
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moredilutivethanthetwo-classmethod.FortheyearsendedFebruary28,2022,andFebruary29,2020,netincome(loss)percommonshare–dilutedforClassAStockiscomputedusingthetwo-classmethod.Netincome(loss)percommonshare–dilutedforClassBStockiscomputedusingthetwo-classmethodanddoesnotassumeconversionofClassBStockintosharesofClassAStock.
2. ACQUISITIONSANDDIVESTITURES
AcquisitionsMyFavoriteNeighborInNovember2021,weacquiredtheremaining65%ownershipinterestinMyFavoriteNeighbor,asuper-
luxury,DTCfocusedwinebusinessaswellascertainwholesalesourcedbrands.Thistransactionprimarilyincludedtheacquisitionofgoodwill,trademarks,inventory,andproperty,plant,andequipment.Inaddition,theMyFavoriteNeighbortransactionincludesanearn-outover10yearsbasedonperformance,witha50%minimumguaranteedueattheendoftheearn-outperiod.TheresultsofoperationsofMyFavoriteNeighborarereportedintheWineandSpiritssegmentandhavebeenincludedinourconsolidatedresultsofoperationsfromthedateofacquisition.
Werecognizedagainof$13.5millionfortheyearendedFebruary28,2022,relatedtotheremeasurementofourpreviouslyheld35%equityinterestinMyFavoriteNeighbortotheacquisition-datefairvalue.Thisgainisincludedinselling,general,andadministrativeexpenseswithinourconsolidatedresultsofoperations.SeeNote10forfurtherdiscussion.
Copper&KingsInSeptember2020,weacquiredtheremainingownershipinterestinCopper&Kings.Thisacquisition
includedacollectionoftraditionalandcraftbatch-distilledAmericanbrandiesandotherselectspirits.Thetransactionprimarilyincludedtheacquisitionofinventoryandproperty,plant,andequipment.TheresultsofoperationsofCopper&KingsarereportedintheWineandSpiritssegmentandhavebeenincludedinourconsolidatedresultsofoperationsfromthedateofacquisition.
EmpathyWinesInJune2020,weacquiredEmpathyWines,includingtheacquisitionofadigitally-nativewinebrandwhich
strengthensourpositionintheDTCandothereCommercemarkets.Thistransactionprimarilyincludedtheacquisitionofgoodwill,trademarks,andinventory.Inaddition,thepurchasepriceforEmpathyWinesincludesanearn-outoverfiveyearsbasedonperformance.TheresultsofoperationsofEmpathyWinesarereportedintheWineandSpiritssegmentandhavebeenincludedinourconsolidatedresultsofoperationsfromthedateofacquisition.
Nelson’sGreenBrierInMay2019,weincreasedourownershipinterestinTennessee-basedNelson’sGreenBrierto75%,
resultinginconsolidationofthebusinessandrecognitionofa25%noncontrollinginterest.Thisacquisitionincludedaportfolioofcraftbourbonandwhiskeyproducts.Thefairvalueofthebusinesscombinationwasallocatedprimarilytogoodwill,trademarks,inventory,andproperty,plant,andequipment.TheresultsofoperationsofNelson’sGreenBrierarereportedintheWineandSpiritssegmentandhavebeenincludedinourconsolidatedresultsofoperationsfromthedateofacquisition.
Werecognizedagainof$11.8millionfortheyearendedFebruary29,2020,relatedtotheremeasurementofourpreviouslyheld20%equityinterestinNelson’sGreenBriertotheacquisition-datefairvalue.Thisgainisincludedinselling,general,andadministrativeexpenseswithinourconsolidatedresultsofoperations.
DivestituresPaulMassonDivestitureOnJanuary12,2021,wesoldthePaulMassonGrandeAmberBrandybrand,relatedinventory,and
interestsincertaincontracts.Wereceivedcashproceedsof$267.4million,netofpost-closingadjustments,which
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wereusedforgeneralcorporatepurposes.PriortothePaulMassonDivestiture,werecordedtheresultsofoperationsofourPaulMassonGrandeAmberBrandybusinessintheWineandSpiritssegment.InconnectionwiththePaulMassonDivestiture,weenteredintoatransitionservicesagreementwithSazeracCompanywherebyourretainedMissionBellfacilitywillprovidecertainbulkwineprocessingservicesatmarketratesforaperiodofuptothreeyears.Thefollowingtablesummarizesthenetgainrecognized,primarilyfortheyearendedFebruary28,2021,inconnectionwiththisdivestiture:
(inmillions)
Cashreceivedfrombuyer $ 272.0
Netassetssold (206.4)
Contracttermination (4.0)
Directcoststosell (3.2)
Gainonsaleofbusiness $ 58.4
WineandSpiritsDivestituresOnJanuary5,2021,wesoldaportionofourwineandspiritsbusiness,includinglower-margin,lower
growthwineandspiritsbrands,relatedinventory,interestsincertaincontracts,wineries,vineyards,offices,andfacilities.Wereceivednetcashproceedsof$538.4million,fromtheWineandSpiritsDivestiture,netofpost-closingadjustments.Inaddition,wehavethepotentialtoearnanincremental$250millionofcontingentconsiderationifcertainbrandperformancetargetsaremetoveratwo-yearperiodafterclosing.
OnJanuary5,2021,inaseparate,butrelatedtransactionwiththesamebuyer,Gallo,wealsosoldtheNewZealand-basedNobiloWinebrandandcertainrelatedassets.Wereceivedcashproceedsof$129.0million,fromtheNobiloWineDivestiture,netofpost-closingadjustments.
InconnectionwiththeWineandSpiritsDivestitures,weenteredintocertaintransitionservicesagreementswithGallowherebyweprovidecertaincellar,package,andstorageservicesprimarilyatMissionBell.Werecordeda$13.0millionliabilityrelatedtotheunfavorabletransitionservicesagreements,whichwasincludedinthenetlossonsaleofbusinessfortheyearendedFebruary28,2021,andisbeingamortizedovertheexpectedtermofthecontractstoselling,general,andadministrativeexpensesbothwithinourconsolidatedresultsofoperations.
ThecashproceedsfromtheWineandSpiritsDivestitureswereutilizedtoreduceoutstandingdebtandforothergeneralcorporatepurposes.PriortotheWineandSpiritsDivestitures,werecordedtheresultsofoperationsforthisportionofourbusinessintheWineandSpiritssegment.Thefollowingtablesummarizesthenetlossrecognized,primarilyfortheyearendedFebruary28,2021,inconnectionwiththesedivestitures:
(inmillions)
Cashreceivedfrombuyer $ 667.4
Netassetssold (669.2)
Transitionservicesagreements (13.0)
Directcoststosell (8.5)
AOCIreclassificationadjustments,primarilyforeigncurrencytranslation (5.1)
Other (5.2)
Lossonsaleofbusiness $ (33.6)
ConcentrateBusinessDivestitureOnDecember29,2020,wesoldcertainbrandsusedinourconcentratesandhigh-colorconcentrate
business,andcertainrelatedintellectualproperty,inventory,interestsincertaincontracts,andotherassets.PriortotheConcentrateBusinessDivestiture,werecordedtheresultsofoperationsofourconcentratesandhigh-colorconcentratebusinessintheWineandSpiritssegment.
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BallastPointDivestitureOnMarch2,2020,wesoldtheBallastPointcraftbeerbusiness,includinganumberofitsassociated
productionfacilitiesandbrewpubs.PriortotheBallastPointDivestiture,werecordedtheresultsofoperationsoftheBallastPointcraftbeerbusinessintheBeersegment.Wereceivedcashproceedsof$41.1million,whichwereprimarilyutilizedtoreduceoutstandingborrowings.
BlackVelvetDivestitureOnNovember1,2019,wesoldtheBlackVelvetCanadianWhiskybusinessandthebrand’sassociated
productionfacility,alongwithasubsetofCanadianwhiskybrandsproducedatthatfacility,andrelatedinventory.Wereceivedcashproceedsof$266.7million,netofpost-closingadjustments,whichwereutilizedtoreduceoutstandingdebt.PriortotheBlackVelvetDivestiture,werecordedtheresultsofoperationsofourBlackVelvetCanadianWhiskybusinessintheWineandSpiritssegment.Thefollowingtablesummarizesthenetgainrecognized,primarilyfortheyearendedFebruary29,2020,inconnectionwiththisdivestiture:
(inmillions)
Cashreceivedfrombuyer $ 266.7
Netassetssold (213.3)
AOCIreclassificationadjustments,primarilyforeigncurrencytranslation 20.9
Directcoststosell (3.8)
Gainonsaleofbusiness $ 70.5
SubsequenteventsOtheracquisitionsDuringthefirstquarterofFiscal2023,wecompletedtheacquisitionsofotherbusinesses,consistingof
LinguaFranca,whichincludedacollectionofluxurywines,avineyard,andaproductionfacility,andtheremaining73%ownershipinterestinAustinCocktails,whichincludedaportfolioofsmallbatch,RTDcocktails.Thepurchasepriceforeachacquisitionincludesanearn-outbasedontheperformanceoftherespectivebrands.TheresultsofoperationsoftheseacquiredbusinesseswillbereportedintheWineandSpiritssegmentandwillbeincludedinourconsolidatedresultsofoperationsfromtheirrespectivedateofacquisition.
3. INVENTORIES
Thecomponentsofinventoriesareasfollows:
February28,2022
February28,2021
(inmillions)
Rawmaterialsandsupplies $ 185.3 $ 151.1
In-processinventories 804.8 735.9
Finishedcasegoods 583.1 404.1
$ 1,573.2 $ 1,291.1
Weevaluatedthecarryingvalueofcertaininventoriesandrecognizedthefollowingincostofproductsoldwithinourconsolidatedresultsofoperations:
FortheYearsEnded
February28,2022(1)
February28,2021(2)
February29,2020(3)
(inmillions)
Lossoninventorywrite-down $ 87.7 $ 100.7 $ 124.4
(1) Werecognizedalosspredominantlyfromexcessinventoryofhardseltzers,withintheBeersegment,largelyresultingfromaslowdownintheoverallcategorywhichoccurredinearlyFiscal2022.
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(2) Werecognizedalossprimarilyinconnectionwiththewrite-downofcertaingrapes,withintheWineandSpiritssegment,asaresultofsmokedamagesustainedduringthe2020U.S.wildfires.
(3) Werecognizedalossprimarilyinconnectionwithrestructuringandbusinessdevelopmentcostsresultingfromourbusinesstransformationstrategywhichalignedourportfoliowithconsumer-ledpremiumizationtrendswithintheWineandSpiritssegment.
4. PREPAIDEXPENSESANDOTHER
Themajorcomponentsofprepaidexpensesandotherareasfollows:
February28,2022
February28,2021
(inmillions)
Prepaidtaxes $ 254.1 $ 76.0
Valueaddedtaxesreceivable 193.0 257.8
Derivativeassets 92.6 48.7
Incometaxesreceivable 27.2 45.4
Other 91.2 79.6
$ 658.1 $ 507.5
5. PROPERTY,PLANT,ANDEQUIPMENT
Themajorcomponentsofproperty,plant,andequipmentareasfollows:
February28,2022
February28,2021
(inmillions)
Landandlandimprovements $ 456.2 $ 434.0
Vineyards 255.3 226.0
Buildingsandimprovements 1,109.4 983.4
Machineryandequipment 4,827.8 3,696.9
Motorvehicles 140.0 131.3
Constructioninprogress(1)(2) 1,223.2 2,084.2
8,011.9 7,555.8
Less–Accumulateddepreciation (1,952.3) (1,734.2)
$ 6,059.6 $ 5,821.6
(1) ThebalanceatFebruary28,2022,isnetofanimpairmentofbreweryconstructioninprogressof$665.9million.SeeNote7forfurtherdiscussion.
(2) Interestcostsincurredduringtheexpansion,optimization,andconstructionoffacilitiesarecapitalizedtoconstructioninprogress.Wecapitalizedinterestcostsof$25.3million,$31.5million,and$37.2millionfortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020,respectively,primarilyduetotheMexicoBeerProjects.
LodiDistributionCenterInDecember2021,wepurchasedapreviouslyleasedwineandspiritsdistributionfacilitylocatedinLodi,
California.
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6. DERIVATIVEINSTRUMENTS
OverviewWeareexposedtomarketriskfromchangesinforeigncurrencyexchangerates,commodityprices,
interestrates,andequitypricesthatcouldaffectourresultsofoperationsandfinancialcondition.Theimpactonourresultsandfinancialpositionandtheamountsreportedinourfinancialstatementswillvarybaseduponthecurrency,commodity,interestrate,andequitymarketmovementsduringtheperiod,theeffectivenessandlevelofderivativeinstrumentsoutstanding,andwhethertheyaredesignatedandqualifyforhedgeaccounting.
Theestimatedfairvaluesofourderivativeinstrumentschangewithfluctuationsincurrencyrates,commodityprices,interestrates,and/orequitypricesandareexpectedtooffsetchangesinthevaluesoftheunderlyingexposures.Ourderivativeinstrumentsareheldsolelytomanageourexposurestotheaforementionedmarketrisksaspartofournormalbusinessoperations.Wefollowstrictpoliciestomanagetheserisksanddonotenterintoderivativeinstrumentsfortradingorspeculativepurposes.
WehaveaninvestmentincertainequitysecuritiesandotherrightswhichprovideuswiththeoptiontopurchaseanadditionalownershipinterestintheequitysecuritiesofCanopy(seeNote10).Thisinvestmentisincludedinsecuritiesmeasuredatfairvalueandisaccountedforatfairvalue,withthenetgain(loss)fromthechangesinfairvalueofthisinvestmentrecognizedinincome(loss)fromunconsolidatedinvestments(seeNote7).
Theaggregatenotionalvalueofoutstandingderivativeinstrumentsisasfollows:
Derivativeinstrumentsdesignatedashedginginstruments
Foreigncurrencycontracts $ 1,863.2 $ 1,558.0
Swaplockcontracts $ 100.0 $ —
Derivativeinstrumentsnotdesignatedashedginginstruments
Foreigncurrencycontracts $ 497.6 $ 704.7
Commodityderivativecontracts $ 291.1 $ 221.6
February28,2022
February28,2021
(inmillions)
CashflowhedgesOurderivativeinstrumentsdesignatedinhedgeaccountingrelationshipsaredesignatedascashflow
hedges.Weareexposedtoforeigndenominatedcashflowfluctuationsprimarilyinconnectionwiththirdpartyandintercompanysalesandpurchases.Weprimarilyuseforeigncurrencyforwardcontractstohedgecertainoftheserisks.Inaddition,weutilizeinterestrateswap,treasurylock,andswaplockcontractsperiodicallytomanageourexposuretochangesininterestrates.Derivativesmanagingourcashflowexposuresgenerallymaturewithinthreeyearsorless,withamaximummaturityoffiveyears.
Toqualifyforhedgeaccountingtreatment,thedetailsofthehedgingrelationshipmustbeformallydocumentedatinceptionofthearrangement,includingtheriskmanagementobjective,hedgingstrategy,hedgeditem,specificriskthatisbeinghedged,thederivativeinstrument,howeffectivenessisbeingassessed,andhowineffectivenesswillbemeasured.Thederivativemustbehighlyeffectiveinoffsettingchangesinthecashflowsoftheriskbeinghedged.Throughoutthetermofthedesignatedcashflowhedgerelationshiponatleastaquarterlybasis,aretrospectiveevaluationandprospectiveassessmentofhedgeeffectivenessisperformedbasedonquantitativeandqualitativemeasures.Allcomponentsofourderivativeinstruments’gainsorlossesareincludedintheassessmentofhedgeeffectiveness.
Whenwedeterminethataderivativeinstrumentwhichqualifiedforhedgeaccountingtreatmenthasceasedtobehighlyeffectiveasahedge,wediscontinuehedgeaccountingprospectively.Intheeventtherelationshipisnolongereffective,werecognizethechangeinthefairvalueofthehedgingderivativeinstrumentfromthedatethehedgingderivativeinstrumentbecamenolongereffectiveimmediatelyinourresultsof
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operations.Wealsodiscontinuehedgeaccountingprospectivelywhen(i)aderivativeexpiresorissold,terminated,orexercised;(ii)itisnolongerprobablethattheforecastedtransactionwilloccur;or(iii)wedeterminethatdesignatingthederivativeasahedginginstrumentisnolongerappropriate.Whenwediscontinuehedgeaccountingprospectively,buttheoriginalforecastedtransactioncontinuestobeprobableofoccurring,theexistinggainorlossofthederivativeinstrumentremainsinAOCIandisreclassifiedintoearnings(losses)whentheforecastedtransactionoccurs.Whenitbecomesprobablethattheforecastedtransactionwillnotoccur,anyremaininggainorlossinAOCIisrecognizedimmediatelyinourresultsofoperations.
Weexpect$18.2millionofnetgains,netofincometaxeffect,tobereclassifiedfromAOCItoourresultsofoperationswithinthenext12months.
UndesignatedhedgesCertainofourderivativeinstrumentsdonotqualifyforhedgeaccountingtreatment;forothers,we
choosenottomaintaintherequireddocumentationtoapplyhedgeaccountingtreatment.Theseundesignatedinstrumentsareprimarilyusedtoeconomicallyhedgeourexposuretofluctuationsinthevalueofforeigncurrencydenominatedreceivablesandpayables;foreigncurrencyinvestments,primarilyconsistingofloanstosubsidiariesandforeign-denominatedinvestments,andcashflowsrelatedprimarilytotherepatriationofthoseloansorinvestments;andcommodityprices,includingaluminum,corn,dieselfuel,andnaturalgasprices.Weprimarilyuseforeigncurrencyforwardandoptioncontracts,generallylessthan12monthsinduration,andcommodityswapcontracts,generallylessthan36monthsinduration,withamaximummaturityoffouryears,tohedgesomeoftheserisks.Inaddition,fromtimetotime,weutilizeinterestrateswapcontracts,generallylessthansixmonthsinduration,toeconomicallyhedgeourexposuretochangesininterestratesassociatedwiththefinancingofsignificantinvestmentsandacquisitions.Ourderivativepolicypermitstheuseofundesignatedderivativesasapprovedbyseniormanagement.
CreditriskWeareexposedtocredit-relatedlossesifthecounterpartiestoourderivativecontractsdefault.This
creditriskislimitedtothefairvalueofthederivativecontracts.Tomanagethisrisk,wecontractonlywithmajorfinancialinstitutionsthathaveearnedinvestment-gradecreditratingsandwithwhomwehavestandardInternationalSwapsandDerivativesAssociationagreementswhichallowfornetsettlementofthederivativecontracts.Wehavealsoestablishedcounterpartycreditguidelinesthatareregularlymonitored.Becauseofthesesafeguards,webelievetheriskoflossfromcounterpartydefaulttobeimmaterial.
Inaddition,ourderivativeinstrumentsarenotsubjecttocreditratingcontingenciesorcollateralrequirements.AsofFebruary28,2022,theestimatedfairvalueofderivativeinstrumentsinanetliabilitypositionduetocounterpartieswas$2.6million.IfwewererequiredtosettlethenetliabilitypositionunderthesederivativeinstrumentsonFebruary28,2022,wewouldhavehadsufficientavailableliquidityonhandtosatisfythisobligation.
