Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2018August 31, 2019
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Commission File Number:001-08495
image_bw.jpgimage_color.jpg
CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware16-0716709
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

207 High Point Drive, Building 100, Victor, New York14564
(Address of principal executive offices) (Zip code)
(585) 678-7100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class207 High Point Drive, Building 100, Victor, New YorkTrading Symbol(s)14564Name of Each Exchange on Which Registered
Class A Common Stock(Address of principal executive offices)STZ(Zip Code)New York Stock Exchange
Class B Common StockSTZ.B
(585) 678-7100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý☒Yes¨☐  No


Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ý☒Yes¨☐  No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerý☒Accelerated filer¨☐
Non-accelerated filer¨☐Smaller reporting company¨☐
  Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ¨☐  No  ý☒


The numberThere were 167,498,276 shares of Class A Common Stock, 23,314,407 shares outstanding with respect to each of the classesClass B Common Stock, and 823,377 shares of common stock of Constellation Brands, Inc.,Class 1 Common Stock outstanding as of December 31, 2018, is set forth below:
ClassNumber of Shares Outstanding
Class A Common Stock, par value $.01 per share166,548,089
Class B Common Stock, par value $.01 per share23,316,629
Class 1 Common Stock, par value $.01 per share11,983
September 30, 2019.

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
3544
Item 3. Quantitative and Qualitative Disclosures About Market Risk
5468
Item 4. Controls and Procedures
5669
PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings
70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
70
Item 4. Mine Safety Disclosures
5670
Item 6. Exhibits
5671
INDEX TO EXHIBITS
5772
SIGNATURES
6177














































This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. For further information regarding such forward-looking statements, risks and uncertainties, please see “Information Regarding Forward-Looking Statements” under Part I – Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. Unless otherwise defined herein, refer to the Notes to Consolidated Financial Statements under Item 1 of this Quarterly Report on Form 10-Q for the definition of capitalized terms used herein. All references to “Fiscal 2018”2019” refer to our fiscal year ended February 28, 2018.2019. All references to “Fiscal 2019”2020” refer to our fiscal year ending February 28, 2019.29, 2020. All references to “$” are to U.S. dollars, all references to “C$” are to Canadian dollars, all references to MXN$ are to Mexican pesos, and all references to “A$” are to Australian dollars.




FINANCIAL STATEMENTS
Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.Financial Statements.
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
November 30,
2018		 February 28,
2018		August 31,
2019		 February 28,
2019
ASSETS      
Current assets:      
Cash and cash equivalents$130.6
 $90.3
$81.3
 $93.6
Accounts receivable837.2
 776.2
953.7
 846.9
Inventories2,198.0
 2,084.0
1,311.4
 2,130.4
Prepaid expenses and other472.7
 523.5
525.1
 613.1
Assets held for sale - current666.0
 —
Total current assets3,638.5
 3,474.0
3,537.5
 3,684.0
Property, plant and equipment4,986.3
 4,789.7
Property, plant, and equipment5,141.6
 5,267.3
Goodwill8,061.8
 8,083.1
7,696.7
 8,088.8
Intangible assets3,307.8
 3,304.8
2,787.0
 3,198.1
Equity method investments3,583.0
 121.5
3,003.8
 3,465.6
Securities measured at fair value1,572.2
 3,234.7
Deferred income taxes2,146.8
 2,183.3
Assets held for sale1,019.1
 —
Other assets4,313.0
 765.6
650.4
 109.7
Total assets$27,890.4
 $20,538.7
$27,555.1
 $29,231.5
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Short-term borrowings$731.5
 $746.8
$150.9
 $791.5
Current maturities of long-term debt1,065.6
 22.3
636.1
 1,065.2
Accounts payable882.7
 592.2
608.6
 616.7
Other accrued expenses and liabilities683.6
 678.3
800.3
 690.4
Total current liabilities3,363.4
 2,039.6
2,195.9
 3,163.8
Long-term debt, less current maturities11,772.5
 9,417.6
12,159.8
 11,759.8
Other liabilities1,234.5
 1,089.8
Deferred income taxes and other liabilities1,508.4
 1,470.7
Total liabilities16,370.4
 12,547.0
15,864.1
 16,394.3
Commitments and contingencies
 

 

CBI stockholders’ equity:      
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued, 185,514,404 shares and 258,718,356 shares, respectively1.9
 2.6
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares; Issued, 28,322,429 shares and 28,335,387 shares, respectively
0.3
 0.3
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued, 185,880,112 shares and 185,740,178 shares, respectively1.9
 1.9
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares; Issued, 28,321,821 shares and 28,322,419 shares, respectively0.3
 0.3
Additional paid-in capital1,368.8
 2,825.3
1,452.1
 1,410.8
Retained earnings13,176.8
 9,157.2
13,221.4
 14,276.2
Accumulated other comprehensive loss(505.9) (202.9)
Accumulated other comprehensive income (loss)(476.6) (353.9)
14,041.9
 11,782.5
14,199.1
 15,335.3
Less: Treasury stock –      
Class A Common Stock, at cost, 18,970,734 shares and 90,743,239 shares, respectively(2,783.0) (3,805.2)
Class A Common Stock, at cost, 18,604,964 shares and 18,927,966 shares, respectively(2,819.4) (2,782.1)
Class B Convertible Common Stock, at cost, 5,005,800 shares(2.2) (2.2)(2.2) (2.2)
(2,785.2) (3,807.4)(2,821.6) (2,784.3)
Total CBI stockholders’ equity11,256.7
 7,975.1
11,377.5
 12,551.0
Noncontrolling interests263.3
 16.6
313.5
 286.2
Total stockholders’ equity11,520.0
 7,991.7
11,691.0
 12,837.2
Total liabilities and stockholders’ equity$27,890.4
 $20,538.7
$27,555.1
 $29,231.5
The accompanying notes are an integral part of these statements.


1


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
1

Table of Contents

FINANCIAL STATEMENTS
Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
(unaudited)
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, except per share data)
(unaudited)
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, except per share data)
(unaudited)
For the Nine Months Ended November 30, For the Three Months Ended November 30,For the Six Months Ended August 31, For the Three Months Ended August 31,
2018 2017 2018 20172019 2018 2019 2018
Sales$6,916.3
 $6,390.6
 $2,160.6
 $1,981.7
$4,855.9
 $4,755.7
 $2,573.4
 $2,525.7
Excise taxes(597.5) (572.3) (188.0) (179.8)(414.7) (409.5) (229.4) (226.6)
Net sales6,318.8
 5,818.3
 1,972.6
 1,801.9
4,441.2
 4,346.2
 2,344.0
 2,299.1
Cost of product sold(3,132.0) (2,851.0) (1,002.6) (891.6)(2,226.6) (2,129.4) (1,158.1) (1,130.9)
Gross profit3,186.8
 2,967.3
 970.0
 910.3
2,214.6
 2,216.8
 1,185.9
 1,168.2
Selling, general and administrative expenses(1,239.9) (1,199.3) (413.5) (420.7)
Operating income1,946.9
 1,768.0
 556.5
 489.6
Selling, general, and administrative expenses(872.4) (826.4) (466.4) (403.2)
Operating income (loss)1,342.2
 1,390.4
 719.5
 765.0
Income (loss) from unconsolidated investments918.2
 249.7
 (134.6) 249.1
(2,255.3) 1,052.8
 (1,324.7) 688.4
Interest expense(248.6) (245.1) (72.8) (81.4)(226.2) (175.8) (111.6) (88.0)
Loss on extinguishment of debt(1.7) (19.1) (1.7) (10.3)(2.4) —
 (2.4) —
Income before income taxes2,614.8
 1,753.5
 347.4
 647.0
Provision for income taxes(405.1) (352.0) (35.3) (150.6)
Net income2,209.7
 1,401.5
 312.1
 496.4
Net income attributable to noncontrolling interests(13.3) (8.6) (9.0) (3.6)
Net income attributable to CBI$2,196.4
 $1,392.9
 $303.1
 $492.8
Income (loss) before income taxes(1,141.7) 2,267.4
 (719.2) 1,365.4
(Provision for) benefit from income taxes387.6
 (369.8) 202.2
 (214.1)
Net income (loss)(754.1) 1,897.6
 (517.0) 1,151.3
Net income (loss) attributable to noncontrolling interests(16.5) (4.3) (8.2) (1.8)
Net income (loss) attributable to CBI$(770.6) $1,893.3
 $(525.2) $1,149.5
              
Comprehensive income$1,891.7
 $1,605.3
 $98.2
 $369.2
Comprehensive income (loss)$(886.2) $1,793.5
 $(646.4) $1,232.6
Comprehensive (income) loss attributable to noncontrolling interests1.7
 (21.6) 3.6
 2.0
(7.1) (1.9) 0.1
 (9.1)
Comprehensive income attributable to CBI$1,893.4
 $1,583.7
 $101.8
 $371.2
Comprehensive income (loss) attributable to CBI$(893.3) $1,791.6
 $(646.3) $1,223.5
              
Net income per common share attributable to CBI:       
Net income (loss) per common share attributable to CBI:       
Basic – Class A Common Stock$11.66
 $7.22
 $1.62
 $2.55
$(4.08) $10.03
 $(2.77) $6.11
Basic – Class B Convertible Common Stock$10.59
 $6.55
 $1.47
 $2.32
$(3.71) $9.11
 $(2.52) $5.55
              
Diluted – Class A Common Stock$11.21
 $6.92
 $1.56
 $2.45
$(4.08) $9.64
 $(2.77) $5.87
Diluted – Class B Convertible Common Stock$10.35
 $6.40
 $1.45
 $2.26
$(3.71) $8.89
 $(2.52) $5.41
              
Weighted average common shares outstanding:              
Basic – Class A Common Stock167.203
 171.854
 166.364
 171.922
168.215
 167.617
 168.310
 167.172
Basic – Class B Convertible Common Stock23.322
 23.339
 23.318
 23.333
23.316
 23.325
 23.316
 23.323
              
Diluted – Class A Common Stock195.921
 201.183
 194.820
 201.177
168.215
 196.468
 168.310
 195.907
Diluted – Class B Convertible Common Stock23.322
 23.339
 23.318
 23.333
23.316
 23.325
 23.316
 23.323
              
Cash dividends declared per common share:              
Class A Common Stock$2.22
 $1.56
 $0.74
 $0.52
$1.50
 $1.48
 $0.75
 $0.74
Class B Convertible Common Stock$2.01
 $1.41
 $0.67
 $0.47
$1.36
 $1.34
 $0.68
 $0.67


The accompanying notes are an integral part of these statements.


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Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
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Table of Contents

FINANCIAL STATEMENTS
Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 For the Nine Months Ended November 30,
 2018 2017
Cash flows from operating activities:   
Net income$2,209.7
 $1,401.5
    
Adjustments to reconcile net income to net cash provided by operating activities:   
Unrealized net gain on securities measured at fair value(786.5) (216.8)
Net gain on sale of unconsolidated investment(99.8) —
Net income tax benefit related to the Tax Cuts and Jobs Act(37.6) —
Equity in earnings of equity method investees, net of distributed earnings(18.4) (20.5)
Depreciation250.1
 214.4
Deferred tax provision208.1
 91.1
Stock-based compensation51.1
 45.5
Amortization of debt issuance costs and loss on extinguishment of debt25.8
 27.6
Amortization and impairment of intangible assets4.5
 91.2
Loss on contract termination—
 59.0
Change in operating assets and liabilities, net of effects from purchases of businesses:   
Accounts receivable(56.4) (38.4)
Inventories(127.7) (221.7)
Prepaid expenses and other current assets(56.6) (78.3)
Accounts payable301.3
 157.7
Other accrued expenses and liabilities33.7
 (67.8)
Other72.6
 23.9
Total adjustments(235.8) 66.9
Net cash provided by operating activities1,973.9
 1,468.4
    
Cash flows from investing activities:   
Investments in equity method investees and securities(4,077.3) (191.3)
Purchases of property, plant and equipment(620.3) (705.6)
Purchases of businesses, net of cash acquired(45.3) (131.9)
Proceeds from sale of unconsolidated investment110.2
 —
Proceeds from sales of assets46.3
 1.2
Other investing activities(0.9) (10.7)
Net cash used in investing activities(4,587.3) (1,038.3)
    
Cash flows from financing activities:   
Proceeds from issuance of long-term debt3,657.6
 6,017.9
Proceeds from shares issued under equity compensation plans32.6
 37.5
Purchases of treasury stock(504.3) (239.2)
Dividends paid(417.9) (301.1)
Principal payments of long-term debt(45.3) (6,522.8)
Payments of debt issuance costs(33.3) (32.4)
Net proceeds from (repayments of) short-term borrowings(14.5) 604.9
Payments of minimum tax withholdings on stock-based payment awards(13.6) (22.9)
Net cash provided by (used in) financing activities2,661.3
 (458.1)
    
Effect of exchange rate changes on cash and cash equivalents(7.6) 5.1
    
Net increase (decrease) in cash and cash equivalents40.3
 (22.9)
Cash and cash equivalents, beginning of period90.3
 177.4
Cash and cash equivalents, end of period$130.6
 $154.5
    
Supplemental disclosures of noncash investing and financing activities:   
Additions to property, plant and equipment$130.9
 $155.7
Conversion of long-term debt to noncontrolling equity interest$248.4
 $—
CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
 Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Non-controlling
Interests
 Total
 Class A Class B 
Balance at February 28, 2019$1.9
 $0.3
 $1,410.8
 $14,276.2
 $(353.9) $(2,784.3) $286.2
 $12,837.2
Comprehensive income (loss):               
Net income (loss)—
 —
 —
 (245.4) —
 —
 8.3
 (237.1)
Other comprehensive income (loss), net of income tax effect—
 —
 —
 —
 (1.6) —
 (1.1) (2.7)
Comprehensive income (loss)              (239.8)
Dividends declared—
 —
 —
 (141.9) —
 —
 —
 (141.9)
Initial recognition of non-controlling interest—
 —
 —
 —
 —
 —
 20.2
 20.2
Shares issued under equity compensation plans—
 —
 (9.3) —
 —
 6.3
 —
 (3.0)
Stock-based compensation—
 —
 15.5
 —
 —
 —
 —
 15.5
Balance at May 31, 2019$1.9
 $0.3
 $1,417.0
 $13,888.9
 $(355.5) $(2,778.0) $313.6
 $12,488.2
Comprehensive income (loss):               
Net income (loss)—
 —
 —
 (525.2) —
 —
 8.2
 (517.0)
Other comprehensive income (loss), net of income tax effect—
 —
 —
 —
 (121.1) —
 (8.3) (129.4)
Comprehensive income (loss)              (646.4)
Repurchase of shares—
 —
 —
 —
 —
 (50.0) —
 (50.0)
Dividends declared—
 —
 —
 (142.3) —
 —
 —
 (142.3)
Shares issued under equity compensation plans—
 —
 17.4
 —
 —
 6.4
 —
 23.8
Stock-based compensation—
 —
 17.7
 —
 —
 —
 —
 17.7
Balance at August 31, 2019$1.9
 $0.3
 $1,452.1
 $13,221.4
 $(476.6) $(2,821.6) $313.5
 $11,691.0
                
Balance at February 28, 2018$2.6
 $0.3
 $2,825.3
 $9,157.2
 $(202.9) $(3,807.4) $16.6
 $7,991.7
Cumulative effect of change in accounting principle—
 —
 —
 2,242.0
 —
 —
 —
 2,242.0
Comprehensive income (loss):               
Net income (loss)—
 —
 —
 743.8
 —
 —
 2.5
 746.3
Other comprehensive income (loss), net of income tax effect—
 —
 —
 —
 (175.7) —
 (9.7) (185.4)
Comprehensive income (loss)              560.9
Repurchase of shares—
 —
 —
 —
 —
 (100.0) —
 (100.0)
Dividends declared—
 —
 —
 (140.6) —
 —
 —
 (140.6)
Shares issued under equity compensation plans—
 —
 (7.7) —
 —
 2.3
 —
 (5.4)
Stock-based compensation—
 —
 17.2
 —
 —
 —
 —
 17.2
Balance at May 31, 2018$2.6
 $0.3
 $2,834.8
 $12,002.4
 $(378.6) $(3,905.1) $9.4
 $10,565.8
Comprehensive income (loss):               
Net income (loss)—
 —
 —
 1,149.5
 —
 —
 1.8
 1,151.3
Other comprehensive income (loss), net of income tax effect—
 —
 —
 —
 74.0
 —
 7.3
 81.3
Comprehensive income (loss)              1,232.6
Repurchase of shares—
 —
 —
 —
 —
 (404.3) —
 (404.3)
Dividends declared—
 —
 —
 (139.0) —
 —
 —
 (139.0)
Conversion of long-term debt to noncontrolling equity interest—
 —
 —
 —
 —
 —
 248.4
 248.4
Shares issued under equity compensation plans—
 —
 12.3
 —
 —
 1.2
 —
 13.5
Stock-based compensation—
 —
 18.2
 —
 —
 —
 —
 18.2
Balance at August 31, 2018$2.6
 $0.3
 $2,865.3
 $13,012.9
 $(304.6) $(4,308.2) $266.9
 $11,535.2

The accompanying notes are an integral part of these statements.


3


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
3

FINANCIAL STATEMENTS
Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 For the Six Months Ended August 31,
 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES   
Net income (loss)$(754.1) $1,897.6
    
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Unrealized net (gain) loss on securities measured at fair value1,666.6
 (950.4)
Equity in (earnings) losses of equity method investees and related activities, net of distributed (earnings) losses580.3
 2.1
Depreciation169.1
 168.8
Loss on inventory and related contracts61.0
 —
(Gain) loss on sale of business and assets held for sale36.0
 (6.2)
Stock-based compensation33.6
 35.9
Impairment and amortization of intangible assets13.9
 3.0
Amortization of debt issuance costs and loss on extinguishment of debt9.7
 8.9
Net (gain) loss on sale of unconsolidated investment0.1
 (99.8)
Deferred tax provision (benefit)(452.7) 202.3
Change in operating assets and liabilities, net of effects from purchases of businesses:   
Accounts receivable(106.2) (173.8)
Inventories92.7
 123.8
Prepaid expenses and other current assets32.2
 (49.0)
Accounts payable3.9
 111.0
Deferred revenue34.0
 35.6
Other accrued expenses and liabilities(61.0) 15.6
Other60.3
 13.1
Total adjustments2,173.5
 (559.1)
Net cash provided by (used in) operating activities1,419.4
 1,338.5
    
CASH FLOWS FROM INVESTING ACTIVITIES   
Purchases of property, plant, and equipment(355.2) (370.6)
Purchases of businesses, net of cash acquired(36.2) (20.2)
Investments in equity method investees and securities(33.0) (152.1)
Proceeds from sale of unconsolidated investment—
 110.2
Proceeds from sales of assets—
 44.7
Other investing activities(1.3) (0.8)
Net cash provided by (used in) investing activities(425.7) (388.8)
    
CASH FLOWS FROM FINANCING ACTIVITIES   
Principal payments of long-term debt(1,331.5) (23.5)
Net proceeds from (repayments of) short-term borrowings(640.5) (32.4)
Dividends paid(285.0) (279.1)
Purchases of treasury stock(50.0) (504.3)
Payments of minimum tax withholdings on stock-based payment awards(14.2) (13.5)
Payments of debt issuance costs(8.0) (13.6)
Proceeds from issuance of long-term debt1,291.3
 12.0
Proceeds from shares issued under equity compensation plans32.9
 21.5
Net cash provided by (used in) financing activities(1,005.0) (832.9)
    
Effect of exchange rate changes on cash and cash equivalents(1.0) (1.0)
    
Net increase (decrease) in cash and cash equivalents(12.3) 115.8
Cash and cash equivalents, beginning of period93.6
 90.3
Cash and cash equivalents, end of period$81.3
 $206.1
    

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FINANCIAL STATEMENTS
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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 For the Six Months Ended August 31,
 2019 2018
Supplemental disclosures of noncash investing and financing activities   
Additions to property, plant, and equipment$74.4
 $147.2
Conversion of long-term debt to noncontrolling equity interest$—
 $248.4

The accompanying notes are an integral part of Contentsthese statements.


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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2018AUGUST 31, 2019
(unaudited)


1.    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of presentation –
Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We have prepared the consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to quarterly reporting on Form 10-Q and reflect, in our opinion, all adjustments necessary to present fairly our financial information. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted as permitted by such rules and regulations. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended February 28, 20182019 (the “2018“2019 Annual Report”), and include the recently adopted accounting guidance described below and in Note 2 and Note 14 herein. Results of operations for interim periods are not necessarily indicative of annual results.

Summary of significant accounting policies –
Revenue recognition:
Effective March 1, 2018, we adopted the FASB amended guidance regarding the recognition of revenue from contracts with customers using the retrospective application method (see Note 2 for impacts of adoption). Our revenue (referred to in our financial statements as “sales”) consists primarily of the sale of beer, wine and spirits domestically in the U.S. Sales of products are for cash or otherwise agreed-upon credit terms. Our payment terms vary by location and customer, however, the time period between when revenue is recognized and when payment is due is not significant. Our customers consist primarily of wholesale distributors. Our revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and our obligation has been fulfilled, which is when the related goods are shipped or delivered to the customer, depending upon the method of distribution and shipping terms. Revenue is measured as the amount of consideration we expect to receive in exchange for the sale of our product. Our sales terms do not allow for a right of return except for matters related to any manufacturing defects on our part. Amounts billed to customers for shipping and handling are included in sales.

As noted, the majority of our revenues are generated from the domestic sale of beer, wine and spirits to wholesale distributors in the U.S. Our other revenue generating activities include the export of certain of our products to select international markets, as well as the sale of our products through state alcohol beverage control agencies and on-premise, retail locations in certain markets. We have evaluated these other revenue generating activities under the disaggregation disclosure criteria outlined within the amended guidance and concluded that these other revenue generating activities are immaterial for separate disclosure. See Note 16 for disclosure of net sales by product type.

Sales reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and advertising allowances, coupons and rebates. This variable consideration is recorded as a reduction of the transaction price based upon expected amounts at the time revenue for the corresponding product sale is recognized. For example, customer promotional discount programs are entered into with certain distributors for certain periods of time. The amount ultimately reimbursed to distributors is determined based upon agreed-upon promotional discounts which are applied to distributors’ sales to retailers. Other common forms of variable consideration include volume rebates for meeting established sales targets, and coupons and mail-in rebates offered to the end consumer. The determination of the reduction of the transaction price for variable consideration requires that we make certain estimates and assumptions that affect the timing and amounts of revenue and liabilities recognized. We estimate this variable consideration by taking into account factors such as the nature of the promotional activity, historical information and current trends, availability of actual results, and expectations of customer and consumer behavior.

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Excise taxes remitted to tax authorities are government-imposed excise taxes on our beverage alcohol products. Excise taxes are shown on a separate line item as a reduction of sales. Excise taxes are recognized as a current liability in other accrued expenses and liabilities, with the liability subsequently reduced when the taxes are remitted to the tax authority.


2.    ACCOUNTING GUIDANCE:GUIDANCE


Recently adopted accounting guidance –
Revenue recognition:
In May 2014, the FASB issued guidance regarding the recognition of revenue from contracts with customers. Under this guidance, an entity will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

We adopted this guidance on March 1, 2018, using the retrospective application method to allow for comparable reporting in all periods throughout the year ending February 28, 2019. Based on our analysis, we concluded that the adoption of the amended guidance did not have a material impact on our net sales recognition. However, the broad definition of variable consideration under this guidance requires us to estimate and recognize certain variable payments resulting from various sales incentives earlier than we have historically recognized them. This change in the timing of when we recognize sales incentive expenses resulted in a shift in net sales recognition primarily between our fiscal quarters. Under the retrospective application method, we recognized the cumulative impact of adopting this guidance in the first quarter of fiscal 2019 with a reduction to our March 1, 2016, opening retained earnings of $49.0 million, net of income tax effect, with an offsetting increase to current accrued promotion expense and the recognition of a deferred tax asset to align the timing of when we recognize sales incentive expense and when we recognize revenue.

The effects of the retrospective application method on our consolidated financial statements for the periods presented in this report were as follows:
 
As
Previously
Reported
 
Revenue
Recognition
Adjustments
 
As
Adjusted
(in millions, except per share data)
     
Consolidated Balance Sheet at February 28, 2018     
Other accrued expenses and liabilities$583.4
 $94.9
 $678.3
Total current liabilities$1,944.7
 $94.9
 $2,039.6
Other liabilities (including deferred income taxes – as previously reported, $718.3 million; as adjusted, $694.4 million)$1,113.7
 $(23.9) $1,089.8
Total liabilities$12,476.0
 $71.0
 $12,547.0
Retained earnings$9,228.2
 $(71.0) $9,157.2
Total stockholders’ equity$8,062.7
 $(71.0) $7,991.7
      

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As
Previously
Reported
 
Revenue
Recognition
Adjustments
 
As
Adjusted
(in millions, except per share data)
     
Consolidated Statement of Comprehensive Income for the Nine Months Ended November 30, 2017
Sales$6,391.4
 $(0.8) $6,390.6
Net sales$5,819.1
 $(0.8) $5,818.3
Gross profit$2,968.1
 $(0.8) $2,967.3
Operating income$1,768.8
 $(0.8) $1,768.0
Income before income taxes$1,754.3
 $(0.8) $1,753.5
Provision for income taxes$(352.3) $0.3
 $(352.0)
Net income$1,402.0
 $(0.5) $1,401.5
Net income attributable to CBI$1,393.4
 $(0.5) $1,392.9
Comprehensive income attributable to CBI$1,584.2
 $(0.5) $1,583.7
      
Net income per common share attributable to CBI:     
Basic – Class A Common Stock$7.22
 $—
 $7.22
Basic – Class B Convertible Common Stock$6.55
 $—
 $6.55
      
Diluted – Class A Common Stock$6.93
 $(0.01) $6.92
Diluted – Class B Convertible Common Stock$6.40
 $—
 $6.40
      
Consolidated Statement of Comprehensive Income for the Three Months Ended November 30, 2017
Sales$1,978.9
 $2.8
 $1,981.7
Net sales$1,799.1
 $2.8
 $1,801.9
Gross profit$907.5
 $2.8
 $910.3
Operating income$486.8
 $2.8
 $489.6
Income before income taxes$644.2
 $2.8
 $647.0
Provision for income taxes$(149.5) $(1.1) $(150.6)
Net income$494.7
 $1.7
 $496.4
Net income attributable to CBI$491.1
 $1.7
 $492.8
Comprehensive income attributable to CBI$369.5
 $1.7
 $371.2
      
Net income per common share attributable to CBI:     
Basic – Class A Common Stock$2.54
 $0.01
 $2.55
Basic – Class B Convertible Common Stock$2.31
 $0.01
 $2.32
      
Diluted – Class A Common Stock$2.44
 $0.01
 $2.45
Diluted – Class B Convertible Common Stock$2.26
 $—
 $2.26

The adoption of the revenue recognition guidance had no impact to cash flows from operating, financing or investing activities in our consolidated statement of cash flows for the nine months ended November 30, 2017.

Income taxes:
In October 2016, the FASB issued guidance that simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Under this guidance, an entity is required to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Prior guidance prohibited the recognition in earnings of current and deferred income taxes for an intra-entity asset transfer until the asset had been sold to an outside party or recovered through use.

We adopted this guidance on March 1, 2018, using the modified retrospective basis, which requires a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Based on

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our assessment of intra-entity asset transfers that are in scope and the related deferred income taxes, in the first quarter of fiscal 2019, we recognized a net increase in our March 1, 2018, opening retained earnings and deferred tax assets of $2.2 billion, primarily in connection with the intra-entity transfer of certain intellectual property related to our imported beer business for the year ended February 28, 2018.

Accounting guidance not yet adopted–
Leases:
In February 2016, the FASB issued guidance for the accounting for leases. Under this guidance, a lessee will recognizerecognizes assets and liabilities on its balance sheet for most leases, but will recognizeleases. Lease expense similarcontinues to current lease accountingbe consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

We are required to adopt thisadopted the guidance for our annual and interim periods beginningon March 1, 2019. We intend to implement this guidance under2019, using the modified retrospective approach, accordingly, prior period balances and applydisclosures have not been restated. We elected the transition method which does not require adjustments to comparative periods or require modified disclosures for those comparative periods.

The guidance provides a numberpackage of optional practical expedients in transition. We expect to elect all of the available transition practical expedients other thanfor expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

We finalized the use-of-hindsight. We are currently preparing to implementimplementation of changes to our accounting policies, systems and controls, including the implementation ofa new leasing software capable of producingto capture the required data for accounting and disclosure purposes. Based on analysis to date, we do not expect thedisclosure. The adoption of this guidance toresulted in the recognition of operating lease right-of-use assets of $585.4 million and operating lease liabilities of $619.7 million as of March 1, 2019, and did not have a material impact on our results of operations or liquidity. We are in the process of quantifying the impact

For additional information on our financial condition from applying this guidance, including the recognition of new right-of-use assets and lease liabilities associated with our operating leases. Among other items, we are finalizing (i)  the development and application of the rates at which future lease payments will be discounted and (ii)  the review of our existing contracts for embedded lease arrangements. Our assessment will be completed during the fourth quarter of fiscal 2019.leases, refer to Note 14.

The guidance also provides practical expedients for an entity’s ongoing accounting. We expect to elect the short-term lease recognition exemption which will allow us to not recognize right-of-use assets and lease liabilities for all leases with an initial term of 12 months or less. We also expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.


3.    INVENTORIES:INVENTORIES


Inventories are stated at the lower of cost (primarily computed in accordance with the first-in, first-out method) or net realizable value. Elements of cost include materials, labor, and overhead and consist of the following:
 
August 31,
2019 (1)
 February 28,
2019
(in millions)   
Raw materials and supplies$147.0
 $182.6
In-process inventories792.2
 1,480.5
Finished case goods372.2
 467.3
 $1,311.4
 $2,130.4

(1)
The inventory balance at August 31, 2019, excludes amounts reclassified to assets held for sale (see Note 4).

 November 30,
2018		 February 28,
2018
(in millions)
   
Raw materials and supplies$142.3
 $160.8
In-process inventories1,532.5
 1,382.8
Finished case goods523.2
 540.4
 $2,198.0
 $2,084.0
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Related party transactions and arrangements –
We have an equally-owned glass production plant joint venture with Owens-Illinois. We have entered into various contractual arrangements with affiliates of Owens-Illinois primarily for the purchase of glass bottles used largely in our imported and craft beer portfolios. Amounts purchased under these arrangements were $172.4$126.4 million and $282.5$123.7 million for the ninesix months ended November 30,August 31, 2019, and August 31, 2018, and November 30, 2017, respectively, and $48.7$37.9 million and $83.4$54.7 million for the three months ended August 31, 2019, and August 31, 2018, respectively.

4.    WINE AND SPIRITS TRANSFORMATION

Wine and Spirits Transaction
In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business, including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices, and facilities, for approximately $1.7 billion, subject to certain adjustments (the “Wine and Spirits Transaction”). The Wine and Spirits Transaction is subject to the satisfaction of certain closing conditions, including receipt of required regulatory approval, and is expected to close by the end of Fiscal 2020. We expect to use the net cash proceeds from the Wine and Spirits Transaction primarily to reduce outstanding borrowings.