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ResultsofperiodderivativeactivityTheestimatedfairvalueandlocationofourderivativeinstrumentsonourbalancesheetsareasfollows
(seeNote7):
Derivativeinstrumentsdesignatedashedginginstruments
Foreigncurrencycontracts:
Prepaidexpensesandother $ 28.6 $ 32.0
Otheraccruedexpensesandliabilities $ 5.9 $ 3.5
Otherassets $ 25.1 $ 41.3Deferredincometaxesandotherliabilities $ 8.6 $ 2.7
Swaplockcontracts:
Otherassets $ — $ —Deferredincometaxesandotherliabilities $ 0.4 $ —
Derivativeinstrumentsnotdesignatedashedginginstruments
Foreigncurrencycontracts:
Prepaidexpensesandother $ 2.7 $ 3.3
Otheraccruedexpensesandliabilities $ 3.3 $ 3.5
Commodityderivativecontracts:
Prepaidexpensesandother $ 61.3 $ 13.4
Otheraccruedexpensesandliabilities $ 0.7 $ 3.9
Otherassets $ 29.7 $ 7.8Deferredincometaxesandotherliabilities $ 0.2 $ 1.4
Assets Liabilities
February28,2022
February28,2021
February28,2022
February28,2021
(inmillions)
Theprincipaleffectofourderivativeinstrumentsdesignatedincashflowhedgingrelationshipsonourresultsofoperations,aswellasOCI,netofincometaxeffect,isasfollows:
FortheYearEndedFebruary28,2022
Foreigncurrencycontracts $ 6.4 Sales $ (1.1)
Costofproductsold 37.3
Swaplockcontracts (0.3) Interestexpense —
Treasurylockcontracts — Interestexpense (2.3)
$ 6.1 $ 33.9
FortheYearEndedFebruary28,2021
Foreigncurrencycontracts $ (31.1) Sales $ 1.4
Costofproductsold (25.4)
Interestrateswapcontracts (0.6) Interestexpense (1.1)
Treasurylockcontracts (16.1) Interestexpense (1.8)
$ (47.8) $ (26.9)
DerivativeInstrumentsinDesignatedCashFlowHedgingRelationships
NetGain(Loss)Recognized
inOCI
LocationofNetGain(Loss)Reclassifiedfrom
AOCItoIncome(Loss)
NetGain(Loss)ReclassifiedfromAOCItoIncome(Loss)
(inmillions)
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FortheYearEndedFebruary29,2020
Foreigncurrencycontracts $ 66.8 Sales $ —
Costofproductsold 20.2
Interestrateswapcontracts (0.5) Interestexpense —
Treasurylockcontracts (5.7) Interestexpense —
$ 60.6 $ 20.2
DerivativeInstrumentsinDesignatedCashFlowHedgingRelationships
NetGain(Loss)Recognized
inOCI
LocationofNetGain(Loss)Reclassifiedfrom
AOCItoIncome(Loss)
NetGain(Loss)ReclassifiedfromAOCItoIncome(Loss)
(inmillions)
Theeffectofourundesignatedderivativeinstrumentsonourresultsofoperationsisasfollows:
FortheYearEndedFebruary28,2022
Commodityderivativecontracts Costofproductsold $ 109.9
Foreigncurrencycontracts Selling,general,andadministrativeexpenses (16.7)
$ 93.2
FortheYearEndedFebruary28,2021
Commodityderivativecontracts Costofproductsold $ 25.1
Foreigncurrencycontracts Selling,general,andadministrativeexpenses (17.4)
$ 7.7
FortheYearEndedFebruary29,2020
Commodityderivativecontracts Costofproductsold $ (49.0)
Foreigncurrencycontracts Selling,general,andadministrativeexpenses (7.8)
$ (56.8)
DerivativeInstrumentsNotDesignatedasHedgingInstruments
LocationofNetGain(Loss)RecognizedinIncome(Loss)
NetGain(Loss)
RecognizedinIncome(Loss)
(inmillions)
7. FAIRVALUEOFFINANCIALINSTRUMENTS
Authoritativeguidanceestablishesaframeworkformeasuringfairvalue,includingahierarchyforinputsusedinmeasuringfairvaluethatmaximizestheuseofobservableinputsandminimizestheuseofunobservableinputsbyrequiringthatthemostobservableinputsbeusedwhenavailable.Thehierarchyincludesthreelevels:
• Level1inputsarequotedpricesinactivemarketsforidenticalassetsorliabilities;• Level2inputsincludedatapointsthatareobservablesuchasquotedpricesforsimilarassetsor
liabilitiesinactivemarkets,quotedpricesforidenticalassetsorsimilarassetsorliabilitiesinmarketsthatarenotactive,andinputs(otherthanquotedprices)suchasvolatility,interestrates,andyieldcurvesthatareobservablefortheassetandliability,eitherdirectlyorindirectly;and
• Level3inputsareunobservabledatapointsfortheassetorliability,andincludesituationswherethereislittle,ifany,marketactivityfortheassetorliability.
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FairvaluemethodologyThefollowingmethodsandassumptionsareusedtoestimatethefairvalueforeachclassofourfinancial
instruments:
ForeigncurrencyandcommodityderivativecontractsThefairvalueisestimatedusingmarket-basedinputs,obtainedfromindependentpricingservices,
enteredintovaluationmodels.Thesevaluationmodelsrequirevariousinputs,includingcontractualterms,marketforeignexchangeprices,marketcommodityprices,interest-rateyieldcurves,andcurrencyvolatilities,asapplicable(Level2fairvaluemeasurement).
Interestrateswap,swaplock,andtreasurylockcontractsThefairvalueisestimatedbasedonquotedmarketpricesfromrespectivecounterparties.Quotesare
corroboratedbyusingdiscountedcashflowcalculationsbaseduponforwardinterest-rateyieldcurves,whichareobtainedfromindependentpricingservices(Level2fairvaluemeasurement).
CanopyinvestmentEquitysecurities,Warrants–TheNovember2018CanopyWarrantsconsistofthreetranchesofwarrants,
including88.5millionTrancheAWarrantsexpiringNovember1,2023,whicharecurrentlyexercisable,38.4millionTrancheBWarrantsexpiringNovember1,2026,and12.8millionTrancheCWarrantsexpiringNovember1,2026.TheinputsusedtoestimatethefairvalueoftheNovember2018CanopyWarrantsareasfollows(1)(2):
February28,2022 February28,2021TrancheAWarrants(3)
TrancheBWarrants(4)
TrancheAWarrants(3)
TrancheBWarrants(4)
Exerciseprice(5) C$ 50.40 C$ 76.68 C$ 50.40 C$ 76.68
Valuationdatestockprice(6) C$ 9.04 C$ 9.04 C$ 41.90 C$ 41.90
Remainingcontractualterm(7) 1.7years 4.7years 2.7years 5.7years
Expectedvolatility(8) 75.0% 75.0% 70.0% 70.0%
Risk-freeinterestrate(9) 1.4% 1.7% 0.5% 1.1%
Expecteddividendyield(10) 0.0% 0.0% 0.0% 0.0%
(1) TheexercisepricefortheTrancheCWarrantsisbasedontheVWAPExercisePrice.TheTrancheCWarrantsarenotincludedinthetableasthereisnofairvalueassigned.
(2) InconnectionwiththeAcreageTransaction,weobtainedotherrightswhichincludeasharerepurchasecredit.IfCanopyhasnotpurchasedthelesserof27,378,866Canopycommonshares,orC$1,583.0millionworthofCanopycommonsharesforcancellationbetweenApril18,2019,andtwo-yearsafterthefullexerciseoftheTrancheAWarrants,wewillbecreditedanamountthatwillreducetheaggregateexercisepriceotherwisepayableuponeachexerciseoftheTrancheBWarrantsandTrancheCWarrants.ThecreditwillbeanamountequaltothedifferencebetweenC$1,583.0millionandtheactualpricepaidbyCanopyinpurchasingitscommonsharesforcancellation.ThelikelihoodofreceivingthesharerepurchasecreditifweweretofullyexercisetheTrancheAWarrantsisremote,therefore,nofairvaluehasbeenassigned.
(3) ThefairvalueisestimatedusingtheBlack-Scholesoption-pricingmodel(Level2fairvaluemeasurement).(4) ThefairvalueisestimatedusingMonteCarlosimulations(Level2fairvaluemeasurement).(5) Basedontheexercisepricefromtheapplicableunderlyingagreements.(6) BasedontheclosingmarketpriceforCanopycommonstockontheTSXasoftheapplicabledate.(7) Basedontheexpirationdateofthewarrants.(8) Basedonconsiderationofhistoricaland/orimpliedvolatilitylevelsoftheunderlyingequitysecurityandlimited
considerationofhistoricalpeergroupvolatilitylevels.(9) BasedontheimpliedyieldcurrentlyavailableonCanadianTreasuryzerocouponissueswitharemainingterm
equaltotheexpirationdateoftheapplicablewarrants.(10) Basedonhistoricaldividendlevels.
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Debtsecurities,Convertible–WehaveelectedthefairvalueoptiontoaccountfortheCanopyDebtSecuritiesacquiredinJune2018forC$200.0million,or$150.5million.InterestincomeontheCanopyDebtSecuritiesiscalculatedusingtheeffectiveinterestmethodandisrecognizedseparatelyfromthechangesinfairvalueininterestexpense.TheCanopyDebtSecuritieshaveacontractualmaturityoffiveyearsfromthedateofissuancebutmaybeconvertedpriortomaturitybyeitherpartyupontheoccurrenceofcertainevents.Atsettlement,theCanopyDebtSecuritiescanbesettledattheoptionoftheissuer,incash,equitysharesoftheissuer,oracombinationthereof.Thefairvalueisestimatedusingabinomiallatticeoption-pricingmodel(Level2fairvaluemeasurement),whichincludesanestimateofthecreditspreadbasedonmarketspreadsusingbonddataasofthevaluationdate.
TheinputsusedtoestimatethefairvalueoftheCanopyDebtSecuritiesareasfollows:February28,
2022February28,
2021
Conversionprice(1) C$ 48.17 C$ 48.17
Valuationdatestockprice(2) C$ 9.04 C$ 41.90
Remainingterm(3) 1.4years 2.4years
Expectedvolatility(4) 75.0% 57.6%
Risk-freeinterestrate(5) 1.4% 0.4%
Expecteddividendyield(6) 0.0% 0.0%
(1) BasedontheratewhichtheCanopyDebtSecuritiesmaybeconvertedintoequityshares,ortheequivalentamountofcash,attheoptionoftheissuer.
(2) BasedontheclosingmarketpriceforCanopycommonstockontheTSXasoftheapplicabledate.(3) Basedonthecontractualmaturitydateofthenotes.(4) Basedonconsiderationofhistoricaland/orimpliedvolatilitylevelsoftheunderlyingequitysecurity,adjustedfor
certainrisksassociatedwithdebtsecurities,asappropriate.(5) BasedontheimpliedyieldcurrentlyavailableonCanadianTreasuryzerocouponissueswithatermequaltothe
remainingcontractualtermoftheCanopyDebtSecurities.(6) Basedonhistoricaldividendlevels.
Short-termborrowingsOurshort-termborrowingsconsistofourcommercialpaperprogramandtherevolvingcreditfacility
underourseniorcreditfacility.Therevolvingcreditfacilityisavariableinterestratebearingnotewithafixedmargin,adjustablebaseduponourdebtrating(asdefinedinourseniorcreditfacility).Fortheseshort-termborrowingsthecarryingvalueapproximatesthefairvalue.
Long-termdebtThetermloanunderourtermcreditagreementisavariableinterestratebearingnotewithafixed
margin,adjustablebaseduponourdebtrating.Thecarryingvalueapproximatesthefairvalueofthetermloan.Thefairvalueoftheremainingfixedinterestratelong-termdebtisestimatedbydiscountingcashflowsusinginterestratescurrentlyavailablefordebtwithsimilartermsandmaturities(Level2fairvaluemeasurement).
Thecarryingamountsofcertainofourfinancialinstruments,includingcashandcashequivalents,accountsreceivable,andaccountspayable,approximatefairvalueasofFebruary28,2022,andFebruary28,2021,duetotherelativelyshortmaturityoftheseinstruments.AsofFebruary28,2022,thecarryingamountoflong-termdebt,includingthecurrentportion,was$10,093.5million,comparedwithanestimatedfairvalueof$10,345.3million.AsofFebruary28,2021,thecarryingamountoflong-termdebt,includingthecurrentportion,was$10,442.3million,comparedwithanestimatedfairvalueof$11,580.9million.
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RecurringbasismeasurementsThefollowingtablepresentsourfinancialassetsandliabilitiesmeasuredatestimatedfairvalueona
recurringbasis:
February28,2022
Assets:
Foreigncurrencycontracts $ — $ 56.4 $ — $ 56.4
Commodityderivativecontracts $ — $ 91.0 $ — $ 91.0
November2018CanopyWarrants(1) $ — $ 36.3 $ — $ 36.3
CanopyDebtSecurities(1) $ — $ 146.6 $ — $ 146.6
Liabilities:
Foreigncurrencycontracts $ — $ 17.8 $ — $ 17.8
Commodityderivativecontracts $ — $ 0.9 $ — $ 0.9
Swaplockcontracts $ — $ 0.4 $ — $ 0.4
February28,2021
Assets:
Foreigncurrencycontracts $ — $ 76.6 $ — $ 76.6
Commodityderivativecontracts $ — $ 21.2 $ — $ 21.2
November2018CanopyWarrants(1) $ — $ 1,639.7 $ — $ 1,639.7
CanopyDebtSecurities(1) $ — $ 176.3 $ — $ 176.3
Liabilities:
Foreigncurrencycontracts $ — $ 9.7 $ — $ 9.7
Commodityderivativecontracts $ — $ 5.3 $ — $ 5.3
FairValueMeasurementsUsingQuotedPricesinActiveMarkets(Level1)
SignificantOther
ObservableInputs(Level2)
SignificantUnobservable
Inputs(Level3) Total
(inmillions)
(1) Unrealizednetgain(loss)fromthechangesinfairvalueofoursecuritiesmeasuredatfairvaluerecognizedinincome(loss)fromunconsolidatedinvestments,areasfollows:
February28,2022
February28,2021
(inmillions)
November2017CanopyWarrants(i) $ — $ (61.8)
November2018CanopyWarrants (1,603.4) 823.3
CanopyDebtSecurities (41.3) 40.5
$ (1,644.7) $ 802.0
(i) InMay2020,weexercisedtheNovember2017CanopyWarrantsatanexercisepriceofC$12.98perwarrantshareforC$245.0million,or$173.9million,andreceived18.9millioncommonsharesofCanopy.
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NonrecurringbasismeasurementsThefollowingtablepresentsourassetsandliabilitiesmeasuredatestimatedfairvalueonanonrecurring
basisforwhichanimpairmentassessmentwasperformedfortheperiodspresented:
FortheYearEndedFebruary28,2022
Long-livedassets $ — $ — $ 20.0 $ 665.9
FortheYearEndedFebruary28,2021
Long-livedassetsheldforsale $ — $ — $ — $ 24.0
Trademarks — — 4.0 6.0
$ — $ — $ 4.0 $ 30.0
FortheYearEndedFebruary29,2020
Long-livedassetsheldforsale $ — $ — $ 949.3 $ 449.7
Trademarks(1) — — — 11.0
$ — $ — $ 949.3 $ 460.7
FairValueMeasurementsUsing
QuotedPricesinActiveMarkets(Level1)
SignificantOther
ObservableInputs(Level2)
SignificantUnobservable
Inputs(Level3) TotalLosses
(inmillions)
(1) ThebalanceatFebruary29,2020,hasbeenreclassifiedtoassetsheldforsale(see“Trademarks”belowforfurtherdiscussion).
Long-livedassetsInApril2021,ourBoardofDirectorsauthorizedmanagementtosellorabandontheMexicaliBrewery.
Subsequently,managementdeterminedthatwewillbeunabletouseorrepurposecertainassetsattheMexicaliBrewery.Accordingly,forthefirstquarterofFiscal2022,long-livedassetswithacarryingvalueof$685.9millionwerewrittendowntotheirestimatedfairvalueof$20.0million,resultinginanimpairmentof$665.9million.ThisimpairmentwasincludedinimpairmentofbreweryconstructioninprogresswithinourconsolidatedresultsofoperationsfortheyearendedFebruary28,2022.Ourestimateoffairvaluewasdeterminedbasedontheexpectedsalvagevalueoftheassets.TheMexicaliBreweryisacomponentoftheBeersegment.WecontinuetoworkwithgovernmentofficialsinMexicoto(i)determinenextstepsforoursuspendedMexicaliBreweryconstructionproject,(ii)pursuevariousformsofrecoveryforcapitalizedcostsandadditionalexpensesincurredinestablishingthebrewery,however,therecanbenoassuranceofanyrecoveries,and(iii)exploreoptionstoaddfurthercapacityatotherlocationsinMexico,includingtheconstructionoftheSoutheastMexicoBrewerywherethereisamplewaterandwewillhaveaskilledworkforcetomeetourlong-termneeds.Inthemedium-term,undernormaloperatingconditions,wehaveamplecapacityattheNavaandObregonbreweriestomeetconsumerneedsbasedoncurrentgrowthforecastsandcurrentandplannedproductioncapabilities.Expansion,optimization,and/orconstructioneffortscontinueatourcurrentbrewerylocationsunderourMexicoBeerProjectstoalignwithouranticipatedfuturegrowthexpectations.
Long-livedassetsheldforsaleFortheyearendedFebruary28,2021,primarilyinconnectionwiththeWineandSpiritsDivestituresand
theConcentrateBusinessDivestiture,long-livedassetsheldforsalewithacarryingvalueof$736.4millionwerewrittendowntotheirestimatedfairvalueof$712.4million,lesscoststosell,resultinginatotallossof$24.0million.Thislosswasincludedinimpairmentofassetsheldforsalewithinourconsolidatedresultsofoperations.Theseassetsconsistedprimarilyofgoodwill,intangibleassets,andcertainwineryandvineyardassetswhichhadsatisfiedtheconditionsnecessarytobeclassifiedasheldforsale.OurestimatedfairvaluewasdeterminedasofNovember30,2020,primarilybasedontheexpectedproceedsfromtheWineandSpirits
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DivestituresandtheConcentrateBusinessDivestiture,excludingthecontingentconsideration,whichwewillrecognizewhenitisdeterminedtoberealizable.
FortheyearendedFebruary29,2020,inconnectionwiththeWineandSpiritsDivestituresandtheConcentrateBusinessDivestiture,long-livedassetsheldforsalewithacarryingvalueof$1,291.2millionwerewrittendowntotheirestimatedfairvalueof$908.2million,lesscoststosell,resultinginatotallossof$407.0million.Thislosswasincludedinimpairmentofassetsheldforsalewithinourconsolidatedresultsofoperations.Theseassetsconsistedprimarilyofgoodwill,intangibleassets,andcertainwineryandvineyardassetswhichhadsatisfiedtheconditionsnecessarytobeclassifiedasheldforsale.OurestimateoffairvaluewasdeterminedasofFebruary29,2020,basedontheexpectedproceedsfromtheWineandSpiritsDivestituresandtheConcentrateBusinessDivestiture,excludingthecontingentconsideration.
FortheyearendedFebruary29,2020,inconnectionwiththeBallastPointDivestiture,long-livedassetsheldforsalewithacarryingvalueof$81.3millionwerewrittendowntotheirestimatedfairvalueof$41.1million,lesscoststosell.Asaresult,alossof$42.7million,inclusiveofcoststosellandotherlosseswasincludedinimpairmentofassetsheldforsalefortheyearendedFebruary29,2020.Theseassetsconsistedprimarilyofintangibleassetsandcertainproductionandwarehouseassetswhichhadsatisfiedtheconditionsnecessarytobeclassifiedasheldforsale.OurestimateoffairvaluewasdeterminedbasedontheexpectedproceedsfromtheBallastPointDivestitureasofFebruary29,2020.BallastPointwasacomponentoftheBeersegmentandwasincludedinourbeerreportingunitthroughthedateofdivestiture.Accordingly,goodwillwasallocatedtotheBallastPointassetsheldforsalebasedontherelativefairvalueofthebusinessbeingsoldcomparedtotherelativefairvalueofthereportingunit.GoodwillnotallocatedtoassetsassociatedwiththeBallastPointDivestitureremainedinthebeerreportingunit.
TrademarksFortheyearendedFebruary28,2021,certainnegativetrendswithinourBeersegment’sFourCorners
craftbeerportfolio,includingslowergrowthratesandincreasedcompetition,resultedinupdatedlong-termfinancialforecasts.Theupdatedforecastsindicateditwasmorelikelythannotthefairvalueofourindefinite-livedintangibleassetassociatedwiththeFourCornerstrademarkmightbebelowitscarryingvalue.Accordingly,weperformedaquantitativeassessmentforimpairment.Asaresultofthisassessment,theFourCornerstrademarkassetwithacarryingvalueof$10.0millionwaswrittendowntoitsestimatedfairvalueof$4.0million,resultinginanimpairmentof$6.0million.Thisimpairmentwasincludedinselling,general,andadministrativeexpenseswithinourconsolidatedresultsofoperationsfortheyearendedFebruary28,2021.
FortheyearendedFebruary29,2020,certaincontinuingnegativetrendswithinourBeersegment’sBallastPointcraftbeerportfolio,includingincreasedrateofrevenuedeclineandincreasedcompetition,indicatedthatitwasmorelikelythannotthefairvalueofourindefinite-livedintangibleassetassociatedwiththeBallastPointcraftbeertrademarkmightbebelowitscarryingvalue.Accordingly,weperformedaquantitativeassessmentforimpairment.Asaresultofthisassessment,theBallastPointcraftbeertrademarkassetwithacarryingvalueof$28.0millionwaswrittendowntoitsestimatedfairvalueof$17.0million,resultinginanimpairmentof$11.0million.Thisimpairmentwasincludedinselling,general,andadministrativeexpenseswithinourconsolidatedresultsofoperationsfortheyearendedFebruary29,2020.
Whenperformingaquantitativeassessmentforimpairmentofatrademarkasset,wemeasuretheamountofimpairmentbycalculatingtheamountbywhichthecarryingvalueofthetrademarkassetexceedsitsestimatedfairvalue.Theestimatedfairvalueisdeterminedbasedonanincomeapproachusingtherelieffromroyaltymethod,whichassumesthat,inlieuofownership,athirdpartywouldbewillingtopayaroyaltyinordertoexploittherelatedbenefitsofthetrademarkasset.Thecashflowprojectionsweusetoestimatethefairvalueofourtrademarkassetsinvolveseveralassumptions,including(i)projectedrevenuegrowthrates,(ii)estimatedroyaltyrates,(iii)after-taxroyaltysavingsexpectedfromownershipofthetrademarks,and(iv)discountratesusedtoderivetheestimatedfairvalueofthetrademarkassets.
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI86
8. GOODWILL
Thechangesinthecarryingamountofgoodwillareasfollows:
BeerWineandSpirits Consolidated
(inmillions)
Balance,February29,2020 $ 5,163.4 $ 2,593.7 $ 7,757.1
Purchaseaccountingallocations(1) — 14.3 14.3
Foreigncurrencytranslationadjustments (38.7) 15.9 (22.8)
Reclassifiedfromassetsheldforsale(2) 0.9 44.0 44.9
Balance,February28,2021 5,125.6 2,667.9 7,793.5
Purchaseaccountingallocations(1)(3) — 79.6 79.6
Foreigncurrencytranslationadjustments (4.9) (5.8) (10.7)
Balance,February28,2022 $ 5,120.7 $ 2,741.7 $ 7,862.4
(1) PurchaseaccountingallocationsassociatedprimarilywiththeacquisitionofEmpathyWines.(2) PrimarilyinconnectionwiththeWineandSpiritsDivestitures,goodwillassociatedwiththebusinessesbeingsold
wasreclassifiedfromassetsheldforsalebasedonthechangestorelativefairvaluesoftheportionofthebusinessbeingsoldandtheremainingwineandspiritsandbeerportfolios.Therelativefairvaluesweredeterminedusingtheincomeapproachbasedonassumptions,includingprojectedrevenuegrowthrates,terminalgrowthrate,anddiscountrateandotherprojectedfinancialinformation.
(3) PreliminarypurchaseaccountingallocationsassociatedwiththeacquisitionofMyFavoriteNeighbor.
9. INTANGIBLEASSETS
Themajorcomponentsofintangibleassetsareasfollows:
February28,2022 February28,2021
GrossCarryingAmount
NetCarryingAmount
GrossCarryingAmount
NetCarryingAmount
(inmillions)
Amortizableintangibleassets
Customerrelationships $ 87.1 $ 21.7 $ 87.2 $ 26.3
Other 20.9 — 21.1 0.2
Total $ 108.0 21.7 $ 108.3 26.5
Nonamortizableintangibleassets
Trademarks 2,733.5 2,705.6
Totalintangibleassets $ 2,755.2 $ 2,732.1
WedidnotincurcoststoreneworextendthetermofacquiredintangibleassetsfortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020.Netcarryingamountrepresentsthegrosscarryingvaluenetofaccumulatedamortization.Amortizationexpenseforintangibleassetswas$5.1million,$5.3million,and$5.7millionfortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020,respectively.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI87
Estimatedamortizationexpenseforeachofthefivesucceedingfiscalyearsandthereafterisasfollows:
(inmillions)
Fiscal2023 $ 3.2
Fiscal2024 $ 1.4
Fiscal2025 $ 1.4
Fiscal2026 $ 1.4
Fiscal2027 $ 1.4
Thereafter $ 12.9
10. EQUITYMETHODINVESTMENTS
Ourequitymethodinvestmentsareasfollows:
February28,2022 February28,2021
CarryingValueOwnershipPercentage CarryingValue
OwnershipPercentage
(inmillions)
CanopyEquityMethodInvestment(1)(2) $ 2,503.5 36.1% $ 2,578.8 38.1%
Otherequitymethodinvestments 185.2 20%-50% 209.6 20%-50%
$ 2,688.7 $ 2,788.4
(1) ThefairvaluebasedontheclosingpriceoftheunderlyingequitysecurityasofFebruary28,2022,andFebruary28,2021,was$1,014.8millionand$4,679.3million,respectively.Refertodiscussionbelowonother-than-temporaryimpairmentconsiderations.
(2) Includesthefollowing:
CommonShares PurchasePrice
(inmillions)
November2017CanopyInvestment 18.9 $ 130.1
November2018CanopyInvestment 104.5 2,740.3
May2020CanopyInvestment 18.9 173.9
142.3 $ 3,044.3
CanopyEquityMethodInvestmentWecomplementourbeveragealcoholstrategywithourinvestmentinCanopy,aleadingproviderof
medicinalandrecreationalcannabisproducts.Equityinearnings(losses)fromtheCanopyEquityMethodInvestmentandrelatedactivities(seetablebelow)include,amongotheritems,restructuringandotherstrategicbusinessdevelopmentcosts,theamortizationofthefairvalueadjustmentsassociatedwiththedefinite-livedintangibleassetsovertheirestimatedusefullives,theflowthroughofinventorystep-up,unrealizedgains(losses)associatedwithchangesinourCanopyownershippercentageresultingfromperiodicequityissuancesmadebyCanopy,andourshareofCanopy’sadditionallossresultingfromtheJune2019WarrantModificationof$409.0million.Amountsincludedinourconsolidatedresultsofoperationsforeachperiodareasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Equityinearnings(losses)fromCanopyandrelatedactivities $ (73.6) $ (679.0) $ (575.9)
InJune2019,CanopyshareholdersapprovedthemodificationofthetermsofthewarrantsoriginallyobtainedinNovember2018andcertainotherrights,andtheotherrequiredapprovalsnecessaryforthe
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
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modificationstobeeffectiveweregranted.Accordingly,werecognizeda$1,176.0millionunrealizedgainfromunconsolidatedinvestmentswithinourconsolidatedresultsofoperationsforthesecondquarterofFiscal2020fromtheJune2019WarrantModification.ThesechangesweretheresultofCanopy’sintentiontoacquireAcreageuponU.S.federalcannabislegalization,subjecttocertainconditions.TheinputsusedtoestimatethefairvalueoftheNovember2018CanopyWarrantsasoftheJune27,2019modificationdate,wereasfollows:
TrancheAWarrants(1)
TrancheBWarrants(1)
Exerciseprice $ 50.40 $ 76.68
Valuationdatestockprice $ 53.36 $ 53.36
Remainingcontractualterm 4.3years 7.3years
Expectedvolatility 66.7% 66.7%
Risk-freeinterestrate 1.4% 1.4%
Expecteddividendyield 0.0% 0.0%
(1) RefertoNote7forinputdescriptions.
InMay2020,weexercisedtheNovember2017CanopyWarrantsatanexercisepriceofC$12.98perwarrantshareforC$245.0million,or$173.9million.WeenteredintoforeigncurrencyforwardcontractstofixtheU.S.dollarcostoftheMay2020CanopyInvestment.FortheyearendedFebruary28,2021,werecognizednetlossesontheforeigncurrencyforwardcontractsof$7.5million,inselling,general,andadministrativeexpenseswithinourconsolidatedresultsofoperations.ThepaymentatmaturityofthederivativeinstrumentsisreportedascashflowsfrominvestingactivitiesininvestmentsinequitymethodinvesteesandsecuritiesfortheyearendedFebruary28,2021.
Canopyhasvariousequityandconvertibledebtsecuritiesoutstanding,includingprimarilyequityawardsgrantedtoitsemployees,andoptionsandwarrantsissuedtovariousthirdparties,includingourNovember2018CanopyWarrants,CanopyDebtSecurities,andtheAcreageFinancialInstrument(acalloptionforCanopytoacquire70%ofthesharesofAcreage,atafixedexchangeratioand30%atafloatingexchangeratio).AsofFebruary28,2022,theexerciseand/orconversionofcertainoftheseoutstandingsecuritiescouldhaveasignificanteffectonourshareofCanopy’sreportedearningsorlossesandourownershipinterestinCanopy.
WehaveevaluatedtheCanopyEquityMethodInvestmentasofFebruary28,2022,anddeterminedthattherewasnotanother-than-temporaryimpairment.Ourconclusionwasbasedonseveralcontributingfactors,including:(i)theperiodoftimeforwhichthefairvaluehasbeenlessthanthecarryingvalue,(ii)anexpectationthatCanopy’sresultswillimprove,(iii)anexpectationthattheCanopystockpricewillrecoverinthenear-term,and(iv)ourabilityandintenttoholdtheinvestmentuntilthatrecovery.WewillcontinuetoreviewtheCanopyEquityMethodInvestmentforanother-than-temporaryimpairment.IfCanopy’sstockpricedoesnotrecoveraboveourcarryingvalueinthenear-term,itmayresultinanimpairmentofourCanopyEquityMethodInvestment.TheremayalsobeafutureimpairmentofourCanopyEquityMethodInvestmentifourexpectationsaboutCanopy’sprospectiveresultsandcashflowsdecline,whichcouldbeinfluencedbyavarietyoffactorsincludingadversemarketconditionsorifCanopyrecordsasignificantimpairmentofgoodwillorintangibleorotherlong-livedassets,makessignificantassetsales,orhaschangesinseniormanagement.
ThefollowingtablespresentsummarizedfinancialinformationforCanopypreparedinaccordancewithU.S.GAAP.Werecognizeourequityinearnings(losses)forCanopyonatwo-monthlag.Accordingly,werecognizedourshareofCanopy’searnings(losses)fortheperiods(i)JanuarythroughDecember2021inouryearendedFebruary28,2022results,(ii)JanuarythroughDecember2020inouryearendedFebruary28,2021results,and(iii)JanuarythroughDecember2019inouryearendedFebruary29,2020results.Theamountsshownrepresent100%ofCanopy’sfinancialpositionandresultsofoperations,fortherespectiveperiods,however,theresultsofoperationsfortheyearendedFebruary29,2020,excludetheimpactoftheJune2019WarrantModificationLossbecauseitwasrecordedbyCanopywithinequity.TheyearendedFebruary28,2021,includessubstantialcostsdesignedtoimproveCanopy’sorganizationalfocus,streamlineoperations,andalignproductioncapabilitywithprojecteddemand.
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI89
February28,2022
February28,2021
(inmillions)
Currentassets $ 1,573.3 $ 1,706.6
Noncurrentassets $ 3,419.2 $ 3,251.5
Currentliabilities $ 189.3 $ 273.7
Noncurrentliabilities $ 1,470.4 $ 1,308.8
Noncontrollinginterests $ 3.3 $ 179.0
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Netsales $ 444.3 $ 378.6 $ 290.2
Grossprofit(loss) $ (18.6) $ (14.1) $ 45.4
Netincome(loss) $ (274.3) $ (1,775.3) $ (327.0)
Netincome(loss)attributabletoCanopy $ 328.7 $ (1,750.0) $ (312.6)
OtherequitymethodinvestmentsMyFavoriteNeighborInApril2020,weinvestedinMyFavoriteNeighbor,whichweaccountedforundertheequitymethod.We
recognizedourshareoftheirequityinearnings(losses)inourconsolidatedfinancialstatementsintheWineandSpiritssegmentuptothedateweacquiredtheremainingownershipinterest.
CorporateinvestmentInFebruary2022,wesoldaninvestmentmadethroughourcorporateventurecapitalfunction.We
recognizeda$51.0milliongainfortheyearendedFebruary28,2022,relatedtothesaleofourpreviouslyheldequityinterestinthisinvestment.Thisgainisincludedinincome(loss)fromunconsolidatedinvestmentswithinourconsolidatedresultsofoperations.Additionally,werecognizedourshareoftheirequityinearnings(losses)inourconsolidatedfinancialstatementsintheCorporateOperationsandOthersegmentuptothedatewesoldourownershipinterest.
11. OTHERACCRUEDEXPENSESANDLIABILITIES
Themajorcomponentsofotheraccruedexpensesandliabilitiesareasfollows:
February28,2022
February28,2021
(inmillions)
Salaries,commissions,andpayrollbenefitsandwithholdings $ 256.3 $ 232.1
Promotionsandadvertising 172.3 159.9
Accruedinterest 85.1 93.4
Operatingleaseliability 80.4 68.8
Accruedexcisetaxes 44.6 19.9
Deferredrevenue 32.0 16.3
Incometaxespayable 21.5 24.7
Other 179.1 164.8
$ 871.3 $ 779.9
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI90
12. BORROWINGS
Borrowingsconsistofthefollowing:
February28,2022February28,
2021
Current Long-term Total Total
(inmillions)
Short-termborrowings
Commercialpaper $ 323.0 $ —
$ 323.0 $ —
Long-termdebt
Termloancreditfacilities $ — $ 300.0 $ 300.0 $ 454.4
Seniornotes 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
BankfacilitiesSeniorcreditfacilityInMarch2020,theCompany,CBInternational,certainoftheCompany’ssubsidiariesasguarantors,the
AdministrativeAgent,andcertainotherlendersenteredintothe2020RestatementAgreementthatamendedandrestatedourthen-existingseniorcreditfacility(asamendedandrestatedbythe2020RestatementAgreement,the2020CreditAgreement).The2020CreditAgreementprovidedforanaggregaterevolvingcreditfacilityof$2.0billion.Theprincipalchangeseffectedbythe2020RestatementAgreementwere:
• theremovalofthesubsidiaryguaranteesandterminationoftheguaranteeagreement;• theinclusionoftheparentguarantyprovisionsinconnectionwiththeterminationoftheguarantee
agreement;• theremovalofcertainprovisionspertainingtotermloanssincenotermloansareoutstanding;and• therevisionoftheLIBORsuccessorrateprovisionstopermittheuseofratesbasedontheSOFR.
Uponremovalofallsubsidiaryguarantorsfromour2020CreditAgreement,thesubsidiaryguarantorswereautomaticallyreleasedfromtheindenturesrelatingtoouroutstandingseniornotes.The2020CreditAgreementhasbeensupersededbythe2022CreditAgreement,asdescribedbelow.
2020TermCreditAgreementInMarch2020,theCompany,certainoftheCompany’ssubsidiariesasguarantors,theAdministrative
Agent,andcertainotherlendersenteredintotheTermLoanRestatementAgreementthatamendedandrestatedourthen-existingtermcreditagreement(asamendedandrestatedbytheTermLoanRestatementAgreement,the2020TermCreditAgreement).The2020TermCreditAgreementprovidedforaggregatecreditfacilitiesof$1.5billion,consistingofa$500.0millionthree-yeartermloanfacilityanda$1.0billionfive-yeartermloanfacility.DuringFiscal2021,werepaidtheoutstandingtermloanfacilityborrowingsunderour2020TermCreditAgreement.
June2021TermCreditAgreementInJune2019,theCompanyandtheAdministrativeAgentandLenderenteredintothe2019TermCredit
Agreement.The2019TermCreditAgreementprovidedforthecreationofa$491.3millionfive-yeartermloanfacility.TheFive-YearTermFacilitywillberepaidinquarterlypaymentsofprincipalequalto1.25%oftheoriginalaggregateprincipalamountoftheFive-YearTermFacility,withthebalancedueandpayableatmaturity.
InMarch2020,theCompany,certainoftheCompany’ssubsidiariesasguarantors,andtheLenderenteredintothe2020TermLoanRestatementAgreementthatamendedandrestatedthe2019TermCreditAgreement(as
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ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI91
amendedandrestatedbythe2020TermLoanRestatementAgreement,theMarch2020TermCreditAgreement).Theprincipalchangeseffectedbythe2020TermLoanRestatementAgreementwere:
• theremovalofthesubsidiaryguaranteesandterminationoftherespectiveguaranteeagreements;and
• therevisionoftheLIBORsuccessorrateprovisionstopermittheuseofratesbasedonSOFR.
InJune2021,theCompanyandtheAdministrativeAgentandLenderamendedtheMarch2020TermCreditAgreement.TheprincipalchangeeffectedbytheamendmentwasareductioninLIBORmarginfrom0.88%to0.63%fromJune1,2021throughDecember31,2021.TheJune2021TermCreditAgreementhasbeensupersededbythe2022TermCreditAgreement,asdescribedbelow.
GeneralWeandoursubsidiariesaresubjecttocovenantsthatarecontainedinthe2020CreditAgreementandthe
June2021TermCreditAgreement,includingthoserestrictingtheincurrenceofadditionalsubsidiaryindebtedness,additionalliens,mergersandconsolidations,transactionswithaffiliates,andsaleandleasebacktransactions,ineachcasesubjecttonumerousconditions,exceptions,andthresholds.Thefinancialcovenantsarelimitedtoaminimuminterestcoverageratioandamaximumnetleverageratio.
Ourseniorcreditfacilitypermitsustoelect,subjecttothewillingnessofexistingornewlenderstofundsuchincreaseandothercustomaryconditions,toincreasetherevolvingcreditcommitments.Theincreasedcommitmentsmaybeanunlimitedamountsolongasournetleverageratio,asdefinedandcomputedpursuanttoourseniorcreditfacility,isnogreaterthan4.00to1.00subjecttocertainlimitationsfortheperioddefinedpursuanttoourseniorcreditfacility.
AsofFebruary28,2022,aggregatecreditfacilitiesunderthe2020CreditAgreementandtheJune2021TermCreditAgreementconsistofthefollowing:
Amount Maturity
(inmillions)
2020CreditAgreement
Revolvingcreditfacility(1)(2) $ 2,000.0 Sept14,2023
June2021TermCreditAgreement
Five-YearTermFacility(1)(3) $ 491.3 Jun28,2024
(1) Contractualinterestratevariesbasedonourdebtrating(asdefinedintherespectiveagreement)andisafunctionofLIBORplusamargin,orthebaserateplusamargin,or,incertaincircumstanceswhereLIBORcannotbeadequatelyascertainedoravailable,analternativebenchmarkrateplusamargin.
(2) Weand/orCBInternationalaretheborrowerunderthe$2,000.0millionrevolvingcreditfacility.Includesasub-facilityforlettersofcreditofupto$200.0million.
(3) WearetheborrowerundertheFive-YearTermFacility.
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AsofFebruary28,2022,informationwithrespecttoborrowingsunderthe2020CreditAgreementandtheJune2021TermCreditAgreementisasfollows:
Outstandingborrowings
Interestrate
LIBORmargin
Outstandinglettersofcredit
Remainingborrowingcapacity(1)
(inmillions)
2020CreditAgreement
Revolvingcreditfacility $ — —% —% $ 12.2 $ 1,664.8
June2021TermCreditAgreement
Five-YearTermFacility(2) $ 300.0 1.0% 0.88%
(1) Netofoutstandingrevolvingcreditfacilityborrowings,outstandinglettersofcreditunderthe2020CreditAgreement,andoutstandingborrowingsunderourcommercialpaperprogramof$323.0million(excludingunamortizeddiscount)(see“Commercialpaperprogram”below).
(2) Outstandingtermloanfacilityborrowingsarenetofunamortizeddebtissuancecostsandreflectapartialprepaymentof$142.1millionmadeinJune2021.