Subsequent event
We now believe it is likely that a portion of the Wine and Spirits Transaction purchase price may be revised to take the form of contingent consideration, receivable based on future brand performance. We record contingent consideration when it is determined to be realizable. Therefore, we now expect to recognize an additional loss of approximately $300 million on the write-down of assets held for sale during the three months ended November 30, 2018,2019.

Black Velvet Transaction
In August 2019, we entered into a definitive agreement to sell Black Velvet Canadian Whisky and November 30, 2017, respectively.the brand’s associated production facility, along with a subset of Canadian whisky brands produced at that facility, for approximately $266 million, subject to certain adjustments (the “Black Velvet Transaction”). We expect to recognize a gain of approximately $70 million to $80 million upon closing. The Black Velvet Transaction is subject to the satisfaction of certain closing conditions, including receipt of required regulatory approvals, and is expected to close in the fourth quarter of calendar 2019. We expect to use the net cash proceeds from the Black Velvet Transaction primarily to reduce outstanding borrowings.



Assets Held for Sale
In connection with the Wine and Spirits Transaction and Black Velvet Transaction, certain Wine and Spirits segment net assets have met the held for sale criteria as of August 31, 2019. For the six months and three months ended August 31, 2019, a long-lived asset impairment of $27.0 million was recognized. For additional information refer to Note 6.


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The carrying value of assets held for sale consists of the following:
 August 31, 2019
 Wine and Spirits Transaction 
Black
Velvet Transaction
 Total
(in millions)     
Assets     
Inventories$593.7
 $63.3
 $657.0
Prepaid expenses and other9.0
 —
 9.0
Assets held for sale - current602.7
 63.3
 666.0
      
Property, plant, and equipment175.8
 18.2
 194.0
Goodwill353.2
 62.6
 415.8
Intangible assets347.2
 59.8
 407.0
Equity method investments1.1
 —
 1.1
Other assets0.3
 0.9
 1.2
Assets held for sale877.6
 141.5
 1,019.1
      
Liabilities     
Accounts payable4.7
 —
 4.7
Other accrued expenses and liabilities31.1
 1.6
 32.7
Deferred income taxes and other liabilities0.1
 2.1
 2.2
Liabilities held for sale (1)
35.9
 3.7
 39.6
Net assets held for sale$1,444.4
 $201.1
 $1,645.5

(1)
Liabilities held for sale are included in the Consolidated Balance Sheet as of August 31, 2019, within the respective liability line items noted above.
Wine and Spirits Optimization
We recognized charges in connection with our ongoing efforts to gain efficiencies and reduce our cost structure within the Wine and Spirits segment as follows:
 Results of Operations Location 
For the Six Months Ended
August 31, 2019
 
For the Three Months Ended
August 31, 2019
(in millions)     
Loss on inventory write-downsCost of product sold $40.9
 $13.7
Contract termination costsCost of product sold 20.1
 4.3
Employee termination costsSelling, general, and administrative expenses 12.1
 0.2
Impairment of long-lived assetsSelling, general, and administrative expenses 27.0
 27.0
Other costsSelling, general, and administrative expenses 6.3
 —
   $106.4
 $45.2




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4.
5.    DERIVATIVE INSTRUMENTS:INSTRUMENTS


Overview –
Our risk management and derivative accounting policies are presented in Notes 1 and 6 of our consolidated financial statements included in our 20182019 Annual Report and have not changed significantly for the ninesix months and three months ended November 30, 2018. In addition, weAugust 31, 2019.

We have investments in certain equity securities and other rights which provide us with the option to purchase an additional ownership interest in the equity securities of that issuerCanopy (see Note 8)9). These investments are included in other assetssecurities measured at fair value and are accounted for at fair value, with the net gain (loss) from the changes in fair value of these investments recognized in income (loss) from unconsolidated investments (see Note 5)6).


The aggregate notional value of outstanding derivative instruments is as follows:
 August 31,
2019		 February 28,
2019
(in millions)   
Derivative instruments designated as hedging instruments   
Foreign currency contracts$1,959.9
 $1,579.3
Interest rate swap contracts$375.0
 $—
    
Derivative instruments not designated as hedging instruments   
Foreign currency contracts$781.2
 $460.3
Commodity derivative contracts$265.1
 $284.7

 November 30,
2018		 February 28,
2018
(in millions)
   
Derivative instruments designated as hedging instruments   
Foreign currency contracts$1,598.7
 $1,465.4
    
Derivative instruments not designated as hedging instruments   
Foreign currency contracts$356.8
 $440.6
Commodity derivative contracts$260.2
 $177.5


Credit risk –
We are exposed to credit-related losses if the counterparties to our derivative contracts default. This credit risk is limited to the fair value of the derivative contracts. To manage this risk, we contract only with major financial institutions that have earned investment-grade credit ratings and with whom we have standard International Swaps and Derivatives Association agreements which allow for net settlement of the derivative contracts. We have also established counterparty credit guidelines that are regularly monitored. Because of these safeguards, we believe the risk of loss from counterparty default to be immaterial.


In addition, our derivative instruments are not subject to credit rating contingencies or collateral requirements. As of November 30, 2018,August 31, 2019, the estimated fair value of derivative instruments in a net liability position due to counterparties was $65.8$53.4 million. If we were required to settle the net liability position under these derivative instruments on November 30, 2018,August 31, 2019, we would have had sufficient available liquidity on hand to satisfy this obligation.




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Results of period derivative activity –
The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see Note 5)6):
AssetsAssets LiabilitiesAssets Liabilities
November 30,
2018		 February 28,
2018		 November 30,
2018		 February 28,
2018		August 31,
2019		 February 28,
2019		  August 31,
2019		 February 28,
2019
(in millions)              
Derivative instruments designated as hedging instrumentsForeign currency contracts:
Prepaid expenses and other$4.8
 $21.2
 Other accrued expenses and liabilities$34.9
 $7.8
$9.6
 $14.1
 Other accrued expenses and liabilities$24.0
 $8.8
Other assets$4.9
 $17.0
 Other liabilities$30.6
 $9.9
$11.6
 $22.1
 Deferred income taxes and other liabilities$18.6
 $6.3
Interest rate swap contracts:Interest rate swap contracts:
Prepaid expenses and other$0.1
 $—
 Other accrued expenses and liabilities$0.8
 $—
              
Derivative instruments not designated as hedging instrumentsForeign currency contracts:
Prepaid expenses and other$1.6
 $2.1
 Other accrued expenses and liabilities$2.0
 $2.2
$4.5
 $2.0
 Other accrued expenses and liabilities$11.0
 $0.6
Commodity derivative contracts:
Prepaid expenses and other$6.6
 $6.3
 Other accrued expenses and liabilities$8.7
 $3.0
$1.2
 $6.1
 Other accrued expenses and liabilities$15.6
 $6.1
Other assets$1.7
 $2.8
 Other liabilities$8.5
 $2.6
$0.3
 $2.6
 Deferred income taxes and other liabilities$10.7
 $5.5


The principal effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as Other Comprehensive Income (Loss) (“OCI”), net of income tax effect, is as follows:
Derivative Instruments in
Designated Cash Flow
Hedging Relationships
 
Net
Gain (Loss)
Recognized
in OCI
 
Location of Net Gain (Loss)
Reclassified from
AOCI to Income
 
Net
Gain (Loss)
Reclassified
from AOCI
to Income
 
Net
Gain (Loss)
Recognized
in OCI
 
Location of Net Gain (Loss)
Reclassified from
AOCI to Income (Loss)
 
Net
Gain (Loss)
Reclassified
from AOCI
to Income (Loss)
(in millions)        
For the Nine Months Ended November 30, 2018    
Foreign currency contracts $(55.6) Sales $0.1
   Cost of product sold 5.2
 $(55.6) $5.3
    
For the Nine Months Ended November 30, 2017    
For the Six Months Ended August 31, 2019    
Foreign currency contracts $44.5
 Sales $(0.3) $(35.6) Sales $—
   Cost of product sold 0.3
   Cost of product sold 7.8
Interest rate swap contracts (1.5) Interest expense 1.3
 (0.6) Interest expense —
 $43.0
 $1.3
 $(36.2) $7.8
        
For the Three Months Ended November 30, 2018    
For the Six Months Ended August 31, 2018    
Foreign currency contracts $(48.6) Sales $—
 $(7.0) Sales $0.1
   Cost of product sold 0.5
   Cost of product sold 4.7
 $(48.6) $0.5
 $(7.0) $4.8
        
For the Three Months Ended November 30, 2017    
Foreign currency contracts $(22.1) Sales $(0.4)
   Cost of product sold 2.3
Interest rate swap contracts 0.9
 Interest expense 1.4
 $(21.2) $3.3



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Derivative Instruments in
Designated Cash Flow
Hedging Relationships
 
Net
Gain (Loss)
Recognized
in OCI
 
Location of Net Gain (Loss)
Reclassified from
AOCI to Income (Loss)
 
Net
Gain (Loss)
Reclassified
from AOCI
to Income (Loss)
(in millions)      
For the Three Months Ended August 31, 2019      
Foreign currency contracts $(33.2) Sales $—
    Cost of product sold 4.2
Interest rate swap contracts (0.6) Interest expense —
  $(33.8)   $4.2
       
For the Three Months Ended August 31, 2018      
Foreign currency contracts $37.9
 Sales $—
    Cost of product sold 0.6
  $37.9
   $0.6

We expect $15.5$6.8 million of net losses, net of income tax effect, to be reclassified from accumulated other comprehensive income (loss) (“AOCI”) to our results of operations within the next 12 months.


The effect of our undesignated derivative instruments on our results of operations is as follows:
Derivative Instruments Not
Designated as Hedging Instruments
   
Location of Net Gain (Loss)
Recognized in Income (Loss)
 
Net
Gain (Loss)
Recognized
in Income (Loss)
(in millions)      
For the Six Months Ended August 31, 2019      
Commodity derivative contracts   Cost of product sold $(26.8)
Foreign currency contracts   Selling, general, and administrative expenses (8.9)
      $(35.7)
       
For the Six Months Ended August 31, 2018      
Commodity derivative contracts   Cost of product sold $9.6
Foreign currency contracts   Selling, general, and administrative expenses (28.1)
Interest rate swap contracts   Interest expense 2.7
      $(15.8)
       
For the Three Months Ended August 31, 2019      
Commodity derivative contracts   Cost of product sold $(10.9)
Foreign currency contracts   Selling, general and administrative expenses (5.1)
      $(16.0)
       
For the Three Months Ended August 31, 2018      
Commodity derivative contracts   Cost of product sold $(5.8)
Foreign currency contracts   Selling, general and administrative expenses (26.2)
Interest rate swap contracts   Interest expense 2.7
      $(29.3)



Derivative Instruments Not
Designated as Hedging Instruments
   
Location of Net Gain (Loss)
Recognized in Income
 
Net
Gain (Loss)
Recognized
in Income
(in millions)      
For the Nine Months Ended November 30, 2018      
Commodity derivative contracts   Cost of product sold $(5.1)
Foreign currency contracts   Selling, general and administrative expenses (58.5)
Interest rate swap contracts   Interest expense 35.0
      $(28.6)
       
For the Nine Months Ended November 30, 2017      
Commodity derivative contracts   Cost of product sold $4.3
Foreign currency contracts   Selling, general and administrative expenses 4.4
      $8.7
       
For the Three Months Ended November 30, 2018      
Commodity derivative contracts   Cost of product sold $(14.7)
Foreign currency contracts   Selling, general and administrative expenses (30.4)
Interest rate swap contracts   Interest expense 32.3
      $(12.8)
       
For the Three Months Ended November 30, 2017      
Commodity derivative contracts   Cost of product sold $3.5
Foreign currency contracts   Selling, general and administrative expenses (2.0)
      $1.5
Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
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5.
FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents

6.    FAIR VALUE OF FINANCIAL INSTRUMENTS:INSTRUMENTS


Authoritative guidance establishes a framework for measuring fair value, including a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy includes three levels:


Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as volatility, interest rates, and yield curves that are observable for the asset and liability, either directly or indirectly; and
Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.


Fair value methodology and assumptions –
The following methods and assumptions are used to estimate the fair value for each class of our financial instruments:


Foreign currency and commodity derivative contracts:contracts
The fair value is estimated using market-based inputs, obtained from independent pricing services, entered into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, market commodity prices, interest-rate yield curves, and currency volatilities, as applicable (Level 2 fair value measurement).


10Interest rate swap contracts


Table of Contents

Canopy investments:
Equity securities, Common stock – The fair value of the November 2017 is estimated based on quoted market prices from respective counterparties. Quotes are corroborated by using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services (Level 2 fair value measurement).

Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Canopy Investment (as defined in Note 8) is calculated through the dateinvestments
Equity securities, Warrants – The terms of the November 2018 Canopy Transaction (as definedWarrants were modified in Note 8) by usingJune 2019 and now consist of three tranches of warrants: New Tranche A Warrants, New Tranche B Warrants, and New Tranche C Warrants. The exercise price for the New Tranche C Warrants is based on the volume-weighted average of the closing market price of Canopy’s common shares on the underlying equity security (Level 1TSX for the five trading days immediately preceding the exercise date (“VWAP Exercise Price”), accordingly, no fair value measurement). As of the date of the November 2018 Canopy Transaction, the November 2017 Canopy Investment, collectively with the November 2018 Canopy Investment (as defined in Note 8), is accounted for under the equity method (see Note 8).
Equity securities, Warrants – The fair value of the November 2017 Canopy Warrants andassigned. For additional information on the November 2018 Canopy Warrants (both as defined inand the related modification, refer to Note 8) is estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement). 9.

The assumptionsinputs used to estimate the fair value of the Canopy warrants (all as defined in Note 9) are as follows:
 November 30, 2018 February 28, 2018
 
November
2018 Canopy
Warrants
 
November
2017 Canopy
Warrants
 
November
2017 Canopy
Warrants
Expected life (1)
2.9 years
 1.4 years
 2.2 years
Expected volatility (2)
75.2% 83.2% 70.9%
Risk-free interest rate (3)
2.2% 2.1% 1.8%
Expected dividend yield (4)
0.0% 0.0% 0.0%
 
August 31, 2019 (1)
 February 28, 2019
 
New
Tranche A
Warrants (2)
 
New
Tranche B
Warrants (3)
 
November
2017 Canopy
Warrants (2)
 
November
2018 Canopy
Warrants (2)
 
November
2017 Canopy
Warrants (2)
Exercise price (4)
C$50.40
 C$76.68
 C$12.98
 C$50.40
 C$12.98
Valuation date stock price (5)
C$31.46
 C$31.46
 C$31.46
 C$62.38
 C$62.38
Expected life (6)
4.2 years
 7.2 years
 0.7 years
 2.7 years
 1.2 years
Expected volatility (7)
65.0% 65.0% 69.6% 79.3% 87.8%
Risk-free interest rate (8)
1.2% 1.2% 1.6% 1.8% 1.8%
Expected dividend yield (9)
0.0% 0.0% 0.0% 0.0% 0.0%
(1) 
New Tranche C Warrants are not included in the table as there is no fair value assigned.
(2)
The fair value is estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement).
(3)
The fair value is estimated using Monte Carlo simulations (Level 2 fair value measurement).
(4)
Based on the exercise price from the applicable underlying agreements.
(5)
Based on the closing market price for Canopy common stock on the Toronto Stock Exchange (“TSX”) as of the applicable date.
(6)
Based on the expiration date of the warrants.
(2)(7) 
Based on consideration of historical and/or implied volatility levels of the underlying equity security.security and limited consideration of historical peer group volatility levels.
(3)(8) 
Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expected life.
(4)(9) 
Based on historical dividend levels.
Debt securities, Convertible – In June 2018, we acquired convertible debt securities issued by Canopy for C$200.0 million, or $150.5 million (the “Canopy Debt Securities”). We have elected the fair value option to account for the Canopy Debt Securities. This providesSecurities, which at that time, provided the greatest level of consistency with the accounting treatment for the November 2017 Canopy Warrants. Interest income on the Canopy Debt Securities is calculated using the effective interest method and is recognized separately from the changes in fair value in interest expense. The Canopy Debt Securities have a contractual maturity of five years from the date of issuance but may be converted prior to maturity by either party upon the occurrence of certain events. At settlement, the Canopy Debt Securities can be settled at the option of the issuer, in cash, equity shares of the issuer, or a combination thereof. The fair value is estimated using a binomial lattice option-pricing model (Level 2 fair value measurement). As, which includes an estimate of November 30, 2018, the assumptionscredit spread based on the implied spread as of the issuance date of the notes.

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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The inputs used to estimate the fair value of the Canopy Debt Securities are as follows:
Remaining term(1)
4.6 years
Expected volatility (2)
44.2%
Risk-free interest rate (3)
2.2%
Expected dividend yield (4)
0.0%
 August 31,
2019		 February 28,
2019
Conversion price (1)
C$48.17
 C$48.17
Valuation date stock price (2)
C$31.46
 C$62.38
Remaining term (3)
3.9 years
 4.4 years
Expected volatility (4)
49.0% 45.9%
Risk-free interest rate (5)
1.3% 1.8%
Expected dividend yield (6)
0.0% 0.0%
(1) 
Based on the rate which the Canopy Debt Securities may be converted into equity shares, or the equivalent amount of cash, at the option of the issuer.
(2)
Based on the closing market price for Canopy common stock on the TSX as of the applicable date.
(3)
Based on the contractual maturity date of the notes.
(2)(4) 
Based on historical volatility levels of the underlying equity security reduced to account for certain risks not incorporated into the option-pricing model.
(3)(5) 
Based on the implied yield currently available on Canadian Treasury zero coupon issues with a term equal to the remaining contractual term of the debt securities.
(4)(6) 
Based on historical dividend levels.
Debt securities, Available-for-sale (“AFS”): The fair value is estimated by discounting cash flows using market-based inputs (Level 3 fair value measurement) (see Note 9).Short-term borrowings
Short-term borrowings:The revolving credit facility under our senior credit facility is a variable interest rate bearing note which includes a fixed margin which is adjustable based upon our debt rating (as defined in our senior credit facility). Its fair value is estimated by discounting cash flows using LIBOR plus a margin reflecting

11


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current market conditions obtained from participating member financial institutions (Level 2 fair value measurement). The remaining instruments, including our commercial paper, are variable interest rate bearing notes for which the carrying value approximates the fair value.

Long-term debt:debt
The term loans under our 2018Term Credit Agreement and our2019 Term Credit Agreement (both as defined in Note 10)11) are variable interest rate bearing notes which include a fixed margin which is adjustable based upon our debt rating. The Senior Floating Rate Notes (as defined in Note 10)senior floating rate notes are variable interest rate bearing notes which include a fixed margin. The fair value of the term loans and the Senior Floating Rate Notessenior floating rate notes are estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions obtained from participating member financial institutions (Level 2 fair value measurement). The fair value of the remaining long-term debt, which is primarily fixed interest rate, is estimated by discounting cash flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value measurement).


The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings, approximate fair value as of November 30, 2018,August 31, 2019, and February 28, 2018,2019, due to the relatively short maturity of these instruments. As of November 30, 2018,August 31, 2019, the carrying amount of long-term debt, including the current portion, was $12,838.1$12,795.9 million, compared with an estimated fair value of $12,460.7$13,677.2 million. As of February 28, 2018,2019, the carrying amount of long-term debt, including the current portion, was $9,439.9$12,825.0 million, compared with an estimated fair value of $9,398.4$12,768.5 million.



Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
14

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents

Recurring basis measurements –
The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis:
 Fair Value Measurements Using  
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
(in millions)       
August 31, 2019       
Assets:       
Foreign currency contracts$—
 $25.7
 $—
 $25.7
Commodity derivative contracts$—
 $1.5
 $—
 $1.5
Interest rate swap contracts$—
 $0.1
 $—
 $0.1
Equity securities (1)
$—
 $1,438.0
 $—
 $1,438.0
Canopy Debt Securities (1)
$—
 $134.2
 $—
 $134.2
Liabilities:       
Foreign currency contracts$—
 $53.6
 $—
 $53.6
Commodity derivative contracts$—
 $26.3
 $—
 $26.3
Interest rate swap contracts$—
 $0.8
 $—
 $0.8
        
February 28, 2019       
Assets:       
Foreign currency contracts$—
 $38.2
 $—
 $38.2
Commodity derivative contracts$—
 $8.7
 $—
 $8.7
Equity securities (1)
$—
 $3,023.2
 $—
 $3,023.2
Canopy Debt Securities (1)
$—
 $211.5
 $—
 $211.5
Liabilities:       
Foreign currency contracts$—
 $15.7
 $—
 $15.7
Commodity derivative contracts$—
 $11.6
 $—
 $11.6

(1) 
Unrealized net gain (loss) from the changes in fair value of our securities measured at fair value recognized in income (loss) from unconsolidated investments are as follows:
  For the Six Months Ended For the Three Months Ended
  August 31, 2019 August 31, 2018 August 31, 2019 August 31, 2018
 (in millions)       
 
November 2017 Canopy Investment (i)
$—
 $461.0
 $—
 $328.1
 November 2017 Canopy Warrants(450.8) 435.9
 (316.7) 310.5
 
November 2018 Canopy Warrants (ii)
(1,134.4) —
 (473.6) —
 Canopy Debt Securities(81.4) 53.5
 (48.8) 53.5
  $(1,666.6) $950.4
 $(839.1) $692.1
 
(i) 
Accounted for at fair value from the date of investment in November 2017 through October 31, 2018. Accounted for under the equity method from November 1, 2018. For additional information on the November 2017 Canopy Investment, refer to Note 9.
 
(ii) 
The terms of the November 2018 Canopy Warrants were modified in June 2019. For additional information on the November 2018 Canopy Warrants and the related modification, refer to Note 9. The amounts are net of a $1,176.0 million unrealized gain resulting from the June 2019 Warrant Modification for the six months and three months ended August 31, 2019.


 Fair Value Measurements Using  
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total
(in millions)       
November 30, 2018       
Assets:       
Foreign currency contracts$—
 $11.3
 $—
 $11.3
Commodity derivative contracts$—
 $8.3
 $—
 $8.3
Equity securities (1) (2)
$—
 $1,881.2
 $—
 $1,881.2
Canopy Debt Securities (2)
$—
 $166.9
 $—
 $166.9
Liabilities:       
Foreign currency contracts$—
 $67.5
 $—
 $67.5
Commodity derivative contracts$—
 $17.2
 $—
 $17.2
        
February 28, 2018       
Assets:       
Foreign currency contracts$—
 $40.3
 $—
 $40.3
Commodity derivative contracts$—
 $9.1
 $—
 $9.1
Equity securities (1)
$402.4
 $253.2
 $—
 $655.6
Debt securities, AFS$—
 $—
 $16.6
 $16.6
Liabilities:       
Foreign currency contracts$—
 $19.9
 $—
 $19.9
Commodity derivative contracts$—
 $5.6
 $—
 $5.6

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Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
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Table of Contents

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents

(1) 
Equity securities consist of:November 30, 2018 February 28, 2018
 (in millions)   
 November 2017 Canopy Investment$—
 $402.4
 November 2017 Canopy Warrants476.8
 253.2
 November 2018 Canopy Warrants1,404.4
 —
  $1,881.2
 $655.6
(2) 
Unrealized net gain (loss) from the changes in fair value of our securities measured at fair value recognized in income (loss) from unconsolidated investments, are as follows:
  For the Nine Months Ended For the Three Months Ended
  November 30, 2018 November 30, 2017 November 30, 2018 November 30, 2017
 (in millions)       
 
November 2017 Canopy Investment (i)
$292.5
 $139.7
 $(168.5) $139.7
 November 2017 Canopy Warrants223.5
 77.1
 (212.4) 77.1
 November 2018 Canopy Warrants257.6
 —
 257.6
 —
 Canopy Debt Securities12.9
 —
 (40.6) —
  $786.5
 $216.8
 $(163.9) $216.8
 
(i) 

Accounted for at fair value from the date of investment in November 2017 through October 31, 2018. Accounted for under the equity method from November 1, 2018.


Nonrecurring basis measurements –
The following table presents our assets and liabilities measured at estimated fair value on a nonrecurring basis for which an impairment assessment was performed for the period presented:
 Fair Value Measurements Using  
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total Losses
(in millions)       
For the Six Months Ended August 31, 2019       
Long-lived assets held for sale$—
 $—
 $1,444.4
 $27.0
Trademarks$—
 $—
 $17.0
 $11.0
Total$—
 $—
 $1,461.4
 $38.0

 Fair Value Measurements Using  
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Total Losses
(in millions)       
For the Nine Months Ended November 30, 2017       
Trademarks$—
 $—
 $136.0
 $86.8


Long-lived assets held for sale
For the first quartersix months and three months ended August 31, 2019, in connection with the Wine and Spirits Transaction (as defined in Note 4), long-lived assets held for sale with a carrying value of fiscal 2018, we identified$1,471.4 million were written down to their estimated fair value of $1,444.4 million, less cost to sell, resulting in a loss of $27.0 million. These losses are included in selling, general, and administrative expenses. These assets consisted primarily of goodwill, intangible assets, and certain winery and vineyard assets which had satisfied the conditions necessary to be classified as held for sale. As such, these assets were written down to a value based on our estimate of fair value less cost to sell. Our estimate of fair value was determined based on the expected proceeds from the Wine and Spirits Transaction as of August 31, 2019.

Trademarks
For the six months and three months ended August 31, 2019, certain continuing negative trends within our Beer segment’s Ballast Point craft beer portfolio, which, when combined with the then-recent negative craft beer industry trends,including increased rate of revenue decline and increased competition, indicated that it was more likely than not that the fair value of our indefinite livedindefinite-lived intangible asset associated with the Ballast Point craft beer trademarkstrademark might be below its carrying value. Accordingly, we performed a quantitative assessment for impairment of the craft beer trademark asset.impairment. As a result of this assessment, the Ballast Point craft beer trademark asset with a carrying value of $222.8$28.0 million was written down to its estimated fair value of $136.0$17.0 million, resulting in an impairment of $86.8$11.0 million. This impairment is included in selling, general, and administrative expenses.



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7.    GOODWILL

6.    GOODWILL:


The changes in the carrying amount of goodwill are as follows:
 Beer Wine and Spirits Consolidated
(in millions)     
Balance, February 28, 2018$5,157.6
 $2,925.5
 $8,083.1
Purchase accounting allocations (1)
22.3
 2.7
 25.0
Foreign currency translation adjustments(12.0) (7.3) (19.3)
Balance, February 28, 20195,167.9
 2,920.9
 8,088.8
Purchase accounting allocations (2)
—
 58.8
 58.8
Foreign currency translation adjustments(26.0) (9.1) (35.1)
Reclassified to assets held for sale (3)
—
 (415.8) (415.8)
Balance, August 31, 2019$5,141.9
 $2,554.8
 $7,696.7


 Beer Wine and Spirits Consolidated
(in millions)     
Balance, February 28, 2017$5,053.0
 $2,867.5
 $7,920.5
Purchase accounting allocations (1)
63.9
 56.2
 120.1
Foreign currency translation adjustments40.7
 1.8
 42.5
Balance, February 28, 20185,157.6
 2,925.5
 8,083.1
Purchase accounting allocations (2)
22.3
 11.8
 34.1
Foreign currency translation adjustments(48.7) (6.7) (55.4)
Balance, November 30, 2018$5,131.2
 $2,930.6
 $8,061.8
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(1) 
Purchase accounting allocations associated primarily with the acquisitionsacquisition of a brewery operation business in Obregon, Sonora, Mexico (the “Obregon Brewery”) ($13.8 million) and Funky Buddha Brewery LLCFour Corners (Beer), and Schrader Cellars, LLC (Wine and Spirits). See defined acquisition term below.
(2) 
Preliminary purchase accounting allocations associated primarily with the acquisitionsacquisition of Four Corners Brewing Company LLC (Beer) and a production facility in ItalyNelson’s Green Brier (Wine and Spirits). See defined acquisition term below.
(3)
In connection with the Wine and Spirits Transaction and the Black Velvet Transaction, goodwill associated with the businesses being sold were reclassified to assets held for sale based on the relative fair values of the portion of the business being sold and the remaining wine and spirits portfolio. The relative fair values were determined using the income approach based on assumptions, including projected revenue growth rates, terminal growth rate, and discount rate and other projected financial information.

Acquisitions –
Nelson’s Green Brier
In May 2019, we increased our ownership interest in Nelson’s Green Brier Distillery, LLC (“Nelson’s Green Brier”) to 75%, resulting in consolidation of the business and recognition of a noncontrolling interest. This acquisition included a portfolio of award-winning, Tennessee-based craft bourbon and whiskey products. The preliminary fair value of the business combination was allocated primarily to goodwill, trademarks, inventory, and property, plant, and equipment. The results of operations of Nelson’s Green Brier are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

We recognized a gain of $11.8 million for the six months ended August 31, 2019, related to the remeasurement of our previously held 20% equity interest in Nelson’s Green Brier to the acquisition-date fair value. This gain is included in selling, general, and administrative expenses within our consolidated results of operations.

Four Corners:Corners
In July 2018, we acquired the Four Corners Brewing Company LLC, business,which included a portfolio of high-performing,high-quality, dynamic, and bicultural, Texas-based craft beers (“Four Corners”). This transactionThe purchase price was primarily included the acquisition of operations,allocated to goodwill, property, plant, and equipment, and trademarks, plus an earn-out over five years based on the performance of the brands. The results of operations of Four Corners are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition.


Other:
In October 2018, we acquired a business in Italy, consisting primarily of a production facility, vineyards and inventory, to provide for additional processing and sourcing capabilities for our Italian wine portfolio.

During the year ended February 28, 2018, we completed the acquisitions of other businesses, including the Funky Buddha Brewery LLC business, which included a portfolio of high-quality, Florida-based craft beers (“Funky Buddha”), and the Schrader Cellars, LLC business, which included a collection of highly-rated, limited-production fine wines (“Schrader Cellars”). The total combined purchase price for these acquisitions was $149.8 million. The purchase price for each acquisition was primarily allocated to goodwill and trademarks. In addition, the purchase price for Funky Buddha includes an earn-out over five years based on the performance of the brands. The results of operations of these acquired brands are reported in the respective segment and have been included in our consolidated results of operations from their respective date of acquisition.


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8.    INTANGIBLE ASSETS

7.    INTANGIBLE ASSETS:


The major components of intangible assets are as follows:
 August 31, 2019 February 28, 2019
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
(in millions)       
Amortizable intangible assets       
Customer relationships$89.9
 $36.4
 $89.9
 $39.1
Other20.4
 0.6
 20.5
 0.9
Total$110.3
 37.0
 $110.4
 40.0
        
Nonamortizable intangible assets       
Trademarks (1)
  2,750.0
   3,158.1
Total intangible assets  $2,787.0
   $3,198.1

(1)
The intangible assets balance at August 31, 2019, excludes trademarks reclassified to assets held for sale (see Note 4).

 November 30, 2018 February 28, 2018
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
(in millions)       
Amortizable intangible assets       
Customer relationships$89.9
 $40.4
 $89.8
 $44.2
Other20.4
 1.0
 20.3
 1.4
Total$110.3
 41.4
 $110.1
 45.6
        
Nonamortizable intangible assets       
Trademarks  3,266.4
   3,259.2
Total intangible assets  $3,307.8
   $3,304.8
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We did not incur costs to renew or extend the term of acquired intangible assets for the ninesix months and three months ended November 30, 2018,August 31, 2019, and November 30, 2017.August 31, 2018. Net carrying amount represents the gross carrying value net of accumulated amortization.