CommercialpaperprogramWehaveacommercialpaperprogramwhichprovidesfortheissuanceofuptoanaggregateprincipal
amountof$2.0billionofcommercialpaper.Ourcommercialpaperprogramisbackedbyunusedcommitmentsunderourrevolvingcreditfacilityunderour2020CreditAgreement.Accordingly,outstandingborrowingsunderourcommercialpaperprogramreducetheamountavailableunderourrevolvingcreditfacility.AsofFebruary28,2021,wehadnooutstandingborrowingsunderourcommercialpaperprogram.InformationwithrespecttoouroutstandingcommercialpaperborrowingsasofFebruary28,2022,isasfollows:
(inmillions)
Outstandingborrowings(1) $ 323.0
Weightedaverageannualinterestrate 0.5%
Weightedaverageremainingterm 4days
(1) Outstandingcommercialpaperborrowingsarenetofunamortizeddiscount.
InterestrateswapcontractsInJune2019,weenteredintointerestrateswapagreements,whichweredesignatedascashflowhedges
for$375.0millionofourfloatingLIBORratedebt.Asaresultofthesehedges,wefixedourinterestrateson$375.0millionofourfloatingLIBORratedebtatanaveragerateof1.9%(exclusiveofborrowingmargins)fromJuly1,2019,throughJuly1,2020.
SwaplockandtreasurylockcontractsInFebruary2022,weenteredintoaswaplockagreement,whichwasdesignatedasacashflowhedge.As
aresult,wehavehedgedthetreasuryratevolatilityon$100.0millionoffuturedebtissuances.
InFebruaryandMarch2020,weenteredintotreasurylockagreements,whichweredesignatedascashflowhedges.Asaresultofthesehedges,wefixedour10-yeartreasuryrateson$500.0millionoffuturedebtissuancesatanaveragerateof1.2%(exclusiveofborrowingmargins).InApril2020,priortotheissuanceofthe2.875%SeniorNotesand3.75%SeniorNotes,wesettledalloutstandingtreasurylockcontracts,andrecognizedanunrealizedloss,netofincometaxeffect,of$21.8millioninaccumulatedothercomprehensiveincome(loss)withinourconsolidatedbalancesheets.Thislossisbeingamortizedover10yearstointerestexpensewithinourconsolidatedresultsofoperations.See“Seniornotes”below.
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SeniornotesOuroutstandingseniornotesareasfollows:
4.25%SeniorNotes(2)(3) $ 1,050.0 May2013 May2023 May/Nov 1,048.6 1,047.5
4.75%SeniorNotes(2)(3) $ 400.0 Nov2014 Nov2024 May/Nov 398.2 397.6
4.75%SeniorNotes(2)(3) $ 400.0 Dec2015 Dec2025 Jun/Dec 397.5 396.9
3.70%SeniorNotes(2)(4) $ 600.0 Dec2016 Dec2026 Jun/Dec 597.1 596.5
2.70%SeniorNotes(2)(5) $ 500.0 May2017 May2022 May/Nov — 498.8
3.50%SeniorNotes(2)(4) $ 500.0 May2017 May2027 May/Nov 497.2 496.5
4.50%SeniorNotes(2)(4) $ 500.0 May2017 May2047 May/Nov 493.4 493.1
2.65%SeniorNotes(2)(6) $ 700.0 Nov2017 Nov2022 May/Nov — 697.1
3.20%SeniorNotes(2)(4) $ 600.0 Feb2018 Feb2023 Feb/Aug 599.0 598.0
3.60%SeniorNotes(2)(4) $ 700.0 Feb2018 Feb2028 Feb/Aug 695.7 695.0
4.10%SeniorNotes(2)(4) $ 600.0 Feb2018 Feb2048 Feb/Aug 592.6 592.3
4.40%SeniorNotes(2)(4) $ 500.0 Oct2018 Nov2025 May/Nov 497.3 496.6
4.65%SeniorNotes(2)(4) $ 500.0 Oct2018 Nov2028 May/Nov 496.2 495.6
5.25%SeniorNotes(2)(4) $ 500.0 Oct2018 Nov2048 May/Nov 493.3 493.1
3.15%SeniorNotes(2)(4) $ 800.0 Jul2019 Aug2029 Feb/Aug 794.7 793.9
2.875%SeniorNotes(2)(4) $ 600.0 Apr2020 May2030 May/Nov 594.9 594.3
3.75%SeniorNotes(2)(4) $ 600.0 Apr2020 May2050 May/Nov 589.9 589.6
2.25%SeniorNotes(2)(4) $ 1,000.0 Jul2021 Aug2031 Feb/Aug 988.0 —
$ 9,773.6 $ 9,972.4
Dateof OutstandingBalance(1)
Principal Issuance MaturityInterestPayments
February28,2022
February28,2021
(inmillions)
(1) Amountsarenetofunamortizeddebtissuancecostsandunamortizeddiscounts,whereapplicable.(2) Seniorunsecuredobligationswhichrankequallyinrightofpaymenttoallofourexistingandfuturesenior
unsecuredindebtedness.(3) Redeemable,inwholeorinpart,atouroptionatanytimeataredemptionpriceequalto100%ofthe
outstandingprincipalamount,plusaccruedandunpaidinterestandamake-wholepaymentbasedonthepresentvalueofthefuturepaymentsattheadjustedTreasuryRateplus50basispoints.
(4) Redeemable,inwholeorinpart,atouroptionatanytimepriortothestatedredemptiondateasdefinedintheindenture,ataredemptionpriceequalto100%oftheoutstandingprincipalamount,plusaccruedandunpaidinterestandamake-wholepaymentbasedonthepresentvalueofthefuturepaymentsattheadjustedTreasuryRateplusthestatedbasispointsasdefinedintheindenture.Onorafterthestatedredemptiondate,redeemable,inwholeorinpart,atouroptionatanytimeataredemptionpriceequalto100%oftheoutstandingprincipalamount,plusaccruedandunpaidinterest.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI94
Redemption
StatedRedemption
Date
StatedBasisPoints
3.70%SeniorNotesdueDecember2026 Sept2026 25
3.50%SeniorNotesdueMay2027 Feb2027 20
4.50%SeniorNotesdueMay2047 Nov2046 25
3.20%SeniorNotesdueFebruary2023 Jan2023 13
3.60%SeniorNotesdueFebruary2028 Nov2027 15
4.10%SeniorNotesdueFebruary2048 Aug2047 20
4.40%SeniorNotesdueNovember2025 Sept2025 20
4.65%SeniorNotesdueNovember2028 Aug2028 25
5.25%SeniorNotesdueNovember2048 May2048 30
3.15%SeniorNotesdueAugust2029 May2029 20
2.875%SeniorNotesdueMay2030 Feb2030 35
3.75%SeniorNotesdueMay2050 Nov2049 40
2.25%SeniorNotesdueAugust2031 May2031 15(5) RedeemedpriortomaturityinAugust2021ataredemptionpriceequalto100%oftheoutstandingprincipal
amount,plusaccruedandunpaidinterestandamake-wholepaymentof$7.7million.Themake-wholepaymentisincludedinlossonextinguishmentofdebtwithinourconsolidatedresultsofoperations.
(6) RedeemedpriortomaturityinAugust2021ataredemptionpriceequalto100%oftheoutstandingprincipalamount,plusaccruedandunpaidinterestandamake-wholepaymentof$18.9million.Themake-wholepaymentisincludedinlossonextinguishmentofdebtwithinourconsolidatedresultsofoperations.
IndenturesOurindenturesrelatingtoouroutstandingseniornotescontaincertaincovenants,including,butnot
limitedto:(i)alimitationonliensoncertainassets,(ii)alimitationoncertainsaleandleasebacktransactions,and(iii)restrictionsonmergers,consolidations,andthetransferofallorsubstantiallyallofourassetstoanotherperson.
SubsidiarycreditfacilitiesGeneralWehaveadditionalcreditarrangementstotaling$64.5millionand$61.2millionasofFebruary28,2022,
andFebruary28,2021,respectively.AsofFebruary28,2022,andFebruary28,2021,amountsoutstandingunderthesearrangementswere$19.9millionand$15.5million,respectively,themajorityofwhichisclassifiedaslong-termasoftherespectivedate.Thesearrangementsprimarilysupportthefinancingneedsofourdomesticandforeignsubsidiaryoperations.Interestratesandothertermsoftheseborrowingsvaryfromcountrytocountry,dependingonlocalmarketconditions.
DebtpaymentsAsofFebruary28,2022,therequiredprincipalrepaymentsunderlong-termdebtobligations(excluding
unamortizeddebtissuancecostsandunamortizeddiscountsof$57.7millionand$18.7million,respectively)foreachofthefivesucceedingfiscalyearsandthereafterareasfollows:
(inmillions)
Fiscal2023 $ 606.8
Fiscal2024 1,056.2
Fiscal2025 703.9
Fiscal2026 902.0
Fiscal2027 600.9
Thereafter 6,300.1
$ 10,169.9
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI95
Subsequentevents2022CreditAgreementInApril2022,theCompany,CBInternational,theAdministrativeAgent,andcertainotherlendersentered
intothe2022RestatementAgreementthatamendedandrestatedthe2020CreditAgreement(asamendedandrestatedbythe2022RestatementAgreement,the2022CreditAgreement).Theprincipalchangeseffectedbythe2022RestatementAgreementwere:
• Therefinanceandincreaseoftheexistingrevolvingcreditfacilityfrom$2.0billionto$2.25billionandextensionofitsmaturitytoApril14,2027;
• Therefinementofcertainnegativecovenants;and• ThereplacementofLIBORrateswithratesbasedontermSOFR.
2022TermCreditAgreementInApril2022,theCompany,theAdministrativeAgent,andtheLenderamendedtheJune2021TermCredit
Agreement(asamendedthe2022TermCreditAgreement).TheprincipalchangeseffectedbytheamendmentweretherefinementofcertainnegativecovenantsandreplacementofLIBORrateswithratesbasedontermSOFR.
SwaplockcontractsDuringthefirstquarterofFiscal2023,weenteredintoadditionalswaplockagreements,whichwere
designatedascashflowhedges,for$150.0millionoffuturedebtissuances.Asaresultoftheadditionalswaplocks,wehavehedgedthetreasuryratevolatilityon$250.0millionoffuturedebtissuances.
13. INCOMETAXES
Income(loss)beforeincometaxeswasgeneratedasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
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)
Theincometaxprovision(benefit)consistedofthefollowing:
Current
Federal $ 229.3 $ 74.0 $ 66.5
State 31.4 19.1 12.1
Foreign (36.1) 81.6 108.5
Totalcurrent 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)
Totaldeferred 84.8 336.4 (1,153.7)
Incometaxprovision(benefit) $ 309.4 $ 511.1 $ (966.6)
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI96
Areconciliationofthetotaltaxprovision(benefit)totheamountcomputedbyapplyingthestatutoryU.S.federalincometaxratetoincomebeforeprovisionfor(benefitfrom)incometaxesisasfollows:
FortheYearsEnded
February28,2022 February28,2021 February29,2020
Amount
%ofPretaxIncome(Loss) Amount
%ofPretaxIncome(Loss) Amount
%ofPretaxIncome(Loss)
(inmillions,except%ofpretaxincome(loss)data)
Incometaxprovision(benefit)atstatutoryrate $ 65.2 21.0% $ 534.0 21.0% $ (198.5) 21.0%
Stateandlocalincometaxes,netoffederalincometaxbenefit(1) (77.8) (25.0%) 39.0 1.5% (82.3) 8.7%
Netincometaxprovision(benefit)fromlegislativechanges(2) 11.9 3.8% 10.9 0.4% (547.4) 57.9%
EarningstaxedatotherthanU.S.statutoryrate(3) (33.2) (10.7%) (84.4) (3.2%) (46.5) 5.0%
Excesstaxbenefitsfromstock-basedcompensationawards(4) (48.0) (15.5%) (29.4) (1.2%) (56.2) 5.9%
Netincometaxprovision(benefit)recognizedforadjustmenttovaluationallowance(5) 385.5 124.2% 27.1 1.1% (32.8) 3.5%
Miscellaneousitems,net 5.8 1.9% 13.9 0.5% (2.9) 0.3%
Incometaxprovision(benefit)ateffectiverate $ 309.4 99.7% $ 511.1 20.1% $ (966.6) 102.3%
(1) Includesdifferencesresultingfromadjustmentstothecurrentanddeferredstateeffectivetaxrates.(2) TheyearendedFebruary28,2022,representsanetincometaxprovisionresultingfromtheremeasurementof
ourdeferredtaxassetsinconnectionwithalegislativeupdateinSwitzerland.TheyearendedFebruary28,2021,representsanetincometaxprovisionresultingfrominitiativesundertheCARESAct.TheyearendedFebruary29,2020,representstherecognitionofanetincometaxbenefitresultingfromtheremeasurementofourdeferredtaxassetsinconnectionwiththeSeptember2019enactmentoftaxreforminSwitzerland.
(3) Consistsofthefollowing(i)differencebetweentheU.S.statutoryrateandlocaljurisdictiontaxrates,(ii)theprovisionforincrementalU.S.taxesonearningsofcertainforeignsubsidiariesoffsetbyforeigntaxcredits,(iii)thenon-U.S.portionoftaxprovision(benefit)recordedontheunrealizednetgain(loss)fromthechangesinfairvalueofourinvestmentinCanopy,and(iv)thenon-U.S.portionoftaxbenefitsrecordedontheCanopyequityinearnings(losses)andrelatedactivities.
(4) Representstherecognitionoftheincometaxeffectofstock-basedcompensationawardsintheincomestatementwhentheawardsvestoraresettled.
(5) Consistsprimarilyofvaluationallowancesontheunrealizednetgain(loss)fromchangesinfairvalueofourinvestmentinCanopyandCanopyequityinearnings(losses).
Deferredtaxassetsandliabilitiesreflectthefutureincometaxeffectsoftemporarydifferencesbetweenthefinancialstatementcarryingamountsofexistingassetsandliabilitiesandtheirrespectivetaxbasesandaremeasuredusingenactedtaxratesthatapplytotaxableincome.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI97
Significantcomponentsofdeferredtaxassets(liabilities)consistofthefollowing:
Deferredtaxassets
Intangibleassets $ 2,188.8 $ 1,852.0
Losscarryforwards 349.8 233.1
Stock-basedcompensation 22.9 30.1
Leaseliabilities 69.0 83.1
Inventory 51.8 26.6
Investmentsinunconsolidatedinvestees 541.0 36.7
Otheraccruals 67.8 33.7
Grossdeferredtaxassets 3,291.1 2,295.3
Valuationallowances (552.1) (78.6)
Deferredtaxassets,net 2,739.0 2,216.7
Deferredtaxliabilities
Intangibleassets (522.1) —
Property,plant,andequipment (186.0) (200.3)
Investmentsinunconsolidatedinvestees (58.9) —
Provisionforunremittedearnings (26.0) (23.0)
Right-of-useassets (59.8) (70.6)
Otheraccruals (50.5) —
Totaldeferredtaxliabilities (903.3) (293.9)
Deferredtaxassets(liabilities),net $ 1,835.7 $ 1,922.8
February28,2022
February28,2021
(inmillions)
Inassessingtherealizabilityofdeferredtaxassets,weconsiderwhetheritismorelikelythannotthatsomeorallofthedeferredtaxassetswillnotberealized.Inmakingthisassessment,weconsidertheprojectedreversalofdeferredtaxliabilitiesandprojectedfuturetaxableincomeaswellastaxplanningstrategies.Baseduponthisassessment,webelieveitismorelikelythannotthatwewillrealizethebenefitsofthesedeductibledifferences,netofanyvaluationallowances.
AsofFebruary28,2022,operatinglosscarryforwards,whichareprimarilystateandforeign,totaling$3.2billionarebeingcarriedforwardinanumberofjurisdictionswherewearepermittedtousetaxoperatinglossesfrompriorperiodstoreducefuturetaxableincome.Oftheseoperatinglosscarryforwards,$1.8billionwillexpirebyfiscal2029,$900.0millionwillexpirebetweenfiscal2030andfiscal2042,and$500.0millionmaybecarriedforwardindefinitelyincertainjurisdictions.
Wehaverecognizedvaluationallowancesforoperatinglosscarryforwardsandotherdeferredtaxassetswhenwebelieveitismorelikelythannotthattheseitemswillnotberealized.TheincreaseinourvaluationallowancesasofFebruary28,2022,primarilyrelatedtotheunrealizednetgain(loss)fromchangesinfairvalueofourinvestmentinCanopyandCanopyequityinearnings(losses).
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI98
Theliabilityforincometaxesassociatedwithuncertaintaxpositions,excludinginterestandpenalties,andareconciliationofthebeginningandendingunrecognizedtaxbenefitliabilitiesisasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
BalanceasofMarch1 $ 236.1 $ 249.4 $ 224.3
Increasesasaresultoftaxpositionstakenduringapriorperiod 16.5 3.1 11.4
Decreasesasaresultoftaxpositionstakenduringapriorperiod (0.1) (15.4) (14.8)
Increasesasaresultoftaxpositionstakenduringthecurrentperiod 29.5 15.2 29.0
Decreasesrelatedtosettlementswithtaxauthorities (2.6) (10.2) (0.1)
Decreasesrelatedtolapseofapplicablestatuteoflimitations (0.4) (6.0) (0.4)
BalanceasoflastdayofFebruary $ 279.0 $ 236.1 $ 249.4
AsofFebruary28,2022,andFebruary28,2021,wehad$322.6millionand$268.9million,respectively,ofunrecognizedtaxbenefitliabilities,includinginterestandpenalties,recognizedonourbalancesheets.Theseliabilitiesareprimarilyrecordedasnon-currentasofthebalancesheetdate.
AsofFebruary28,2022,andFebruary28,2021,wehad$279.0millionand$236.1million,respectively,ofunrecognizedtaxbenefitliabilitiesthat,ifrecognized,woulddecreasetheeffectivetaxrateintheyearofresolution.
WefileU.S.federalincometaxreturnsandvariousstate,local,andforeignincometaxreturns.MajortaxjurisdictionswherewearesubjecttoexaminationbytaxauthoritiesincludeCanada,Mexico,Switzerland,andtheU.S.VariousU.S.federal,stateandforeignincometaxexaminationsarecurrentlyinprogress.Itisreasonablypossiblethattheliabilityassociatedwithourunrecognizedtaxbenefitliabilitieswillincreaseordecreasewithinthenext12monthsasaresultoftheseexaminationsortheexpirationofstatutesoflimitation.AsofFebruary28,2022,weestimatethatunrecognizedtaxbenefitliabilitiescouldchangebyarangeof$1millionto$5million.Withfewexceptions,wearenolongersubjecttoU.S.federal,state,local,orforeignincometaxexaminationsforfiscalyearspriortoFebruary28,2015.
Weprovideforadditionaltaxexpensebasedonprobableoutcomesofongoingtaxexaminationsandassessmentsinvariousjurisdictions.Whileitisoftendifficulttopredicttheoutcomeorthetimingofresolutionofanytaxmatter,webelievethereservesreflecttheprobableoutcomeofknowntaxcontingencies.Unfavorablesettlementofanyparticularissuewouldrequiretheuseofcash.
14. DEFERREDINCOMETAXESANDOTHERLIABILITIES
Themajorcomponentsofdeferredincometaxesandotherliabilitiesareasfollows:February28,
2022February28,
2021
(inmillions)
Deferredincometaxes $ 515.8 $ 569.7
Operatingleaseliability 457.3 471.1
Unrecognizedtaxbenefitliabilities 317.7 268.9
Deferredrevenue 104.1 1.5
Long-termincometaxpayable 76.0 86.1
Other 150.1 96.2
$ 1,621.0 $ 1,493.5
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI99
15. LEASES
GeneralWeprimarilyleasecertainvineyards,officeandproductionfacilities,warehouses,productionequipment,
andvehicles.Wehaveconcludedthatcertaingrapepurchasingarrangementsassociatedwiththepurchaseofgrapeproductionyieldedfromaspecifiedblockofavineyardandcertainthird-partylogisticsarrangementscontainalease.
BalancesheetlocationAsummaryofleaseright-of-useassetsandliabilitiesareasfollows:
Assets
Operatinglease Otherassets $ 478.9 $ 477.9
Financelease Property,plant,andequipment 21.8 17.0
Totalright-of-useassets $ 500.7 $ 494.9
Liabilities
Current:
Operatinglease Otheraccruedexpensesandliabilities $ 80.4 $ 68.8
Financelease Currentmaturitiesoflong-termdebt 6.3 4.6
Non-current:
Operatinglease Deferredincometaxesandotherliabilities 457.3 471.1
Financelease Long-termdebt,lesscurrentmaturities 13.6 10.9
Totalleaseliabilities $ 557.6 $ 555.4
BalanceSheetClassificationFebruary28,
2022February28,
2021
(inmillions)
LeasecostThecomponentsoftotalleasecostareasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Operatingleasecost $ 89.5 $ 93.4 $ 98.9
Financeleasecost:
Amortizationofright-of-useassets 5.8 11.0 12.2
Interestonleaseliabilities 0.5 0.5 0.7
Short-termleasecost 8.4 9.2 8.6
Variableleasecost(1) 202.5 216.5 403.3
Totalleasecost $ 306.7 $ 330.6 $ 523.7
(1) HighervariableleasecostsfortheyearendedFebruary29,2020,wasprimarilydrivenbythetransferofgrapepurchasingagreementsinconnectionwithourWineandSpiritsDivestitures.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI100
LeasematuritiesAsofFebruary28,2022,minimumpaymentsdueforleaseliabilitiesforeachofthefivesucceedingfiscal
yearsandthereafterareasfollows:
OperatingLeases
FinanceLeases
(inmillions)
Fiscal2023 $ 95.1 $ 7.3
Fiscal2024 89.1 6.6
Fiscal2025 73.3 4.2
Fiscal2026 50.5 2.1
Fiscal2027 43.0 0.9
Thereafter 290.6 0.1
Totalleasepayments 641.6 21.2
Less:Interest (103.9) (1.3)
Totalleaseliabilities $ 537.7 $ 19.9
RelatedpartytransactionWehaveenteredintoaleaseforofficespacewithanaffiliateofanexecutiveofficeranddirectorthathas
notyetcommenced.AsofFebruary28,2022,theaggregateminimumpaymentsforthisoperatingleasetotaled$38.4milliononanundiscountedbasis.
Supplementalinformation
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Cashpaidforamountsincludedinthemeasurementofleaseliabilities:
Operatingcashflowsfromoperatingleases $ 92.7 $ 93.9 $ 100.7
Operatingcashflowsfromfinanceleases $ 0.5 $ 0.5 $ 0.7
Financingcashflowsfromfinanceleases $ 5.9 $ 10.5 $ 13.8
Right-of-useassetsobtainedinexchangefornewleaseliabilities:
Operatingleases $ 93.8 $ 66.3 $ 34.3
Financeleases $ 10.5 $ 11.6 $ 10.7
February28,2022
February28,2021
February29,2020
Weighted-averageremainingleaseterm:(1)
Operatingleases 12.1years 12.8years 11.7years
Financeleases 3.3years 2.9years 3.2years
Weighted-averagediscountrate:
Operatingleases 3.0% 3.2% 3.5%
Financeleases 3.4% 1.2% 2.6%
(1) Ourleaseshavevaryingtermswithremainingleasetermsofuptoapproximately30years.Certainofourleasearrangementsprovideuswiththeoptiontoextendortoterminatetheleaseearly.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI101
16. COMMITMENTSANDCONTINGENCIES
PurchasecommitmentsandcontingenciesWehaveenteredintovariouslong-termcontractsinthenormalcourseofbusinessforthepurchaseof
(i)certaininventorycomponents,(ii)transportation,marketing,warehousing,andbottlingservices,(iii)ITcontracts,(iv)certainenergyrequirements,and(v)property,plant,andequipmentandrelatedcontractorandmanufacturingservices.AsofFebruary28,2022,theestimatedaggregateminimumpurchasecommitmentsunderthesecontractsareasfollows:
Type LengthofCommitment Amount
(inmillions)
Rawmaterialsandsupplies(1) Packaging,grapes,hops,corn,andmalts throughDecember2037 $ 3,159.0
Contractservices Transportation,marketing,warehousing,andbottlingservices,andITandenergycontracts throughDecember2030 765.4
Capitalexpenditures(2) Property,plant,andequipmentandcontractorandmanufacturingservices throughJanuary2024 489.8
In-processinventories Bulkwineandspirits throughApril2025 50.6
Other Finishedwinecasegoods throughMay2029 19.7
$ 4,484.5
(1) Certaingrapepurchasingarrangementsincludethepurchaseofgrapeproductionyieldedfromspecifiedblocksofavineyard.Theactualtonnageandpriceofgrapesthatwepurchasewillvaryeachyeardependingoncertainfactors,includingweather,timeofharvest,overallmarketconditions,andtheagriculturalpracticesandlocationofthevineyard.Amountsincludedhereinfortheestimatedaggregateminimumgrapepurchasecommitmentsconsistofestimatesforthepurchaseofthegrapesandtheimplicitleasesoftheland.Certaingrapepurchasingarrangementsclassifiedasleaseshavenotresultedintherecognitionofright-of-useassetsandleaseliabilitiesonourbalancesheetduetotheirvariablenature.
(2) ConsistsofpurchasecommitmentsenteredintoprimarilyinconnectionwiththeMexicoBeerProjects.
Additionally,wehaveenteredintovariouscontractualarrangementswithaffiliatesofOwens-Illinois,arelatedpartyentity,primarilyforthepurchaseofglassbottlesusedlargelyinourimportedandcraftbeerportfolios.AmountspurchasedunderthesearrangementsfortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020,were$123.5million,$154.7million,and$166.6million,respectively.
IndemnificationliabilitiesInconnectionwithpriordivestitures,wehaveindemnifiedrespectivepartiesagainstcertainliabilitiesthat
mayarisesubsequenttothedivestiture.AsofFebruary28,2022,andFebruary28,2021,theseliabilitiesconsistprimarilyofindemnificationsrelatedtocertainincometaxmattersandleasecontracts.AsofFebruary28,2022,andFebruary28,2021,thecarryingamountofourindemnificationliabilitieswas$16.6millionand$17.0million,respectively,andisincludedindeferredincometaxesandotherliabilities.Wedonotexpecttoberequiredtomakematerialpaymentsundertheindemnificationsandwebelievethatthelikelihoodisremotethattheindemnificationscouldhaveamaterialadverseeffectonourbusiness,liquidity,financialcondition,and/orresultsofoperations.
LegalmattersIntheordinarycourseofourbusiness,wearesubjecttolawsuits,arbitration,claims,andotherlegal
proceedingsinconnectionwithourbusiness.Someofthelegalactionsincludeclaimsforsubstantialorunspecifiedcompensatoryand/orpunitivedamagesand/orinjunctiverelief.Asubstantialadversejudgmentorotherunfavorableresolutionofthesematterscouldhaveamaterialadverseeffectonourfinancialcondition,resultsofoperations,orcashflows.Managementbelievesthatwehaveadequatelegaldefenseswithrespecttothelegalproceedingstowhichitisadefendantorrespondentandthattheoutcomeofthesependingproceedingsisnotlikelytohaveamaterialadverseeffectonourfinancialcondition,resultsofoperations,orcashflows.However,weareunabletopredicttheoutcomeofthesematters.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI102
RegulatorymattersWeareindiscussionswithvariousgovernmentalagenciesconcerningmattersraisedduringregulatory
examinationsorotherwisesubjecttosuchagencies’inquiry.Thesematterscouldresultincensures,fines,orothersanctions.Managementbelievestheoutcomeofanypendingregulatorymatterswillnothaveamaterialadverseeffectonourfinancialcondition,resultsofoperations,orcashflows.However,weareunabletopredicttheoutcomeofthesematters.
17. STOCKHOLDERS’EQUITY
CommonstockWehavetwoclassesofcommonstockwithamaterialnumberofsharesoutstanding:ClassAStockand
ClassBStock.ClassBStocksharesareconvertibleintosharesofClassAStockonaone-to-onebasisatanytimeattheoptionoftheholder.HoldersofClassBStockareentitledto10votespershare.HoldersofClassAStockareentitledtoonevotepershareandacashdividendpremium.IfwepayacashdividendonClassBStock,eachshareofClassAStockwillreceiveanamountatleast10%greaterthantheamountofthecashdividendpersharepaidonClassBStock.Inaddition,theBoardofDirectorsmaydeclareandpayadividendonClassAStockwithoutpayinganydividendonClassBStock.However,ourseniorcreditfacilitylimitsthecashdividendsthatwecanpayonourcommonstocktoafixedamountperquarterbutthefixedamountmaybeexceededsubjecttovariousconditionssetforthintheseniorcreditfacility.
Inaddition,wehaveaclassofcommonstockwithanimmaterialnumberofsharesoutstanding:Class1Stock.SharesofClass1Stockgenerallyhavenovotingrights.Class1StocksharesareconvertibleintosharesofClassAStockonaone-to-onebasisatanytimeattheoptionoftheholder,providedthattheholderimmediatelysellstheClassAStockacquireduponconversion.BecausesharesofClass1StockareconvertibleintosharesofClassAStock,foreachshareofClass1Stockissued,wemustreserveoneshareofClassAStockforissuanceupontheconversionoftheshareofClass1Stock.HoldersofClass1Stockdonothaveanypreferenceastodividends,butmayparticipateinanydividendifandwhendeclaredbytheBoardofDirectors.IfwepayacashdividendonClass1Stock,eachshareofClassAStockwillreceiveanamountatleast10%greaterthantheamountofcashdividendpersharepaidonClass1Stock.Inaddition,theBoardofDirectorsmaydeclareandpayadividendonClassAStockwithoutpayingadividendonClass1Stock.ThecashdividendsdeclaredandpaidonClassBStockandClass1Stockmustalwaysbethesame.
Thenumberofsharesofcommonstockissuedandtreasurystock,andassociatedshareactivity,areasfollows:
BalanceatFebruary28,2019 185,740,178 28,322,419 1,149,624 18,927,966 5,005,800
Sharerepurchases — — — 265,593 —
Conversionofshares 350,567 (22,213) (328,354) — —
Exerciseofstockoptions — — 870,957 (747,527) —
Employeestockpurchases — — — (69,324) —
Vestingofrestrictedstockunits(1) — — — (91,311) —
Vestingofperformanceshareunits(1) — — — (29,015) —
Cancellationofrestrictedshares — — — 444 —
BalanceatFebruary29,2020 186,090,745 28,300,206 1,692,227 18,256,826 5,005,800
Conversionofshares 1,113,535 (29,918) (1,083,617) — —
Exerciseofstockoptions — — 4,326 (1,020,853) —
Employeestockpurchases — — — (67,801) —
Vestingofrestrictedstockunits(1) — — — (80,287) —
Vestingofperformanceshareunits(1) — — — (17,335) —
BalanceatFebruary28,2021 187,204,280 28,270,288 612,936 17,070,550 5,005,800
CommonStock TreasuryStock
ClassA ClassB Class1 ClassA ClassB
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI103
Sharerepurchases — — — 6,179,015 —
Conversionofshares 59,579 (57,948) (1,631) — —
Exerciseofstockoptions — — 1,637,374 (287,873) —
Employeestockpurchases — — — (57,738) —
Vestingofrestrictedstockunits(1) — — — (71,413) —
Vestingofperformanceshareunits(1) — — — (7,934) —
BalanceatFebruary28,2022 187,263,859 28,212,340 2,248,679 22,824,607 5,005,800
CommonStock TreasuryStock
ClassA ClassB Class1 ClassA ClassB
(1) Netofthefollowingshareswithheldtosatisfytaxwithholdingrequirements:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
RestrictedStockUnits 36,213 37,933 49,900
PerformanceShareUnits 4,565 9,433 17,439
StockrepurchasesInJanuary2018,ourBoardofDirectorsauthorizedtherepurchaseofupto$3.0billionofourClassAStock
andClassBStock.InJanuary2021,ourBoardofDirectorsauthorizedanadditionalrepurchaseofupto$2.0billionofourClassAStockandClassBStock.TheBoardofDirectorsdidnotspecifyadateuponwhichtheseauthorizationswouldexpire.Sharesmayberepurchasedthroughopenmarketorprivatelynegotiatedtransactions.Sharesrepurchasedundertheseauthorizationswillbecometreasuryshares.
Asummaryofsharerepurchaseactivityisasfollows:
ClassACommonSharesRepurchased
FortheYearsEnded
February28,2022 February28,2021 February29,2020
DollarValue
NumberofShares
DollarValue
NumberofShares
DollarValue
NumberofShares
(inmillions,exceptsharedata)
2018Authorization $ 1,390.5 6,179,015 $ — — $ 50.0 265,593
2021Authorization — — — — — —
$ 1,390.5 6,179,015 $ — — $ 50.0 265,593
SubsequenteventsStockrepurchasesOnApril7,2022,weenteredintoanASRtorepurchase$500.0millionofourClassAStock.Weutilized
short-termborrowingsandcashonhandtopaythedollarvalueforsharesrepurchasedinthisASRunderthe2018Authorization.PursuanttothetermsofthisASR,aninitialinstallmentof1.7millionsharesofClassAStockweredelivered.
AsofApril21,2022,totalsharesrepurchasedunderourboardauthorizationsareasfollows:
ClassACommonShares
RepurchaseAuthorization
DollarValueofShares
Repurchased
NumberofShares
Repurchased
(inmillions,exceptsharedata)
2018Authorization $ 3,000.0 $ 2,936.4 12,802,171
2021Authorization $ 2,000.0 $ — —
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI104
CommonstockdividendsInApril2022,ourBoardofDirectorsdeclaredaquarterlycashdividendof$0.80pershareofClassAStock,
$0.72pershareofClassBStock,and$0.72pershareofClass1StockpayableinthefirstquarterofFiscal2023.
ClassBStockdeclassificationproposalInApril2022,wereceivedtheProposalwhichproposesthateachshareofClassBStockwouldbe
convertedinto1.35sharesofClassAStock.OurBoardofDirectorshasestablishedaSpecialCommitteetoevaluatetheProposal.AnydefinitiveagreementwithrespecttothepotentialtransactionmustbeapprovedbytheSpecialCommitteeaswellasourBoardofDirectors.Inaddition,pursuanttothetermsoftheProposal,anypotentialtransactionwouldrequiretheapprovalofholdersofamajorityofthesharesofourClassAStockthatdonotalsoholdsharesofClassBStock.
18. STOCK-BASEDEMPLOYEECOMPENSATION
Wehavetwostock-basedemployeecompensationplans(asfurtherdiscussedbelow).Totalcompensationcostrecognizedforourstock-basedawardsandincometaxbenefitsrelatedtheretoareasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Totalcompensationcostrecognizedinourresultsofoperations $ 44.9 $ 63.0 $ 60.4
Incometaxbenefitrelatedtheretorecognizedinourresultsofoperations $ 6.6 $ 9.2 $ 9.5
Long-TermStockIncentivePlanUnderourLong-TermStockIncentivePlan,nonqualifiedstockoptions,restrictedstock,restrictedstock
units,performanceshareunits,andotherstock-basedawardsmaybegrantedtoouremployees,officers,anddirectors.TheaggregatenumberofsharesofourClassAStockandClass1StockavailableforawardsunderourLong-TermStockIncentivePlanis108,000,000shares.
Theexerciseprice,vestingperiod,andtermofnonqualifiedstockoptionsgrantedareestablishedbythecommitteeadministeringtheplan(the“Committee”).TheexercisepriceofanynonqualifiedstockoptionmaynotbelessthanthefairmarketvalueofourClassAStockonthedateofgrant.Nonqualifiedstockoptionsgenerallyvestandbecomeexercisableoverafour-yearperiodfromthedateofgrantandexpireasestablishedbytheCommittee,butnotlaterthan10yearsafterthegrantdate.
Grantsofrestrictedstock,restrictedstockunits,performanceshareunits,andotherstock-basedawardsmaycontainsuchvestingperiods,terms,conditions,andotherrequirementsastheCommitteemayestablish.Restrictedstockandrestrictedstockunitawardsarebasedonserviceandgenerallyvestoveronetofouryearsfromthedateofgrant.Performanceshareunitawardsarebasedonserviceandthesatisfactionofcertainperformanceconditions,andvestoverarequiredemployeeserviceperiod,generallyfromonetothreeyearsfromthedateofgrant,whichcloselymatchestheperformanceperiod.Theperformanceconditionsincludetheachievementofspecifiedfinancialoroperationalperformancemetrics,ormarketconditionswhichrequiretheachievementofspecifiedlevelsofstockholderreturnrelativetoothercompaniesasdefinedintheapplicableperformanceshareunitagreement.Theactualnumberofsharestobeawardeduponvestingofaperformanceshareunitawardwillrangebetween0%and200%ofthetargetaward,baseduponthemeasureofperformanceascertifiedbytheCommittee.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI105
AsummaryofstockoptionactivityunderourLong-TermStockIncentivePlanisasfollows:
FortheYearsEnded
February28,2022 February28,2021 February29,2020
Numberof
Options
WeightedAverageExercisePrice
Numberof
Options
WeightedAverageExercisePrice
Numberof
Options
WeightedAverageExercisePrice
OutstandingasofMarch1 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
OutstandingasoflastdayofFebruary 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
AsofFebruary28,2022,theaggregateintrinsicvalueofouroptionsoutstandingandexercisablewas$123.1millionand$79.8million,respectively.Inaddition,theweightedaverageremainingcontractuallifeforouroptionsoutstandingandexercisablewas6.7yearsand5.1years,respectively.
Thefairvalueofstockoptionsvested,andtheintrinsicvalueofandtaxbenefitrealizedfromtheexerciseofstockoptions,areasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Fairvalueofstockoptionsvested $ 23.9 $ 21.1 $ 21.1
Intrinsicvalueofstockoptionsexercised $ 269.1 $ 142.1 $ 255.0
Taxbenefitrealizedfromstockoptionsexercised $ 62.9 $ 33.9 $ 60.4
Theweightedaveragegrant-datefairvalueofstockoptionsgrantedandtheweightedaverageinputsusedtoestimatethefairvalueonthedateofgrantusingtheBlack-Scholesoption-pricingmodelareasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
Grant-datefairvalue $ 59.27 $ 31.26 $ 44.90
Expectedlife(1) 6.3years 6.3years 6.0years
Expectedvolatility(2) 27.8% 26.6% 22.1%
Risk-freeinterestrate(3) 1.2% 0.5% 2.5%
Expecteddividendyield(4) 1.3% 1.9% 1.5%
(1) Basedonhistoricalexperienceofemployees’exercisebehaviorforsimilartypeawards.(2) BasedprimarilyonhistoricalvolatilitylevelsofourClassAStock.(3) BasedontheimpliedyieldcurrentlyavailableonU.S.Treasuryzerocouponissueswitharemainingtermequal
totheexpectedlife.(4) BasedonthecalculatedyieldonourClassAStockatdateofgrantusingthecurrentfiscalyearprojected
annualizeddividenddistributionrate.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI106
AsummaryofrestrictedstockandperformanceshareactivityunderourLong-TermStockIncentivePlanisasfollows:
RestrictedStockAwards
OutstandingbalanceasofMarch1,Nonvested — $ — — $ — 3,914 $ 214.29
Granted — $ — — $ — — $ —
Vested — $ — — $ — (3,470) $ 214.34
Forfeited — $ — — $ — (444) $ 213.85
OutstandingbalanceasoflastdayofFebruary,Nonvested — $ — — $ — — $ —
RestrictedStockUnits
OutstandingbalanceasofMarch1,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
OutstandingbalanceasoflastdayofFebruary,Nonvested 291,171 $ 202.68 311,358 $ 183.74 271,143 $ 196.58
PerformanceShareUnits
OutstandingbalanceasofMarch1,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
Performanceachievement(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
OutstandingbalanceasoflastdayofFebruary,Nonvested 86,641 $ 268.12 226,463 $ 223.85 221,749 $ 231.49
FortheYearsEnded
February28,2022 February28,2021 February29,2020
Number
WeightedAverage
Grant-DateFairValue Number
WeightedAverage
Grant-DateFairValue Number
WeightedAverage
Grant-DateFairValue
(1) Reflectsthenetnumberofawardsachievedabove(below)targetlevelsbasedonactualperformancemeasuredattheendoftheperformanceperiod.