8.9.    EQUITY METHOD INVESTMENTS:INVESTMENTS


Our equity method investments are as follows:
 August 31, 2019 February 28, 2019
 Carrying Value Ownership Percentage Carrying Value Ownership Percentage
(in millions)       
Canopy Equity Method Investment$2,846.0
 35.6% $3,332.1
 36.0%
Other equity method investments157.8
 20%-50%
 133.5
 20%-50%
 $3,003.8
   $3,465.6
  

 November 30, 2018 February 28, 2018
 Carrying Value Ownership Percentage Carrying Value Ownership Percentage
(in millions)       
Canopy Equity Method Investment$3,435.2
 36.0% $—
 —%
Other equity method investments147.8
 20%-50%
 121.5
 20%-50%
 $3,583.0
   $121.5
  


In November 2017, we acquired 18.9 million common shares, which represented a 9.9% ownership interest in Ontario, Canada-based Canopy Growth Corporation (the “November 2017 Canopy Investment”), a public company and leading provider of medicinal and recreational cannabis products (“Canopy”), plus warrants which give us the option to purchase an additional 18.9 million common shares of Canopy (the “November 2017 Canopy Warrants”) for C$245.0 million, or $191.3 million. The November 2017 Canopy Warrants were issued with an exercise price of C$12.98 with 50% currently vestedper warrant share and the remaining 50% to vest on February 1,are exercisable as of August 31, 2019. These warrants expire in May 2020. These investments have been

The November 2017 Canopy Investment was accounted for at fair value from the date of investment through October 31, 2018. From November 1, 2018, the November 2017 Canopy Investment has been accounted for under the equity method (see “Canopy Equity Method Investment” below). The November 2017 Canopy Warrants have been accounted for at fair value from the date of investment.


On November 1, 2018, we increased our ownership interest in Canopy by acquiring an additional 104.5 million common shares (the “November 2018 Canopy Investment”) (see Canopy Equity Method Investment below), plus warrants which give us the option to purchase an additional 139.7 million common shares of Canopy (the “November 2018 Canopy Warrants”, and together with the “NovemberNovember 2018 Canopy Investment”,Investment, the “November 2018 Canopy Transaction”) for C$5,078.7 million, or $3,869.9 million. The allocation of the consideration paid as of the date of closing was determined using a relative fair value approach based upon a market value of C$5,060.9 million for the acquired common shares and a fair value of C$2,131.3 million for the acquired warrants using a Black-Scholes option-pricing model with similar assumptions as disclosed in Note 5. Accordingly, C$3,573.7 million, or $2,723.1 million, was allocated to the November 2018 Canopy Investment, and C$1,505.0 million, or $1,146.8 million, was allocated to the November 2018 Canopy Warrants. In addition, we incurred $24.5 million of direct acquisition costs which were allocated to the acquired securities utilizing this relative fair value approach.

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This resulted in $17.2 million of direct acquisition costs being allocated to the November 2018 Canopy Investment and included in the value of the Canopy Equity Method Investment under the cost-accumulation model, and $7.3 million being allocated to the November 2018 Canopy Warrants and expensed to selling, general and administrative expenses.

The November 2018 Canopy Warrants consist of 88.5 million warrants (the “Tranche A Warrants”) and 51.2 million warrants (the “Tranche B Warrants”). The Tranche A Warrants are immediately exercisable at an exercise price of C$50.40. The Tranche B Warrants are exercisable upon the exercise, in full, of the Tranche A Warrants and at an exercise price equal to the volume-weighted average of the closing market price of Canopy’s common shares on the Toronto Stock Exchange for the five trading days immediately preceding the exercise date. The November 2018 Canopy Warrants expire in November 2021 and are accounted for at fair value from the date of investment. For the nine months and three months ended November 30, 2018, we recognized an unrealized net gain of $257.6 million resulting from the mark to fair value of the November 2018 Canopy Warrants.


On November 1, 2018, our ownership interest in Canopy increased to 36.6% and, as we can nowwhich allows us to exercise significant influence, but not control, over Canopy,Canopy. Therefore, we account for the November 2017 Canopy Investment and the November 2018 Canopy Investment, each of which represents an investment in common shares of Canopy, collectively, under the equity method (the “Canopy Equity Method Investment”). As of November 1, 2018, the Canopy Equity Method Investment balance consists of the amount allocated to the November 2018 Canopy Investment of $2,740.3 million, plus the fair value of the November 2017 Canopy Investment at the date of closing of $694.9 million. We will recognize equity in earnings (losses) and related activities for this investment on a two-month lag. Accordingly, we will recognizerecognized equity in earnings from Canopy’s results(losses) and related activities of $(590.4) million for the period NovemberJanuary 1, 2018,2019, through December 31, 2018,June 30, 2019, in our consolidated financial statements for the fourth quarter of fiscalsix months ended August 31, 2019, and $(484.4) million for the period April 1, 2019, through June 30, 2019, in our consolidated financial statements for the three months ended August 31, 2019. As of November 30, 2018, the carrying amount of the Canopy Equity Method Investment is greater than our equity in the underlying assets of Canopy by approximately $2.5 billion due primarily to the estimated fair value of identifiable intangible assets and goodwill. Beginning with the fourth quarter of fiscal 2019, our equity in earnings (losses) from the Canopy Equity Method Investment will be adjusted to reflect,and related activities include, among other items, our share of the additional loss resulting from the June 2019 Warrant Modification (as defined below) of $(409.0) million (the “June 2019 Warrant Modification Loss”), the amortization of the fair value adjustments associated with the definite-lived intangible assets over their estimated useful lives.lives, the flow through of inventory step-up, and unrealized gains (losses) associated with changes in our Canopy ownership percentage resulting from periodic equity issuances made by Canopy.


The November 2018 Canopy Warrants originally consisted of 88.5 million warrants (the “Tranche A Warrants”) and 51.2 million warrants (the “Tranche B Warrants”). The Tranche A Warrants were

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immediately exercisable at an exercise price of C$50.40 per warrant share. The Tranche B Warrants were exercisable upon the exercise, in full, of the Tranche A Warrants and at an exercise price based on the volume-weighted average of the closing market price of Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date. The November 2018 Canopy Warrants originally expired in November 2021 and have been accounted for at fair value from the date of investment.

In connection withJune 2019, the Canopy shareholders approved the modification of the terms of the November 2018 Canopy Transaction, we entered into foreign currency option contracts in August 2018Warrants and certain other rights (the “June 2019 Warrant Modification”), and the other required approvals necessary for the modifications to fixbe effective were granted. These changes are the result of Canopy’s intention to acquire Acreage Holdings, Inc. (“Acreage”) upon U.S. dollar costFederal cannabis legalization, subject to certain conditions (the “Acreage Transaction”). As a result of the transaction. Formodifications, we continue to have the nine monthsoption to purchase an additional 139.7 million common shares of Canopy upon exercise of the warrants originally received in November 2018; however, this option now consists of three tranches of warrants, including 88.5 million warrants (the “New Tranche A Warrants”), 38.4 million warrants (the “New Tranche B Warrants”), and three months ended12.8 million warrants (the “New Tranche C Warrants”, and collectively with the New Tranche A Warrants and the New Tranche B Warrants, the “New November 30, 2018 Canopy Warrants”). The New Tranche A Warrants have an exercise price of C$50.40 per warrant share and are currently exercisable, but now expire November 1, 2023. The New Tranche B Warrants now have an exercise price of C$76.68 per warrant share and the New Tranche C Warrants have a VWAP Exercise Price. The New Tranche B Warrants and the New Tranche C Warrants now have an expiration date of November 1, 2026.

The other rights obtained in June 2019 in connection with the Acreage Transaction include a share repurchase credit and the ability to purchase Canopy common shares on the open market or in private agreement transactions. If for any reason Canopy has not purchased the lesser of 27,378,866 Canopy common shares or C$1,583.0 million worth of Canopy common shares for cancellation by the end of the two-year period beginning upon full exercise of the New Tranche A Warrants, we recognized net losseswill be credited an amount that will reduce the aggregate exercise price otherwise payable upon each exercise of $30.2the New Tranche B Warrants and New Tranche C Warrants. The credit will be an amount equal to the difference between C$1,583.0 million and $25.5the actual price paid by Canopy in purchasing its common shares for cancellation. If we choose to purchase Canopy common shares on the open market or in private agreement with existing holders, the number of New Tranche B Warrants or New Tranche C Warrants shall be decreased by one for each Canopy common share acquired, up to an aggregate maximum reduction of 20 million respectively,warrants. The likelihood of receiving the share repurchase credit if we were to fully exercise the New Tranche A Warrants is remote, therefore, no fair value has been assigned.

The inputs used to estimate the fair value of the New November 2018 Canopy Warrants as of the June 27, 2019 modification date, are as follows:
 
New Tranche A Warrants (1)
 
New Tranche B Warrants (1)
Exercise priceC$50.40
 C$76.68
Valuation date stock priceC$53.36
 C$53.36
Expected life4.3 years
 7.3 years
Expected volatility66.7% 66.7%
Risk-free interest rate1.4% 1.4%
Expected dividend yield0.0% 0.0%

(1)
Refer to Note 6 for input descriptions.
Accordingly, we have recognized a $1,176.0 million unrealized gain from unconsolidated investments in selling, general and administrative expensesthe second quarter of fiscal 2020 from the June 2019 Warrant Modification. Approximately $322.5 million of the unrealized gain was associated with the payment at maturityNew Tranche A Warrants and $853.5 million was associated with the New Tranche B Warrants. No value was associated with the New Tranche C Warrants

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as they have a VWAP Exercise Price. As the expiration dates of the derivative instruments reported as cash flows from investing activitiesNew Tranche A Warrants and New Tranche B Warrants were extended, we now utilize a blend of Canopy’s historical volatility, implied volatility, and limited consideration of historical peer group volatility in investments in equity method investees and securities.our valuations to supplement the limited trading history.


Canopy has various convertible equity securities outstanding, including primarily equity awards granted to its employees, and options and warrants issued to various third parties, including our November 2017 Canopy Warrants and New November 2018 Canopy Warrants. As of November 30, 2018,August 31, 2019, the conversion of Canopy equity securities held by its employees and/or held by other third parties would not have a significant effect on our share of Canopy’s reported earnings or losses. Additionally, under an amended and restated investor rights agreement, we have the option to purchase additional common shares of Canopy at the then-current price of the underlying equity security to allow us to maintain our relative ownership interest. TheIf Canopy exercises its right to acquire the shares of Acreage and we were to exercise all of our November 2017 Canopy Warrants as of November 30, 2018, also would not have a significant effect on our share of Canopy’s reported earnings or losses. However, as of November 30, 2018, the exercise of all of theoutstanding November 2017 Canopy Warrants and the New November 2018 Canopy Warrants, held by us would result in an increase in our ownership interest in Canopy would not be expected to be greater than 50% and the consolidation of Canopy’s results of operations in our consolidated results of operations with the recognition of an associated noncontrolling ownership interest, as appropriate. This may have a significant effect on our share of Canopy’s reported earnings or losses.50 percent. As of November 30, 2018,August 31, 2019, the exercise of all Canopy warrants held by us would requirehave required a cash outflow of approximately $5.3$6.1 billion based on the terms of the November 2017 Canopy Warrants and the New November 2018 Canopy Warrants. Additionally, as of November 30, 2018,August 31, 2019, the fair value of our equity method investment inthe Canopy Equity Method Investment was $4,190.8$2,916.0 million based on the closing price of the underlying equity security as of that date.



The following table presents summarized financial information for Canopy presented in accordance with U.S. GAAP. We recognize our equity in earnings (losses) for Canopy on a two-month lag. Accordingly, we recognized our share of Canopy’s fourth quarter fiscal 2019 and first quarter fiscal 2020 earnings (losses) for the period January through June 2019 in our six months ended August 31, 2019. We recognized our share of Canopy’s first quarter fiscal 2020 earnings (losses) for the period April through June 2019, in our three months ended August 31, 2019 results. The amounts shown represent 100% of Canopy’s results of operations for the respective periods. However, they exclude the impact the June 2019 Warrant Modification Loss because it was recorded within equity.
16
 For the Six Months Ended August 31, For the Three Months Ended August 31,
 2019 2018 2019 2018
(in millions)       
Net sales$138.4
 NA $67.7
 NA
Gross profit$21.1
 NA $9.8
 NA
Net gain (loss)$(418.6) NA $(149.7) NA
Net gain (loss) attributable to Canopy$(430.4) NA $(146.3) NA
        
NA = Not Applicable       




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10.    OTHER ASSETS

9.    OTHER ASSETS:


The major components of other assets are as follows:
 August 31,
2019		 February 28,
2019
(in millions)   
Operating lease right-of-use asset$552.8
 $—
Other97.6
 109.7
 $650.4
 $109.7



 November 30,
2018		 February 28,
2018
(in millions)
   
Deferred income taxes (see Note 2)$2,177.7
 $—
Investments in securities measured at fair value2,048.1
 672.2
Other87.2
 93.4
 $4,313.0
 $765.6
Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
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Sale of Accolade Wine Investment –
In May 2018, we completed the sale of our remaining interest in our previously-owned Australian and European business (the “Accolade Wine Investment”) for A$149.1 million, or $113.6 million, subject to closing adjustments. We received cash proceeds, net of direct costs to sell, of $110.2 million and a note receivable of $3.4 million. This interest consisted of an investment accounted for under the cost method and AFS debt securities. For the nine months ended November 30, 2018, we recognized a net gain of $99.8 million in connection with this transaction. This net gain is included in income (loss) from unconsolidated investments.

10.    BORROWINGS:

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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11.    BORROWINGS

Borrowings consist of the following:
 August 31, 2019 February 28,
2019
 Current Long-term Total Total
(in millions)       
Short-term borrowings       
Senior credit facility, Revolving credit loan$—
   

 $59.0
Commercial paper150.9
   

 732.5
 $150.9
 

 

 $791.5
        
Long-term debt       
Senior credit facility, Term loan$—
 $—
 $—
 $492.8
Term loan credit facilities24.6
 1,528.3
 1,552.9
 1,486.4
Senior notes599.6
 10,618.2
 11,217.8
 10,816.9
Other11.9
 13.3
 25.2
 28.9
 $636.1
 $12,159.8
 $12,795.9
 $12,825.0

 November 30, 2018 February 28,
2018
 Current Long-term Total Total
(in millions)       
Short-term borrowings       
Senior credit facility, Revolving credit loans$105.0
   

 $79.0
Commercial paper626.5
   

 266.9
Other—
   

 400.9
 $731.5
 

 

 $746.8
        
Long-term debt       
Senior credit facility, Term loan$5.0
 $489.0
 $494.0
 $497.7
Term loan credit facility50.0
 1,448.9
 1,498.9
 —
Senior notes997.0
 9,816.1
 10,813.1
 8,674.2
Other13.6
 18.5
 32.1
 268.0
 $1,065.6
 $11,772.5
 $12,838.1
 $9,439.9


Senior credit facility –
The Company, CIH International S.à r.l., a wholly-owned subsidiary of ours (“CIH”), CB International Finance S.à r.l., a wholly-owned subsidiary of ours (“CB International”) (together with CIH,, certain of the “European Borrowers”),Company’s subsidiaries as guarantors, Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders wereare parties to a credit agreement, as amended and restated (the “2017 Credit Agreement”).


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In August 2018, the Company, CIH, CB International, certain of the Company’s subsidiaries as guarantors, the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “August 2018 Restatement Agreement”) that amended and restated the 2017 Credit Agreement (as amended and restated by the August 2018 Restatement Agreement, the “August 2018 Credit Agreement”). The principal changes effected by the August 2018 Restatement Agreement were:

The removal of CIH as a borrower under the August 2018 Credit Agreement;
The termination of a cross-guarantee agreement by the European Borrowers; and
The addition of a mechanism to provide for the replacement of LIBOR with an alternative benchmark rate in certain circumstances where LIBOR cannot be adequately ascertained or available.

In September 2018, the Company, CB International, certain of the Company’s subsidiaries as guarantors, the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2018 Restatement Agreement”) that amended and restated the August 2018 Credit Agreement (as amended and restated by the 2018 Restatement Agreement, the “2018 Credit Agreement”). The primary change effected by the 2018 RestatementCredit Agreement was the increaseprovides for aggregate credit facilities of the revolving credit facility from $1.5 billion to $2.0 billion and extension of its maturity to September 14, 2023. The 2018 Restatement Agreement also modified certain financial covenants in connection with the November 2018 Canopy Transaction and added various representations and warranties, covenants and an event of default related to the November 2018 Canopy Transaction.billion.


Term Credit Agreement –
In September 2018, theThe Company, the Administrative Agent, and certain other lenders entered intoare parties to a term loan credit agreement (the “Term Credit Agreement”). The Term Credit Agreement provides for aggregate credit facilities of $1.5 billion, consisting of a $500.0 million three-year term loan facility (the “Three-Year Term Facility”) and a $1.0 billion five-year term loan facility (the “Five-Year Term Facility”).


2019 Term Credit Agreement
In June 2019, the Company and Bank of America, N.A., as Administrative Agent and lender (the “Lender”) entered into a term loan credit agreement (the “2019 Term Credit Agreement”). The Three-Year2019 Term Facility is not subject to amortization payments, withCredit Agreement provides for the balance due and payable at maturity.creation of a $491.3 million five-year term loan facility (the “2019 Five-Year Term Facility”). The 2019 Five-Year Term Facility will be repaid in quarterly payments of principal equal to 1.25% of the original aggregate principal amount of the 2019 Five-Year Term Facility, with the balance due and payable at maturity. The proceeds from borrowings under the 2019 Term Credit Agreement were used to repay in full the U.S. Term A-1 Facility under the 2018 Credit Agreement.


The obligations under the 2019 Term Credit Agreement are guaranteed by certain subsidiaries of our U.S. subsidiaries.the Company. The guarantors under the 2019 Term Credit Agreement are the same subsidiary guarantors as under the 2018 Credit Agreement and the Term Credit Agreement. We and our subsidiaries are subject to covenants that are contained in the 2019 Term Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness) by subsidiaries that are not guarantors,, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net leverage ratio. The representations, warranties, covenants and events of default set forth in the Term Credit Agreement are substantially similar to those set forth in the 2018 Credit Agreement.




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As of November 30, 2018,August 31, 2019, aggregate credit facilities under the 2018 Credit Agreement, the Term Credit Agreement, and the 2019 Term Credit Agreement consist of the following:
Amount MaturityAmount Maturity
(in millions)    
2018 Credit Agreement    
Revolving Credit Facility (1) (2)
$2,000.0
 Sept 14, 2023$2,000.0
 Sept 14, 2023
U.S. Term A-1 Facility (1) (3)
500.0
 July 14, 2024
$2,500.0
   
Term Credit Agreement  
 
Three-Year Term Facility (1) (3)
$500.0
 Nov 1, 2021$500.0
 Nov 1, 2021
Five-Year Term Facility (1) (3)
1,000.0
 Nov 1, 2023$1,000.0
 Nov 1, 2023
$1,500.0
 $1,500.0
 
2019 Term Credit Agreement  
2019 Five-Year Term Facility (1) (3)
$491.3
 Jun 28, 2024
(1) 
Contractual interest rate varies based on our debt rating (as defined in the respective agreement) and is a function of LIBOR plus a margin, or the base rate plus a margin, or, in certain circumstances where LIBOR cannot be adequately ascertained or available, an alternative benchmark rate plus a margin.
(2) 
We and/or CB International are the borrower under the $2,000.0$2,000.0 million Revolving Credit Facility. Includes a sub-facility for letters of credit of up to $200.0 million.$200.0 million.
(3) 
We are the borrower under the U.S.Three-Year Term A-1 loan facility,Facility, the Three-YearFive-Year Term Facility, and the 2019 Five-Year Term Facility.


As of November 30, 2018,August 31, 2019, information with respect to borrowings under the 2018 Credit Agreement, the Term Credit Agreement, and the 2019 Term Credit Agreement is as follows:
 2018 Credit Agreement 
Term Credit
Agreement
 2019 Term Credit Agreement
 
Revolving
Credit
Facility
 
Three-Year
Term
Facility (1)
 
Five-Year
Term
Facility (1) (2)
 
2019 Five-Year Term Facility (1)
(in millions)       
Outstanding borrowings$—
 $499.6
 $562.0
 $491.3
Interest rate—% 3.4% 3.5% 3.1%
LIBOR margin1.13% 1.13% 1.25% 0.88%
Outstanding letters of credit$12.2
      
Remaining borrowing capacity (3)
$1,836.8
      
 2018 Credit Agreement Term Credit Agreement
 
Revolving
Credit
Facility
 
U.S.
Term A-1
Facility (1)
 
Three-Year
Term
Facility (1)
 
Five-Year
Term
Facility (1)
(in millions)       
Outstanding borrowings$105.0
 $494.0
 $499.5
 $999.4
Interest rate3.4% 3.8% 3.4% 3.5%
LIBOR margin1.13% 1.50% 1.13% 1.25%
Outstanding letters of credit$10.7
      
Remaining borrowing capacity (2)
$1,257.2
      

(1) 
Outstanding term loan facilityfacilities borrowings are net of unamortized debt issuance costs.
(2) 
Outstanding borrowings reflect a $400.0 million partial repayment of the Five-Year Term Facility under our Term Credit Agreement.
(3)
Net of outstanding revolving credit facility borrowings and outstanding letters of credit under the 2018 Credit Agreement and outstanding borrowings under our commercial paper program of $627.1$151.0 million (excluding unamortized discount) (see “Commercial paper program”).


Commercial paper program –
In October 2018, our Board of Directors authorizedWe have a $1.0 billion increase to our commercial paper program thereby providingwhich provides for the issuance of up to an aggregate principal amount of $2.0 billion of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under our 2018 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under our 2018 Credit Agreement. As of November 30, 2018,August 31, 2019, we had $626.5$150.9 million of

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outstanding borrowings, net of unamortized discount, under our commercial paper program with a weighted average annual interest rate of 2.7%2.4% and a weighted average remaining term of 149 days.



Interest rate swap contracts
19In June 2019, we entered into interest rate swap agreements, which are designated as cash flow hedges for $375.0 million of our floating LIBOR rate debt. As a result of these hedges, we have fixed our interest rates on $375.0 million of our floating LIBOR rate debt at an average rate of 1.9% (exclusive of borrowing margins) from July 1, 2019, through July 1, 2020.


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Senior notes –Notes
In October 2018,July 2019, we issued $2,150.0$800.0 million aggregate principal amount of 3.15% Senior Notes due August 2029 (the “October 2018“July 2019 Senior Notes”). Proceeds from this offering, net of discount and debt issuance costs, were $2,129.0$793.0 million. The October 2018Interest on the July 2019 Senior Notes consist of:is payable semiannually on February 1 and August 1 of each year, beginning February 1, 2020. The July 2019 Senior Notes are redeemable, in whole or in part, at our option at any time prior to May 1, 2029, at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment based on the present value of the future payments at the applicable Treasury Rate plus 20 basis points. On or after May 1, 2029, we may redeem the July 2019 Senior Notes, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest. The July 2019 Senior Notes are senior unsecured obligations which rank equally in right of payment to all of our existing and future senior unsecured indebtedness. Certain of our U.S. subsidiaries guarantee the July 2019 Senior Notes on a senior unsecured basis.
   Date of Redemption
 Principal Maturity Interest Payments Stated Redemption Date Stated Basis Points
(in millions, except basis points)
         
Senior Floating Rate Notes (1) (2)
$650.0
 Nov 2021 Quarterly    
4.40% Senior Notes (1) (3)
$500.0
 Nov 2025 May/Nov Sept 2025 20
4.65% Senior Notes (1) (3)
$500.0
 Nov 2028 May/Nov Aug 2028 25
5.25% Senior Notes (1) (3)
$500.0
 Nov 2048 May/Nov May 2048 30
(1)
Senior unsecured obligations which rank equally in right of payment to all of our existing and future senior unsecured indebtedness. Guaranteed by certain of our U.S. subsidiaries on a senior unsecured basis.
(2)
Interest will accrue for each quarterly interest period at a rate equal to three-month LIBOR plus 0.70% per year as determined on the applicable interest determination date as defined in the indenture. Interest is payable quarterly in February, May, August and November. The notes are not redeemable prior to October 30, 2019. On or after this date, the notes are redeemable, in whole or in part, at our option at any time prior to maturity, at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest.
(3)
Redeemable, in whole or in part, at our option at any time prior to the stated redemption date as defined in the indenture, at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment based on the present value of the future payments at the adjusted Treasury Rate plus the stated basis points as defined in the indenture. On or after the stated redemption date, redeemable, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest.

Interest rate swap contracts –
In November 2014, we issued $400.0 million aggregate principal amount of 3.875% Senior Notes due November 2019 (the “3.875% November 2014 Senior Notes”). On August 2018,28, 2019, we entered into forward-starting interest rate swap contractsrepaid the 3.875% November 2014 Senior Notes with an aggregate notional value of $1,250.0 million to economically hedge our exposure to interest rate volatility associated withproceeds from the debt financing for the November 2018 Canopy Transaction. The effective date and mandatory termination date of the interest rate swap contracts were the same. The interest rate swap contracts were not designated as a hedge for accounting purposes. For the nine months and three months ended November 30, 2018, we recognized a gain of $35.0 million and $32.4 million, respectively, in connection with the settlement of the interest rate swap contracts in October 2018. This amount was recognized in interest expense.July 2019 Senior Notes.


Other long-term debt –
In August 2018, we recorded a conversion of $248.4 million from long-term debt to noncontrolling equity interests associated with the noncash settlement of a prior contractual agreement with our glass production plant joint venture partner, Owens-Illinois.


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Debt payments –
As of November 30, 2018,August 31, 2019, the required principal repayments under long-term debt obligations (excluding unamortized debt issuance costs and unamortized discounts of $72.9$68.4 million and $16.1$14.7 million, respectively) for the remaining threesix months of fiscal 20192020 and for each of the five succeeding fiscal years and thereafter are as follows:
(in millions) 
2020$618.4
2021734.6
20221,680.6
20231,827.2
20241,637.5
2025780.7
Thereafter5,600.0
 $12,879.0



(in millions) 
2019$16.6
20201,068.5
2021764.1
20221,710.1
20231,856.6
20241,842.5
Thereafter5,668.7
 $12,927.1
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FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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12.    INCOME TAXES:TAXES


Our effective tax rate for the ninesix months ended November 30, 2018, and November 30, 2017,August 31, 2019 was 15.5% and 20.1%, respectively.33.9% of tax benefit as compared with 16.3% of tax expense for the six months ended August 31, 2018. Our effective tax rate for the three months ended November 30, 2018, and November 30, 2017,August 31, 2019 was 10.2% and 23.3%, respectively.28.1% of tax benefit as compared with 15.7% of tax expense for the three months ended August 31, 2018.


For the ninesix months and three months ended November 30,August 31, 2019, our effective tax rate was higher than the federal statutory rate of 21% primarily due to the net unrealized loss from the changes in fair value of our investments in Canopy, which have resulted in an overall net loss for the six months and three months ended August 31, 2019. Our effective tax rate benefited from the following:

a higher effective rate of tax benefit from our foreign businesses including the tax benefits recorded on the net unrealized loss from the changes in fair value of our investments in Canopy and the tax benefits recorded on the Canopy equity in earnings (losses) and related activities;
the recognition of a net income tax benefit from stock-based compensation award activity; and
•
for the six months endedAugust 31, 2019, our effective tax rate also benefited from the reversal of valuation allowances for capital loss carryforwards in connection with the Wine and Spirits Transaction.

For the six months and three months ended August 31, 2018, our effective tax rate was lower than the federal statutory rate of 21% primarily due to:


Lowerlower effective tax rates applicable to our foreign businesses;
The recognition of an income tax benefit for the three months ended November 30, 2018, associated with an adjustment to provisional amounts recognized for the year ended February 28, 2018, in connection with the Tax Cuts and Jobs Act (the “TCJ Act”) (see additional discussion below); and
The recognition of a net income tax benefit from stock-based compensation award activity.activity; and
•
for the six months endedAugust 31, 2018, our effective tax rate also benefited from the reversal of valuation allowances in connection with the sale of our Accolade Wine Investment (see Note 19).


Subsequent Event
For the three months ended November 30, 2018, our effective tax rate was also unfavorably impacted by the lower effective tax rate on the benefit of the net unrealized losses from the changes in fair value of the November 2017 Canopy investments.

For the nine months and three months ended November 30, 2017, our effective tax rate was lower than the federal statutory rate of 35% primarily due to:

Lower effective tax rates applicable to our foreign businesses, including our assertion regarding indefinitely reinvesting earningsAs a result of certain foreign subsidiaries, whichtax reform that was initially assertedenacted in September 2019, we are estimating a one-time benefit to our deferred tax assets of approximately $500 million to $550 million to be recognized during the third quarter of fiscal 2017; and
The recognition of a net income tax benefit from stock-based compensation award activity.

On December 22, 2017, the TCJ Act was signed into law. The TCJ Act significantly changes U.S. corporate income taxes. Additionally, in December 2017, the SEC issued guidance related to the income tax accounting implications of the TCJ Act. This guidance provides a measurement period, which extends no longer than one year from the enactment date of the TCJ Act, during which a company may complete its accounting for the income tax implications of the TCJ Act. In accordance with this guidance, we recognized a provisional net income tax benefit for the year ended February 28, 2018. Refer to Note 13 of our consolidated financial statements included in our 2018 Annual Report for further information.

For the three months ended November 30, 2018, we completed our analysis of the income tax implications of the TCJ Act. We recognized an additional income tax benefit of $37.6 million resulting from a decrease in the mandatory one-time transition tax on unremitted earnings of our foreign businesses.2019.


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The TCJ Act also creates a new requirement that certain income earned by foreign subsidiaries (“GILTI”) be included in U.S. gross income. The FASB allows an accounting policy election of either recognizing deferred taxes for temporary differences expected to reverse as GILTI in future years or recognizing such taxes as a current period expense when incurred. We have elected to treat the tax effect of GILTI as a current-period expense when incurred.


12.13.    DEFERRED INCOME TAXES AND OTHER LIABILITIES

The major components of deferred income taxes and other liabilities are as follows:
 August 31,
2019		 February 28,
2019
(in millions)   
Deferred income taxes$561.3
 $1,029.7
Operating lease liability

511.9
 —
Unrecognized tax benefit liabilities249.8
 239.0
Long-term income tax payable95.4
 95.4
Other90.0
 106.6
 $1,508.4
 $1,470.7



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14.    LEASES

General
We primarily lease certain vineyards, office and production facilities, warehouses, production equipment, and vehicles. We assess service arrangements to determine if an asset is explicitly or implicitly specified in the agreement and if we have the right to control the use of the identified asset. We have concluded that certain grape purchasing arrangements associated with the purchase of grape production yielded from a specified block of a vineyard and certain third-party logistics arrangements contain a lease.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial amount of the lease liability, plus initial direct costs and lease payments at or before the lease commencement date, less any lease incentives received, and is amortized on a straight-line basis over the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease liability is initially measured at the present value of lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate. The incremental borrowing rates are determined using a portfolio approach based on publicly available information in connection with our unsecured borrowing rates adjusted for items including collateral, currency, and the timing in which lease payments are made. We elected to recognize expenses for leases with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these short-term leases on the balance sheet.

Our leases have varying terms with remaining lease terms of up to approximately 30 years. Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

The right-of-use asset and lease liability are calculated including options to extend or to terminate the lease when we determine that it is reasonably certain that we will exercise those options. In making that determination, we consider various existing economic and market factors, business strategies as well as the nature, length, and terms of the agreement. Based on our evaluation using these factors, we concluded that the exercise of renewal options or early termination options would not be reasonably certain in determining the lease term at commencement for leases we currently have in place. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events such as a lease modification.

Certain of our contractual arrangements may contain both lease and non-lease components. Non-lease components are distinct elements of a contract that are not related to securing the use of the leased asset, such as raw materials, common area maintenance and other management costs. We elected to measure the lease liability by combining the lease and non-lease components as a single lease component for all asset classes.

Certain of our leases include variable lease payments, including payments that depend on an index or rate, as well as variable payments for items such as raw materials, labor, property taxes, insurance, maintenance, and other operating expenses associated with leased assets. Certain grape purchasing arrangements include variable payments that will vary depending on certain factors, including weather, time of harvest, overall market conditions, and the agricultural practices and location of the vineyard. In addition, certain third-party logistics arrangements include variable payments that vary depending on throughput. Such variable lease payments are excluded from the calculation of the right-of-use asset and are recognized in the period in which the obligation is incurred.


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Balance sheet location
A summary of lease right-of-use assets and liabilities are as follows:
 Balance Sheet Classification August 31,
2019
(in millions)   
Assets   
Operating leaseOther assets $552.8
Finance leaseProperty, plant, and equipment 26.4
Total right-of-use assets  $579.2
    
Liabilities   
Current:   
Operating leaseOther accrued expenses and liabilities $76.7
Finance leaseCurrent maturities of long-term debt 11.9
Non-Current:   
Operating leaseDeferred income taxes and other liabilities 511.9
Finance leaseLong-term debt, less current maturities 13.3
Total lease liabilities  $613.8

Lease costs
The components of total lease cost are as follows:


 For the Six Months Ended August 31, 2019 For the Three Months Ended August 31, 2019
(in millions)    
Operating lease cost $46.5
 $23.1
Finance lease cost:    
Amortization of right-of-use assets 5.6
 2.8
Interest on lease liabilities 0.3
 0.1
Short-term lease cost 4.2
 1.9
Variable lease cost 95.4
 51.5
Total lease cost $152.0
 $79.4


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Lease maturities (1)
As of August 31, 2019, minimum payments due for lease liabilities for the remaining six months of fiscal 2020 and for each of the five succeeding fiscal years and thereafter are as follows:
 Operating Leases Finance Leases
(in millions)   
2020$51.8
 $6.4
202194.3
 10.4
202281.6
 6.2
202369.9
 2.6
202463.5
 0.5
202553.6
 —
Thereafter310.9
 —
Total lease payments725.6
 26.1
Less: Interest(137.0) (0.9)
Total lease liabilities$588.6
 $25.2


As of February 28, 2019, future payments were expected to be as follows:
 Operating Leases
(in millions) 
2020$59.0
202158.2
202251.1
202347.9
202441.2
Thereafter302.1
Total lease payments$559.5
(1) For leases with terms in excess of 12 months at inception.
Supplemental information For the Six Months Ended August 31, 2019
(in millions)  
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases $46.6
Operating cash flows from finance leases $0.3
Financing cash flows from finance leases $7.3
   
Right-of-use assets obtained in exchange for new lease liabilities:  
Operating leases $17.3
Finance leases $4.0
   
Weighted-average remaining lease term:  
Operating leases 11.9 years
Finance leases 3.4 years
   
Weighted-average discount rate:  
Operating leases 3.7%
Finance leases 2.7%


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15.    STOCKHOLDERS’ EQUITY:EQUITY


Common stock
The number of shares of common stock issued and treasury stock, and associated share activity, are as follows:
 Common Stock Treasury Stock
 Class A Class B Class 1 Class A Class B
Balance at February 28, 2019185,740,178
 28,322,419
 1,149,624
 18,927,966
 5,005,800
Conversion of shares133,667
 (55) (133,612) —
 —
Exercise of stock options (1)
—
 —
 2,107
 (173,725) —
Vesting of restricted stock units (2)
—
 —
 —
 (88,683) —
Vesting of performance share units (2)
—
 —
 —
 (29,015) —
Cancellation of restricted shares—
 —
 —
 444
 —
Balance at May 31, 2019185,873,845
 28,322,364
 1,018,119
 18,636,987
 5,005,800
Share repurchases—
 —
 —
 265,593
 —
Conversion of shares6,267
 (543) (5,724) —
 —
Exercise of stock options (1)
—
 —
 —
 (258,628) —
Employee stock purchases—
 —
 —
 (36,840) —
Vesting of restricted stock units (2)
—
 —
 —
 (2,148) —
Balance at August 31, 2019185,880,112
 28,321,821
 1,012,395
 18,604,964
 5,005,800
          
Balance at February 28, 2018258,718,356
 28,335,387
 1,970
 90,743,239
 5,005,800
Share repurchases—
 —
 —
 450,508
 —
Conversion of shares5,144
 (5,144) —
 —
 —
Exercise of stock options216,946
 —
 5,118
 —
 —
Vesting of restricted stock units (2)
—
 —
 —
 (20,392) —
Vesting of performance share units (2)
—
 —
 —
 (62,352) —
Balance at May 31, 2018258,940,446
 28,330,243
 7,088
 91,111,003
 5,005,800
Share repurchases—
 —
 —
 1,901,637
 —
Conversion of shares2,500
 (2,500) —
 —
 —
Exercise of stock options137,219
 —
 2,325
 —
 —
Employee stock purchases—
 —
 —
 (34,203) —
Grant of restricted stock awards—
 —
 —
 (3,552) —
Vesting of restricted stock units (2)
—
 —
 —
 (3,074) —
Balance at August 31, 2018259,080,165
 28,327,743
 9,413
 92,971,811
 5,005,800
(1)
Includes use of Class A Treasury Stock associated with stock option exercises beginning March 1, 2019.
(2)
Net of the following shares withheld to satisfy tax withholding requirements:
 For the Three Months Ended
May 31,		 For the Three Months Ended
August 31,		 For the Six
Months Ended
August 31,
2019     
Restricted Stock Units48,562
 1,176
 49,738
Performance Share Units17,439
 —
 17,439
      
2018     
Restricted Stock Units12,743
 2,211
 14,954
Performance Share Units44,016
 —
 44,016


Stock repurchases
In January 2018, our Board of Directors authorized the repurchase of up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock (the “2018 Authorization”). The Board of

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Directors did not specify a date upon which this authorization would expire. Shares repurchased under the 2018 Authorization have become treasury shares.


For the ninesix months ended November 30, 2018,August 31, 2019, we repurchased 2,352,145265,593 shares of Class A Common Stock pursuant to the 2018 Authorization at an aggregate cost of $504.3$50.0 million through open market transactions.


As of November 30, 2018,August 31, 2019, total shares repurchased under the 2018 Authorizations are as follows:
   Class A Common Shares
 
Repurchase
Authorization
 
Dollar Value
of Shares
Repurchased
 
Number of
Shares
Repurchased
(in millions, except share data)     
2018 Authorization$3,000.0
 $1,045.9
 4,897,605

   Class A Common Shares
 
Repurchase
Authorization
 
Dollar Value
of Shares
Repurchased
 
Number of
Shares
Repurchased
(in millions, except share data)     
2018 Authorization$3,000.0
 $995.9
 4,632,012

In October 2018, our Board of Directors retired 74,000,000 shares of our Class A treasury stock. The retired shares are now authorized and unissued shares of our Class A Common Stock.


13.16.    NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CBI:CBI


For the ninesix months and three months ended November 30,August 31, 2018, and November 30, 2017, net income (loss) per common share – diluted for Class A Common Stock has been computed using the if-converted method and assumes the exercise of stock options using the treasury stock method and the conversion of Class B Convertible Common Stock as this method is more dilutive than the two-class method. For the ninesix months and three months ended November 30,August 31, 2018, and November 30, 2017, net income (loss) per common share – diluted for Class B Convertible Common Stock has been computed using the two-class method and does not assume conversion of Class B Convertible Common Stock into shares of Class A Common Stock.



We have excluded 23,316,505 and 23,316,411 of Class B Convertible Common Stock and 3,367,943 and 3,304,955 of shares issuable under the assumed exercise of stock options using the treasury stock method from the calculation of diluted net income (loss) per share for the six months and three months ended August 31, 2019, respectively, as the effect of including these would have been anti-dilutive.
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The computation of basic and diluted net income (loss) per common share is as follows:
 For the Six Months Ended
 August 31, 2019 August 31, 2018
 Common Stock Common Stock
 Class A Class B Class A Class B
(in millions, except per share data)       
Net income (loss) attributable to CBI allocated – basic$(684.1) $(86.5) $1,680.7
 $212.6
Conversion of Class B common shares into Class A common shares—
 —
 212.6
 —
Effect of stock-based awards on allocated net income (loss)—
 —
 —
 (5.2)
Net income (loss) attributable to CBI allocated – diluted$(684.1) $(86.5) $1,893.3
 $207.4
        
Weighted average common shares outstanding – basic168.215
 23.316
 167.617
 23.325
Conversion of Class B common shares into Class A common shares—
 —
 23.325
 —
Stock-based awards, primarily stock options—
 —
 5.526
 —
Weighted average common shares outstanding – diluted168.215
 23.316
 196.468
 23.325
        
Net income (loss) per common share attributable to CBI – basic$(4.08) $(3.71) $10.03
 $9.11
Net income (loss) per common share attributable to CBI – diluted$(4.08) $(3.71) $9.64
 $8.89
        


 For the Nine Months Ended
 November 30, 2018 November 30, 2017
 Common Stock Common Stock
 Class A Class B Class A Class B
(in millions, except per share data)       
Net income attributable to CBI allocated – basic$1,949.3
 $247.1
 $1,240.0
 $152.9
Conversion of Class B common shares into Class A common shares247.1
 —
 152.9
 —
Effect of stock-based awards on allocated net income—
 (5.6) —
 (3.6)
Net income attributable to CBI allocated – diluted$2,196.4
 $241.5
 $1,392.9
 $149.3
        
Weighted average common shares outstanding – basic167.203
 23.322
 171.854
 23.339
Conversion of Class B common shares into Class A common shares23.322
 —
 23.339
 —
Stock-based awards, primarily stock options5.396
 —
 5.990
 —
Weighted average common shares outstanding – diluted195.921
 23.322
 201.183
 23.339
        
Net income per common share attributable to CBI – basic$11.66
 $10.59
 $7.22
 $6.55
Net income per common share attributable to CBI – diluted$11.21
 $10.35
 $6.92
 $6.40
        
        
 For the Three Months Ended
 November 30, 2018 November 30, 2017
 Common Stock Common Stock
 Class A Class B Class A Class B
Net income attributable to CBI allocated – basic$268.9
 $34.2
 $438.7
 $54.1
Conversion of Class B common shares into Class A common shares34.2
 —
 54.1
 —
Effect of stock-based awards on allocated net income—
 (0.5) —
 (1.3)
Net income attributable to CBI allocated – diluted$303.1
 $33.7
 $492.8
 $52.8
        
Weighted average common shares outstanding – basic166.364
 23.318
 171.922
 23.333
Conversion of Class B common shares into Class A common shares23.318
 —
 23.333
 —
Stock-based awards, primarily stock options5.138
 —
 5.922
 —
Weighted average common shares outstanding – diluted194.820
 23.318
 201.177
 23.333
        
Net income per common share attributable to CBI – basic$1.62
 $1.47
 $2.55
 $2.32
Net income per common share attributable to CBI – diluted$1.56
 $1.45
 $2.45
 $2.26
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23
 For the Three Months Ended
 August 31, 2019 August 31, 2018
 Common Stock Common Stock
 Class A Class B Class A Class B
(in millions, except per share data)       
Net income (loss) attributable to CBI allocated – basic$(466.4) $(58.8) $1,020.0
 $129.5
Conversion of Class B common shares into Class A common shares—
 —
 129.5
 —
Effect of stock-based awards on allocated net income (loss)—
 —
 —
 (3.2)
Net income (loss) attributable to CBI allocated – diluted$(466.4) $(58.8) $1,149.5
 $126.3
        
Weighted average common shares outstanding – basic168.310
 23.316
 167.172
 23.323
Conversion of Class B common shares into Class A common shares—
 —
 23.323
 —
Stock-based awards, primarily stock options—
 —
 5.412
 —
Weighted average common shares outstanding – diluted168.310
 23.316
 195.907
 23.323
        
Net income (loss) per common share attributable to CBI – basic$(2.77) $(2.52) $6.11
 $5.55
Net income (loss) per common share attributable to CBI – diluted$(2.77) $(2.52) $5.87
 $5.41





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14.
17.    COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CBI:CBI


Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustments, net unrealized gains (losses)gain (loss) on derivative instruments, net unrealized gains (losses)gain (loss) on AFSavailable-for-sale (“AFS”) debt securities, and pension/postretirement adjustments.adjustments, and our share of OCI of equity method investments. The reconciliation of net income (loss) attributable to CBI to comprehensive income (loss) attributable to CBI is as follows:
 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)     
For the Six Months Ended August 31, 2019     
Net income (loss) attributable to CBI    $(770.6)
Other comprehensive income (loss) attributable to CBI:     
Foreign currency translation adjustments:     
Net gain (loss)$(58.2) $—
 (58.2)
Reclassification adjustments—
 —
 —
Net gain (loss) recognized in other comprehensive income (loss)(58.2) —
 (58.2)
Unrealized gain (loss) on cash flow hedges:     
Net derivative gain (loss)(38.4) 3.8
 (34.6)
Reclassification adjustments(6.0) (0.6) (6.6)
Net gain (loss) recognized in other comprehensive income (loss)(44.4) 3.2
 (41.2)
Pension/postretirement adjustments:     
Net actuarial gain (loss)—
 —
 —
Reclassification adjustments0.1
 —
 0.1
Net gain (loss) recognized in other comprehensive income (loss)0.1
 —
 0.1
Share of OCI of equity method investments     
Net gain (loss)(30.6) 7.2
 (23.4)
Reclassification adjustments—
 —
 —
Net gain (loss) recognized in other comprehensive income (loss)(30.6) 7.2
 (23.4)
Other comprehensive income (loss) attributable to CBI$(133.1) $10.4
 (122.7)
Comprehensive income (loss) attributable to CBI    $(893.3)
      
For the Six Months Ended August 31, 2018     
Net income (loss) attributable to CBI    $1,893.3
Other comprehensive income (loss) attributable to CBI:     
Foreign currency translation adjustments:     
Net gain (loss)$(92.5) $—
 (92.5)
Reclassification adjustments—
 —
 —
Net gain (loss) recognized in other comprehensive income (loss)(92.5) —
 (92.5)
Unrealized gain (loss) on cash flow hedges:     
Net derivative gain (loss)(9.2) 1.0
 (8.2)
Reclassification adjustments(4.7) 1.0
 (3.7)
Net gain (loss) recognized in other comprehensive income (loss)(13.9) 2.0
 (11.9)
Unrealized gain (loss) on AFS debt securities:     
Net AFS debt securities gain (loss)(0.4) 0.1
 (0.3)
Reclassification adjustments1.9
 0.9
 2.8
Net gain (loss) recognized in other comprehensive income (loss)1.5
 1.0
 2.5
Pension/postretirement adjustments:     
Net actuarial gain (loss)—
 —
 —
Reclassification adjustments0.3
 (0.1) 0.2
Net gain (loss) recognized in other comprehensive income (loss)0.3
 (0.1) 0.2
Other comprehensive income (loss) attributable to CBI$(104.6) $2.9
 (101.7)
Comprehensive income (loss) attributable to CBI    $1,791.6
      


 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)     
For the Nine Months Ended November 30, 2018     
Net income attributable to CBI    $2,196.4
Other comprehensive income (loss) attributable to CBI:     
Foreign currency translation adjustments:     
Net losses$(248.4) $—
 (248.4)
Reclassification adjustments—
 —
 —
Net loss recognized in other comprehensive loss(248.4) —
 (248.4)
Unrealized loss on cash flow hedges:     
Net derivative losses(61.7) 8.1
 (53.6)
Reclassification adjustments(5.0) 1.2
 (3.8)
Net loss recognized in other comprehensive loss(66.7) 9.3
 (57.4)
Unrealized loss on AFS debt securities:     
Net AFS debt securities losses(0.4) 0.1
 (0.3)
Reclassification adjustments1.9
 0.9
 2.8
Net gain recognized in other comprehensive loss1.5
 1.0
 2.5
Pension/postretirement adjustments:     
Net actuarial gains0.2
 (0.1) 0.1
Reclassification adjustments0.3
 (0.1) 0.2
Net gain recognized in other comprehensive loss0.5
 (0.2) 0.3
Other comprehensive loss attributable to CBI$(313.1) $10.1
 (303.0)
Comprehensive income attributable to CBI    $1,893.4
      
For the Nine Months Ended November 30, 2017     
Net income attributable to CBI    $1,392.9
Other comprehensive income (loss) attributable to CBI:     
Foreign currency translation adjustments:     
Net gains$154.4
 $(0.1) 154.3
Reclassification adjustments—
 —
 —
Net gain recognized in other comprehensive income154.4
 (0.1) 154.3
Unrealized gain on cash flow hedges:     
Net derivative gains55.6
 (16.7) 38.9
Reclassification adjustments(2.4) 0.4
 (2.0)
Net gain recognized in other comprehensive income53.2
 (16.3) 36.9
Unrealized loss on AFS debt securities:     
Net AFS debt securities losses(0.4) —
 (0.4)
Reclassification adjustments—
 —
 —
Net loss recognized in other comprehensive income(0.4) —
 (0.4)
Pension/postretirement adjustments:     
Net actuarial losses(0.1) —
 (0.1)
Reclassification adjustments0.1
 —
 0.1
Net loss recognized in other comprehensive income—
 —
 —
Other comprehensive income attributable to CBI$207.2
 $(16.4) 190.8
Comprehensive income attributable to CBI    $1,583.7
      

24


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Table of Contents

 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)     
For the Three Months Ended August 31, 2019     
Net income (loss) attributable to CBI    $(525.2)
Other comprehensive income (loss) attributable to CBI:     
Foreign currency translation adjustments:     
Net gain (loss)$(76.5) $—
 (76.5)
Reclassification adjustments—
 —
 —
Net gain (loss) recognized in other comprehensive income (loss)(76.5) —
 (76.5)
Unrealized gain (loss) on cash flow hedges:     
Net derivative gain (loss)(34.0) 2.1
 (31.9)
Reclassification adjustments(3.7) —
 (3.7)
Net gain (loss) recognized in other comprehensive income (loss)(37.7) 2.1
 (35.6)
Pension/postretirement adjustments:     
Net actuarial gain (loss)(0.1) —
 (0.1)
Reclassification adjustments0.1
 —
 0.1
Net gain (loss) recognized in other comprehensive income (loss)—
 —
 —
Share of OCI of equity method investments     
Net gain (loss)(11.8) 2.8
 (9.0)
Reclassification adjustments—
 —
 —
Net gain (loss) recognized in other comprehensive income (loss)(11.8) 2.8
 (9.0)
Other comprehensive income (loss) attributable to CBI$(126.0) $4.9
 (121.1)
Comprehensive income (loss) attributable to CBI    $(646.3)
      
For the Three Months Ended August 31, 2018     
Net income (loss) attributable to CBI    $1,149.5
Other comprehensive income (loss) attributable to CBI:     
Foreign currency translation adjustments:     
Net gain (loss)$39.8
 $—
 39.8
Reclassification adjustments—
 —
 —
Net gain (loss) recognized in other comprehensive income (loss)39.8
 —
 39.8
Unrealized gain (loss) on cash flow hedges:     
Net derivative gain (loss)49.9
 (15.6) 34.3
Reclassification adjustments0.2
 (0.3) (0.1)
Net gain (loss) recognized in other comprehensive income (loss)50.1
 (15.9) 34.2
Other comprehensive income (loss) attributable to CBI$89.9
 $(15.9) 74.0
Comprehensive income (loss) attributable to CBI    $1,223.5



 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)     
For the Three Months Ended November 30, 2018     
Net income attributable to CBI    $303.1
Other comprehensive income (loss) attributable to CBI:     
Foreign currency translation adjustments:     
Net losses$(155.9) $—
 (155.9)
Reclassification adjustments—
 —
 —
Net loss recognized in other comprehensive loss(155.9) —
 (155.9)
Unrealized loss on cash flow hedges:     
Net derivative losses(52.5) 7.1
 (45.4)
Reclassification adjustments(0.3) 0.2
 (0.1)
Net loss recognized in other comprehensive loss(52.8) 7.3
 (45.5)
Pension/postretirement adjustments:     
Net actuarial gains0.2
 (0.1) 0.1
Reclassification adjustments—
 —
 —
Net gain recognized in other comprehensive loss0.2
 (0.1) 0.1
Other comprehensive loss attributable to CBI$(208.5) $7.2
 (201.3)
Comprehensive income attributable to CBI    $101.8
      
For the Three Months Ended November 30, 2017     
Net income attributable to CBI    $492.8
Other comprehensive loss attributable to CBI:     
Foreign currency translation adjustments:     
Net losses$(99.1) $0.9
 (98.2)
Reclassification adjustments—
 —
 —
Net loss recognized in other comprehensive loss(99.1) 0.9
 (98.2)
Unrealized loss on cash flow hedges:     
Net derivative losses(27.4) 7.0
 (20.4)
Reclassification adjustments(3.1) 0.7
 (2.4)
Net loss recognized in other comprehensive loss(30.5) 7.7
 (22.8)
Unrealized loss on AFS debt securities:     
Net AFS debt securities losses(0.8) 0.2
 (0.6)
Reclassification adjustments—
 —
 —
Net loss recognized in other comprehensive loss(0.8) 0.2
 (0.6)
Pension/postretirement adjustments:     
Net actuarial losses—
 (0.1) (0.1)
Reclassification adjustments0.1
 —
 0.1
Net loss recognized in other comprehensive loss0.1
 (0.1) —
Other comprehensive loss attributable to CBI$(130.3) $8.7
 (121.6)
Comprehensive income attributable to CBI    $371.2


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Accumulated other comprehensive loss,income (loss), net of income tax effect, includes the following components:
 
Foreign
Currency
Translation
Adjustments
 
Net
Unrealized
Gain (Loss)
on Derivative
Instruments
 
Pension/
Postretirement
Adjustments
 Share of OCI of Equity Method Investments 
Accumulated
Other
Comprehensive Income
(Loss)
(in millions)         
Balance, February 28, 2019$(406.5) $25.1
 $(2.1) $29.6
 $(353.9)
Other comprehensive income (loss):         
Other comprehensive income (loss) before reclassification adjustments(58.2) (34.6) —
 (23.4) (116.2)
Amounts reclassified from accumulated other comprehensive income (loss)—
 (6.6) 0.1
 —
 (6.5)
Other comprehensive income (loss)(58.2) (41.2) 0.1
 (23.4) (122.7)
Balance, August 31, 2019$(464.7) $(16.1) $(2.0) $6.2
 $(476.6)

 
Foreign
Currency
Translation
Adjustments
 
Net
Unrealized
Gains (Losses)
on Derivative
Instruments
 
Net
Unrealized
Losses
on AFS Debt
Securities
 
Pension/
Postretirement
Adjustments
 
Accumulated
Other
Comprehensive
Loss
(in millions)         
Balance, February 28, 2018$(212.3) $14.5
 $(2.5) $(2.6) $(202.9)
Other comprehensive income (loss):         
Other comprehensive income (loss) before reclassification adjustments(248.4) (53.6) (0.3) 0.1
 (302.2)
Amounts reclassified from accumulated other comprehensive loss—
 (3.8) 2.8
 0.2
 (0.8)
Other comprehensive income (loss)(248.4) (57.4) 2.5
 0.3
 (303.0)
Balance, November 30, 2018$(460.7) $(42.9) $—
 $(2.3) $(505.9)


15.18.    CONDENSED CONSOLIDATING FINANCIAL INFORMATION:INFORMATION


The following information sets forth the condensed consolidating balance sheets as of November 30, 2018,August 31, 2019, and February 28, 2018,2019, the condensed consolidating statements of comprehensive income (loss) for the ninesix months and three months ended November 30,August 31, 2019, and August 31, 2018, and November 30, 2017, and the condensed consolidating statements of cash flows for the ninesix months ended November 30,August 31, 2019, and August 31, 2018, and November 30, 2017, for the parent company, our combined subsidiaries which guarantee our senior notes (“Subsidiary Guarantors”), our combined subsidiaries which are not Subsidiary Guarantors (primarily foreign subsidiaries) (“Subsidiary Nonguarantors”) and the Company. The Subsidiary Guarantors are 100% owned, directly or indirectly, by the parent company and the guarantees are joint and several obligations of each of the Subsidiary Guarantors. The guarantees are full and unconditional, as those terms are used in Rule 3-10 of Regulation S-X, except that a Subsidiary Guarantor can be automatically released and relieved of its obligations under certain customary circumstances contained in the indentures governing our senior notes. These customary circumstances include, so long as other applicable provisions of the indentures are adhered to, the termination or release of a Subsidiary Guarantor’s guarantee of other indebtedness or upon the legal defeasance or covenant defeasance or satisfaction and discharge of our senior notes. Separate financial information for our Subsidiary Guarantors isare not presented because we have determined that such financial information would not be material to investors. The accounting policies of the parent company, the Subsidiary Guarantors, and the Subsidiary Nonguarantors are the same as those described for the Company in Note 1 of our consolidated financial statements included in our 20182019 Annual Report, and include the accounting policies and the recently adopted accounting guidance described in Note 12 and Note 214 herein. There are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to us in the form of cash dividends, loans, or advances.




26


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33

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Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Balance Sheet at August 31, 2019
Current assets:         
Cash and cash equivalents$4.0
 $3.9
 $73.4
 $—
 $81.3
Accounts receivable488.0
 409.6
 56.1
 —
 953.7
Inventories56.2
 1,024.3
 420.4
 (189.5) 1,311.4
Intercompany receivable29,836.0
 35,676.9
 20,272.7
 (85,785.6) —
Prepaid expenses and other122.1
 61.7
 363.0
 (21.7) 525.1
Assets held for sale - current158.7
 381.2
 126.1
 —
 666.0
Total current assets30,665.0
 37,557.6
 21,311.7
 (85,996.8) 3,537.5
Property, plant, and equipment66.9
 633.2
 4,441.5
 —
 5,141.6
Investments in subsidiaries26,237.5
 1,605.4
 3,218.1
 (31,061.0) —
Goodwill—
 5,782.5
 1,914.2
 —
 7,696.7
Intangible assets—
 271.2
 2,515.8
 —
 2,787.0
Intercompany notes receivable2,764.6
 —
 559.0
 (3,323.6) —
Equity method investments—
 0.5
 3,003.3
 —
 3,003.8
Securities measured at fair value—
 —
 1,572.2
 —
 1,572.2
Deferred income taxes64.6
 —
 2,191.6
 (109.4) 2,146.8
Assets held for sale30.2
 859.6
 129.3
 —
 1,019.1
Other assets29.3
 340.7
 280.4
 —
 650.4
Total assets$59,858.1
 $47,050.7
 $41,137.1
 $(120,490.8) $27,555.1
          
Current liabilities:         
Short-term borrowings$150.9
 $—
 $—
 $—
 $150.9
Current maturities of long-term debt624.2
 11.7
 0.2
 —
 636.1
Accounts payable47.3
 212.3
 349.0
 —
 608.6
Intercompany payable34,441.2
 32,851.1
 18,493.3
 (85,785.6) —
Other accrued expenses and liabilities376.2
 300.4
 172.7
 (49.0) 800.3
Total current liabilities35,639.8
 33,375.5
 19,015.2
 (85,834.6) 2,195.9
Long-term debt, less current maturities12,146.5
 12.9
 0.4
 —
 12,159.8
Intercompany notes payable653.0
 2,241.9
 428.7
 (3,323.6) —
Deferred income taxes and other liabilities41.3
 848.4
 728.1
 (109.4) 1,508.4
Total liabilities48,480.6
 36,478.7
 20,172.4
 (89,267.6) 15,864.1
CBI stockholders’ equity11,377.5
 10,572.0
 20,651.2
 (31,223.2) 11,377.5
Noncontrolling interests—
 —
 313.5
 —
 313.5
Total stockholders’ equity11,377.5
 10,572.0
 20,964.7
 (31,223.2) 11,691.0
Total liabilities and stockholders’ equity$59,858.1
 $47,050.7
 $41,137.1
 $(120,490.8) $27,555.1
          


 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Balance Sheet at November 30, 2018
Current assets:         
Cash and cash equivalents$5.4
 $2.4
 $122.8
 $—
 $130.6
Accounts receivable436.5
 341.3
 59.4
 —
 837.2
Inventories198.1
 1,590.6
 577.9
 (168.6) 2,198.0
Intercompany receivable29,127.3
 40,158.9
 19,860.0
 (89,146.2) —
Prepaid expenses and other180.1
 55.7
 355.1
 (118.2) 472.7
Total current assets29,947.4
 42,148.9
 20,975.2
 (89,433.0) 3,638.5
Property, plant and equipment80.7
 778.8
 4,126.8
 —
 4,986.3
Investments in subsidiaries29,562.7
 514.5
 6,337.2
 (36,414.4) —
Goodwill—
 6,185.5
 1,876.3
 —
 8,061.8
Intangible assets—
 714.3
 2,593.5
 —
 3,307.8
Intercompany notes receivable5,590.5
 2,318.8
 —
 (7,909.3) —
Equity method investments17.2
 1.8
 3,564.0
 —
 3,583.0
Other assets39.1
 1.9
 4,294.7
 (22.7) 4,313.0
Total assets$65,237.6
 $52,664.5
 $43,767.7
 $(133,779.4) $27,890.4
          
Current liabilities:         
Short-term borrowings$626.5
 $—
 $105.0
 $—
 $731.5
Current maturities of long-term debt1,052.0
 13.4
 0.2
 —
 1,065.6
Accounts payable60.6
 402.3
 419.8
 —
 882.7
Intercompany payable40,102.2
 31,342.1
 17,701.9
 (89,146.2) —
Other accrued expenses and liabilities352.5
 313.2
 159.5
 (141.6) 683.6
Total current liabilities42,193.8
 32,071.0
 18,386.4
 (89,287.8) 3,363.4
Long-term debt, less current maturities11,754.0
 18.0
 0.5
 —
 11,772.5
Intercompany notes payable—
 4,987.0
 2,922.3
 (7,909.3) —
Other liabilities33.1
 543.0
 681.1
 (22.7) 1,234.5
Total liabilities53,980.9
 37,619.0
 21,990.3
 (97,219.8) 16,370.4
CBI stockholders’ equity11,256.7
 15,045.5
 21,514.1
 (36,559.6) 11,256.7
Noncontrolling interests—
 —
 263.3
 —
 263.3
Total stockholders’ equity11,256.7
 15,045.5
 21,777.4
 (36,559.6) 11,520.0
Total liabilities and stockholders’ equity$65,237.6
 $52,664.5
 $43,767.7
 $(133,779.4) $27,890.4
          
          