Thefairvalueofsharesvestedforourrestrictedstockandperformanceshareawardsisasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Restrictedstockawards $ — $ — $ 0.7
Restrictedstockunits $ 25.8 $ 19.2 $ 29.9
Performanceshareunits $ 3.0 $ 4.3 $ 9.9
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI107
Theweightedaveragegrant-datefairvalueofperformanceshareunitsgrantedwithamarketconditionandtheweightedaverageinputsusedtoestimatethefairvalueonthedateofgrantusingtheMonteCarloSimulationmodelareasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
Grant-datefairvalue $ 318.71 $ 202.53 $ 319.56
Grant-dateprice $ 238.31 $ 153.02 $ 205.46
Performanceperiod 2.9years 2.9years 2.8years
Expectedvolatility(1) 35.0% 31.7% 23.1%
Risk-freeinterestrate(2) 0.3% 0.2% 2.3%
Expecteddividendyield(3) 0.0% 0.0% 0.0%
(1) BasedprimarilyonhistoricalvolatilitylevelsofourClassAStock.(2) BasedontheimpliedyieldcurrentlyavailableonU.S.Treasuryzerocouponissueswitharemainingtermequal
totheperformanceperiod.(3) Noexpecteddividendyieldasunitsgrantedearndividendequivalents.
EmployeeStockPurchasePlanWehaveanEmployeeStockPurchasePlanunderwhich9,000,000sharesofClassAStockmaybeissued.
Underthetermsoftheplan,eligibleemployeesmaypurchasesharesofourClassAStockthroughpayrolldeductions.Thepurchasepriceisthelowerof85%ofthefairmarketvalueofthestockonthefirstorlastdayofthepurchaseperiod.FortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020,employeespurchased57,738shares,67,801shares,and69,324shares,respectively,underthisplan.
OtherAsofFebruary28,2022,therewas$64.3millionoftotalunrecognizedcompensationcostrelatedto
nonvestedstock-basedcompensationarrangementsgrantedunderourstock-basedemployeecompensationplans.Thiscostisexpectedtoberecognizedinourresultsofoperationsoveraweighted-averageperiodof2.2years.Withrespecttotheissuanceofsharesunderanyofourstock-basedcompensationplans,wehavetheoptiontoissueauthorizedbutunissuedsharesortreasuryshares.
19. NETINCOME(LOSS)PERCOMMONSHAREATTRIBUTABLETOCBI
Thecomputationofbasicanddilutednetincome(loss)percommonshareisasfollows:
Netincome(loss)attributabletoCBIallocated–basic $ (35.8) $ (4.6) $ 1,777.2 $ 220.8 $ (10.2) $ (1.6)
ConversionofClassBcommonsharesintoClassAcommonshares — — 220.8 — — —
Effectofstock-basedawardsonallocatednetincome(loss) — — — (1.5) — —
Netincome(loss)attributabletoCBIallocated–diluted $ (35.8) $ (4.6) $ 1,998.0 $ 219.3 $ (10.2) $ (1.6)
FortheYearsEnded
February28,2022 February28,2021 February29,2020
ClassAStock
ClassBStock
ClassAStock
ClassBStock
ClassAStock
ClassBStock
(inmillions,exceptpersharedata)
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI108
Weightedaveragecommonsharesoutstanding–basic 167.431 23.225 170.239 23.280 168.329 23.313
ConversionofClassBcommonsharesintoClassAcommonshares(1) — — 23.280 — — —
Stock-basedawards,primarilystockoptions(1) — — 1.789 — — —
Weightedaveragecommonsharesoutstanding–diluted 167.431 23.225 195.308 23.280 168.329 23.313
Netincome(loss)percommonshareattributabletoCBI–basic $ (0.22) $ (0.20) $ 10.44 $ 9.48 $ (0.07) $ (0.07)
Netincome(loss)percommonshareattributabletoCBI–diluted $ (0.22) $ (0.20) $ 10.23 $ 9.42 $ (0.07) $ (0.07)
FortheYearsEnded
February28,2022 February28,2021 February29,2020
ClassAStock
ClassBStock
ClassAStock
ClassBStock
ClassAStock
ClassBStock
(inmillions,exceptpersharedata)
(1) Wehaveexcludedthefollowingweightedaveragecommonsharesoutstandingfromthecalculationofdilutednetincome(loss)percommonshare,astheeffectofincludingthesewouldhavebeenanti-dilutive:
FortheYearsEnded
February28,2022
February29,2020
(inmillions)
ClassBStock 23.225 23.313
Stock-basedawards,primarilystockoptions 1.566 3.239
20. ACCUMULATEDOTHERCOMPREHENSIVEINCOME(LOSS)
Othercomprehensiveincome(loss)attributabletoCBIincludesthefollowingcomponents:
FortheYearEndedFebruary29,2020
Othercomprehensiveincome(loss)attributabletoCBI:
Foreigncurrencytranslationadjustments:
Netgain(loss) $ 83.4 $ — $ 83.4
Reclassificationadjustments (22.6) — (22.6)
Netgain(loss)recognizedinothercomprehensiveincome(loss) 60.8 — 60.8
Unrealizedgain(loss)oncashflowhedges:
Netderivativegain(loss) 48.0 6.4 54.4
Reclassificationadjustments (15.3) (1.7) (17.0)
Netgain(loss)recognizedinothercomprehensiveincome(loss) 32.7 4.7 37.4
Pension/postretirementadjustments:
Netactuarialgain(loss) (3.1) 0.9 (2.2)
Reclassificationadjustments 1.8 (0.1) 1.7
Netgain(loss)recognizedinothercomprehensiveincome(loss) (1.3) 0.8 (0.5)
BeforeTaxAmount
Tax(Expense)Benefit
NetofTaxAmount
(inmillions)
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI109
ShareofOCIofequitymethodinvestments:
Netgain(loss) (13.3) 3.2 (10.1)
Reclassificationadjustments — — —
Netgain(loss)recognizedinothercomprehensiveincome(loss) (13.3) 3.2 (10.1)
Othercomprehensiveincome(loss)attributabletoCBI $ 78.9 $ 8.7 $ 87.6
FortheYearEndedFebruary28,2021
Othercomprehensiveincome(loss)attributabletoCBI:
Foreigncurrencytranslationadjustments:
Netgain(loss) $ (51.9) $ — $ (51.9)
Reclassificationadjustments 5.1 — 5.1
Netgain(loss)recognizedinothercomprehensiveincome(loss) (46.8) — (46.8)
Unrealizedgain(loss)oncashflowhedges:
Netderivativegain(loss) (48.1) 3.2 (44.9)
Reclassificationadjustments 28.8 (2.9) 25.9
Netgain(loss)recognizedinothercomprehensiveincome(loss) (19.3) 0.3 (19.0)
Pension/postretirementadjustments:
Netactuarialgain(loss) (2.3) 0.7 (1.6)
Reclassificationadjustments — — —
Netgain(loss)recognizedinothercomprehensiveincome(loss) (2.3) 0.7 (1.6)
ShareofOCIofequitymethodinvestments:
Netgain(loss) (1.6) (0.2) (1.8)
Reclassificationadjustments — — —
Netgain(loss)recognizedinothercomprehensiveincome(loss) (1.6) (0.2) (1.8)
Othercomprehensiveincome(loss)attributabletoCBI $ (70.0) $ 0.8 $ (69.2)
FortheYearEndedFebruary28,2022
Othercomprehensiveincome(loss)attributabletoCBI:
Foreigncurrencytranslationadjustments:
Netgain(loss) $ (38.9) $ — $ (38.9)
Reclassificationadjustments — — —
Netgain(loss)recognizedinothercomprehensiveincome(loss) (38.9) — (38.9)
Unrealizedgain(loss)oncashflowhedges:
Netderivativegain(loss) 12.6 (7.5) 5.1
Reclassificationadjustments (34.0) 2.9 (31.1)
Netgain(loss)recognizedinothercomprehensiveincome(loss) (21.4) (4.6) (26.0)
Pension/postretirementadjustments:
Netactuarialgain(loss) 2.3 (0.6) 1.7
Reclassificationadjustments (2.1) 0.6 (1.5)
Netgain(loss)recognizedinothercomprehensiveincome(loss) 0.2 — 0.2
BeforeTaxAmount
Tax(Expense)Benefit
NetofTaxAmount
(inmillions)
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI110
ShareofOCIofequitymethodinvestments:
Netgain(loss) (16.2) 3.7 (12.5)
Reclassificationadjustments — — —
Netgain(loss)recognizedinothercomprehensiveincome(loss) (16.2) 3.7 (12.5)
Othercomprehensiveincome(loss)attributabletoCBI $ (76.3) $ (0.9) $ (77.2)
BeforeTaxAmount
Tax(Expense)Benefit
NetofTaxAmount
(inmillions)
Accumulatedothercomprehensiveincome(loss),netofincometaxeffect,includesthefollowingcomponents:
ForeignCurrencyTranslationAdjustments
UnrealizedNetGain(Loss)onDerivativeInstruments
Pension/PostretirementAdjustments
ShareofOCIofEquityMethodInvestments
AccumulatedOther
ComprehensiveIncome(Loss)
(inmillions)
Balance,February28,2021 $ (392.5) $ 43.5 $ (4.2) $ 17.7 $ (335.5)
Othercomprehensiveincome(loss):
Othercomprehensiveincome(loss)beforereclassificationadjustments (38.9) 5.1 1.7 (12.5) (44.6)
Amountsreclassifiedfromaccumulatedothercomprehensiveincome(loss) — (31.1) (1.5) — (32.6)
Othercomprehensiveincome(loss) (38.9) (26.0) 0.2 (12.5) (77.2)
Balance,February28,2022 $ (431.4) $ 17.5 $ (4.0) $ 5.2 $ (412.7)
21. SIGNIFICANTCUSTOMERSANDCONCENTRATIONOFCREDITRISK
Netsalestoour10largestcustomersrepresentedapproximatelyhalfofournetsalesfortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020,andareexpectedtocontinuetorepresentasignificantportionofourrevenues.Netsalestoanindividualcustomerwhichamountto10%ormoreofournetsales,andtheassociatedamountsreceivablefromthiscustomerasapercentageofouraccountsreceivable,areasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
ReyesBeerDivisionentities
Netsales 21.0% 18.6% 16.1%
Accountsreceivable 11.1% 12.7% 10.6%
SouthernGlazer’sWineandSpirits
Netsales 14.4% 10.5% 10.5%
Accountsreceivable 35.2% 28.7% 27.2%
NetsalesfortheabovecustomersareprimarilyreportedwithintheBeerandWineandSpiritssegments,respectively.Ourarrangementswithcertainofourcustomersmay,generally,beterminatedbyeitherpartywithpriornotice.Themajorityofouraccountsreceivablebalanceisgeneratedfromsalestoindependentdistributorswithwhomwehaveapredeterminedcollectiondatearrangedthroughelectronicfundstransfer.Weperformongoingcreditevaluationsofourcustomers’financialposition,andmanagementisoftheopinionthatanyriskofsignificantlossisreducedduetothediversityofourcustomersandgeographicsalesarea.
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI111
22. BUSINESSSEGMENTINFORMATION
Ourinternalmanagementfinancialreportingconsistsofthreebusinessdivisions:(i)Beer,(ii)WineandSpirits,and(iii)Canopyandwereportouroperatingresultsinfoursegments:(i)Beer,(ii)WineandSpirits,(iii)CorporateOperationsandOther,and(iv)Canopy.TheCanopyEquityMethodInvestmentmakesuptheCanopysegment.
IntheBeersegment,ourportfolioconsistsofhigh-endimportedbeerbrands,craftbeer,andABAs.Wehaveanexclusiveperpetualbrandlicensetoimport,market,andsellourMexicanbeerportfoliointheU.S.IntheWineandSpiritssegment,wesellaportfoliothatincludeshigher-margin,higher-growthwinebrandscomplementedbycertainhigher-endspiritsbrands.AmountsincludedintheCorporateOperationsandOthersegmentconsistofcostsofexecutivemanagement,corporatedevelopment,corporatefinance,corporategrowthandstrategy,humanresources,internalaudit,investorrelations,legal,publicrelations,andinformationtechnology,aswellasourinvestmentsmadethroughourcorporateventurecapitalfunction.AllcostsincludedintheCorporateOperationsandOthersegmentaregeneralcoststhatareapplicabletotheconsolidatedgroupandare,therefore,notallocatedtotheotherreportablesegments.AllcostsreportedwithintheCorporateOperationsandOthersegmentarenotincludedinourCODM’sevaluationoftheoperatingincome(loss)performanceoftheotherreportablesegments.Thebusinesssegmentsreflecthowouroperationsaremanaged,howresourcesareallocated,howoperatingperformanceisevaluatedbyseniormanagement,andthestructureofourinternalfinancialreporting.Long-livedtangibleassetsandtotalassetinformationbysegmentisnotprovidedto,orreviewedby,ourCODMasitisnotusedtomakestrategicdecisions,allocateresources,orassessperformance.
Inaddition,managementexcludesComparableAdjustmentsfromitsevaluationoftheresultsofeachoperatingsegmentastheseComparableAdjustmentsarenotreflectiveofcoreoperationsofthesegments.Segmentoperatingperformanceandtheincentivecompensationofsegmentmanagementareevaluatedbasedoncoresegmentoperatingincome(loss)whichdoesnotincludetheimpactoftheseComparableAdjustments.
Weevaluatesegmentoperatingperformancebasedonoperatingincome(loss)oftherespectivebusinessunits.ComparableAdjustmentsthatimpactedcomparabilityinoursegmentoperatingincome(loss)foreachperiodareasfollows:
Costofproductsold
Netgain(loss)onundesignatedcommodityderivativecontracts $ 109.9 $ 25.1 $ (49.0)
Netflowthroughofreservedinventory 12.1 — —
Settlementsofundesignatedcommodityderivativecontracts (35.9) 31.6 11.7
Strategicbusinessdevelopmentcosts (2.6) (29.8) (124.5)
Recoveryof(losson)inventorywrite-down (1.0) (70.4) 8.6
Flowthroughofinventorystep-up (0.1) (0.4) (1.5)
COVID-19incrementalcosts — (7.6) —
Accelerateddepreciation — (0.1) (7.6)
Totalcostofproductsold 82.4 (51.6) (162.3)
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI112
Selling,general,andadministrativeexpenses
Transitionservicesagreementsactivity (19.2) 0.4 —
Transaction,integration,andotheracquisition-relatedcosts (1.4) (7.6) (9.2)
Restructuringandotherstrategicbusinessdevelopmentcosts 0.6 (23.9) (25.3)
Netgain(loss)onforeigncurrencyderivativecontracts — (8.0) (1.8)
Impairmentofintangibleassets — (6.0) (11.0)
COVID-19incrementalcosts — (4.8) —
Othergains(losses)(1) (2.3) 14.3 7.3
Totalselling,general,andadministrativeexpenses (22.3) (35.6) (40.0)
Impairmentofbreweryconstructioninprogress (665.9) — —
Impairmentofassetsheldforsale — (24.0) (449.7)
Gain(loss)onsaleofbusiness 1.7 14.2 74.1
ComparableAdjustments,Operatingincome(loss) $ (604.1) $ (97.0) $ (577.9)
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
(1) Includesthefollowing:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
Adjustmenttounderstatedexcisetaxaccrualsprimarilyrelatedtoapriorperiodacquisition $ (13.3) $ — $ —
Decrease(increase)inestimatedfairvalueofcontingentliabilitiesassociatedwithpriorperiodacquisitions $ (9.6) $ 9.7 $ (11.4)
IncreaseinourownershipinterestinMyFavoriteNeighbor(Fiscal2022)andNelson’sGreenBrier(Fiscal2020) $ 13.5 $ — $ 11.8
Propertytaxsettlement $ 10.4 $ — $ —
Saleofcertainnon-coreassets $ — $ 8.8 $ (0.3)
Recognitionofpreviouslydeferredgainuponreleaseofarelatedguarantee $ — $ — $ 6.2
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI113
TheaccountingpoliciesofthesegmentsarethesameasthosedescribedfortheCompanyintheSummaryofSignificantAccountingPoliciesinNote1.AmountsincludedbelowfortheCanopysegmentrepresent100%ofCanopy’sreportedresultsonatwo-monthlag,preparedinaccordancewithU.S.GAAP,andconvertedfromCanadiandollarstoU.S.dollars.Althoughweownlessthan100%oftheoutstandingsharesofCanopy,100%ofitsresultsareincludedintheinformationbelowandsubsequentlyeliminatedinordertoreconciletoourconsolidatedfinancialstatements.Segmentinformationisasfollows:
Beer
Netsales $ 6,751.6 $ 6,074.6 $ 5,615.9
Segmentoperatingincome(loss) $ 2,703.3 $ 2,494.3 $ 2,247.9
Capitalexpenditures $ 849.5 $ 693.9 $ 571.7
Depreciationandamortization $ 248.7 $ 194.7 $ 204.3
WineandSpirits
Netsales:
Wine $ 1,819.3 $ 2,208.4 $ 2,367.5
Spirits 249.8 331.9 360.1
Netsales $ 2,069.1 $ 2,540.3 $ 2,727.6
Segmentoperatingincome(loss) $ 470.7 $ 622.4 $ 708.4
Income(loss)fromunconsolidatedinvestments $ 34.4 $ 31.7 $ 36.4
Equitymethodinvestments(1) $ 97.2 $ 125.7 $ 87.7
Capitalexpenditures $ 154.7 $ 107.5 $ 92.7
Depreciationandamortization $ 80.7 $ 89.9 $ 98.7
CorporateOperationsandOther
Segmentoperatingincome(loss) $ (238.2) $ (228.6) $ (223.9)
Income(loss)fromunconsolidatedinvestments $ (3.5) $ (0.4) $ (3.2)
Equitymethodinvestments $ 88.0 $ 83.9 $ 94.5
Capitalexpenditures $ 22.6 $ 63.2 $ 62.1
Depreciationandamortization $ 13.0 $ 14.4 $ 21.6
Canopy
Netsales $ 444.3 $ 378.6 $ 290.2
Segmentoperatingincome(loss) $ (630.1) $ (1,496.0) $ (685.8)
Capitalexpenditures $ 50.4 $ 172.6 $ 572.8
Depreciationandamortization $ 90.0 $ 103.3 $ 81.4
ConsolidationandEliminations
Netsales $ (444.3) $ (378.6) $ (290.2)
Operatingincome(loss) $ 630.1 $ 1,496.0 $ 685.8
Income(loss)fromunconsolidatedinvestments $ (178.2) $ (146.2) $ (221.7)
Equitymethodinvestments $ 2,503.5 $ 2,578.8 $ 2,911.7
Capitalexpenditures $ (50.4) $ (172.6) $ (572.8)
Depreciationandamortization $ (90.0) $ (103.3) $ (81.4)
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI114
ComparableAdjustments
Operatingincome(loss) $ (604.1) $ (97.0) $ (577.9)
Income(loss)fromunconsolidatedinvestments $ (1,488.2) $ 265.2 $ (2,480.1)
Depreciationandamortization $ — $ 0.1 $ 7.6
Consolidated
Netsales $ 8,820.7 $ 8,614.9 $ 8,343.5
Operatingincome(loss) $ 2,331.7 $ 2,791.1 $ 2,154.5
Income(loss)fromunconsolidatedinvestments(2) $ (1,635.5) $ 150.3 $ (2,668.6)
Equitymethodinvestments(1) $ 2,688.7 $ 2,788.4 $ 3,093.9
Capitalexpenditures $ 1,026.8 $ 864.6 $ 726.5
Depreciationandamortization $ 342.4 $ 299.1 $ 332.2
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
(1) EquitymethodinvestmentsbalanceatFebruary29,2020,excludesamountsreclassifiedtoassetsheldforsale.(2) Income(loss)fromunconsolidatedinvestmentsconsistsof:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Unrealizednetgain(loss)onsecuritiesmeasuredatfairvalue $ (1,644.7) $ 802.0 $ (2,126.4)
Equityinearnings(losses)fromCanopyandrelatedactivities(i) (73.6) (679.0) (575.9)
Equityinearnings(losses)fromotherequitymethodinvestees 31.8 27.3 33.3
Netgain(loss)onsaleofunconsolidatedinvestment 51.0 — 0.4
$ (1,635.5) $ 150.3 $ (2,668.6)
(i)TheyearendedFebruary29,2020,includestheJune2019ModificationLoss.