27


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
34

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Table of Contents



 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Balance Sheet at February 28, 2019
Current assets:         
Cash and cash equivalents$11.0
 $2.6
 $80.0
 $—
 $93.6
Accounts receivable435.6
 370.6
 40.7
 —
 846.9
Inventories197.7
 1,485.4
 609.9
 (162.6) 2,130.4
Intercompany receivable29,712.5
 33,775.4
 20,050.6
 (83,538.5) —
Prepaid expenses and other89.9
 78.1
 446.7
 (1.6) 613.1
Total current assets30,446.7
 35,712.1
 21,227.9
 (83,702.7) 3,684.0
Property, plant, and equipment85.3
 786.8
 4,395.2
 —
 5,267.3
Investments in subsidiaries26,533.8
 1,599.6
 2,982.1
 (31,115.5) —
Goodwill—
 6,185.5
 1,903.3
 —
 8,088.8
Intangible assets—
 605.0
 2,593.1
 —
 3,198.1
Intercompany notes receivable3,218.6
 —
 38.6
 (3,257.2) —
Equity method investments—
 1.7
 3,463.9
 —
 3,465.6
Securities measured at fair value—
 —
 3,234.7
 —
 3,234.7
Deferred income taxes69.2
 —
 2,183.3
 (69.2) 2,183.3
Other assets17.3
 1.1
 91.3
 —
 109.7
Total assets$60,370.9
 $44,891.8
 $42,113.4
 $(118,144.6) $29,231.5
          
Current liabilities:         
Short-term borrowings$732.5
 $—
 $59.0
 $—
 $791.5
Current maturities of long-term debt1,052.8
 12.2
 0.2
 —
 1,065.2
Accounts payable59.6
 141.3
 415.8
 —
 616.7
Intercompany payable33,787.6
 31,428.9
 18,322.0
 (83,538.5) —
Other accrued expenses and liabilities374.3
 184.0
 156.6
 (24.5) 690.4
Total current liabilities36,006.8
 31,766.4
 18,953.6
 (83,563.0) 3,163.8
Long-term debt, less current maturities11,743.4
 16.0
 0.4
 —
 11,759.8
Intercompany notes payable38.5
 2,694.4
 524.3
 (3,257.2) —
Deferred income taxes and other liabilities31.2
 540.5
 955.9
 (56.9) 1,470.7
Total liabilities47,819.9
 35,017.3
 20,434.2
 (86,877.1) 16,394.3
CBI stockholders’ equity12,551.0
 9,874.5
 21,393.0
 (31,267.5) 12,551.0
Noncontrolling interests—
 —
 286.2
 —
 286.2
Total stockholders’ equity12,551.0
 9,874.5
 21,679.2
 (31,267.5) 12,837.2
Total liabilities and stockholders’ equity$60,370.9
 $44,891.8
 $42,113.4
 $(118,144.6) $29,231.5


 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Balance Sheet at February 28, 2018
Current assets:         
Cash and cash equivalents$4.6
 $4.4
 $81.3
 $—
 $90.3
Accounts receivable2.0
 12.6
 761.6
 —
 776.2
Inventories184.3
 1,537.5
 546.6
 (184.4) 2,084.0
Intercompany receivable27,680.0
 37,937.5
 18,940.8
 (84,558.3) —
Prepaid expenses and other138.4
 77.7
 311.0
 (3.6) 523.5
Total current assets28,009.3
 39,569.7
 20,641.3
 (84,746.3) 3,474.0
Property, plant and equipment76.2
 775.7
 3,937.8
 —
 4,789.7
Investments in subsidiaries20,948.7
 442.0
 5,876.9
 (27,267.6) —
Goodwill—
 6,185.5
 1,897.6
 —
 8,083.1
Intangible assets—
 718.2
 2,586.6
 —
 3,304.8
Intercompany notes receivable6,236.4
 2,435.4
 —
 (8,671.8) —
Equity method investments—
 1.9
 119.6
 —
 121.5
Other assets33.1
 2.8
 747.1
 (17.4) 765.6
Total assets$55,303.7
 $50,131.2
 $35,806.9
 $(120,703.1) $20,538.7
          
Current liabilities:         
Short-term borrowings$266.9
 $—
 $479.9
 $—
 $746.8
Current maturities of long-term debt7.1
 15.0
 0.2
 —
 22.3
Accounts payable63.4
 128.3
 400.5
 —
 592.2
Intercompany payable37,408.2
 30,029.7
 17,120.4
 (84,558.3) —
Other accrued expenses and liabilities356.2
 199.3
 150.5
 (27.7) 678.3
Total current liabilities38,101.8
 30,372.3
 18,151.5
 (84,586.0) 2,039.6
Long-term debt, less current maturities9,166.9
 9.1
 241.6
 —
 9,417.6
Intercompany notes payable—
 5,029.2
 3,642.6
 (8,671.8) —
Other liabilities59.9
 493.5
 553.8
 (17.4) 1,089.8
Total liabilities47,328.6
 35,904.1
 22,589.5
 (93,275.2) 12,547.0
CBI stockholders’ equity7,975.1
 14,227.1
 13,200.8
 (27,427.9) 7,975.1
Noncontrolling interests—
 —
 16.6
 —
 16.6
Total stockholders’ equity7,975.1
 14,227.1
 13,217.4
 (27,427.9) 7,991.7
Total liabilities and stockholders’ equity$55,303.7
 $50,131.2
 $35,806.9
 $(120,703.1) $20,538.7

28


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
35

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Table of Contents




 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Six Months Ended August 31, 2019
Sales$1,366.7
 $4,126.1
 $2,307.3
 $(2,944.2) $4,855.9
Excise taxes(168.4) (240.3) (6.0) —
 (414.7)
Net sales1,198.3
 3,885.8
 2,301.3
 (2,944.2) 4,441.2
Cost of product sold(934.4) (3,057.4) (1,143.2) 2,908.4
 (2,226.6)
Gross profit263.9
 828.4
 1,158.1
 (35.8) 2,214.6
Selling, general, and administrative expenses(235.3) (535.8) (110.9) 9.6
 (872.4)
Operating income (loss)28.6
 292.6
 1,047.2
 (26.2) 1,342.2
Equity in earnings (losses) of equity method investees and subsidiaries and related activities(541.2) 5.3
 (352.0) 299.3
 (588.6)
Unrealized net gain (loss) on securities measured at fair value—
 —
 (1,666.6) —
 (1,666.6)
Net gain (loss) on sale of unconsolidated investment—
 —
 (0.1) —
 (0.1)
Interest income0.5
 0.3
 8.4
 —
 9.2
Intercompany interest income109.2
 185.7
 170.8
 (465.7) —
Interest expense(233.9) (0.5) (1.0) —
 (235.4)
Intercompany interest expense(219.1) (48.6) (198.0) 465.7
 —
Loss on extinguishment of debt(2.4) —
 —
 —
 (2.4)
Income (loss) before income taxes(858.3) 434.8
 (991.3) 273.1
 (1,141.7)
(Provision for) benefit from income taxes87.7
 (100.4) 396.1
 4.2
 387.6
Net income (loss)(770.6)
334.4
 (595.2) 277.3
 (754.1)
Net income (loss) attributable to noncontrolling interests—
 —
 (16.5) —
 (16.5)
Net income (loss) attributable to CBI$(770.6) $334.4
 $(611.7) $277.3
 $(770.6)
          
Comprehensive income (loss) attributable to CBI$(893.3) $333.7
 $(742.5) $408.8
 $(893.3)
          
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Six Months Ended August 31, 2018
Sales$1,491.2
 $3,993.9
 $2,004.7
 $(2,734.1) $4,755.7
Excise taxes(179.7) (223.6) (6.2) —
 (409.5)
Net sales1,311.5
 3,770.3
 1,998.5
 (2,734.1) 4,346.2
Cost of product sold(1,034.8) (2,820.2) (1,015.1) 2,740.7
 (2,129.4)
Gross profit276.7
 950.1
 983.4
 6.6
 2,216.8
Selling, general, and administrative expenses(271.6) (452.1) (114.2) 11.5
 (826.4)
Operating income (loss)5.1
 498.0
 869.2
 18.1
 1,390.4
Equity in earnings (losses) of equity method investees and subsidiaries and related activities2,145.9
 (26.0) 326.7
 (2,444.0) 2.6
Unrealized net gain (loss) on securities measured at fair value—
 —
 950.4
 —
 950.4
Net gain (loss) on sale of unconsolidated investment—
 —
 99.8
 —
 99.8
Interest income0.1
 —
 3.4
 —
 3.5
Intercompany interest income135.3
 321.5
 2.4
 (459.2) —
Interest expense(164.6) (0.5) (14.2) —
 (179.3)
Intercompany interest expense(271.0) (99.0) (89.2) 459.2
 —
Income (loss) before income taxes1,850.8
 694.0
 2,148.5
 (2,425.9) 2,267.4
(Provision for) benefit from income taxes42.5
 (167.9) (246.4) 2.0
 (369.8)
Net income (loss)1,893.3
 526.1
 1,902.1
 (2,423.9) 1,897.6
Net income (loss) attributable to noncontrolling interests—
 —
 (4.3) —
 (4.3)
Net income (loss) attributable to CBI$1,893.3
 $526.1
 $1,897.8
 $(2,423.9) $1,893.3
          
Comprehensive income (loss) attributable to CBI$1,791.6
 $525.5
 $1,796.3
 $(2,321.8) $1,791.6
          


 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Comprehensive Income for the Nine Months Ended November 30, 2018
Sales$2,263.2
 $5,757.6
 $2,891.6
 $(3,996.1) $6,916.3
Excise taxes(269.5) (318.5) (9.5) —
 (597.5)
Net sales1,993.7
 5,439.1
 2,882.1
 (3,996.1) 6,318.8
Cost of product sold(1,565.2) (4,062.8) (1,505.6) 4,001.6
 (3,132.0)
Gross profit428.5
 1,376.3
 1,376.5
 5.5
 3,186.8
Selling, general and administrative expenses(425.5) (651.5) (180.0) 17.1
 (1,239.9)
Operating income3.0
 724.8
 1,196.5
 22.6
 1,946.9
Equity in earnings (losses) of equity method investees and subsidiaries2,519.4
 (25.3) 494.4
 (2,956.6) 31.9
Unrealized net gain on securities measured at fair value—
 —
 786.5
 —
 786.5
Net gain on sale of unconsolidated investment—
 —
 99.8
 —
 99.8
Interest income0.6
 —
 7.3
 —
 7.9
Intercompany interest income198.4
 487.2
 3.7
 (689.3) —
Interest expense(240.2) (0.9) (15.4) —
 (256.5)
Intercompany interest expense(411.5) (148.2) (129.6) 689.3
 —
Loss on extinguishment of debt(1.7) —
 —
 —
 (1.7)
Income before income taxes2,068.0
 1,037.6
 2,443.2
 (2,934.0) 2,614.8
(Provision for) benefit from income taxes128.4
 (248.4) (284.0) (1.1) (405.1)
Net income2,196.4

789.2
 2,159.2
 (2,935.1) 2,209.7
Net income attributable to noncontrolling interests—
 —
 (13.3) —
 (13.3)
Net income attributable to CBI$2,196.4
 $789.2
 $2,145.9
 $(2,935.1) $2,196.4
          
Comprehensive income attributable to CBI$1,893.4
 $788.6
 $1,843.1
 $(2,631.7) $1,893.4
          
Condensed Consolidating Statement of Comprehensive Income for the Nine Months Ended November 30, 2017
Sales$2,171.4
 $5,279.6
 $2,638.1
 $(3,698.5) $6,390.6
Excise taxes(263.2) (299.7) (9.4) —
 (572.3)
Net sales1,908.2
 4,979.9
 2,628.7
 (3,698.5) 5,818.3
Cost of product sold(1,524.4) (3,686.0) (1,350.6) 3,710.0
 (2,851.0)
Gross profit383.8
 1,293.9
 1,278.1
 11.5
 2,967.3
Selling, general and administrative expenses(347.1) (661.0) (202.1) 10.9
 (1,199.3)
Operating income36.7
 632.9
 1,076.0
 22.4
 1,768.0
Equity in earnings (losses) of equity method investees and subsidiaries1,524.8
 (14.6) 366.6
 (1,844.0) 32.8
Unrealized net gain on securities measured at fair value and related activities—
 —
 216.9
 —
 216.9
Interest income0.1
 —
 0.3
 —
 0.4
Intercompany interest income177.1
 365.2
 3.3
 (545.6) —
Interest expense(198.6) (0.9) (46.0) —
 (245.5)
Intercompany interest expense(293.1) (147.2) (105.3) 545.6
 —
Loss on extinguishment of debt(7.0) —
 (12.1) —
 (19.1)
Income before income taxes1,240.0
 835.4
 1,499.7
 (1,821.6) 1,753.5
(Provision for) benefit from income taxes152.9
 (292.0) (188.1) (24.8) (352.0)
Net income1,392.9
 543.4
 1,311.6
 (1,846.4) 1,401.5
Net income attributable to noncontrolling interests—
 —
 (8.6) —
 (8.6)
Net income attributable to CBI$1,392.9
 $543.4
 $1,303.0
 $(1,846.4) $1,392.9
          
Comprehensive income attributable to CBI$1,583.7
 $543.2
 $1,498.0
 $(2,041.2) $1,583.7
          
          

29


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
36

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents



 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Three Months Ended August 31, 2019
Sales$737.5
 $2,194.2
 $1,121.4
 $(1,479.7) $2,573.4
Excise taxes(91.5) (134.9) (3.0) —
 (229.4)
Net sales646.0
 2,059.3
 1,118.4
 (1,479.7) 2,344.0
Cost of product sold(513.8) (1,606.7) (557.1) 1,519.5
 (1,158.1)
Gross profit132.2
 452.6
 561.3
 39.8
 1,185.9
Selling, general, and administrative expenses(122.2) (272.1) (77.0) 4.9
 (466.4)
Operating income (loss)10.0
 180.5
 484.3
 44.7
 719.5
Equity in earnings (losses) of equity method investees and subsidiaries and related activities(401.9) 0.2
 (350.7) 266.8
 (485.6)
Unrealized net gain (loss) on securities measured at fair value—
 —
 (839.1) —
 (839.1)
Interest income0.5
 0.3
 4.1
 —
 4.9
Intercompany interest income70.3
 94.8
 168.8
 (333.9) —
Interest expense(115.9) (0.2) (0.4) —
 (116.5)
Intercompany interest expense(130.5) (22.2) (181.2) 333.9
 —
Loss on extinguishment of debt(2.4) —
 —
 —
 (2.4)
Income (loss) before income taxes(569.9) 253.4
 (714.2) 311.5
 (719.2)
(Provision for) benefit from income taxes44.7
 (60.1) 226.4
 (8.8) 202.2
Net income (loss)(525.2) 193.3
 (487.8) 302.7
 (517.0)
Net income (loss) attributable to noncontrolling interests—
 —
 (8.2) —
 (8.2)
Net income (loss) attributable to CBI$(525.2) $193.3
 $(496.0) $302.7
 $(525.2)
          
Comprehensive income (loss) attributable to CBI$(646.3) $192.9
 $(616.2) $423.3
 $(646.3)
          
Condensed Consolidating Statement of Comprehensive Income (Loss) for the Three Months Ended August 31, 2018
Sales$808.6
 $2,112.7
 $997.1
 $(1,392.7) $2,525.7
Excise taxes(100.9) (122.7) (3.0) —
 (226.6)
Net sales707.7
 1,990.0
 994.1
 (1,392.7) 2,299.1
Cost of product sold(548.0) (1,498.1) (516.8) 1,432.0
 (1,130.9)
Gross profit159.7
 491.9
 477.3
 39.3
 1,168.2
Selling, general, and administrative expenses(130.3) (213.4) (64.7) 5.2
 (403.2)
Operating income (loss)29.4
 278.5
 412.6
 44.5
 765.0
Equity in earnings (losses) of equity method investees and subsidiaries and related activities1,235.3
 (13.5) 179.5
 (1,403.4) (2.1)
Unrealized net gain (loss) on securities measured at fair value—
 —

692.1
 —
 692.1
Net gain (loss) on sale of unconsolidated investment—
 —
 (1.6) —
 (1.6)
Interest income0.1
 —
 3.0
 —
 3.1
Intercompany interest income67.7
 162.7
 1.5
 (231.9) —
Interest expense(84.3) (0.2) (6.6) —
 (91.1)
Intercompany interest expense(137.4) (49.5) (45.0) 231.9
 —
Income (loss) before income taxes1,110.8
 378.0
 1,235.5
 (1,358.9) 1,365.4
(Provision for) benefit from income taxes38.7
 (91.0) (150.3) (11.5) (214.1)
Net income (loss)1,149.5
 287.0
 1,085.2
 (1,370.4) 1,151.3
Net income (loss) attributable to noncontrolling interests—
 —
 (1.8) —
 (1.8)
Net income (loss) attributable to CBI$1,149.5
 $287.0
 $1,083.4
 $(1,370.4) $1,149.5
          
Comprehensive income (loss) attributable to CBI$1,223.5
 $287.0
 $1,158.1
 $(1,445.1) $1,223.5


 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended November 30, 2018
Sales$772.0
 $1,763.7
 $886.9
 $(1,262.0) $2,160.6
Excise taxes(89.8) (94.9) (3.3) —
 (188.0)
Net sales682.2
 1,668.8
 883.6
 (1,262.0) 1,972.6
Cost of product sold(530.4) (1,242.6) (490.5) 1,260.9
 (1,002.6)
Gross profit151.8
 426.2
 393.1
 (1.1) 970.0
Selling, general and administrative expenses(153.9) (199.4) (65.8) 5.6
 (413.5)
Operating income (loss)(2.1) 226.8
 327.3
 4.5
 556.5
Equity in earnings of equity method investees and subsidiaries373.5
 0.7
 167.7
 (512.6) 29.3
Unrealized net loss on securities measured at fair value—
 —
 (163.9) —
 (163.9)
Interest income0.5
 —
 3.9
 —
 4.4
Intercompany interest income63.1
 165.7
 1.3
 (230.1) —
Interest expense(75.6) (0.4) (1.2) —
 (77.2)
Intercompany interest expense(140.5) (49.2) (40.4) 230.1
 —
Loss on extinguishment of debt(1.7) —
 —
 —
 (1.7)
Income before income taxes217.2
 343.6
 294.7
 (508.1) 347.4
(Provision for) benefit from income taxes85.9
 (80.5) (37.6) (3.1) (35.3)
Net income303.1
 263.1
 257.1
 (511.2) 312.1
Net income attributable to noncontrolling interests—
 —
 (9.0) —
 (9.0)
Net income attributable to CBI$303.1
 $263.1
 $248.1
 $(511.2) $303.1
          
Comprehensive income attributable to CBI$101.8
 $263.1
 $46.8
 $(309.9) $101.8
          
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended November 30, 2017
Sales$756.3
 $1,585.8
 $795.6
 $(1,156.0) $1,981.7
Excise taxes(89.2) (87.1) (3.5) —
 (179.8)
Net sales667.1
 1,498.7
 792.1
 (1,156.0) 1,801.9
Cost of product sold(537.9) (1,111.3) (397.4) 1,155.0
 (891.6)
Gross profit129.2
 387.4
 394.7
 (1.0) 910.3
Selling, general and administrative expenses(130.8) (186.9) (108.1) 5.1
 (420.7)
Operating income (loss)(1.6) 200.5
 286.6
 4.1
 489.6
Equity in earnings of equity method investees and subsidiaries551.7
 8.8
 122.1
 (650.4) 32.2
Unrealized net gain on securities measured at fair value and related activities—
 —

216.9
 —
 216.9
Interest income0.1
 —
 0.1
 —
 0.2
Intercompany interest income60.3
 125.2
 0.9
 (186.4) —
Interest expense(69.5) (0.4) (11.7) —
 (81.6)
Intercompany interest expense(101.4) (48.7) (36.3) 186.4
 —
Loss on extinguishment of debt—
 —
 (10.3) —
 (10.3)
Income before income taxes439.6
 285.4
 568.3
 (646.3) 647.0
(Provision for) benefit from income taxes53.2
 (99.0) (102.8) (2.0) (150.6)
Net income492.8
 186.4
 465.5
 (648.3) 496.4
Net income attributable to noncontrolling interests—
 —
 (3.6) —
 (3.6)
Net income attributable to CBI$492.8
 $186.4
 $461.9
 $(648.3) $492.8
          
Comprehensive income attributable to CBI$371.2
 $188.2
 $338.6
 $(526.8) $371.2

30


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
37

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents




 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Cash Flows for the Six Months Ended August 31, 2019
Net cash provided by (used in) operating activities$430.0
 $9.8
 $1,062.8
 $(83.2) $1,419.4
          
Cash flows from investing activities:         
Purchases of property, plant, and equipment(24.9) (34.8) (295.5) —
 (355.2)
Purchases of businesses, net of cash acquired—
 —
 (36.2) —
 (36.2)
Investments in equity method investees and securities—
 —
 (33.0) —
 (33.0)
Net proceeds from (repayments of) intercompany notes(309.2) —
 —
 309.2
 —
Net contributions from (investment in) equity affiliates(85.4) —
 —
 85.4
 —
Other investing activities0.2
 0.1
 (1.6) —
 (1.3)
Net cash provided by (used in) investing activities(419.3) (34.7) (366.3) 394.6
 (425.7)
          
Cash flows from financing activities:         
Dividends paid to parent company—
 —
 (109.7) 109.7
 —
Net contributions from (investment in) equity affiliates—
 —
 111.9
 (111.9) —
Net proceeds from (repayments of) intercompany notes901.4
 47.5
 (639.7) (309.2) —
Principal payments of long-term debt(1,318.8) (7.6) (5.1) —
 (1,331.5)
Net proceeds from (repayments of) short-term borrowings(581.5) —
 (59.0) —
 (640.5)
Dividends paid(285.0) —
 —
 —
 (285.0)
Purchases of treasury stock(50.0) —
 —
 —
 (50.0)
Payments of minimum tax withholdings on stock-based payment awards—
 (13.7) (0.5) —
 (14.2)
Payments of debt issuance costs(8.0) —
 —
 —
 (8.0)
Proceeds from issuance of long-term debt1,291.3
 —
 —
 —
 1,291.3
Proceeds from shares issued under equity compensation plans32.9
 —
 —
 —
 32.9
Net cash provided by (used in) financing activities(17.7) 26.2
 (702.1) (311.4) (1,005.0)
          
Effect of exchange rate changes on cash and cash equivalents—
 —
 (1.0) —
 (1.0)
          
Net increase (decrease) in cash and cash equivalents(7.0) 1.3
 (6.6) —
 (12.3)
Cash and cash equivalents, beginning of period11.0
 2.6
 80.0
 —
 93.6
Cash and cash equivalents, end of period$4.0
 $3.9
 $73.4
 $—
 $81.3
          


 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Cash Flows for the Nine Months Ended November 30, 2018
Net cash provided by (used in) operating activities$(18.5) $628.5
 $1,363.9
 $—
 $1,973.9
          
Cash flows from investing activities:         
Investments in equity method investees and securities—
 (0.1) (4,077.2) —
 (4,077.3)
Purchases of property, plant and equipment(23.4) (79.4) (517.5) —
 (620.3)
Purchases of businesses, net of cash acquired—
 (19.5) (25.8) —
 (45.3)
Proceeds from sale of unconsolidated investment—
 —
 110.2
 —
 110.2
Proceeds from sales of assets0.5
 39.4
 6.4
 —
 46.3
Net proceeds from intercompany notes694.0
 —
 —
 (694.0) —
Net investment in equity affiliates(3,934.9) (11.1) —
 3,946.0
 —
Other investing activities—
 —
 (0.9) —
 (0.9)
Net cash used in investing activities(3,263.8) (70.7) (4,504.8) 3,252.0
 (4,587.3)
          
Cash flows from financing activities:         
Dividends paid to parent company
—
 —
 (36.5) 36.5
 —
Net contributions from equity affiliates—
 28.8
 3,953.7
 (3,982.5) —
Net proceeds from (repayments of) intercompany notes206.9
 (562.6) (338.3) 694.0
 —
Proceeds from issuance of long-term debt3,645.6
 —
 12.0
 —
 3,657.6
Proceeds from shares issued under equity compensation plans32.6
 —
 —
 —
 32.6
Purchases of treasury stock(504.3) —
 —
 —
 (504.3)
Dividends paid(417.9) —
 —
 —
 (417.9)
Principal payments of long-term debt(6.2) (13.2) (25.9) —
 (45.3)
Payments of debt issuance costs(33.3) —
 —
 —
 (33.3)
Net proceeds from (repayments of) short-term borrowings359.7
 —
 (374.2) —
 (14.5)
Payments of minimum tax withholdings on stock-based payment awards—
 (12.8) (0.8) —
 (13.6)
Net cash provided by (used in) financing activities3,283.1
 (559.8) 3,190.0
 (3,252.0) 2,661.3
          
Effect of exchange rate changes on cash and cash equivalents—
 —
 (7.6) —
 (7.6)
          
Net increase (decrease) in cash and cash equivalents0.8
 (2.0) 41.5
 —
 40.3
Cash and cash equivalents, beginning of period4.6
 4.4
 81.3
 —
 90.3
Cash and cash equivalents, end of period$5.4
 $2.4
 $122.8
 $—
 $130.6
          

31


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
38

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents



 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Cash Flows for the Six Months Ended August 31, 2018
Net cash provided by (used in) operating activities$(84.4) $778.1
 $644.8
 $—
 $1,338.5
          
Cash flows from investing activities:         
Purchases of property, plant, and equipment(15.5) (58.2) (296.9) —
 (370.6)
Purchases of businesses, net of cash acquired—
 (19.5) (0.7) —
 (20.2)
Investments in equity method investees and securities—
 —
 (152.1) —
 (152.1)
Proceeds from sale of unconsolidated investment—
 —
 110.2
 —
 110.2
Proceeds from sales of assets0.3
 38.3
 6.1
 —
 44.7
Net proceeds from (repayments of) intercompany notes456.5
 —
 —
 (456.5) —
Net contributions from (investment in) equity affiliates(15.8) (11.1) —
 26.9
 —
Other investing activities—
 —
 (0.8) —
 (0.8)
Net cash provided by (used in) investing activities425.5
 (50.5)
(334.2)
(429.6)
(388.8)
          
Cash flows from financing activities:         
Dividends paid to parent company—
 —
 (29.5) 29.5
 —
Net contributions from (investment in) equity affiliates—
 32.7
 23.7
 (56.4) —
Net proceeds from (repayments of) intercompany notes57.6
 (740.3) 226.2
 456.5
 —
Principal payments of long-term debt(4.5) (8.5) (10.5) —
 (23.5)
Net proceeds from (repayments of) short-term borrowings381.7
 —
 (414.1) —
 (32.4)
Dividends paid(279.1) —
 —
 —
 (279.1)
Purchases of treasury stock(504.3) —
 —
 —
 (504.3)
Payments of minimum tax withholdings on stock-based payment awards—
 (12.7) (0.8) —
 (13.5)
Payments of debt issuance costs(13.6) —
 —
 —
 (13.6)
Proceeds from issuance of long-term debt—
 —
 12.0
 —
 12.0
Proceeds from shares issued under equity compensation plans21.5
 —
 —
 —
 21.5
Net cash provided by (used in) financing activities(340.7) (728.8) (193.0) 429.6
 (832.9)
          
Effect of exchange rate changes on cash
and cash equivalents
—
 —
 (1.0) —
 (1.0)
          
Net increase (decrease) in cash and cash equivalents0.4
 (1.2) 116.6
 —
 115.8
Cash and cash equivalents, beginning of period4.6
 4.4
 81.3
 —
 90.3
Cash and cash equivalents, end of period$5.0
 $3.2
 $197.9
 $—
 $206.1



 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 Eliminations Consolidated
(in millions)         
Condensed Consolidating Statement of Cash Flows for the Nine Months Ended November 30, 2017
Net cash provided by (used in) operating activities$(315.2) $1,060.7
 $722.9
 $—
 $1,468.4
          
Cash flows from investing activities:         
Investment in securities—
 —
 (191.3) —
 (191.3)
Purchases of property, plant and equipment(15.4) (83.9) (606.3) —
 (705.6)
Purchases of businesses, net of cash acquired—
 (70.9) (61.0) —
 (131.9)
Proceeds from sales of assets—
 —
 1.2
 —
 1.2
Net proceeds from intercompany notes134.5
 —
 2.8
 (137.3) —
Net investments in equity affiliates(1,350.6) —
 —
 1,350.6
 —
Other investing activities(6.2) —
 (4.5) —
 (10.7)
Net cash used in investing activities(1,237.7) (154.8)
(859.1)
1,213.3

(1,038.3)
          
Cash flows from financing activities:         
Dividends paid to parent company—
 —
 (33.0) 33.0
 —
Net contributions from (returns of capital to) equity affiliates—
 (0.2) 1,383.8
 (1,383.6) —
Net proceeds from (repayments of) intercompany notes(11.6) (871.9) 746.2
 137.3
 —
Proceeds from issuance of long-term debt3,990.4
 —
 2,027.5
 —
 6,017.9
Proceeds from shares issued under equity compensation plans37.5
 —
 —
 —
 37.5
Purchases of treasury stock(239.2) —
 —
 —
 (239.2)
Dividends paid(301.1) —
 —
 —
 (301.1)
Principal payments of long-term debt(2,116.6) (14.5) (4,391.7) —
 (6,522.8)
Payments of debt issuance costs(28.9) —
 (3.5) —
 (32.4)
Net proceeds from short-term borrowings238.6
 —
 366.3
 —
 604.9
Payments of minimum tax withholdings on stock-based payment awards—
 (21.9) (1.0) —
 (22.9)
Net cash provided by (used in) financing activities1,569.1
 (908.5) 94.6
 (1,213.3) (458.1)
          
Effect of exchange rate changes on cash
and cash equivalents
—
 —
 5.1
 —
 5.1
          
Net increase (decrease) in cash and cash equivalents16.2
 (2.6) (36.5) —
 (22.9)
Cash and cash equivalents, beginning of period9.6
 5.3
 162.5
 —
 177.4
Cash and cash equivalents, end of period$25.8
 $2.7
 $126.0
 $—
 $154.5

Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
39

16.
FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents

19.    BUSINESS SEGMENT INFORMATION:INFORMATION


OurThrough February 28, 2019, our internal management financial reporting consistsconsisted of two business divisions:  (i)  Beer and (ii)  Wine and Spirits. Beginning March 1, 2019, as a result of our November 2018 Canopy Investment and a change in our chief operating decision maker (“CODM”) on March 1, 2019, we have changed our internal management financial reporting to consist of 3 business divisions:  (i)  Beer, (ii)  Wine and Spirits, and (iii)  Canopy. Consequently, beginning with the first quarter of fiscal 2020, we report our operating results in three 4 segments:  (i)Beer, (ii)Wine and Spirits, and (iii)Corporate Operations and Other. Other, and (iv)Canopy. The Canopy Equity Method Investment makes up the Canopy segment.