OurprincipalareaofoperationisintheU.S.CurrentoperationsoutsidetheU.S.areinMexicofortheBeersegmentandprimarilyinNewZealandandItalyfortheWineandSpiritssegment.Revenuesareattributedtocountriesbasedonthelocationofthecustomer.
Geographicdataisasfollows:
FortheYearsEnded
February28,2022
February28,2021
February29,2020
(inmillions)
Netsales
U.S. $ 8,585.8 $ 8,396.5 $ 8,116.2
Non-U.S.(primarilyCanada) 234.9 218.4 227.3
$ 8,820.7 $ 8,614.9 $ 8,343.5
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI115
February28,2022
February28,2021
(inmillions)
Long-livedtangibleassets
U.S. $ 1,092.0 $ 1,005.3
Non-U.S.(primarilyMexico) 4,967.6 4,816.3
$ 6,059.6 $ 5,821.6
23. SELECTEDQUARTERLYFINANCIALINFORMATION(UNAUDITED)
Asummaryofselectedquarterlyfinancialinformationisasfollows:
FortheThreeMonthsEnded
February28,2022
February28,2021
(inmillions,exceptpersharedata)
Netsales $ 2,102.5 $ 1,953.0
Grossprofit $ 1,132.6 $ 993.7
Netincome(loss)attributabletoCBI(1) $ 395.4 $ 382.9
Netincome(loss)percommonshareattributabletoCBI(1):
Basic–ClassAStock $ 2.11 $ 2.00
Basic–ClassBStock $ 1.92 $ 1.81
Diluted–ClassAStock $ 2.07 $ 1.95
Diluted–ClassBStock $ 1.91 $ 1.80
(1) Includesthefollowing:
FortheThreeMonthsEnded
February28,2022
February28,2021
(inmillions,netofincometaxeffect)
Unrealizednetgain(loss)onsecuritiesmeasuredatfairvalue $ (135.2) $ 206.3
Equityinearnings(losses)fromCanopy $ (31.9) $ (189.5)
PARTII ITEM8.FINANCIALSTATEMENTSANDSUPPLEMENTARYDATA TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI116
Item9A.ControlsandProcedures
DisclosurecontrolsandproceduresOurChiefExecutiveOfficerandourChiefFinancialOfficerhaveconcluded,basedontheirevaluationasof
theendoftheperiodcoveredbythisreport,thattheCompany’s“disclosurecontrolsandprocedures”(asdefinedintheExchangeActRules13a-15(e)and15d-15(e))areeffectivetoensurethatinformationrequiredtobedisclosedinthereportsthatwefileorsubmitundertheExchangeAct(i)isrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedintheSEC’srulesandforms,and(ii)isaccumulatedandcommunicatedtoourmanagement,includingourChiefExecutiveOfficerandourChiefFinancialOfficer,asappropriatetoallowtimelydecisionsregardingrequireddisclosure.
InternalcontroloverfinancialreportingSeepage59ofthisForm10-KforManagement’sAnnualReportonInternalControloverFinancial
Reporting,whichisincorporatedhereinbyreference.
Seepage60ofthisForm10-KfortheattestationreportofKPMGLLP,ourindependentregisteredpublicaccountingfirm,whichisincorporatedhereinbyreference.
Althoughmostofourcorporateandnon-productionworkforceareworkingremotelyduetoCOVID-19,wehavenotexperiencedamaterialimpacttoourinternalcontroloverfinancialreporting.Wecontinuetomonitorthepandemicanditseffectsonthedesignandoperatingeffectivenessofourinternalcontrols.
WehavecompletedtheimplementationofanewglobalERPacrossourbusinessunitsusingaphasedapproach.Asaresultofthisimplementation,certaininternalcontrolsoverfinancialreportinghavebeenautomated,modified,orimplementedtoaddressthenewcontrolenvironmentassociatedwiththisERP.
Inconnectionwithmanagement’squarterlyevaluationof“internalcontroloverfinancialreporting”(asdefinedintheExchangeActRules13a-15(f)and15d-15(f)),otherthantheERPimplementationnotedabove,nootherchangeswereidentifiedinourinternalcontroloverfinancialreportingduringourfiscalquarterendedFebruary28,2022(ourfourthfiscalquarter)thathavemateriallyaffected,orarereasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.
PARTII OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI117
Item10.Directors,ExecutiveOfficers,andCorporateGovernance
TheinformationrequiredbythisItem(exceptfortheinformationregardingexecutiveofficersrequiredbyItem401ofRegulationS-KwhichisincludedinPartIhereofinaccordancewithGeneralInstructionG(3))isincorporatedhereinbyreferencetotheProxyStatementunderthosesectionsoftheProxyStatementtobetitled“DirectorNominees”and“TheBoardofDirectorsandCommitteesoftheBoard.”TheProxyStatementwillbefiledwithin120daysaftertheendofourfiscalyear.
WehaveadoptedtheChiefExecutiveOfficerandSeniorFinancialExecutiveCodeofEthicswhichisacodeofethicsthatappliestoourchiefexecutiveofficerandourseniorfinancialofficers.TheChiefExecutiveOfficerandSeniorFinancialExecutiveCodeofEthicsislocatedonourinvestorrelationswebsiteathttps://ir.cbrands.com.Amendmentsto,andwaiversgrantedunder,ourChiefExecutiveOfficerandSeniorFinancialExecutiveCodeofEthics,ifany,willbepostedtoourwebsiteaswell.Wewillprovidetoanyone,withoutcharge,uponrequest,acopyofsuchCodeofEthics.SuchrequestsshouldbedirectedinwritingtoInvestorRelationsDepartment,ConstellationBrands,Inc.,207HighPointDrive,Building100,Victor,NewYork14564orbytelephoningourInvestorCenterat1-888-922-2150.
Item11.ExecutiveCompensation
TheinformationrequiredbythisItemisincorporatedhereinbyreferencetotheProxyStatementunderthosesectionsoftheProxyStatementtobetitled“ExecutiveCompensation,”“CompensationCommitteeInterlocksandInsiderParticipation,”and“DirectorCompensation.”TheProxyStatementwillbefiledwithin120daysaftertheendofourfiscalyear.Notwithstandingtheforegoing,theCompensationCommitteeReportincludedwithinthesectionoftheProxyStatementtobetitled“ExecutiveCompensation”isonlybeing“furnished”hereunderandshallnotbedeemed“filed”withtheSECorsubjecttotheliabilitiesofSection18oftheExchangeAct.
Item12.SecurityOwnershipofCertainBeneficialOwnersandManagementandRelatedStockholderMatters
TheinformationrequiredbythisItemisincorporatedhereinbyreferencetotheProxyStatementunderthatsectionoftheProxyStatementtobetitled“BeneficialOwnership.”TheProxyStatementwillbefiledwithin120daysaftertheendofourfiscalyear.
SecuritiesauthorizedforissuanceunderequitycompensationplansThefollowingtablesetsforthinformationwithrespecttoourcompensationplansunderwhichourequity
securitiesmaybeissued,asofFebruary28,2022.TheequitycompensationplansapprovedbysecurityholdersincludeourLong-TermStockIncentivePlanandour1989EmployeeStockPurchasePlan.
PARTIII OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI118
EquityCompensationPlanInformation
PlanCategory
Numberofsecuritiestobeissueduponexerciseofoutstanding
options,warrants,andrights
Weightedaverageexercisepriceofoutstanding
options,warrants,andrights
Numberofsecurities
remainingavailableforfutureissuance
underequitycompensationplans
(excludingsecuritiesreflectedinfirstcolumn)
Equitycompensationplansapprovedbysecurityholders 3,370,795 (1) $ 178.62 (2) 11,213,268 (3)
Equitycompensationplansnotapprovedbysecurityholders — $ — —
Total 3,370,795 $ 178.62 11,213,268
(1) Includes173,282sharesofunvestedperformanceshareunitsand291,171sharesofunvestedrestrictedstockunitsunderourLong-TermStockIncentivePlan.Theunvestedperformanceshareunitsrepresentthemaximumnumberofsharestobeawarded,whichrangesfrom100%to200%ofthetargetsharesgranted.Wecurrentlyestimatethat60,321ofthetargetsharesgrantedwillbeawardedbetween45%and65%,and26,320ofthetargetsharesgrantedwillnotbeawardedbaseduponourexpectationsasofFebruary28,2022,regardingtheachievementofspecifiedperformancetargets.
(2) ExcludesunvestedperformanceshareunitsandunvestedrestrictedstockunitsunderourLong-TermStockIncentivePlanthatcanbeexercisedfornoconsideration.
(3) Includes1,228,150sharesofClassAStockunderourEmployeeStockPurchasePlanremainingavailableforpurchase,ofwhichapproximately29,500sharesaresubjecttopurchaseduringthecurrentofferingperiod.
Item13.CertainRelationshipsandRelatedTransactions,andDirectorIndependence
TheinformationrequiredbythisItemisincorporatedhereinbyreferencetotheProxyStatementunderthosesectionsoftheProxyStatementtobetitled“DirectorNominees,”“TheBoardofDirectorsandCommitteesoftheBoard,”and“CertainRelationshipsandRelatedTransactions.”TheProxyStatementwillbefiledwithin120daysaftertheendofourfiscalyear.
Item14.PrincipalAccountantFeesandServices
TheinformationrequiredbythisItemisincorporatedhereinbyreferencetotheProxyStatementunderthatsectionoftheProxyStatementtobetitled“Proposal2–RatificationoftheSelectionofKPMGLLPasIndependentRegisteredPublicAccountingFirm.”TheProxyStatementwillbefiledwithin120daysaftertheendofourfiscalyear.
PARTIII OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI119
Item15.ExhibitsandFinancialStatementSchedules
1. FinancialStatements
ThefollowingconsolidatedfinancialstatementsoftheCompanyaresubmittedherewith:
Management’sAnnualReportonInternalControlOverFinancialReporting
ReportofIndependentRegisteredPublicAccountingFirm–KPMGLLP
ReportofIndependentRegisteredPublicAccountingFirm–KPMGLLP
ConsolidatedBalanceSheets–February28,2022,andFebruary28,2021
ConsolidatedStatementsofComprehensiveIncome(Loss)fortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020
ConsolidatedStatementsofChangesinStockholders’EquityfortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020
ConsolidatedStatementsofCashFlowsfortheyearsendedFebruary28,2022,February28,2021,andFebruary29,2020
NotestoConsolidatedFinancialStatements
2. FinancialStatementSchedules
SchedulesarenotsubmittedbecausetheyarenotapplicableornotrequiredunderRegulationS-Xorbecausetherequiredinformationisincludedinthefinancialstatementsornotesthereto.
3. ExhibitsrequiredtobefiledbyItem601ofRegulationsS-K
TheinformationcalledforbythisItemisincorporatedbyreferencefromtheIndextoExhibitsincludedinthisForm10-K.
Item16.Form10-KSummary
None.
PARTIV OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI120
INDEXTOEXHIBITS
2.1 SubscriptionAgreement,datedasofAugust14,2018,byandbetweenCBGHoldingsLLCandCanopy,including,amongotherthings,aformoftheAmendedandRestatedInvestorRightsAgreement.†
8-K 2.1 August16,2018
2.2 ForeignExchangeRateAgreementdatedOctober26,2018,betweenCBGHoldingsLLCandCanopy.
10-Q 2.2 January9,2019
2.3 SecondAmendedandRestatedAssetPurchaseAgreementmadeandenteredintoasofMay22,2020,byandbetweentheCompanyandGallo.†‡
8-K 2.1 May29,2020
2.4 FirstAmendmentdatedSeptember28,2020andeffectiveSeptember28,2020,toSecondAmendedandRestatedAssetPurchaseAgreementmadeandenteredintoasofMay22,2020,byandbetweentheCompanyandGallo.
10-Q 2.6 October1,2020
2.5 AssetPurchaseAgreementmadeandenteredintoasofJune22,2020,byandbetweentheCompanyandGalloregardingtheNobiloWineDivestiture. 8-K 2.1 June25,2020
3.1 RestatedCertificateofIncorporationoftheCompany. 10-Q 3.1 October13,2009
3.2 CertificateofAmendmenttotheCertificateofIncorporationoftheCompany. 10-Q 3.2 October13,2009
3.3 By-LawsoftheCompany,amendedandrestatedasofApril6,2022. 8-K 3.1 April7,2022
4.1 Indenture,datedasofApril17,2012,byandamongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.1 April23,2012
4.2 SupplementalIndentureNo.1,withrespectto6.0%SeniorNotesdueMay2022,datedasofApril17,2012,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.1.1 April23,2012
4.3 SupplementalIndentureNo.3,withrespectto3.75%SeniorNotesdueMay2021,datedasofMay14,2013,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.1 May16,2013
4.4 SupplementalIndentureNo.4,withrespectto4.25%SeniorNotesdueMay2023,datedasofMay14,2013,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.2 May16,2013
4.5 SupplementalIndentureNo.5,datedasofJune7,2013,amongtheCompany,ConstellationBrandsBeachHoldings,Inc.,CrownImportsLLC,andM&T,asTrustee.
8-K 4.4 June11,2013
4.6 SupplementalIndentureNo.6datedasofMay28,2014,amongtheCompany,ConstellationMarketingServices,Inc.,andM&T,asTrustee.
10-Q 4.21 July10,2014
4.7 SupplementalIndentureNo.7,withrespectto3.875%SeniorNotesdue2019,datedasofNovember3,2014,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.1 November7,2014
4.8 SupplementalIndentureNo.8,withrespectto4.750%SeniorNotesdue2024,datedasofNovember3,2014,amongtheCompanyasIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.2 November7,2014
4.9 SupplementalIndentureNo.9,withrespectto4.750%SeniorNotesdue2025,datedDecember4,2015,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.1 December8,2015
4.10 SupplementalIndentureNo.10,datedasofJanuary15,2016,amongtheCompany,HomeBrewMart,Inc.,andM&T,asTrustee.
10-K 4.26 April25,2016
4.11 SupplementalIndentureNo.11withrespectto3.700%SeniorNotesdue2026,datedasofDecember6,2016,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.1 December6,2016
4.12 SupplementalIndentureNo.12withrespectto2.700%SeniorNotesdue2022,datedasofMay9,2017,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.1 May9,2017
IncorporatedbyReference
ExhibitNo. ExhibitDescription Form Exhibit FilingDate
PARTIV OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI121
4.13 SupplementalIndentureNo.13withrespectto3.500%SeniorNotesdue2027,datedasofMay9,2017,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.2 May9,2017
4.14 SupplementalIndentureNo.14withrespectto4.500%SeniorNotesdue2047,datedasofMay9,2017,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.3 May9,2017
4.15 SupplementalIndentureNo.15withrespectto2.000%SeniorNotesdue2019,datedasofNovember7,2017,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.1 November7,2017
4.16 SupplementalIndentureNo.16withrespectto2.250%SeniorNotesdue2020datedasofNovember7,2017,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.2 November7,2017
4.17 SupplementalIndentureNo.17withrespectto2.650%SeniorNotesdue2022,datedasofNovember7,2017,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.3 November7,2017
4.18 SupplementalIndentureNo.18withrespectto3.200%SeniorNotesdue2023,datedasofFebruary7,2018,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.1 February7,2018
4.19 SupplementalIndentureNo.19withrespectto3.600%SeniorNotesdue2028,datedasofFebruary7,2018,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.2 February7,2018
4.20 SupplementalIndentureNo.20withrespectto4.100%SeniorNotesdue2048,datedasofFebruary7,2018,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.3 February7,2018
4.21 SupplementalIndentureNo.21withrespecttoSeniorFloatingRateNotesdue2021,datedasofOctober29,2018,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee(nolongeroutstanding).
8-K 4.1 October29,2018
4.22 SupplementalIndentureNo.22withrespectto4.400%SeniorNotesdue2025,datedasofOctober29,2018,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.2 October29,2018
4.23 SupplementalIndentureNo.23withrespectto4.650%SeniorNotesdue2028,datedasofOctober29,2018,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.3 October29,2018
4.24 SupplementalIndentureNo.24withrespectto5.250%SeniorNotesdue2048,datedasofOctober29,2018,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.4 October29,2018
4.25 SupplementalIndentureNo.25withrespectto3.150%SeniorNotesdue2029,datedasofJuly29,2019,amongtheCompany,asIssuer,certainsubsidiaries,asGuarantors,andM&T,asTrustee.
8-K 4.1 July29,2019
4.26 SupplementalIndentureNo.26withrespectto2.875%SeniorNotesdue2030,datedasofApril27,2020,amongtheCompany,asIssuerandM&T,asTrustee.
8-K 4.1 April27,2020
4.27 SupplementalIndentureNo.27withrespectto3.750%SeniorNotesdue2050,datedasofApril27,2020,amongtheCompany,asIssuerandM&T,asTrustee.
8-K 4.2 April27,2020
4.28 SupplementalIndentureNo.28withrespectto2.250%SeniorNotesdue2031,datedasofJuly26,2021,amongtheCompany,asIssuerandM&T,asTrustee.