In the Beer segment, our portfolio consists of high-end imported and craft beer brands. We have an exclusive perpetual brand license to import, market, and sell in the U.S. our Mexican beer portfolio. In the Wine and Spirits segment, we sell a large number ofportfolio that includes higher-margin, higher-growth wine brands across all categories – table wine, sparkling wine and dessert wine – and across all price points – popular, premium and luxury categories, primarily within the $5 to $25 price range at U.S. retail – complemented by certain premiumhigher-end spirits brands. Amounts included in the

32



Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, corporate growth and strategy, human resources, internal audit, investor relations, legal, public relations, and information technology. The amountstechnology, as well as our investments made through our corporate venture capital function. All costs included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are therefore not allocated to the other reportable segments. All costs reported within the Corporate Operations and Other segment are not included in our chief operating decision maker’sCODM’s evaluation of the operating income (loss) performance of the other reportable segments. The business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management, and the structure of our internal financial reporting. Long-lived tangible assets and total asset information by segment is not provided to, or reviewed by, our CODM as it is not used to make strategic decisions, allocate resources, or assess performance.


In addition, management excludes items that affect comparability (“Comparable Adjustments”) from its evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment operating performance and segment management compensation are evaluated based upon core segment operating income (loss). As such, the performance measures for incentive compensation purposes for segment management do not include the impact of these Comparable Adjustments.



Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
40

FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents

We evaluate segment operating performance based on operating income (loss) of the respective business units. Comparable Adjustments that impacted comparability in our segment operating income (loss) for each period are as follows:
 For the Six Months Ended August 31, For the Three Months Ended August 31,
 2019 2018 2019 2018
(in millions)       
Cost of product sold       
Strategic business development costs$(62.5) $—
 $(18.0) $—
Settlements of undesignated commodity derivative contracts(48.4) (5.1) (18.4) (3.6)
Accelerated depreciation(5.3) (5.0) (1.8) (1.6)
Flow through of inventory step-up(1.2) (1.4) (0.8) (0.8)
Net gain (loss) on undesignated commodity derivative contracts26.8
 9.6
 10.9
 (5.8)
Recovery of (loss on) inventory write-down8.6
 (1.5) 8.6
 —
Total cost of product sold(82.0) (3.4) (19.5) (11.8)
        
Selling, general, and administrative expenses       
Net gain (loss) on foreign currency derivative contracts associated with acquisition of investment—
 (7.1) —
 (7.1)
Restructuring and other strategic business development costs(50.1) (8.6) (26.5) (4.3)
Transaction, integration, and other acquisition-related costs(5.5) (1.0) (3.2) (1.0)
Impairment of intangible assets(11.0) —
 (11.0) —
Deferred compensation—
 (16.3) —
 —
Other gains (losses) (1)
1.1
 8.5
 (12.3) 8.5
Total selling, general, and administrative expenses(65.5)
(24.5) (53.0) (3.9)
Comparable Adjustments, Operating income (loss)$(147.5) $(27.9) $(72.5) $(15.7)
 For the Nine Months Ended November 30, For the Three Months Ended November 30,
 2018 2017 2018 2017
(in millions)       
Cost of product sold       
Settlements of undesignated commodity derivative contracts$(7.3) $4.6
 $(2.2) $(0.1)
Accelerated depreciation(6.5) —
 (1.5) —
Net gain (loss) on undesignated commodity derivative contracts(5.1) 4.3
 (14.7) 3.5
Flow through of inventory step-up(3.6) (17.0) (2.2) (7.2)
Loss on inventory write-down(2.8) —
 (1.3) —
Total cost of product sold(25.3) (8.1) (21.9) (3.8)
        
Selling, general and administrative expenses       
Net loss on foreign currency derivative contracts associated with acquisition of investment(32.6) —
 (25.5) —
Deferred compensation(16.3) —
 —
 —
Restructuring and other strategic business development costs(10.9) (7.5) (2.3) (4.1)
Transaction, integration and other acquisition-related costs(9.1) (6.8) (8.1) (4.5)
Impairment of intangible assets—
 (86.8) —
 —
Loss on contract termination (1)
—
 (59.0) —
 (59.0)
Costs associated with the sale of the Canadian wine business and related activities—
 (3.2) —
 —
Other gains (2)
10.9
 11.5
 2.4
 8.1
Total selling, general and administrative expenses(58.0)
(151.8) (33.5) (59.5)
Comparable Adjustments, Operating loss$(83.3) $(159.9) $(55.4) $(63.3)

(1) 
Represents a loss incurred in connection with the early termination of a beer glass supply contract with Owens-Illinois.
(2)
Includes a gain of $8.5$11.8 million for the ninesix months ended November 30, 2018,August 31, 2019, in connection with the sale of certain non-core assetsincrease in our ownership interest in Nelson’s Green Brier and a gainloss of $8.1$11.4 million and $13.3 million for the ninesix months and three months ended November 30, 2017,August 31, 2019, respectively, in connection with the reductionan increase in estimated fair value of a contingent liability associated with a prior period acquisition.



33


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
41


FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents

The accounting policies of the segments are the same as those described for the Company in Note 1 of our consolidated financial statements included in our 20182019 Annual Report, and include the accounting policies and the recently adopted accounting guidance described in Note 12 and Note 214 herein.Amounts included below for the Canopy segment represent 100% of Canopy’s reported results on a two-month lag, prepared in accordance with U.S. GAAP, and converted from Canadian dollars to U.S. dollars. Although we own less than 100% of the outstanding shares of Canopy, 100% of the Canopy results are included in the information below and subsequently eliminated in order to reconcile to our consolidated financial statements. Segment information is as follows:
 For the Six Months Ended August 31, For the Three Months Ended August 31,
 2019 2018 2019 2018
(in millions)       
Beer       
Net sales$3,117.8
 $2,902.2
 $1,640.4
 $1,527.1
Segment operating income (loss)$1,265.9
 $1,150.6
 $685.3
 $630.6
Capital expenditures$272.8
 $296.3
 $170.7
 $159.8
Depreciation and amortization$106.2
 $100.5
 $51.9
 $51.0
        
Wine and Spirits       
Net sales:       
Wine$1,146.1
 $1,262.8
 $611.1
 $671.0
Spirits177.3
 181.2
 92.5
 101.0
Net sales$1,323.4
 $1,444.0
 $703.6
 $772.0
Segment operating income (loss)$321.2
 $369.2
 $160.4
 $201.4
Income (loss) from unconsolidated investments$3.0
 $3.8
 $(1.0) $(1.0)
Equity method investments$76.8
 $79.1
 $76.8
 $79.1
Capital expenditures$43.1
 $58.8
 $16.2
 $31.0
Depreciation and amortization$50.0
 $49.2
 $25.0
 $24.8
        
Corporate Operations and Other       
Segment operating income (loss)$(97.4) $(101.5) $(53.7) $(51.3)
Income (loss) from unconsolidated investments$(1.3) $(1.2) $(0.2) $(1.1)
Equity method investments$81.0
 $41.2
 $81.0
 $41.2
Capital expenditures$39.3
 $15.5
 $12.6
 $11.6
Depreciation and amortization$10.5
 $17.1
 $5.2
 $8.7
        
Canopy       
Net sales$138.4
 NA
 $67.7
 NA
Segment operating income (loss)$(330.5) NA
 $(160.5) NA
Capital expenditures$270.6
 NA
 $158.4
 NA
Depreciation and amortization$35.0
 NA
 $17.4
 NA
        
Consolidation and Eliminations       
Net sales$(138.4) $—
 $(67.7) $—
Operating income (loss)$330.5
 $—
 $160.5
 $—
Income (loss) from unconsolidated investments$(109.1) $—
 $(54.7) $—
Equity method investments$2,846.0
 $—
 $2,846.0
 $—
Capital expenditures$(270.6) $—
 $(158.4) $—
Depreciation and amortization$(35.0) $—
 $(17.4) $—
        


 For the Nine Months Ended November 30, For the Three Months Ended November 30,
 2018 2017 2018 2017
(in millions)       
Beer       
Net sales$4,112.0
 $3,663.4
 $1,209.8
 $1,042.5
Segment operating income$1,601.5
 $1,461.3
 $450.9
 $394.8
Long-lived tangible assets$3,810.1
 $3,410.7
 $3,810.1
 $3,410.7
Total assets$14,654.6
 $12,025.3
 $14,654.6
 $12,025.3
Capital expenditures$507.3
 $593.7
 $211.0
 $160.6
Depreciation and amortization$152.0
 $121.6
 $51.5
 $41.7
        
Wine and Spirits       
Net sales:       
Wine$1,933.1
 $1,882.7
 $670.3
 $666.6
Spirits273.7
 272.2
 92.5
 92.8
Net sales$2,206.8
 $2,154.9
 $762.8
 $759.4
Segment operating income$575.2
 $586.8
 $206.0
 $199.4
Income from unconsolidated investments$32.2
 $32.3
 $28.4
 $32.1
Long-lived tangible assets$1,093.5
 $1,024.7
 $1,093.5
 $1,024.7
Equity method investments$97.8
 $97.3
 $97.8
 $97.3
Total assets$7,366.0
 $7,268.7
 $7,366.0
 $7,268.7
Capital expenditures$91.1
 $98.2
 $32.3
 $35.2
Depreciation and amortization$73.4
 $69.9
 $24.2
 $24.1
        
Corporate Operations and Other       
Segment operating loss$(146.5) $(120.2) $(45.0) $(41.3)
Income (loss) from unconsolidated investments$(0.3) $0.5
 $0.9
 $0.1
Long-lived tangible assets$82.7
 $115.6
 $82.7
 $115.6
Equity method investments$3,485.2
 $21.6
 $3,485.2
 $21.6
Total assets$5,869.8
 $813.1
 $5,869.8
 $813.1
Capital expenditures$21.9
 $13.7
 $6.4
 $4.7
Depreciation and amortization$22.7
 $27.3
 $5.6
 $9.2
        
Comparable Adjustments       
Operating loss$(83.3) $(159.9) $(55.4) $(63.3)
Income (loss) from unconsolidated investments$886.3
 $216.9
 $(163.9) $216.9
Depreciation and amortization$6.5
 $—
 $1.5
 $—
        
Consolidated       
Net sales$6,318.8
 $5,818.3
 $1,972.6
 $1,801.9
Operating income$1,946.9
 $1,768.0
 $556.5
 $489.6
Income (loss) from unconsolidated investments (1)
$918.2
 $249.7
 $(134.6) $249.1
Long-lived tangible assets$4,986.3
 $4,551.0
 $4,986.3
 $4,551.0
Equity method investments$3,583.0
 $118.9
 $3,583.0
 $118.9
Total assets$27,890.4
 $20,107.1
 $27,890.4
 $20,107.1
Capital expenditures$620.3
 $705.6
 $249.7
 $200.5
Depreciation and amortization$254.6
 $218.8
 $82.8
 $75.0

34


Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
42


FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
(1)    Income (loss) from unconsolidated investments consists of:
 For the Six Months Ended August 31, For the Three Months Ended August 31,
 2019 2018 2019 2018
(in millions)       
Comparable Adjustments       
Operating income (loss)$(147.5) $(27.9) $(72.5) $(15.7)
Income (loss) from unconsolidated investments$(2,147.9) $1,050.2
 $(1,268.8) $690.5
Depreciation and amortization$5.3
 $5.0
 $1.8
 $1.6
        
Consolidated       
Net sales$4,441.2
 $4,346.2
 $2,344.0
 $2,299.1
Operating income (loss)$1,342.2
 $1,390.4
 $719.5
 $765.0
Income (loss) from unconsolidated investments (1)
$(2,255.3) $1,052.8
 $(1,324.7) $688.4
Equity method investments$3,003.8
 $120.3
 $3,003.8
 $120.3
Capital expenditures$355.2
 $370.6
 $199.5
 $202.4
Depreciation and amortization$172.0
 $171.8
 $83.9
 $86.1

(1) 
Income (loss) from unconsolidated investments consists of:
   For the Six Months Ended For the Three Months Ended
   August 31,
2019		 August 31,
2018		 August 31,
2019		 August 31,
2018
  (in millions)       
  Unrealized net gain (loss) on securities measured at fair value$(1,666.6) $950.4
 $(839.1) $692.1
  
Net gain (loss) on sale of unconsolidated investment (i)
(0.1) 99.8
 —
 (1.6)
  
Equity in earnings (losses) of equity method investees and related activities (ii)
(588.6) 2.6
 (485.6) (2.1)
   $(2,255.3) $1,052.8
 $(1,324.7) $688.4
          
 
(i) 
In May 2018, we completed the sale of our remaining interest in our previously-owned Australian and European business (the “Accolade Wine Investment”) for A$149.1 million, or $113.6 million, subject to closing adjustments. We received cash proceeds, net of direct costs to sell, of $110.2 million and a note receivable of $3.4 million. This interest consisted of an investment accounted for under the cost method and available-for-sale debt securities.
 
(ii) 
Includes the June 2019 Warrant Modification Loss.



 For the Nine Months Ended For the Three Months Ended
 November 30,
2018		 November 30,
2017		 November 30,
2018		 November 30,
2017
(in millions)       
Unrealized net gain (loss) on securities measured at fair value and related activities$786.5
 $216.8
 $(163.9) $216.8
Net gain on sale of unconsolidated investment99.8
 —
 —
 —
Equity in earnings from equity method investees31.9
 32.8
 29.3
 32.2
Net gain on foreign currency derivative contracts associated with November 2017 Canopy securities measured at fair value—
 0.1
 —
 0.1
 $918.2
 $249.7
 $(134.6) $249.1

Constellation Brands, Inc. Q2 FY 2020 Form 10-Q
43


MD&A
Table of Contents

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.


IntroductionINTRODUCTION


This MD&A provides additional information on our businesses, current developments, financial condition, cash flows, and results of operations. It should be read in conjunction with our consolidated financial statements and notes thereto included herein (the “Financial Statements”) and with our consolidated financial statements and notes included in our 20182019 Annual Report. This MD&A is organized as follows:


•
Overview.    This section provides a general description of our business, which we believe is important in understanding the results of our operations, financial condition, and potential future trends.

•
Strategy.    This section provides a description of our strategy and a discussion of recent developments, significant investments, acquisitions, and divestitures.

•
Results of operations.    This section provides an analysis of our results of operations presented on a business segment basis for the three months ended August 31, 2019 (“Second Quarter 2020”), and August 31, 2018 (“Second Quarter 2019”), and the six months ended August 31, 2019 (“Six Months 2020”), and August 31, 2018 (“Six Months 2019”). In addition, a brief description of significant transactions and other items that affect the comparability of the results is provided.

•
Financial liquidity and capital resources.    This section provides an analysis of our cash flows, outstanding debt, and a discussion of the amount of financial capacity available to fund our ongoing operations and future commitments, as well as a discussion of other financing arrangements.

Overview.    This section provides a general description of our business, which we believe is important in understanding the results of our operations, financial condition and potential future trends.


OVERVIEW
Strategy.    This section provides a description of our strategy, including a discussion of investments and acquisitions.

Results of operations.    This section provides an analysis of our results of operations presented on a business segment basis for the three months ended November 30, 2018 (“Third Quarter 2019”), and November 30, 2017 (“Third Quarter 2018”), and the nine months ended November 30, 2018 (“Nine Months 2019”), and November 30, 2017 (“Nine Months 2018”). In addition, a brief description of transactions and other items that affect the comparability of the results is provided.

Financial liquidity and capital resources.    This section provides an analysis of our cash flows and a discussion of the amount of financial capacity available to fund our ongoing operations and future commitments, as well as a discussion of other financing arrangements.


Overview


We are an international beverage alcohol company with a broad portfolio of consumer-preferred high-end imported and craft beer brands, and premiumhigher-end wine and spirits brands. Many of our products are recognized as leaders in their respective categories. We are one of the leading U.S. growth drivers at retail among beverage alcohol suppliers. In the U.S. market, we are the third-largest producer and marketer of beer for the U.S. market and the world’s leading premium wine company. We are the largest multi-category supplier (beer, wine and spirits) of beverage alcohol in the U.S.,company and a leading supplier ofhigher-end wine from New Zealand and Italy to North America.company.


OurThrough February 28, 2019, our internal management financial reporting consistsconsisted of two business divisions:  (i)  Beer and (ii)  Wine and Spirits,Spirits. Beginning March 1, 2019, as a result of our November 2018 Canopy Investment and a change in our CODM on March 1, 2019, we reporthave changed our operating results in internal management financial reporting to consist ofthree segments:business divisions:  (i)  Beer, (ii)  Wine and Spirits, and (iii)  Canopy. Consequently, beginning with the first quarter of fiscal 2020, we report our operating results infoursegments:  (i)  Beer, (ii)  Wine and Spirits, (iii)  Corporate Operations and Other. Other, and (iv)  Canopy. OurCanopy Equity Method Investment makes up the Canopy segment.

In the Beer segment, our portfolio consists of high-end imported and craft beer brands. We have an exclusive perpetual brand license to import, market, and sell in the U.S. our Mexican beer portfolio. In the Wine and Spirits segment, we sell a large number of our portfolio includes higher-margin, higher-growth wine brands across all categories – table wine, sparkling wine and dessert wine – and across all price points – popular, premium and luxury categories, primarily within the

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$5 to $25 price range at U.S. retail – complemented by certain premiumhigher-end spirits brands. Amounts included in the Corporate Operations and Other segment consist of costs of executive management, corporate development, corporate finance, corporate growth and strategy, human resources, internal audit, investor relations, legal, public relations, and information technology. The amountstechnology, as well as our investments made through our corporate venture capital function. All costs included in the Corporate Operations and Other segment are general costs that are applicable to the consolidated group and are therefore not allocated to the other reportable segments. All

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costs reported within the Corporate Operations and Other segment are not included in our chief operating decision maker’sCODM’s evaluation of the operating income (loss) performance of the other reportable segments.The new business segments reflect how our operations are managed, how resources are allocated, how operating performance is evaluated by senior management, and the structure of our internal financial reporting.




StrategySTRATEGY


Our overall strategy is to drive industry-leading growth and shareholder value by building premium brands that people love.love when celebrating big moments or enjoying quiet ones. We position our portfolio to benefit from industrythe consumer-led trend towards premiumization, trends, which we believe will continue to result in faster growth rates in the high-endhigher-end of the beer, wine, and spirits categories. We focus on developing our expertise in consumer insights and category management, as well as our strong distributor network, which provides an effective route-to-market. Additionally, we leverage our scale across the total beverage alcohol market and our level of diversification hedges our portfolio risk. In addition to growing our existing business, we focus on targeted acquisitions of, and investments in, businesses that are premium, growing, high-margin,higher-margin, higher-growth, consumer-led, have a low integration risk, and/or fill a gap in our portfolio. We also strive to identify, meet, and stay ahead of evolving consumer trends and market dynamics (see “Investments and Acquisitions – Canopy Growth Corporation”Investments”).


We strive to strengthen our portfolio of premiumhigher-end beer, wine, and spirits brands and differentiate ourselves through:


leveraging our leading position in total beverage alcohol and our scale with wholesalers and retailers to expand distribution of our product portfolio and to provide for cross promotional opportunities;
strengthening relationships with wholesalers and retailers by providing consumer and beverage alcohol insights;
investing in brand building and innovation activities;
positioning ourselves for success with consumer-led innovation capabilitiesproducts that identify, meet, and stay ahead of evolving consumer trends and market dynamics;
realizing operating efficiencies through expanding and enhancing production capabilities and maximizing asset utilization; and
developing employees to enhance performance in the marketplace.


Our business strategy for the Beer segment focuses on leading the high-end segment of the U.S. beer market and includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, as well as new product development and innovation within the existing portfolio of brands, and continued expansion, construction, and optimization activities for our Mexico beer operations. Additionally, in an effort to capitalize on onemore fully compete in growing sectors of the growth segments withinhigh-end segment of the U.S. beer market, we established the high-end craft and specialty beer platform in order to fully leverage ourhave made acquisitions of high-quality, regional craft beer expertisebrands and leveraged our innovation capabilities to introduce new brands that align with that of the capabilities and infrastructure of our broader Beer segment.consumer trends.


In connection with our business strategy for the Beer segment, we have almostmore than tripled the production capacity of our brewery located in Nava, Coahuila, Mexico since its June 2013 acquisition. In addition, construction of a new, state-of-the-art brewery in Mexicali, Baja California, Mexico is progressing and we are continuing to invest to expand theour brewery operations in Obregon, Brewery,Sonora, Mexico, which was acquired in December 2016. Expansion, construction, and optimization efforts continue under our previously-announced Mexico beer expansion projects to align with our anticipated future growth expectations.


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Our business strategy for the Wine and Spirits segment is to build an industry-leading portfolio of premiumhigher-end wine and spirits brands. We are investing to meet the evolving needs of consumers andconsumers; building

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brands through consumer insights, sensory expertise, innovationand innovation; and refreshing existing brands, as we continue to focus on the premiumization ofmoving our branded wine and spirits portfolio.portfolio towards a higher-margin, higher-growth portfolio of brands. We dedicate a large share of our sales and marketing resources to some of our well-known wine and spirits brands sold in the U.S., which comprise ourthe U.S. FocusPower Brands (“FocusPower Brands”), as they represent a majority of our U.S. wine and spirits revenue and profitability, and generally havehold strong positions in their respective price categories. These brands and/or portfoliosportfolio of brands include:  7 Moons, Black Box, Casa Noble, Clos du Bois, Franciscan, High West, Kim Crawford, Mark West, Meiomi, Mount Veeder, Nobilo, Ravage, Robert Mondavi, Ruffino, Schrader, Simi, SVEDKA Vodka, The Dreaming Tree and the Charles Smith and Prisoner portfolios of brands.
Wine Brands
Wine Portfolio
of Brands
Spirits Brands
●  7 Moons
●  Drylands
●  SIMI
●  Charles Smith
●  Casa Noble
●  Auros
●  Kim Crawford
●  Spoken Barrel
●  Prisoner
●  High West
●  Champagne Palmer & Co
●  Meiomi
●  Robert Mondavi
●  Mi CAMPO
●  Cooper & Thief
●  Mount Veeder
●  Schrader
●  Nelson’s Green Brier
●  Crafters Union
●  Nobilo
●  SVEDKA
●  Cuvée Sauvage
●  Ruffino
●  The Real McCoy
We focus our innovation and investment dollars on those brands within our portfolio which position us to benefit from industry premiumization trends. We continue to refine our optionsthe consumer-led trend towards premiumization. Additionally, in connection with the Wine and Spirits Transaction and the Black Velvet Transaction, we expect to optimize the value of our wine and spirits portfolio and, as noted, driveby driving increased focus on the high-end priority brandsour higher-end Power Brands to accelerate growth and improve overall operating margins. In markets where it is feasible, we entered into contractual arrangements to consolidate our U.S. distribution network in order to obtain dedicated distributor selling resources which focus on our U.S. wine and spirits portfolio to drive organic growth. This consolidated U.S. distribution network currently represents about 70% of our branded wine and spirits volume in the U.S. Throughout the terms of these contracts, we generally expect shipments on an annual basis to these distributors to essentially equal the distributors’ shipments to retailers.


Marketing, sales, and distribution of our products are managed on a geographic basis in order to fully leverage leading market positions. In addition, market dynamics and consumer trends vary across each of our markets. Within our primary market in the U.S., we offer a range of beverage alcohol products across the imported beer, craft beer, branded wine, and spirits categories, with generally separate distribution networks utilized for (i)our beer portfolio and (ii)our wine and spirits portfolio. The environment for our products is competitive in each of our markets.


We complemented our total beverage alcohol strategy in an adjacent category by making investments in Canopy, a world-leading, diversified cannabis company. These investments are consistent with our long-term strategy to identify, meet, and stay ahead of evolving consumer trends and market dynamics, and they represent a significant expansion of our strategic relationship to position Canopy as a global leader in cannabis production, branding, intellectual property, and retailing.

We remain committed to our long-term financial model of growing sales, expanding margins, and increasing cash flow in order to achieve earnings per share growth, maintain our targeted leverage ratio, and paydeliver returns to shareholders through the payment of quarterly cash dividends.dividends and periodic share repurchases.


Recent Developments

Wine and Spirits Transaction
In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business, including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices, and facilities, for approximately $1.7 billion,subject to certain adjustments. The Wine and Spirits Transaction is subject to the satisfaction of certain closing conditions, including receipt of required regulatory approval, and is expected to close by the end of Fiscal 2020. We expect to use the net cash proceeds from this transaction primarily to reduce outstanding borrowings. The Wine and Spirits

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Transaction is consistent with our strategic focus on higher-margin, higher-growth brands. For additional information regarding the Wine and Spirits Transaction, refer to Note 4 of the Financial Statements.

We now believe it is likely that a portion of the Wine and Spirits Transaction purchase price may be revised to take the form of contingent consideration, receivable based on future brand performance. We record contingent consideration when it is determined to be realizable. Therefore, we now expect to recognize an additional loss of approximately $300 million on the write-down of assets held for sale during the three months ended November 30, 2019.

In connection with the Wine and Spirits Transaction, we have net assets of $1,444.4 million that have met the held for sale criteria as of August 31, 2019.

Black Velvet Transaction
In August 2019, we entered into a definitive agreement to sell Black Velvet Canadian Whisky and the brand’s associated production facility, along with a subset of Canadian whisky brands produced at that facility. We expect to receive cash proceeds of approximately $266 million, subject to closing adjustments and to recognize a gain of approximately $70 million to $80 million upon closing. The Black Velvet Transaction is subject to the satisfaction of certain closing conditions, including receipt of required regulatory approvals, and is expected to close in the fourth quarter of calendar 2019. This transaction is consistent with our strategic focus on higher-margin, higher-growth brands. For additional information regarding the Black Velvet Transaction, refer to Note 4 of the Financial Statements.

In connection with the Black Velvet Transaction, we have net assets of $201.1 million that have met the held for sale criteria as of August 31, 2019.

Selected financial information included in our results of operations for the portion of the Wine and Spirits segment that will no longer be part of our consolidated results after the Wine and Spirits Transaction and Black Velvet Transaction is as follows:
 Net Sales Gross Profit Marketing
(in millions)     
Second Quarter 2020     
Wine and Spirits segment results$263.7
 $96.9
 $4.3
      
Six Months 2020     
Wine and Spirits segment results$522.1
 $199.0
 $7.4


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Investments – and Acquisitions

Canopy Growth CorporationSegment

Canopy Investments
Our investments in Canopy, and the method of accounting for these investments, consist of the following:
Date of
Investment
 
Investment
Acquired
 
Purchase
Price
 
Method of
Accounting
 
Investment
Acquired
 
Purchase
Price
 
Method of
Accounting
(in millions)   (in millions)   
Nov 2017 Common shares $130.1
 
Fair value / equity method (1)
 Common shares $130.1
 
Fair value / equity method (1)
Nov 2017 Warrants 61.2
 Fair value Warrants 61.2
 Fair value
 $191.3
  $191.3
 
      
June 2018 Convertible debt securities $150.5
 Fair value Convertible debt securities $150.5
 Fair value
      
Nov 2018 Common shares $2,740.3
 Equity method Common shares $2,740.3
 Equity method
Nov 2018 Warrants 1,146.8
 Fair value 
Warrants (3)
 1,146.8
 Fair value
 $3,887.1
(2) 
 $3,887.1
(2) 


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We recognized an unrealized net gain (loss) from the changes in fair value of these investments accounted for at fair value in income (loss) from unconsolidated investments as follows:
Date of
Investment
 InvestmentThird
Quarter
2019		 Third
Quarter
2018		 Nine
Months
2019		 Nine
Months
2018		 InvestmentSecond
Quarter
2020		 Second
Quarter
2019		 Six
Months
2020		 Six
Months
2019
(in millions)        (in millions)        
Nov 2017 
Common shares (1)
$(168.5) $139.7
 $292.5
 $139.7
 
Common shares (1)
$—
 $328.1
 $—
 $461.0
Nov 2017 Warrants(212.4) 77.1
 223.5
 77.1
 Warrants(316.7) 310.5
 (450.8) 435.9
June 2018 Convertible debt securities(40.6) —
 12.9
 —
 Convertible debt securities(48.8) 53.5
 (81.4) 53.5
Nov 2018 Warrants257.6
 —
 257.6
 —
 
Warrants (3)
(473.6) —
 (1,134.4) —
 $(163.9) $216.8
 $786.5
 $216.8
 $(839.1) $692.1
 $(1,666.6) $950.4
(1) 
Accounted for at fair value from the date of investment in November 2017 through October 31, 2018. Accounted for under the equity method from November 1, 2018 (refer to(see Note 89 of the Financial Statements).
(2) 
Includes $17.2 million of direct acquisition costs capitalized under the equity method cost accumulation model. Excludes $7.3 million of direct acquisition costs associated with the investment in warrants which are expensed as incurred in selling, general, and administrative expenses. See “Financial Liquidity and Capital Resources – General” for a discussion of financing for this transaction.
(3)
In June 2019, the Canopy Shareholders approved the modification of the terms of the November 2018 Canopy Warrants. For additional information refer to Note 9 of the Financial Statements. Second Quarter 2020 and Six Months 2020 includes a $1,176.0 million unrealized gain resulting from the June 2019 Warrant Modification.


We expect the fair value of the Canopy investments accounted for at fair value to be volatile in future periods. Additionally, since November 1, 2018, we will recognize equity in earnings (losses) and related activities for our Canopy Equity Method Investment on a two-month lag. As a result,Accordingly, we will recognize equity inrecognized our share of Canopy’s first quarter fiscal 2020 earnings from Canopy’s results of operations from our date of acquisition, November 1, 2018,(losses) and related activities for the period April through December 31, 2018,June 2019, in our consolidated financial statements for theSecond Quarter 2020 results. We recognized our share of Canopy’s fourth quarter of fiscal 2019.2019 and first quarter fiscal 2020 earnings (losses) and related activities from January through June 2019, in our Six Months 2020 results. We expect Canopy’s earnings to be volatile in future periods.



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As of November 30, 2018,August 31, 2019, the conversion of Canopy equity securities held by its employees and/or held by other third parties would not have a significant effect on our share of Canopy’s reported earnings or losses. Additionally, under an amended and restated investor rights agreement, we have the option to purchase additional common shares of Canopy at the then-current price of the underlying equity security to allow us to maintain our relative ownership interest. As of August 31, 2019, if Canopy exercised its right to acquire the shares of Acreage, and we were to exercise all of our outstanding November 2017 Canopy Warrants and the New November 2018 Canopy Warrants, our ownership interest in Canopy would still be less than 50 percent.


TheseAs previously noted, these investments are consistent with our long-term strategy to identify, meet, and stay ahead of evolving consumer trends and market dynamics, and they represent a significant expansion of our strategic relationship to position Canopy as thea global leader in cannabis production, branding, intellectual property, and retailing.

For additional information on these and other investments, refer to Notes 5, 8 and 9 of the Financial Statements.

Acquisitions


Beer Segment

Four Corners Acquisition

In July 2018, we acquired Four Corners, which primarily included the acquisition of operations, goodwill, property, plant, and equipment, and trademarks. This acquisition included a portfolio of high-performing,high-quality, dynamic, and bicultural, Texas-based craft beers towhich further strengthenstrengthened our position in the high-end segment of the U.S. beer market. The results of operations of Four Corners are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition.



Wine and Spirits Segment
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Funky BuddhaNelson’s Green Brier Acquisition

In August 2017,May 2019, we acquired Funky Buddha, which primarily includedincreased our ownership interest in Nelson’s Green Brier to 75%, resulting in consolidation of the acquisitionbusiness and recognition of operations, goodwill and trademarks.a noncontrolling interest. This acquisition included a portfolio of high-quality, Florida-basedaward-winning, Tennessee-based craft beers to further strengthen our position in the high-end segmentbourbon and whiskey products. The preliminary fair value of the U.S. beer market.business combination was allocated primarily to goodwill, trademarks, inventory, and property, plant, and equipment. The results of operations of Funky Buddha are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition.

Wine and Spirits Segment

Schrader Cellars Acquisition

In June 2017, we acquired Schrader Cellars, which primarily included the acquisition of goodwill, inventories, trademarks and certain grape supply contracts. This acquisition included a collection of highly-rated, limited-production fine wines which aligned with our portfolio premiumization strategy and strengthened our position in the fine wine category. The results of operations of Schrader CellarsNelson’s Green Brier are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.


For additional information on these recent developments, investments, and other acquisitions, refer to NoteNotes 4, 6, 7, 9, and 19 of the Financial Statements.




Results of OperationsRESULTS OF OPERATIONS


Financial HighlightsFINANCIAL HIGHLIGHTS


For ThirdSecond Quarter 20192020 and ThirdSecond Quarter 2018:2019:


•
Our results of operations were negatively impacted by an unrealized net loss from the changes in fair value of our investments in Canopy and equity in losses from Canopy’s results of operations, including the impact from the June 2019 Warrant Modification, and related activities, partially offset by (i)an unrealized gain resulting from the June 2019 modification of the terms of the November 2018 Canopy Warrants, and (ii)the continued improvements within the Beer segment.

•
Net salesincreased2%due toan increase in Beer net sales driven predominantly by volume growth and a favorable impact from pricing within our Mexican beer portfolio, partially offset by a decrease in Wine and Spirits net sales led by branded volume decline.

Our results of operations benefited primarily from continued improvements in the Beer segment, partially offset by an unrealized net loss from the changes in fair value of our investments in Canopy.

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Net sales increased9% primarily due to an increase in Beer net sales driven predominantly by volume growth within our Mexican beer portfolio.

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Operating income increased14% largely due to the Beer net sales volume growth and a favorable impact from pricing within our Mexican beer portfolio, combined with lower selling, general and administrative expenses within Wine and Spirits.



•
Operating income (loss)decreased6%largely due torestructuring and other strategic business development costs incurred in connection with ongoing efforts to gain efficiencies and reduce our cost structure primarily within the Wine and Spirits segment, partially offset by the net sales volume growth and favorable impact from pricing within our Mexican beer portfolio.

•
Net income (loss) attributable to CBI and diluted net income (loss) per common share attributable to CBI decreased significantly primarily due to a Second Quarter 2020 unrealized net loss on our investments in Canopy, as compared with an unrealized net gain from the changes in fair value on our investments for Second Quarter 2019.
Net income attributable to CBI and diluted net income per common share attributable to CBI decreased primarily due to an unrealized net loss from the changes in fair value of our investments in Canopy for Third Quarter 2019 as compared with an unrealized net gain for Third Quarter 2018.


For NineSix Months 20192020 and NineSix Months 2018:2019:


•
Our results of operations were negatively impacted by an unrealized net loss from the changes in fair value of our investments in Canopy and equity in losses from Canopy’s results of operations, including the impact from the June 2019 Warrant Modification, and related activities, partially offset by (i)an unrealized gain resulting from the June 2019 modification of the terms of the November 2018 Canopy Warrants, and (ii)the continued improvements within the Beer segment.

•
Net salesincreased2%primarily due toan increase in Beer net sales driven predominantly by volume growth and a favorable impact from pricing within our Mexican beer portfolio, partially offset by a decrease in Wine and Spirits net sales led by branded volume decline.

•
Operating income (loss)decreased3%largely due torestructuring and other strategic business development costs incurred in connection with ongoing efforts to gain efficiencies and reduce our cost structure primarily within the Wine and Spirits segment, partially offset by the net sales volume growth and favorable impact from pricing within our Mexican beer portfolio.

•
Net income (loss) attributable to CBI and diluted net income (loss) per common share attributable to CBI decreased significantly primarily due to a Six Months 2020 unrealized net loss on our investments in Canopy, as compared with an unrealized net gain from the changes in fair value on our investments for Six Months 2019.

Our results of operations benefited primarily from continued improvements within the Beer segment, an unrealized net gain from the changes in fair value of our investments in Canopy and a net gain on the sale of the Accolade Wine Investment.COMPARABLE ADJUSTMENTS

Net sales increased 9% primarily due to an increase in Beer net sales driven predominantly by volume growth and a favorable impact from pricing within our Mexican beer portfolio.

Operating income increased 10% largely due to the net sales volume growth and favorable impact from pricing within our Mexican beer portfolio, and the overlap of an impairment of intangible assets for the

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first quarter of fiscal 2018. Operating income growth was tempered by planned increases in marketing spend and higher cost of product sold across both the Beer and Wine and Spirits segments.

Net income attributable to CBI and diluted net income per common share attributable to CBI increased significantly primarily due to the factors discussed above.

Comparable Adjustments


Management excludes items that affect comparability from its evaluation of the results of each operating segment as these Comparable Adjustments are not reflective of core operations of the segments. Segment operating performance and segment management compensation are evaluated based on core segment operating income (loss). As such, the performance measures for incentive compensation purposes for segment management do not include the impact of these Comparable Adjustments.



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As more fully described herein and in the related Notes to the Financial Statements, the Comparable Adjustments that impacted comparability in our segment results for each period are as follows:
Third
Quarter
2019		 Third
Quarter
2018		 Nine
Months
2019		 Nine
Months
2018		Second
Quarter
2020		 Second
Quarter
2019		 Six
Months
2020		 Six
Months
2019
(in millions)              
Cost of product sold              
Strategic business development costs$(18.0) $—
 $(62.5) $—
Settlements of undesignated commodity derivative contracts(18.4) (3.6) (48.4) (5.1)
Accelerated depreciation(1.8) (1.6) (5.3) (5.0)
Flow through of inventory step-up(0.8) (0.8) (1.2) (1.4)
Net gain (loss) on undesignated commodity derivative contracts$(14.7) $3.5
 $(5.1) $4.3
10.9
 (5.8) 26.8
 9.6
Settlements of undesignated commodity derivative contracts(2.2) (0.1) (7.3) 4.6
Flow through of inventory step-up(2.2) (7.2) (3.6) (17.0)
Accelerated depreciation(1.5) —
 (6.5) —
Loss on inventory write-down(1.3) —
 (2.8) —
Recovery of (loss on) inventory write-down8.6
 —
 8.6
 (1.5)
Total cost of product sold(21.9) (3.8) (25.3) (8.1)(19.5) (11.8) (82.0) (3.4)
              
Selling, general and administrative expenses       
Net loss on foreign currency derivative contracts associated with acquisition of investment(25.5) —
 (32.6) —
Transaction, integration and other acquisition-related costs(8.1) (4.5) (9.1) (6.8)
Selling, general, and administrative expenses       
Net gain (loss) on foreign currency derivative contracts associated with acquisition of investment—
 (7.1) —
 (7.1)
Restructuring and other strategic business development costs(2.3) (4.1) (10.9) (7.5)(26.5) (4.3) (50.1) (8.6)
Transaction, integration, and other acquisition-related costs(3.2) (1.0) (5.5) (1.0)
Impairment of intangible assets(11.0) —
 (11.0) —
Deferred compensation—
 —
 (16.3) —
—
 ���
 —
 (16.3)
Impairment of intangible assets—
 —
 —
 (86.8)
Loss on contract termination—
 (59.0) —
 (59.0)
Costs associated with the sale of the Canadian wine business and related activities—
 —
 —
 (3.2)
Other gains2.4
 8.1
 10.9
 11.5
Total selling, general and administrative expenses(33.5) (59.5) (58.0) (151.8)
Comparable Adjustments, Operating loss$(55.4) $(63.3) $(83.3) $(159.9)
Other gains (losses)(12.3) 8.5
 1.1
 8.5
Total selling, general, and administrative expenses(53.0) (3.9) (65.5) (24.5)
Comparable Adjustments, Operating income (loss)$(72.5) $(15.7) $(147.5) $(27.9)
              
Income (loss) from unconsolidated investments$(163.9) $216.9
 $886.3
 $216.9
$(1,268.8) $690.5
 $(2,147.9) $1,050.2


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Cost of Product Sold

Strategic Business Development Costs
We recognized costs primarily in connection with losses on write-downs of excess inventory, bulk wine sales, and contract terminations resulting from our ongoing efforts to optimize our portfolio, gain efficiencies, and reduce our cost structure within the Wine and Spirits segment.

Undesignated Commodity Derivative Contracts

Net gain (loss) on undesignated commodity derivative contracts represents a net gain (loss) from the changes in fair value of undesignated commodity derivative contracts. The net gain (loss) is reported outside of segment operating results until such time that the underlying exposure is recognized in the segment operating results. At settlement, the net gain (loss) from the changes in fair value of the undesignated commodity derivative contracts is reported in the appropriate operating segment, allowing the results of our operating segments to reflect the economic effects of the commodity derivative contracts without the resulting unrealized mark to fair value volatility.


Recovery of (Loss on) Inventory Write-Down
Reimbursement from our insurance carriers for losses recognized on the write-down of certain bulk wine inventory as a result of smoke damage sustained during the Fall 2017 California wildfires (Second Quarter 2020, Six Months 2020).


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Selling, General, and Administrative Expenses

Net Loss on Foreign Currency Derivative Contracts Associated with Acquisition of Investment

We recognized a net loss in connection with the settlement of foreign currency option contracts entered into to fix the U.S. dollar cost of the November 2018 Canopy Transaction.

Transaction, Integration and Other Acquisition-Related Costs

We recorded transaction, integration and other acquisition-related costs in connection with our acquisitions and investments.

Restructuring and Other Strategic Business Development Costs

We recordedrecognized costs primarily in connection with (i)  an impairment of long-lived assets held for sale (Second Quarter 2020, Six Months 2020) (ii)  costs from our ongoing efforts to gain efficiencies and reduce our cost structure in connection with a program intended to optimize the Wine and Spirits segment (Second Quarter 2020, Six Months 2020), and (iii)  costs recognized in connection with the development of a program specifically intended to identify opportunities for further streamlining of processes and improving capabilities, linking strategy with execution, prioritizing resources, and enabling an integrated digital platform.a new enterprise resource planning system.


Transaction, Integration, and Other Acquisition-Related Costs
We recognized transaction, integration, and other acquisition-related costs in connection with our acquisitions, divestitures, and investments.

Impairment of Intangible Assets
We recorded trademark impairment losses related to our Beer segment’s Ballast Point craft beer trademark asset. For additional information, refer to Note 6 of the Financial Statements.

Deferred Compensation

We recordedrecognized an adjustment related to prior periods to correct for previously unrecognized deferred compensation costs associated with certain employment agreements.

Impairment of Intangible Assets

We recorded trademark impairment losses related to our Beer segment’s craft beer trademark asset. For additional information, refer to Note 5 of the Financial Statements included herein.

Loss on Contract Termination

We recorded a loss in connection with the early termination of a beer glass supply contract with Owens-Illinois, a related-party entity with which we have an equally-owned joint venture which owns and operates a glass production plant located adjacent to our Nava Brewery.


Other Gains

(Losses)
We recordedrecognized other gains (losses) primarily in connection with (i)  a gain on the saleremeasurement of certain non-core assets (Nineour previously held equity interest in Nelson’s Green Brier to the acquisition-date fair value (Six Months 2019) and in connection with the reduction2020), (ii)  an increase in estimated fair value of a contingent liability associated with a prior period acquisition (Third(Second Quarter 2018, Nine2020, Six Months 2018)2020), and (iii)  a gain primarily in connection with the sale of certain non-core assets (Second Quarter 2019, Six Months 2019).


41




Income (Loss) From Unconsolidated Investments

We recognized an unrealized net gain (loss) primarily from (i)  the changes in fair value of our securities measured at fair value (ii)  the increase in fair value resulting from the June 2019 modification of the terms of the November 2018 Canopy Warrants (Second Quarter 2020, Six Months 2020), (iii)  equity in losses from Canopy’s results of operations, including the impact from the June 2019 Warrant Modification, and related activities (Second Quarter 2020, Six Months 2020), and (iv)  a net gain in connection with the sale of our Accolade Wine Investment (Nine(Six Months 2019). For additional information, refer to Notes 5, 86, 9, and 919 of the Financial Statements included herein.Statements.


Third Quarter
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SECOND QUARTER 2020 COMPARED TO SECOND QUARTER 2019 Compared to Third Quarter 2018


Net Sales
Third
Quarter
2019		 Third
Quarter
2018		 Dollar
Change		 Percent
Change		Second
Quarter
2020		 Second
Quarter
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$1,209.8
 $1,042.5
 $167.3
 16%$1,640.4
 $1,527.1
 $113.3
 7%
Wine and Spirits:              
Wine670.3
 666.6
 3.7
 1%611.1
 671.0
 (59.9) (9%)
Spirits92.5
 92.8
 (0.3) —%92.5
 101.0
 (8.5) (8%)
Total Wine and Spirits762.8
 759.4
 3.4
 —%703.6
 772.0
 (68.4) (9%)
Canopy67.7
 NA
 67.7
 NM
Consolidation and Eliminations(67.7) —
 (67.7) NM
Consolidated net sales$1,972.6
 $1,801.9
 $170.7
 9%$2,344.0
 $2,299.1
 $44.9
 2%
       
NM = Not Meaningful       


Beer SegmentThird
Quarter
2019		 Third
Quarter
2018		 Dollar
Change		 Percent
Change		Second
Quarter
2020		 Second
Quarter
2019		 Dollar
Change		 Percent
Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales$1,209.8
 $1,042.5
 $167.3
 16%$1,640.4
 $1,527.1
 $113.3
 7%
              
Shipment volume68.0
 59.6
 

 14.1%91.9
 87.3
 

 5.3%
              
Depletion volume (1)
      7.8%      6.2%
(1) 
Depletions represent distributor shipments of our respective branded products to retail customers, based on third-party data.


The increase in Beer net sales is primarily due to (i)  strong$85.4 million of volume growth within our Mexican beer portfolio, of $143.8which benefited from continued consumer demand, increased marketing spend, and new product introductions and a $37.9 million and (ii)  a favorable impact from pricing in select markets within our Mexican beer portfolioportfolio. The increase was partially offset by a decline in craft beer net sales. The shipment timing benefit that occurred at the end of $28.9 million. The strong volume growth is largely attributable to continued consumer demand, increased marketing spend and new product introductions, as well as timing as the shipment volume growth trend outpaced the depletion volume growth trend for ThirdFiscal 2019 partially reversed in Second Quarter 2019. For Nine Months 2019, the shipment volume growth trend is more closely aligned to the depletion volume growth trend.2020.


42




Wine and Spirits SegmentThird
Quarter
2019		 Third
Quarter
2018		 Dollar
Change		 Percent
Change		Second
Quarter
2020		 Second
Quarter
2019		 Dollar
Change		 Percent
Change
(in millions, branded product, 9-liter case equivalents)       (in millions, branded product, 9-liter case equivalents)      
Net sales$762.8
 $759.4
 $3.4
 —%$703.6
 $772.0
 $(68.4) (9%)
              
Shipment volume              
Total14.8
 14.8
   —%14.4
 16.0
   (10.0%)
U.S. Domestic13.8
 13.6
   1.5%13.5
 14.8
   (8.8%)
U.S. Domestic Focus Brands8.3
 8.3
   —%
U.S. Domestic Power Brands6.3
 6.3
   —%
              
Depletion volume (1)
              
U.S. Domestic      (3.2%)      (13.3%)
U.S. Domestic Focus Brands      0.3%
U.S. Domestic Power Brands      (3.8%)

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The decrease in Wine and Spirits net sales remained relatively flat as a favorable impact from pricing of $10.0 million was offset by unfavorable product mix shift. U.S. depletion trends remained soft for Third Quarter 2019. This trend is not expected to improve for the remainder of the year. Additionally, for Nine Months 2019, our U.S. shipment volume trend has outpaced our U.S. depletion volume trend primarily due to timing. We expect thisa $70.1 million decline in branded wine and spirits volume. The decrease in volume is partially attributable to timing as shipment timing benefitvolumes were accelerated for Second Quarter 2019 in advance of then expected continuing logistic and transportation constraints. The Wine and Spirits Second Quarter 2020 results have been negatively impacted by transition activities with distributors who are repositioning for ownership of brands upon closing the Wine and Spirits Transaction and the Black Velvet Transaction.

Canopy Segment
Our ownership interest in Canopy allows us to reverseexercise significant influence, but not control, and, therefore, we account for our investment in Canopy under the equity method. Amounts included for the fourth quarterCanopy segment represent 100% of fiscal 2019 asCanopy’s reported results on a two-month lag, prepared in accordance with U.S. GAAP, and converted from Canadian dollars to U.S. dollars. Although we expect U.S. shipment volume trendsown less than 100% of the outstanding shares of Canopy, 100% of the Canopy results are included and subsequently eliminated in order to be generally aligned with U.S. depletion volume trendsreconcile to our consolidated financial statements. See “Income (Loss) from Unconsolidated Investments” below for Fiscal 2019. Refer to “Nine Months 2019 Compared to Nine Months 2018 – Net Sales” for additional discussion.a discussion of Canopy’s net sales, gross profit, selling, general, and administrative expenses, and operating income (loss).


Gross Profit
Third
Quarter
2019		 Third
Quarter
2018		 Dollar
Change		 Percent
Change		Second
Quarter
2020		 Second
Quarter
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$651.0
 $569.4
 $81.6
 14%$913.3
 $843.4
 $69.9
 8%
Wine and Spirits340.9
 344.7
 (3.8) (1%)292.1
 336.6
 (44.5) (13%)
Canopy9.8
 NA
 9.8
 NM
Consolidation and Eliminations(9.8) —
 (9.8) NM
Comparable Adjustments(21.9) (3.8) (18.1) NM
(19.5) (11.8) (7.7) 65%
Consolidated gross profit$970.0
 $910.3
 $59.7
 7%$1,185.9
 $1,168.2
 $17.7
 2%
       
NM = Not meaningful       


The increase in Beer is primarily due to the$47.7 million of volume growth and the $37.9 million favorable impact from pricing, in select markets within our Mexican beer portfolio of $79.9 million and $28.9 million, respectively, partially offset by a higher cost of product sold for our Mexican beer business of $21.3$6.2 million. The higher cost of product sold is primarilypredominately due to increased transportation and operational costs within our Mexican beer portfoliothat included higher material costs, including glass and cartons. The decrease in Wine and Spirits is largely due to $30.9 million of $18.9decline in branded wine and spirits volume and $10.2 million and $8.5 million, respectively, partially offset by foreign currency transactional benefitshigher cost of $6.1 million.product sold. The higher operational costs arecost of product sold is largely attributable to higher costs associated with our glass production plant joint venture in connection with a temporarygrape raw material supply issue.and processing costs, as well as increased transportation costs.


The decrease in Wine and Spirits is primarily due to unfavorable product mix shift of $17.0 million, largely offset by the favorable impact from pricing of $10.0 million.

Gross profit as a percent of net salesdecreasedslightly to 49.2% 50.6%for ThirdSecond Quarter 2019 2020compared with 50.5% 50.8%for ThirdSecond Quarter 2018.2019. This was largely due to the higher cost of product sold within both the Beer segment and an unfavorable change in Comparable Adjustments,Wine and Spirits segments, which resulted in approximately 10525 basis points and 9040 basis points of rate decline, respectively; partiallyrespectively and (ii)  an unfavorable change of approximately 30 basis points in Comparable Adjustments. The rate declines were largely offset by the favorable impact from Beer pricing in select markets, which contributed approximately 7075 basis points of rate growth.




43


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Selling, General, and Administrative Expenses
Third
Quarter
2019		 Third
Quarter
2018		 Dollar
Change		 Percent
Change		Second
Quarter
2020		 Second
Quarter
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$200.1
 $174.6
 $25.5
 15%$228.0
 $212.8
 $15.2
 7%
Wine and Spirits134.9
 145.3
 (10.4) (7%)131.7
 135.2
 (3.5) (3%)
Corporate Operations and Other45.0
 41.3
 3.7
 9%53.7
 51.3
 2.4
 5%
Canopy170.3
 NA
 170.3
 NM
Consolidation and Eliminations(170.3) —
 (170.3) NM
Comparable Adjustments33.5
 59.5
 (26.0) (44%)53.0
 3.9
 49.1
 NM
Consolidated selling, general and administrative expenses$413.5
 $420.7
 $(7.2) (2%)
Consolidated selling, general, and administrative expenses$466.4
 $403.2
 $63.2
 16%


The increase in Beer is primarily due to an increase of $13.0 million in marketing spend of $24.8 million.spend. The increase in marketing spend is due largely to planned investment to support the growth of our Mexican beer portfolio, including support of the new product introductions.

The decrease in Wine and Spirits is primarily due to a decrease of $7.5 million in general and administrative expenses, partially offset by an increase of $10.9$3.9 million in marketing spend. The decrease in general and administrative expenses is largely driven by lowercertain cost saving initiatives including decreased compensation and benefits and travel and entertainment expenses associated largely with reduced headcount and certain cost savings initiatives. benefits. The increase in marketing spend is primarily attributable to planned national advertising campaigns.

The increase in Corporate Operations and Other is largely due to higher general and administrative expenses primarily attributable to increasesan increase in compensation and benefits largely due to support of our growth initiatives.as compared with Second Quarter 2019.


Selling, general, and administrative expenses as a percent of net sales decreasedincreased to 21.0%19.9% for ThirdSecond Quarter 20192020 as compared with 23.3%17.5% for ThirdSecond Quarter 20182019. The decreaseincrease is driven largely by the favorable(i)an unfavorable change of approximately 205 basis points in Comparable Adjustments and (ii)Wine and Spirits with approximately 35 basis points of rate increase as the decreasedecline in Wine and Spirits net sales exceeded the decline in Wine and Spirits selling, general, and administrative expenses compared with nominal growth in Wine and Spirits net sales, and growth in Beer net sales having exceeded the growth in Beer selling, general and administrative expenses. These contributed approximately 140 basis points, 60 basis points and 55 basis points, respectively, of rate decline.


Operating Income (Loss)
Third
Quarter
2019		 Third
Quarter
2018		 Dollar
Change		 Percent
Change		Second
Quarter
2020		 Second
Quarter
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$450.9
 $394.8
 $56.1
 14%$685.3
 $630.6
 $54.7
 9%
Wine and Spirits206.0
 199.4
 6.6
 3%160.4
 201.4
 (41.0) (20%)
Corporate Operations and Other(45.0) (41.3) (3.7) (9%)(53.7) (51.3) (2.4) (5%)
Canopy(160.5) NA
 (160.5) NM
Consolidation and Eliminations160.5
 —
 160.5
 NM
Comparable Adjustments(55.4) (63.3) 7.9
 (12%)(72.5) (15.7) (56.8) NM
Consolidated operating income$556.5
 $489.6
 $66.9
 14%
Consolidated operating income (loss)$719.5
 $765.0
 $(45.5) (6%)


The increase in Beer is primarily attributable to the strong volumenet sales growth and the favorable pricing impact, from pricing, partially offset by the planned increase in marketing spend and the higher cost of product sold.spend. The increasedecrease in Wine and Spirits was driven largely by reduced selling,the decline in branded wine and spirits volume and unfavorable cost of product sold, partially

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offset by lower general and administrative expenses for Third Quarter 2019 as well ascosts. As previously discussed, the favorable impact from pricing, partially offset byCorporate Operations and Other increase in operating loss is due largely to the unfavorable product mix shift. Refer to “Nine Months 2019 Compared to Nine Months 2018 – Operating Income” for additional discussion.increase in compensation and benefit costs.


Income (Loss) From Unconsolidated Investments

General
Income (loss) from unconsolidated investments decreased to a loss of $134.6$(1,324.7) million for ThirdSecond Quarter 20192020 from a gain of $249.1$688.4 million for ThirdSecond Quarter 2018,2019, a decrease of $383.7$2,013.1 million. This decrease is driven largely by an unrealized net loss of $839.1 for Second Quarter 2020, which consists of an unrealized net loss from the changes in fair value of our securities measured at fair value of $163.9$2,015.1 million, for Third Quarterpartially offset by an unrealized gain of $1,176.0 million from the June 2019 modification of the terms of the November 2018 Canopy Warrants, as compared with an unrealized net gain of $216.8$692.1 million for ThirdSecond Quarter 2018.2019. Second Quarter 2020 also includes $484.4 million of equity in losses from Canopy’s results of operations, and related activities, including the $409.0 million loss from the June 2019 Warrant Modification.



Canopy Segment
44Canopy’s Second Quarter 2020 net sales; gross profit; selling, general, and administrative expenses; and operating income (loss) are not comparable against Second Quarter 2019 due to the timing of the November 2018 Canopy Investment and Canopy becoming a segment on March 1, 2019.




Interest Expense

Interest expense decreasedincreased to $72.8$111.6 million for ThirdSecond Quarter 20192020 from $81.4$88.0 million for ThirdSecond Quarter 2018, a decrease2019. This increase of $8.6$23.6 million or 11%. This decrease27% is predominantly due to the recognition of a gain of $32.4 million for Third Quarter 2019 in connection with the settlement of the forward-starting interest rate swap contracts entered into to economically hedge our exposure to interest rate volatility associated with the debt financing for the November 2018 Canopy Transaction. This gain was partially offset by the recognition of $12.1 million of additional interest expense associated with bridge commitment fees for the November 2018 Canopy Transaction and higher average borrowings of approximately$2.2 billion. The higher average borrowings are $3.2 billion primarily attributable to the November 2018 Canopy Transaction as well as the significant purchases of treasury stock for Fiscal 2018.Transaction.


(Provision forFor) Benefit From Income Taxes

Our effective tax rate for ThirdSecond Quarter 20192020 was 10.2%28.1% of tax benefit as compared with 23.3%15.7% of tax expense for ThirdSecond Quarter 2018 due largely to:

2019. The new, lower federal statutory rate of 21% for ThirdSecond Quarter 2019 associated with the December 2017 TCJ Act, as compared to the federal statutory rate of 35% in effect for Third Quarter 2018;
The recognition of an income tax benefit upon the completion of our analysis of the income tax implications of the TCJ Act for Third Quarter 2019 resulting from a decrease in the mandatory one-time transition tax on unremitted earnings of our foreign businesses; and
A larger net income tax benefit from higher stock-based compensation award activity for Third Quarter 2019 from increased option exercise activity.

For Third Quarter 2019, our2020 effective tax rate was also unfavorablysignificantly impacted by the lower effective tax rate on the benefit of the net unrealized lossesloss from the changes in fair value of our investments in Canopy, which has resulted in an overall net loss for the November 2017quarter. In comparison to prior year, our taxes benefited from:

a higher effective rate of tax benefit from our foreign businesses including the tax benefits recorded on the net unrealized loss from the changes in fair value of our investments in Canopy investments.and the tax benefits recorded on the Canopy equity in earnings (losses) and related activities; and
•
a larger net income tax benefit from stock-based compensation award activity for Second Quarter 2020 from changes in option exercise activity and stock price.


For additional information, refer to Note 1112 of the Financial Statements included herein.Statements.


Net Income (Loss) Attributable to CBI

Net income (loss) attributable to CBI decreased to $303.1$(525.2) million for ThirdSecond Quarter 20192020 from $492.8$1,149.5 million for ThirdSecond Quarter 2018, a2019. This decrease of $189.7 million. This decrease$1,674.7 million is largely attributable to the significant decrease in income from unconsolidated investments discussed above. The decrease wasabove as well as the decline in operating performance from Wine and Spirits. These decreases were partially offset by solid operating performance for thefrom Beer segment, which contributedcontributing an additional $56.1$54.7 million of operating income, as well as a net income tax benefit of $37.6 million resulting from the TCJ Act.income.



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Nine Months
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SIX MONTHS 2020 COMPARED TO SIX MONTHS 2019 Compared to Nine Months 2018


Net Sales
Nine
Months
2019		 Nine
Months
2018		 Dollar
Change		 Percent
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$4,112.0
 $3,663.4
 $448.6
 12%$3,117.8
 $2,902.2
 $215.6
 7%
Wine and Spirits:              
Wine1,933.1
 1,882.7
 50.4
 3%1,146.1
 1,262.8
 (116.7) (9%)
Spirits273.7
 272.2
 1.5
 1%177.3
 181.2
 (3.9) (2%)
Total Wine and Spirits2,206.8
 2,154.9
 51.9
 2%1,323.4
 1,444.0
 (120.6) (8%)
Canopy138.4
 NA
 138.4
 NM
Consolidation and Eliminations(138.4) —
 (138.4) NM
Consolidated net sales$6,318.8
 $5,818.3
 $500.5
 9%$4,441.2
 $4,346.2
 $95.0
 2%

45





Beer SegmentNine
Months
2019		 Nine
Months
2018		 Dollar
Change		 Percent
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change		 Percent
Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales$4,112.0
 $3,663.4
 $448.6
 12%$3,117.8
 $2,902.2
 $215.6
 7%
              
Shipment volume233.2
 211.6
   10.2%174.0
 165.2
   5.3%
              
Depletion volume (1)
      9.0%      6.4%


(1) 
Depletions represent distributor shipments of our respective branded products to retail customers, based on third-party data.


The increase in Beer net sales is primarily due to (i)$165.3 million of volume growth within our Mexican beer portfolio, of $366.4 million, which benefited from continued consumer demand, increased marketing spend, and new product introductions, and (ii)  a $70.8 million favorable impact from pricing in select markets within our Mexican beer portfolioportfolio. The increase was partially offset by a decline in craft beer net sales. In Second Quarter 2020, the shipment volume timing benefit that occurred at the end of $77.1 million.Fiscal 2019 only partially reversed, as shipment volumes were accelerated for First Quarter 2020 in advance of proposed tariffs on imports into the United States from Mexico. We expect the rest of the shipment timing benefit to reverse during the remainder of Fiscal 2020.


Wine and Spirits SegmentNine
Months
2019		 Nine
Months
2018		 Dollar
Change		 Percent
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change		 Percent
Change
(in millions, branded product, 9-liter case equivalents)       (in millions, branded product, 9-liter case equivalents)      
Net sales$2,206.8
 $2,154.9
 $51.9
 2%$1,323.4
 $1,444.0
 $(120.6) (8%)
              
Shipment volume              
Total44.3
 43.4
   2.1%26.8
 29.5
   (9.2%)
U.S. Domestic41.1
 40.1
   2.5%24.8
 27.3
   (9.2%)
U.S. Domestic Focus Brands25.5
 24.3
   4.9%
U.S. Domestic Power Brands10.8
 11.6
   (6.9%)
              
Depletion volume (1)
              
U.S. Domestic      (2.1%)      (7.5%)
U.S. Domestic Focus Brands      1.1%
U.S. Domestic Power Brands      (0.3%)


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The increasedecrease in Wine and Spirits net sales is primarily due to higher(i)  a $122.6 million decline in branded wine and spirits volume and (ii)  $12.1 million of unfavorable product mix shift, partially offset by a $12.1 million favorable impact from pricing of $40.8 million and $24.6 million, respectively.pricing. The increase in volume is largely attributable to timing as the U.S. shipment volume trend outpaced the U.S. depletion volume trend. Shipment volumes were accelerated for the second quarter of fiscal 2019 in advance of expected continuing logistic and transportation constraints anticipated for Third Quarter 2019. Although these constraints were realized, U.S. depletion volume growth trends for Third Quarter 2019 remained softer than expected. Accordingly, this shipment timing benefit did not reverse in Third Quarter 2019 as anticipated. We now expect this shipment timing benefit to reverse for the fourth quarter of fiscal 2019 as U.S. shipment volume trends should be generally aligned with U.S. depletion volume trends for Fiscal 2019. These trends are expected to be down in the low-single digit range for Fiscal 2019. Accordingly, we now expect net sales for Wine and Spirits to decrease low-single digitsSix Months 2020 results have been negatively impacted by transition activities with distributors who are repositioning for Fiscal 2019.ownership of brands upon closing the Wine and Spirits Transaction and the Black Velvet Transaction.