8-K 4.1 July26,2021
IncorporatedbyReference
ExhibitNo. ExhibitDescription Form Exhibit FilingDate
PARTIV OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI122
4.29 RestatementAgreement,datedasofMarch26,2020byandamongtheCompany,CBInternationalFinanceS.àr.l.,certainoftheCompany’ssubsidiariesasguarantors,BankofAmerica,N.A.,asAdministrativeAgent,andtheLenderspartythereto,includingtheNinthAmendedandRestatedCreditAgreementdatedasofMarch26,2020,byandamongtheCompany,CBInternationalFinancingS.àr.l.,BankofAmerica,N.A.,asAdministrativeAgent,andtheLenderspartythereto.†
8-K 4.1 March31,2020
4.30 2020TermLoanRestatementAgreement,datedasofMarch26,2020,byandamongtheCompany,certainoftheCompany’ssubsidiariesasguarantors,BankofAmerica,N.A.,asAdministrativeAgentandLender,includingtheAmendedandRestatedTermLoanCreditAgreement,datedMarch26,2020,byandbetweentheCompany,BankofAmerica,N.A.,asAdministrativeAgentandLender.†
8-K 4.3 March31,2020
4.31 AmendmentNo.1,datedasofJune10,2021,toAmendedandRestatedTermLoanCreditAgreement,datedasofMarch26,2020,byandamongtheCompanyandBankofAmerica,N.A.,asAdministrativeAgentandLender.†
10-Q 4.30 June30,2021
4.32 RestatementAgreement,datedasofApril14,2022,byandamongtheCompany,CBInternationalFinanceS.àr.l.,BankofAmerica,N.A.,asAdministrativeAgent,andtheLenderspartythereto,includingtheTenthAmendedandRestatedCreditAgreementdatedasofApril14,2022,byandamongtheCompany,CBInternationalFinanceS.àr.l.,BankofAmerica,N.A.,asAdministrativeAgent,andtheLenderspartythereto.†
8-K 4.1 April15,2022
4.33 AmendmentNo.2,datedasofApril14,2022,toAmendedandRestatedTermLoanCreditAgreement,datedasofMarch26,2020,asamendedbyAmendmentNo.1,datedasofJune10,2021,byandamongtheCompanyandBankofAmerica,N.A.,asAdministrativeAgentandLender.†
8-K 4.2 April15,2022
4.34 DescriptionoftheRegistrant’sSecuritiesRegisteredPursuanttoSection12oftheExchangeAct.
10-K 4.31 April20,2021
10.1 TheCompany’sLong-TermStockIncentivePlan,amendedandrestatedasofJuly18,2017.*
8-K 10.4 July20,2017
10.2 FormofTermsandConditionsMemorandumforEmployeeswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterApril3,2012andbeforeApril28,2014).*
8-K 99.1 April5,2012
10.3 FormofTermsandConditionsMemorandumforEmployeeswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterApril28,2014andbeforeApril25,2016).*
8-K 10.1 May1,2014
10.4 FormofTermsandConditionsMemorandumforEmployeeswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterApril25,2016andbeforeApril21,2017).*
8-K 10.1 April28,2016
10.5 FormofTermsandConditionsMemorandumforEmployeeswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterApril21,2017andbeforeApril23,2018).*
8-K 10.1 April25,2017
10.6 FormofTermsandConditionsMemorandumforEmployeeswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterApril23,2018andbeforeApril23,2019).*
8-K 10.1 April26,2018
10.7 FormofTermsandConditionsMemorandumforEmployeeswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterApril23,2019andbeforeApril21,2020).*
8-K 10.1 April26,2019
IncorporatedbyReference
ExhibitNo. ExhibitDescription Form Exhibit FilingDate
PARTIV OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI123
10.8 FormofTermsandConditionsMemorandumforEmployeeswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterApril21,2020).*
10-Q 10.5 July1,2020
10.9 FormofRestrictedStockUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterApril21,2017andbeforeApril23,2018).*
8-K 10.2 April25,2017
10.10 FormofRestrictedStockUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterApril23,2018andbeforeApril23,2019).*
8-K 10.2 April26,2018
10.11 FormofRestrictedStockUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterApril23,2019andbeforeApril21,2020.*
8-K 10.2 April26,2019
10.12 FormofRestrictedStockUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterApril21,2020andbeforeApril20,2021).*
10-Q 10.6 July1,2020
10.13 FormofRestrictedStockUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterApril20,2021).*
8-K 10.2 April23,2021
10.14 FormofRestrictedStockUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(relatingtocliffvestedawards).*
8-K 10.1 July26,2013
10.15 FormofRestrictedStockUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(providingforratablevestingoverthreeyears).*
10-K 10.20 April28,2015
10.16 FormofPerformanceShareUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterApril23,2019andbeforeApril21,2020).*
8-K 10.3 April26,2019
10.17 FormofPerformanceShareUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterApril21,2020).*†
10-Q 10.7 July1,2020
10.18 FormofPerformanceShareUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(relatingtospecifiedperformancecriteria).*
10-K 10.28 April28,2015
10.19 FormofPerformanceShareUnitAgreementwithrespecttotheCompany’sLong-TermStockIncentivePlan(relatingtocontingentgrants).*
8-K 10.1 October22,2018
10.20 FormofPerformanceShareUnitAgreementwithrespecttotheCompany’sLong-TermIncentivePlan(relatingtomarginandmarketperformance).*
10-Q 10.5 October3,2019
10.21 FormofTermsandConditionsMemorandumforDirectorswithrespecttoaproratagrantofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan.*
8-K 99.1 April22,2010
10.22 FormofTermsandConditionsMemorandumforDirectorswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterJuly27,2012andbeforeJuly23,2014).*
8-K 10.3 July31,2012
10.23 FormofTermsandConditionsMemorandumforDirectorswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterJuly23,2014andbeforeJuly20,2016).*
8-K 10.1 July25,2014
10.24 FormofTermsandConditionsMemorandumforDirectorswithrespecttooptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterJuly20,2016andbeforeJuly18,2017).*
8-K 10.1 July22,2016
10.25 FormofTermsandConditionsMemorandumforDirectorswithrespecttooptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterJuly18,2017andbeforeJuly16,2019).*
8-K 10.1 July20,2017
IncorporatedbyReference
ExhibitNo. ExhibitDescription Form Exhibit FilingDate
PARTIV OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI124
10.26 FormofStockOptionAgreementforDirectorswithrespecttograntsofoptionstopurchaseClass1StockpursuanttotheCompany’sLong-TermStockIncentivePlan(grantsonorafterJuly16,2019).*
10-Q 10.6 October3,2019
10.27 FormofRestrictedStockUnitAgreementforDirectorswithrespecttotheCompany’sLong-TermStockIncentivePlan(awardsonorafterJuly16,2019).*
10-Q 10.7 October3,2019
10.28 RulesforCashIncentiveAwardsundertheCompany’sLong-TermStockIncentivePlan.*
8-K 10.1 March29,2018
10.29 TheCompany’sAnnualManagementIncentivePlan,amendedandrestatedasofJuly27,2012.*
8-K 10.1 July31,2012
10.30 TheCompany’sNon-QualifiedSavingsPlan.* 8-K 10.2 October4,2018
10.31 SupplementalExecutiveRetirementPlanoftheCompany.* 10-K 10.14 June1,1999
10.32 FirstAmendmenttotheCompany’sSupplementalExecutiveRetirementPlan.* 10-Q 10 July15,1999
10.33 SecondAmendmenttotheCompany’sSupplementalExecutiveRetirementPlan.*
10-K 10.20 May29,2001
10.34 ThirdAmendmenttotheCompany’sSupplementalExecutiveRetirementPlan.*
8-K 99.2 April13,2005
10.35 2005SupplementalExecutiveRetirementPlanoftheCompany.* 8-K 99.3 April13,2005
10.36 FirstAmendmenttotheCompany’s2005SupplementalExecutiveRetirementPlan.*
10-Q 10.7 July10,2007
10.37 SecondAmendmenttotheCompany’s2005SupplementalExecutiveRetirementPlan.*
10-Q 10.2 January9,2014
10.38 ThirdAmendmenttotheCompany’s2005SupplementalExecutiveRetirementPlan.*
8-K 10.1 October4,2018
10.39 FormofExecutiveEmploymentAgreementbetweentheCompanyanditsChairmanoftheBoardanditsViceChairmanoftheBoard.*
8-K 99.1 May21,2008
10.40 FormofExecutiveEmploymentAgreementbetweentheCompanyandcertainOtherExecutiveOfficers(includingF.PaulHetterich).*
8-K 99.2 May21,2008
10.41 ExecutiveEmploymentAgreementmadeasofJune17,2013,betweentheCompanyandThomasM.Kane.*
10-Q 10.9 October10,2013
10.42 ExecutiveEmploymentAgreementmadeasofJanuary26,2015,betweentheCompanyandWilliamA.Newlands.*
10-K 10.57 April28,2015
10.43 ExecutiveEmploymentAgreementmadeasofJune3,2019,betweentheCompanyandRobertL.Hanson.*
10-Q 10.6 June28,2019
10.44 FormofExecutiveEmploymentAgreementbetweentheCompanyandcertainofitsOtherExecutiveOfficers(includingJamesO.Bourdeau,GarthHankinson,MichaelMcGrew,MallikaMonteiro,andJamesA.Sabia,Jr.).*
10-Q 10.3 June29,2017
10.45 DescriptionofCompensationArrangements,asofJanuary6,2021andbeforeJuly20,2021,forNon-ManagementDirectors.*
10-Q 10.1 January8,2020
10.46 DescriptionofCompensationArrangements,asofJuly20,2021,forNon-ManagementDirectors.*
10-Q 10.1 October6,2021
10.47 AmendedandRestatedSub-licenseAgreement,datedasofJune7,2013,betweenMarcasModelo,S.deR.L.deC.V.andConstellationBeersLtd.+
8-K 10.2 June11,2013
21.1 SubsidiariesoftheCompany(filedherewith).
23.1 ConsentofKPMGLLP(filedherewith).
31.1 CertificationofChiefExecutiveOfficerpursuanttoRule13a-14(a)orRule15d-14(a)oftheExchangeAct(filedherewith).
IncorporatedbyReference
ExhibitNo. ExhibitDescription Form Exhibit FilingDate
PARTIV OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI125
31.2 CertificationofChiefFinancialOfficerpursuanttoRule13a-14(a)orRule15d-14(a)oftheExchangeAct(filedherewith).
32.1 CertificationofChiefExecutiveOfficerpursuantto18U.S.C.Section1350(furnishedherewith).
32.2 CertificationofChiefFinancialOfficerpursuantto18U.S.C.Section1350(furnishedherewith).
99.1 TheCompany’s1989EmployeeStockPurchasePlan(amendedandrestatedasofJuly24,2013).*
8-K 99.1 July26,2013
99.2 FirstAmendment,datedandeffectiveApril25,2016,totheCompany’s1989EmployeeStockPurchasePlan.*
8-K 99.1 April28,2016
99.3 ConsentAgreement,datedApril18,2019,byandbetweenCBGHoldingsLLCandCanopy(Form6-KfiledbyCanopy).
6-K 99.4 April30,2019
99.4 SecondAmendedandRestatedInvestorRightsAgreement,datedApril18,2019,byandamongGreenstarCanadaInvestmentLimitedPartnership,CBGHoldingsLLCandCanopy(Form6-KfiledbyCanopy).
6-K 99.3 April30,2019
99.5 ProposaldatedApril2,2022. 8-K 99.2 April4,2022
101.INS XBRLInstanceDocument-theinstancedocumentdoesnotappearintheInteractiveDataFilebecauseitsXBRLtagsareembeddedwithintheInlineXBRLdocument(filedherewith).
101.SCH XBRLTaxonomyExtensionSchemaDocument(filedherewith).
101.CAL XBRLTaxonomyExtensionCalculationLinkbaseDocument(filedherewith).
101.DEF XBRLTaxonomyExtensionDefinitionLinkbaseDocument(filedherewith).
101.LAB XBRLTaxonomyExtensionLabelsLinkbaseDocument(filedherewith).
101.PRE XBRLTaxonomyExtensionPresentationLinkbaseDocument(filedherewith).
104 CoverPageInteractiveDataFile(formattedasInlineXBRLandcontainedinExhibit101).
IncorporatedbyReference
ExhibitNo. ExhibitDescription Form Exhibit FilingDate
* Designatesmanagementcontractorcompensatoryplanorarrangement.
† Theexhibits,disclosureschedules,andotherschedules,asapplicable,havebeenomittedpursuanttoItem601(a)(5)ofRegulationS-K.TheCompanyagreestofurnishsupplementallyacopyofsuchexhibits,disclosureschedules,andotherschedules,asapplicable,oranysectionthereof,totheSECuponrequest.
‡ PortionsofthisexhibitareredactedpursuanttoItem601(b)(2)(ii)ofRegulationS-K.
+ PortionsofthisexhibitwereredactedpursuanttoaconfidentialtreatmentrequestfiledwithandapprovedbytheSECpursuanttoRule24b-2undertheExchangeAct.
TheCompanyagrees,uponrequestoftheSEC,tofurnishcopiesofeachinstrumentthatdefinestherightsofholdersoflong-termdebtoftheCompanyoritssubsidiariesthatisnotfiledherewithpursuanttoItem601(b)(4)(iii)(A)becausethetotalamountoflong-termdebtauthorizedundersuchinstrumentdoesnotexceed10%ofthetotalassetsoftheCompanyanditssubsidiariesonaconsolidatedbasis.
PARTIV OTHERKEYINFORMATION TableofContents
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI126
SIGNATURES
PursuanttotherequirementsofSection13or15(d)oftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobesignedonitsbehalfbytheundersigned,thereuntodulyauthorized.
CONSTELLATIONBRANDS,INC.
By: /s/WilliamA.Newlands
April21,2022WilliamA.NewlandsPresidentandChiefExecutiveOfficer
PursuanttotherequirementsoftheSecuritiesExchangeActof1934,thisreporthasbeensignedbelowbythefollowingpersonsonbehalfoftheregistrantandinthecapacitiesandonthedatesindicated.
/s/WilliamA.Newlands /s/GarthHankinsonApril21,2022 April21,2022
WilliamA.Newlands,Director,PresidentandChiefExecutiveOfficer(principalexecutiveofficer)
GarthHankinson,ExecutiveVicePresidentandChiefFinancialOfficer(principalfinancialofficerandprincipalaccountingofficer)
/s/RobertSands /s/RichardSandsApril21,2022 April21,2022RobertSands,DirectorandExecutiveChairmanoftheBoard
RichardSands,DirectorandExecutiveViceChairmanoftheBoard
/s/ChristyClark /s/JenniferM.DanielsApril21,2022 April21,2022ChristyClark,Director JenniferM.Daniels,Director
/s/NicholasI.Fink /s/JeremyS.G.Fowden
April21,2022 April21,2022
NicholasFink,Director JeremyS.G.Fowden,Director
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI127
/s/ErnestoM.Hernández /s/SusanSomersilleJohnsonApril21,2022 April21,2022ErnestoM.Hernández,Director SusanSomersilleJohnson,Director
/s/JamesA.LockeIII /s/JoseManuelMaderoGarzaApril21,2022 April21,2022JamesA.LockeIII,Director JoseManuelMaderoGarza,Director
/s/DanielJ.McCarthy /s/JudyA.SchmelingApril21,2022 April21,2022DanielJ.McCarthy,Director JudyA.Schmeling,Director
ConstellationBrands,Inc.FY2022Form10-K #WORTHREACHINGFORI128
*$100 invested on 2/28/17 in stock or index, including reinvestment of dividends.Fiscal year ending February 28 or February 29, as applicable.
Copyright © 2022 Standard & Poor’s, a division of S&P Global. All rights reserved.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
2/17 2/18 2/19 2/20 2/21 2/22
Constellation Brands, Inc. Class A 100.00 137.11 109.23 113.02 142.71 145.61 Constellation Brands, Inc. Class B 100.00 139.96 110.89 110.22 148.07 146.95 S&P 500 Index 100.00 117.10 122.58 132.62 174.12 202.66 S&P 500 Food & Beverages Index 100.00 99.50 96.31 103.85 111.75 139.26
2 /17 2 /18 2 /19 2 /21 2 /222 /20
$200
$225
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$125
$75
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Constellation Brands, Inc. FY 2022 Annual Report #WORTHREACHINGFOR
PERFORMANCE GRAPH
Set forth below is a line graph comparing, for the fi scal years ended the last day of February 2018, 2019, 2020, 2021, and 2022, the cumulative total stockholder return of the Company’s Class A Common Stock and Class B Common Stock with the cumulative total return of the S&P 500 Index and the S&P 500 Food & Beverages Index. The graph assumes the investment of $100.00 on February 28, 2017 in the Company’s Class A Common Stock, the Company’s Class B Common Stock, the S&P 500 Index, and the S&P 500 Food & Beverages Index, and also assumes the reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*Among Constellation Brands, Inc., the S&P 500 Index, and the S&P 500 Food & Beverages Index
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
For the Years Ended
2/28/22 2/28/21 Change
Consolidatednet sales $8,820.7 $8,614.9 2%
Less: divestitures - (642.3)
Consolidatedorganic net sales $8,820.7 $7,972.6 11%
Beer net sales $6,751.6 $6,074.6 11%
Wine and Spirits net sales $2,069.1 $2,540.3 -19%
Less: divestitures - (642.3)
Wine and Spiritsorganic net sales $2,069.1 $1,898.0 9%
For periods of divestiture, we defi ne organic net sales as prior period reported net sales less net sales of products of divested businesses reported for the prior period, as appropriate. We provide organic net sales because we use this information in monitoring and evaluating the underlying business trends of our core operations. In addition, we believe this information provides investors valuable insight on underlying business trends and results in order to evaluate year-over-year fi nancial performance.
DIRECTORS AND EXECUTIVE OFFICERS
(As of May 13, 2022)
DIRECTORS
William A. NewlandsPresident and Chief Executive Offi cer,Constellation Brands, Inc.
Robert Sands Executive Chairman,Constellation Brands, Inc.
Richard Sands Executive Vice Chairman, Constellation Brands, Inc.
Christy Clark (1)
Senior Advisor, Bennett Jones LLP
Jennifer M. Daniels (2)
Chief Legal Offi cer and Secretary,Colgate-Palmolive Company
Nicholas I. Fink (2)
Chief Executive Offi cer of Fortune BrandsHome & Security, Inc.
Jeremy S. G. Fowden (1) (3)
Chairman of the Board, Primo Water Corporation
Ernesto M. Hernández (1)
Former President and Managing Director, General Motors de Mexico, S. de R.L. de C.V.
Susan Somersille Johnson (1)
Chief Marketing Offi cer of Prudential Financial, Inc.
James A. Locke III (3)
Senior Counsel, Nixon Peabody LLP
Jose Manuel Madero Garza (2)
Independent Business Consultant andFormer Chief Executive Offi cer, Grupo Bepensa
Daniel J. McCarthy (2)
Former President and Chief Executive Offi cer, Frontier Communications Corporation
Judy A. Schmeling (2) (3)
Former Chief Operating Offi cer of HSN, Inc. and Former President of HSN’s Cornerstone Brands
EXECUTIVE OFFICERS
William A. NewlandsPresident and Chief Executive Offi cer,Constellation Brands, Inc.
Robert Sands Executive Chairman,Constellation Brands, Inc.
Richard Sands Executive Vice Chairman, Constellation Brands, Inc.
James O. BourdeauExecutive Vice President and Chief Legal Offi cer, Constellation Brands, Inc.
K. Kristann CareyExecutive Vice President and Chief Human Resources Offi cer, Constellation Brands, Inc.
Garth HankinsonExecutive Vice President and Chief Financial Offi cer, Constellation Brands, Inc.
Robert HansonExecutive Vice President and President,Wine & Spirits Division, Constellation Brands, Inc.
Michael McGrewExecutive Vice President and Chief Communications, Corporate Social Responsibility, and Diversity Offi cer,Constellation Brands, Inc.
Mallika MonteiroExecutive Vice President andChief Growth, Strategy, and Digital Offi cer,Constellation Brands, Inc.
James A. Sabia, Jr.Executive Vice President and President,Beer Division, Constellation Brands, Inc.
(1) Member of Human Resources Committee(2) Member of Audit Committee(3) Member of Corporate Governance and Responsibility Committee
Additional biographical information about the Directors and Executive Offi cers is included in our Proxy Statement relating toour 2022 Virtual Annual Meeting and our Annual Report on Form 10-K, respectively, and is posted on ir.cbrands.com.
Constellation Brands, Inc. FY 2022 Annual Report #WORTHREACHINGFOR
INVESTOR INFORMATION
HEADQUARTERS
Constellation Brands, Inc. 207 High Point Drive, Building 100 Victor, NY 14564
585-678-7100 888-724-2169
ir.cbrands.com
Investor Center 888-922-2150
STOCK TRANSFER AGENT AND REGISTRAR
Stockholder Inquiries 1-877-810-2237
Stockholder Portal www.shareholder.broadridge.com/stz
Broadridge Corporate Issuer Solutions 1-877-830-4936 – Phone 1-303-974-3789 – International 1-215-553-5402 – Fax M-F, 9 a.m. to 6 p.m. ET
Regular Delivery Broadridge Corporate Issuer Solutions P.O. Box 1342 Brentwood, NY 11717
Overnight Delivery Broadridge Corporate Issuer Solutions ATTN: IWS 1155 Long Island Avenue Edgewood, NY 11717
COMMON STOCK TRADING
The Company’s Class A and Class B Common Stock trade on the New York Stock Exchange (NYSE) under the ticker symbols STZ and STZ.B, respectively. There is no public market for the Company’s Class 1 Common Stock. As of May 13, 2022, there were 477 and 91 holders of record of Class A and Class B Common Stock, respectively, and 18 holders of record of Class 1 Common Stock.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The statements set forth in this report, which are not historical facts, are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied by, the forward-looking statements. For risk factors associated with the Company and its business, please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2022.
COPIES OF FORM 10-K
A copy of our Annual Report on Form 10-K for the fiscal year ended February 28, 2022, filed with the Securities and Exchange Commission, will be furnished without charge to any stockholder upon written request to Constellation Brands, Inc.’s Investor Relations department at our corporate headquarters address provided on this page. Alternatively, a copy is available on our website at ir.cbrands.com, as well as on the Securities and Exchange Commission’s website at www.sec.gov.
VIRTUAL ANNUAL STOCKHOLDERS’ MEETING
The 2022 Virtual Annual Meeting is scheduled to be held at 11:00 a.m., Eastern Daylight Time, on Tuesday, July 19, 2022, and is expected to be conducted exclusively via online broadcast. Stockholders will be able to attend the 2022 Virtual Annual Meeting, vote shares, and submit questions during the meeting via the Internet by visiting www.virtualshareholdermeeting.com/STZ2022.
Website references in this annual report are provided as a convenience and do not constitute, and should not be viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore, such information should not be considered part of this annual report.
Constellation Brands, Inc. FY 2022 Annual Report #WORTHREACHINGFOR