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Table of Contents


Gross Profit
Nine
Months
2019		 Nine
Months
2018		 Dollar
Change		 Percent
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$2,243.8
 $1,999.7
 $244.1
 12%$1,732.8
 $1,592.8
 $140.0
 9%
Wine and Spirits968.3
 975.7
 (7.4) (1%)563.8
 627.4
 (63.6) (10%)
Canopy21.1
 NA
 21.1
 NM
Consolidation and Eliminations(21.1) —
 (21.1) NM
Comparable Adjustments(25.3) (8.1) (17.2) NM
(82.0) (3.4) (78.6) NM
Consolidated gross profit$3,186.8
 $2,967.3
 $219.5
 7%$2,214.6
 $2,216.8
 $(2.2) —%


The increase in Beer is primarily due to the$92.1 million of volume growth and the $70.8 million of favorable impact from pricing, in select markets within our Mexican beer portfolio of $202.3 million and $77.1 million, respectively, partially offset by $10.2 million of higher cost of product sold for our Mexican beer business of $35.6 million.as well as a decline in our craft beer portfolio. The higher cost of product sold within our Mexican beer portfolio is predominantlyprimarily due to increased transportationoperational costs of $43.8$11.0 million and logistics costs of $9.6 million, partially offset by foreign currency transactional benefits within our Mexican beer portfolio of $12.3$10.4 million. The Beer segment also recognized higher operational costs for Nine Months 2019,are largely attributable to higher depreciation, brewery maintenancematerial costs, including glass and compensation and benefits; however, these costs werecartons, partially offset by brewery sourcing benefits.benefits and lower depreciation.


The decrease in Wine and Spirits is largely due to higher cost$54.7 million of product sold and an unfavorable product mix shift of $30.9 million and $23.5 million, respectively, partially offset by the favorable impact from pricing anddecline in branded wine and spirits volume, growth$6.1 million unfavorable product mix shift, and $11.9 million higher cost of $24.6 million and $18.8 million, respectively.product sold. The higher cost of product sold is largely attributable to higher raw material costs, including grape, bulk wine and imported vodkaincreased transportation costs as well as increased transportationhigher grape raw material and processing costs. The decrease in Wine and Spirits gross profit was partially offset by the $12.1 million favorable impact from pricing.


Gross profit as a percent of net sales decreased to 50.4%49.9% for NineSix Months 20192020 compared with 51.0% for NineSix Months 2018 primarily 2019. This was largely due to thean unfavorable change of 175 basis points in Comparable Adjustments, higher cost of product sold within both the Beer and Wine and Spirits segments, which resulted in approximately 55 basis points and 4525 basis points of rate decline respectively,for each segment, partially offset by the favorable impact from Beer pricing in select markets, which contributed approximately 5575 basis points of rate growth.



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Selling, General, and Administrative Expenses
Nine
Months
2019		 Nine
Months
2018		 Dollar
Change		 Percent
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$642.3
 $538.4
 $103.9
 19%$466.9
 $442.2
 $24.7
 6%
Wine and Spirits393.1
 388.9
 4.2
 1%242.6
 258.2
 (15.6) (6%)
Corporate Operations and Other146.5
 120.2
 26.3
 22%97.4
 101.5
 (4.1) (4%)
Canopy351.6
 NA
 351.6
 NM
Consolidation and Eliminations(351.6) —
 (351.6) NM
Comparable Adjustments58.0
 151.8
 (93.8) (62%)65.5
 24.5
 41.0
 NM
Consolidated selling, general and administrative expenses$1,239.9
 $1,199.3
 $40.6
 3%
Consolidated selling, general, and administrative expenses$872.4
 $826.4
 $46.0
 6%


The increase in Beer is primarily due to an increase of $27.6 million in marketing spend of $73.2 million and general and administrative expenses of $31.1 million.spend. The increase in marketing spend is due largely to planned investment to support the growth of our Mexican beer portfolio, including support of the new product introductions. The increase in general and administrative expenses is largely driven by unfavorable foreign currency transaction losses and higher expenses supporting the growth of the business, including compensation and benefits associated primarily with increased headcount and information technology.

The increasedecrease in Wine and Spirits is largely due to an increase in marketing spenda decrease of $14.9$14.2 million partially offset by a decrease in general and administrative expenses of $10.7 million. The increase in marketing spend is primarily

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attributable to planned investment supporting the portfolio.expenses. The decrease in general and administrative expenses is largely driven by certain cost savings initiatives.

saving initiatives including decreased compensation and benefits. The increasedecrease in Corporate Operations and Other is due to higher general and administrative expenses driven predominantlya decrease of approximately $9 million in consulting costs, partially offset by increasesan increase of approximately $4 million in compensation and benefits of approximately $20 million and consulting of approximately $4 million, both largely attributable to supporting our growth initiatives.as compared with Six Months 2019.


Selling, general, and administrative expenses as a percent of net salesdecreasedincreased to 19.6%forNineSix Months 2019 2020as compared with 20.6% 19.0%for NineSix Months 2018.2019. The decreaseincrease is driven largely by the favorablean unfavorable change of approximately 85 basis points in Comparable Adjustments, which contributed approximately 165 basis points to the rate decline. This decrease was partially offset by the increase in Corporate Operations and Other general and administrative expenses, which resulted inBeer with approximately 4530 basis points of rate decline as the growth andin Beer net sales exceeded the growth in Beer selling, general, and administrative expenses exceeding the growth in Beer net sales, which resulted in approximately 30 basis points of rate growth.expenses.


Operating Income (Loss)
Nine
Months
2019		 Nine
Months
2018		 Dollar
Change		 Percent
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change		 Percent
Change
(in millions)              
Beer$1,601.5
 $1,461.3
 $140.2
 10%$1,265.9
 $1,150.6
 $115.3
 10%
Wine and Spirits575.2
 586.8
 (11.6) (2%)321.2
 369.2
 (48.0) (13%)
Corporate Operations and Other(146.5) (120.2) (26.3) (22%)(97.4) (101.5) 4.1
 4%
Canopy(330.5) NA
 (330.5) NM
Consolidation and Eliminations330.5
 —
 330.5
 NM
Comparable Adjustments(83.3) (159.9) 76.6
 (48%)(147.5) (27.9) (119.6) NM
Consolidated operating income$1,946.9
 $1,768.0
 $178.9
 10%
Consolidated operating income (loss)$1,342.2
 $1,390.4
 $(48.2) (3%)


The increase in Beer is primarily attributable to the strong volume growth and the favorable pricing impact, from pricing, partially offset by the planned increase in marketing spend andcombined with the higherincrease in cost of product sold. As previously discussed, Corporate Operations and Other reduction in operating income is due largely to the higher costs supporting our growth initiatives.

The decrease in Wine and Spirits was driven largely by the decline in branded wine and spirits volume and higher cost of product sold, as the segment’s net sales growth waspartially offset by itsthe favorable impact from pricing and lower general and administrative expenses. As previously discussed, Corporate Operations and Other decrease in operating loss is due largely to the lower consulting costs, partially offset by increased marketing spend. With the expected low-single digit decline in net sales for Winecompensation and Spirits for Fiscal 2019, we also expect operating income for the segment to be down in the low-single digit range for Fiscal 2019.benefits.



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Income (Loss) From Unconsolidated Investments

General
Income (loss) from unconsolidated investments increaseddecreased to $918.2$(2,255.3) million for NineSix Months 2020 from $1,052.8 million for Six Months 2019, from $249.7 million for Nine Months 2018, an increasea decrease of $668.5$(3,308.1) million. This increasedecrease is driven largely by an unrealized net gainloss of $1,666.6 million for Six Months 2020, which consists of an unrealized net loss from the changes in fair value of our securities measured at fair value of $786.5$2,842.6 million, for Nine Monthspartially offset by an unrealized gain of $1,176.0 million from the June 2019 modification of the terms of the November 2018 Canopy Warrants, as compared with an unrealized net gain of $216.8$950.4 million recognized for NineSix Months 2018. Nine2019. Six Months 2020 was also negatively impacted by $590.4 million of equity in losses from Canopy’s results of operations, and related activities, including the $409.0 million loss from the June 2019 alsoWarrant Modification, while Six Months 2019 benefited from a net gain in connection with the sale of our Accolade Wine Investment of $99.8 million.


Canopy Segment
Canopy’s Six Months 2020 net sales; gross profit; selling, general, and administrative expenses; and operating income (loss) are not comparable against Six Months 2019 due the timing of the November 2018 Canopy Investment and Canopy becoming a segment on March 1, 2019.

Interest Expense

Interest expense increased to $248.6$226.2 million for NineSix Months 20192020 from $245.1$175.8 million for NineSix Months 2018,2019, an increase of $3.5$50.4 million, or 1%29%. This increase is predominantly due to higher average borrowings of approximately $1.4 billion. The higher average borrowings are$3.3 billion primarily attributable to the significant purchases of treasury stock for Fiscal 2018 and the November 2018 Canopy Transaction.



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(Provision forFor) Benefit From Income Taxes

Our effective tax rate for NineSix Months 20192020 was 15.5%33.9% of tax benefit as compared with 20.1%16.3% of tax expense for NineSix Months 2018 due largely to:

2019. The new, lower federal statutory rate of 21% for NineSix Months 2019 associated with the December 2017 TCJ Act, as compared to the federal statutory rate of 35% in effect for Nine Months 2018;
Lower effective tax rates applicable to our foreign businesses, net of incremental U.S. tax on foreign earnings under the TCJ Act; and
The recognition of an income tax benefit upon the completion of our analysis of the income tax implications of the TCJ Act for Third Quarter 2019 resulting from a decrease in the mandatory one-time transition tax on unremitted earnings of our foreign businesses.

For Nine Months 2019, our2020 effective tax rate was also unfavorablysignificantly impacted by a lowerthe net incomeunrealized loss from the changes in fair value of our investments in Canopy, which has resulted in an overall net loss for the period. In comparison to prior year, our taxes benefited from:

higher effective rate of tax benefit from stock-based compensation award activity as a resultour foreign businesses including the tax benefits recorded on the net unrealized loss from the changes in fair value of our investments in Canopy and the rate reduction undertax benefits recorded on the TCJ ActCanopy equity in earnings (losses) and reduced vesting and exercise activity.related activities;

Inthe reversal of valuation allowances for capital loss carryforwards in connection with the completion of our analysisWine and Spirits Transaction; offset by
•
a smaller net income tax benefit from stock-based compensation award activity for Six Months 2020 from changes in option exercise activity and stock price.

For additional information, refer to Note 12 of the income tax implications of the TCJ Act and the recognition of the additional income tax benefit for Third Quarter 2019, we nowFinancial Statements.

We expect our reported effective tax rate for Fiscal 20192020 to be in the range of 16%95% to 17%.97% due to net unrealized losses and related tax benefits from our Canopy investments for the Six Months 2020. This includes the impact of an estimated benefitimpact for (i)  benefits related to the recognition of the income tax effect of stock basedstock-based compensation awards in the income statement when the awards vest or are settled, and(ii)  lower effective tax rates applicable to our foreign businesses. Thisbusinesses, and (iii)  closing of the Wine and Spirits Transaction and the Black Velvet Transaction in accordance with the expected timeline. Since estimates are not currently available, this range does not assumereflect (i)  any future changes in the fair value of theour Canopy investments accounted formeasured at fair value, (ii)  any gain (loss) recognized in connection with the Wine and Spirits Transaction and/or the associated incomeBlack Velvet Transaction, and (iii)  any future equity in earnings (losses) and related activities from the Canopy Equity Method Investment. The range also excludes an estimated one-time benefit to our deferred tax effect.assets of approximately $500 million to $550 million that will be recognized during the three months ended November 30, 2019 as a result of certain foreign tax reform that was enacted in September 2019.


For additional information, refer to Note 11 of the Financial Statements included herein.

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Net Income (Loss) Attributable to CBI

Net income (loss) attributable to CBI increaseddecreased to $2,196.4$(770.6) million for NineSix Months 20192020 from $1,392.9$1,893.3 million for NineSix Months 2018, an increase2019. This decrease of $803.5 million. This increase$2,663.9 million is largely attributable to the increasesignificant decrease in income from unconsolidated investments discussed above. Solidabove as well as the decline in operating performance from Wine and Spirits. These decreases were partially offset by solid operating performance from Beer contributedcontributing an additional $140.2$115.3 million of operating income.



Financial Liquidity and Capital ResourcesFINANCIAL LIQUIDITY AND CAPITAL RESOURCES


General


Our ability to consistently generate cash flow from operating activities is one of our most significant financial strengths. Our strong cash flows enable us to invest in our people and our brands, make appropriate capital investments, provide a quarterly cash dividend program, and from time-to-time, repurchase shares of our common stock, and make strategic investments and acquisitions that we believe will enhance stockholder value. Our primary source of liquidity has been cash flow from operating activities. Our principal use of cash in our operating activities is for purchasing and carrying inventories and carrying seasonal accounts receivable. Historically, we have used cash flow from operating activities to repay our short-term borrowings and fund capital expenditures. Additionally, we have a commercial paper program which we use to fund our short-term borrowing requirements and to maintain our access to the capital markets. We will continue to use our short-term borrowings, including our commercial paper program, to support our working capital requirements and capital expenditures.


We have maintained adequate liquidity to meet working capital requirements, fund capital expenditures, and repay scheduled principal and interest payments on debt. Absent deterioration of market conditions, we believe that cash flows from operating activities and financing activities, primarily short-term borrowings, will provide adequate

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resources to satisfy our working capital, scheduled principal and interest payments on debt, anticipated dividend payments, and anticipated capital expenditure requirements for both our short-term and long-term capital needs.


In November 2018, we completed the November 2018 Canopy Transaction for C$5,078.7 million, or $3,869.9 million. In addition, we incurred $24.5 millionWe have recently entered into agreements to sell a portion of direct acquisition costs. The aggregate cash paid at closing was financed with (i)our U.S. wine and spirits business as well as our Canadian whisky business. We expect to use the net cash proceeds from the issuance of $2,150.0 million aggregate principal amount of October 2018 Senior Notes, (ii)  $1,500.0 million in term loans under the Term Credit Agreement and (iii)  the remainder from proceeds of borrowings under our commercial paper program. Based on our abilityclosing these transactions primarily to consistently generate strong cash flow from operating activities, we expect to be able to return to our targeted leverage ratio within 24 months following the close of this transaction, while continuing to make appropriate investments in our business that we believe will enhance stockholder value.reduce outstanding borrowings.

In August 2018, we entered into forward-starting interest rate swap contracts to economically hedge our exposure to interest rate volatility associated with the debt financing for the November 2018 Canopy Transaction. The interest rate swap contracts were not designated as a hedge for accounting purposes. For Third Quarter 2019 and Nine Months 2019, we recognized a gain of $32.4 million and $35.0 million, respectively, in connection with the settlement of the interest rate swap contracts in October 2018. This amount was recognized in interest expense.


Cash Flows
Nine
Months
2019		 Nine
Months
2018		 Dollar
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change
(in millions)          
Net cash provided by (used in):          
Operating activities$1,973.9
 $1,468.4
 $505.5
$1,419.4
 $1,338.5
 $80.9
Investing activities(4,587.3) (1,038.3) (3,549.0)(425.7) (388.8) (36.9)
Financing activities2,661.3
 (458.1) 3,119.4
(1,005.0) (832.9) (172.1)
Effect of exchange rate changes on cash and cash equivalents(7.6) 5.1
 (12.7)(1.0) (1.0) —
Net increase (decrease) in cash and cash equivalents$40.3
 $(22.9) $63.2
$(12.3) $115.8
 $(128.1)


Operating Activities

The increase in net cash provided by operating activities for NineSix Months 20192020 is largely due to strong cash flow from the Beer segment driven primarily by the segment’s solid operating results, combined with the timing of collections for recoverable value-added taxes. Net cash provided by operating activities also benefited from lower income tax payments largely due to a change in estimated

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taxable income, timing of payments, and the receipt of a benefithigher federal tax refund for Six Months 2020 as compared with Six Months 2019. The increase in net cash provided by operating activities was partially offset by higher cash outflows from accounts payable primarily attributable to the timing of payments. Additionally, net cash provided by operating activitiespayments for Nine Months 2019 benefited from lower income tax payments predominantly due to (i)  lower federal tax payments resulting fromboth the reduction in the U.S. corporate income tax rate associated with the enactment of the TCJ ActWine and (ii)  the receipt of a federal tax refund for Nine Months 2019.Spirits and Beer segments.


Investing Activities

The increase in netNet cash used in investing activities for NineSix Months 2019 is2020 increased primarily due to the November 2018 Canopy Transaction. The increase in net cash used in investing activities was partially offset byprior year proceeds received from (i)  proceeds from  the May 2018 sale of our Accolade Wine Investment of $110.2 million and (ii)  the lower levelsales of business acquisition activityassets of $86.6$44.7 million, partially offset by a Six Months 2020 decrease in investments in equity method investees and (iii)  lower capital expendituressecurities of $85.3$119.1 million.


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Financing Activities

The increase in net cash provided by (used in) financing activities consists of:
Nine
Months
2019		 Nine
Months
2018		 Dollar
Change		Six
Months
2020		 Six
Months
2019		 Dollar
Change
(in millions)          
Net proceeds from debt, current and long-term, and related activities$3,564.5
 $67.6
 $3,496.9
Net proceeds from (payments of) debt, current and long-term, and related activities$(688.7) $(57.5) $(631.2)
Dividends paid(285.0) (279.1) (5.9)
Purchases of treasury stock(504.3) (239.2) (265.1)(50.0) (504.3) 454.3
Dividends paid(417.9) (301.1) (116.8)
Net cash provided by stock-based compensation activities19.0
 14.6
 4.4
18.7
 8.0
 10.7
Net cash provided by (used in) financing activities$2,661.3
 $(458.1) $3,119.4
$(1,005.0) $(832.9) $(172.1)


Debt


Total debt outstanding as of November 30, 2018,August 31, 2019, amounted to $13,569.6$12,946.8 million, an increasea decrease of $3,382.9$669.7 million from February 28, 2018.2019. This increasedecrease was predominatelyprimarily due to (i)  a reduction in commercial paper outstanding of $581.6 million, (ii)  the financingearly redemption of the $400.0 million 3.875% November 2018 Canopy Transaction, including the issuance of the October 20182014 Senior Notes, and (iii)  the $400.0 million partial repayment of the Five-Year Term Facility under our Term Credit Agreement, partially offset by the conversionissuance of $248.4the $800.0 million from long-term debt to noncontrolling equity interests associated with the noncash settlement of a prior contractual agreement with our glass production plant joint venture partner.July 2019 Senior Notes.


Senior2019 Term Credit Facility

Agreement
In August 2018,June 2019, we entered into the August 2018 Restatement Agreement that amended and restated our 20172019 Term Credit Agreement, primarily for technical amendments. In September 2018, we entered intowhich resulted in the creation of a $491.3 million five-year term loan facility. We utilized the proceeds from borrowings under the 2019 Term Credit Agreement to repay in full the U.S. Term A-1 Facility under the 2018 Restatement Agreement that amended and restated the August 2018 Credit Agreement. Among other things, the 2018 Restatement Agreement increased our revolving credit facility by $500.0 million to $2.0 billion and extended its maturity to September 14, 2023. Additionally, the 2018 Restatement Agreement modified certain financial covenants and added various representations and warranties, covenants and an event of default in connection with the then-pending additional investment in Canopy.


General

The majority of our outstanding borrowings as of November 30, 2018,August 31, 2019, consisted of fixed-rate senior unsecured notes, with maturities ranging from calendar 2019 to calendar 2048, and variable-rate senior unsecured term loan facilities under our 2018Term Credit Agreement and 2019 Term Credit Agreement, with maturities ranging from calendar 2021 to calendar 2024.


Additionally, we have a commercial paper program which provides for the issuance of up to an aggregate principal amount of $2.0 billion of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under theour 2018 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under theour 2018 Credit Agreement.


We do not have purchase commitments from buyers for our commercial paper and, therefore, our ability to issue commercial paper is subject to market demand. If the commercial paper market is not available to us for any reason when outstanding commercial paper borrowings mature, we will utilize unused commitments under our revolving credit facility under theour 2018 Credit Agreement to repay commercial paper borrowings. We do not expect that fluctuations in demand for commercial paper will

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affect our liquidity given our borrowing capacity available under our revolving credit facility under theour 2018 Credit Agreement.


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We had the following borrowing capacity available under theour 2018 Credit Agreement:
Remaining Borrowing CapacityRemaining Borrowing Capacity
November 30,
2018		 
December 31,
2018
August 31,
2019		 September 30,
2019
(in millions)      
Revolving Credit Facility (1)
$1,257.2
 $1,164.4
$1,836.8
 $1,987.8
(1) 
Net of outstanding revolving credit facility borrowings and outstanding letters of credit under theour 2018 Credit Agreement and outstanding borrowings under our commercial paper program.


The financial institutions participating in theour 2018 Credit Agreement have complied with prior funding requests and we believe such financial institutions will comply with any future funding requests. However, there can be no assurances that any particular financial institution will continue to do so.


We and our subsidiaries are subject to covenants that are contained in theour 2018 Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness) by subsidiaries that are not guarantors, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions, and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net leverage ratio, both as defined in theour 2018 Credit Agreement. As of November 30, 2018,August 31, 2019, under theour 2018 Credit Agreement, the minimum interest coverage ratio was 2.5x and the maximum net leverage ratio was 5.25x.5.0x.


The obligations under the Term Credit Agreement and our 2019 Term Credit Agreement are guaranteed by certain of our U.S. subsidiaries. In addition, the representations, warranties, covenants, and events of default set forth in theour Term Credit Agreement and our 2019 Term Credit Agreement are substantially similar to those set forth in theour 2018 Credit Agreement.


Our indentures relating to our outstanding senior notes contain certain covenants, including, but not limited to:  (i)  a limitation on liens on certain assets, (ii)  a limitation on certain sale and leaseback transactions, and (iii)  restrictions on mergers, consolidations, and the transfer of all or substantially all of our assets to another person.


As of November 30, 2018,August 31, 2019, we were in compliance with all of our covenants under theour 2018 Credit Agreement, theour Term Credit Agreement, our 2019 Term Credit Agreement and our indentures, and have met all debt payment obligations.


For a complete discussion and presentation of all borrowings and available sources of borrowing, refer to Note 12 of our consolidated financial statements included in our 20182019 Annual Report and Note 1011 of the Financial Statements included herein.Statements.


Common Stock Dividends


On January 8,October 2, 2019, our Board of Directors declared a quarterly cash dividend of $0.74$0.75 per share of Class A Common Stock, $0.67$0.68 per share of Class B Convertible Common Stock, and $0.67$0.68 per share of Class 1 Common Stock payable on February 26,November 22, 2019, to stockholders of record of each class on February 12,November 8, 2019.


We currently expect to continue to pay a regular quarterly cash dividend to stockholders of our common stock in the future, but such payments are subject to approval of our Board of Directors and are dependent upon our financial condition, results of operations, capital requirements, and other factors,

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including those set forth under Item 1A “Risk Factors” of our 20182019 Annual Report as supplemented by the additional factors set forth under Item 1A “Risk Factors” included in our Quarterly Report on Form 10-Q for the fiscal quarter ended AugustMay 31, 2018.2019.


Share Repurchase Program


Our Board of Directors have authorized the repurchase of up to $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2018 Authorization. Shares repurchased under this authorization have become treasury shares.

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As of November 30, 2018,August 31, 2019, total shares repurchased under this authorization are as follows:
  Class A Common Shares  Class A Common Shares
Repurchase Authorization Dollar Value of Shares Repurchased Number of Shares RepurchasedRepurchase Authorization Dollar Value of Shares Repurchased Number of Shares Repurchased
(in millions, except share data)        
2018 Authorization$3,000.0
 $995.9
 4,632,012$3,000.0
 $1,045.9
 4,897,605


Share repurchases under the 2018 Authorization may be accomplished at management’s discretion from time to time based on market conditions, our cash and debt position, and other factors as determined by management. Shares may be repurchased through open market or privately negotiated transactions. We may fund future share repurchases with cash generated from operations and/or proceeds from borrowings. Any repurchased shares will become treasury shares.


For additional information, refer to Note 1516 of our consolidated financial statements included in our 20182019 Annual Report and Note 1215 of the Financial StatementsStatements.

Critical Accounting Estimates and Policies

Our significant accounting policies are more fully described in Note 1 of our consolidated financial statements included herein.in our 2019 Annual Report. However, certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by management; as a result, they are subject to an inherent degree of uncertainty. In applying those policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical experience, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. On an ongoing basis, we review our estimates to ensure that they appropriately reflect changes in our business. Our critical accounting estimates included in the 2019 Annual Report have not changed except for the addition of the following critical accounting estimate:



Fair value of financial instruments.
Accounting GuidanceAuthoritative guidance establishes a framework for measuring fair value, including a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy includes three levels:

Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
Level 2 inputs include data points that are observable such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) such as volatility, interest rates and yield curves that are observable for the asset and liability, either directly or indirectly; and

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Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

Assessing the significance of a particular input to the fair value measurement requires judgment, considering factors specific to the asset or liability. Determining whether a fair value measurement is based on Level 1, Level 2, or Level 3 inputs is important because certain disclosures are applicable only to those fair value measurements that use Level 3 inputs. The use of Level 2 or Level 3 inputs may include information derived through extrapolation or interpolation which involves management assumptions as well as valuation techniques.
The fair values of our financial instruments that require the application of significant judgment by management are as follows:
Canopy investments
Equity securities, Warrants - estimated using the Black-Scholes option-pricing model (Level 2 fair value measurement) and Monte Carlo simulations (Level 2 fair value measurement). These valuation models use various market-based inputs, including stock price, expected life, expected volatility, risk-free interest rate, and expected dividend yield, as applicable.

Debt securities, Convertible - estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes an estimate of the credit spread based on the implied spread as of the issuance date of the notes. This valuation model uses various market-based inputs, including stock price, remaining term, expected volatility, risk-free interest rate and expected dividend yield, as applicable.

Management’s estimate of fair value requires significant management judgment and is subject to a high degree of variability based upon market conditions, the availability of specific information and management’s assumptions.
For further discussion on fair value of our financial instruments, refer to Note 6 in the Notes to the Financial Statements.

ACCOUNTING GUIDANCE

Refer to Note 2 and Note 14 of the Financial Statements included herein for information on recently adopted accounting guidance and accounting guidance not yet adopted.guidance.




Information Regarding Forward-Looking StatementsINFORMATION REGARDING FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements, including without limitation (I)  thelimitation:

The statements under Part I – Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding (i)  our business strategy, future operations, future financial position, future net sales and expected volume trends, expected effective tax rates and anticipated tax liabilities, prospects, plans and objectives of management, (ii)  regarding:
◦our business strategy, future operations, future financial position, future net sales and expected volume trends, expected effective tax rates and anticipated tax liabilities, prospects, plans, and objectives of management;
◦information concerning expected or potential actions of third parties, including potential changes to international trade agreements, tariffs, taxes, and other governmental rules and regulations;

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◦information concerning expected or potential actions of third parties, including potential changes to international trade agreements, tariffs, taxes and other governmental rules and regulations, (iii)  information concerning the future expected balance of supply and demand for our products, (iv)  timing and source of funds for operating activities, (v)  the manner, timing and duration of the share repurchase program and source of funds for share repurchases, and (vi)  the amount and timing of future dividends, (II) the future expected balance of supply and demand for our products;
◦timing and source of funds for operating activities;
◦the manner, timing, and duration of the share repurchase program and source of funds for share repurchases; and
◦the amount and timing of future dividends.
The statements regarding our beer operations expansion, construction, and optimization activities, including anticipated costs and timeframes for completion, and (III)  completion.
The statements regarding:
◦the volatility of the fair value of our investments in Canopy measured at fair value;
◦our activities surrounding our investments in Canopy;
◦the time to return to our targeted leverage ratio;
◦the New November 2018 Canopy Warrants; and
◦our future ownership level in Canopy.
The statements regarding (i)  the volatility of the fair value of our investments in Canopy, (ii)  our activities following the close of the November 2018 CanopyWine and Spirits Transaction and (iii)  time to return to our targeted leverage ratio following the closeBlack Velvet Transaction, including expected gain or loss, form of consideration, amount and use of expected proceeds, estimated remaining costs, expected restructuring charge, and expected additional loss on the November 2018 Canopy Transaction are forward-looking statements. write-down of assets held for sale.
The statements regarding Canopy’s transaction with Acreage.

When used in this Quarterly Report on Form 10-Q, the words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and markets in which we compete, our forward-looking statements contained in this Quarterly Report on Form 10-Q are also subject to the risk and uncertainty that (i)  that:

the actual balance of supply and demand for our products will vary from current expectations due to, among other

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reasons, actual raw material supply, actual shipments to distributors, and actual consumer demand, (ii)  demand;
the actual demand, for our products, actual net sales, and actual volume trends for our products will vary from current expectations due to, among other reasons, actual shipments to distributors, and actual consumer demand, (iii)  demand;
the amount, and timing, of and source of funds for any share repurchases may vary due to market conditions, our cash and debt position, the impact of the beer operations expansion activities, the impact of our investments in Canopy, the November 2018 Canopyexpected impacts of the Wine and Spirits Transaction, and other factors as determined by management from time to time, (iv)  time;
the amount and timing of future dividends may differ from our current expectations if our ability to use cash flow to fund dividends is affected by unanticipated increases in total net debt, we are unable to generate cash flow at anticipated levels, or we fail to generate expected earnings, (v)  earnings;
the fair value of our investments in Canopy may vary due to market and economic conditions in Canopy’s locations, (vi)  markets and business locations;
the timeframe and actual costs associated with the beer operations expansion construction and optimization activities may vary from management’s current expectations due to market conditions, our cash and debt position, receipt of required regulatory approvals by the expected dates and on the expected terms, and other factors as determined by management,management;
any consummation of the Wine and (vii) Spirits Transaction or of the Black Velvet Transaction, and any actual date of consummation of either may vary from our current expectations; the actual restructuring charge, if any, will vary based on management’s final plans; the amount of additional loss, if any, on the future write-down of assets held for sale will vary based on the

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form of consideration, amount of consideration actually received, and future brand performance;
any impact of U.S. federal laws on the transaction between Acreage and Canopy or upon the implementation of that transaction, may vary from management’s current expectations; and
the time to return to our targeted leverage ratio may vary from management’s current expectations due to market conditions, our ability to generate cash flow at expected levels and our ability to generate expected earnings.

The Wine and Spirits Transaction and the Black Velvet Transaction are each subject to the satisfaction of certain closing conditions, including receipt of required regulatory approvals. For additional information about risks and uncertainties that could adversely affect our forward-looking statements, please refer to Item 1A “Risk Factors” of our 20182019 Annual Report as supplemented by the additional factors set forth under Item 1A “Risk Factors” ofincluded in our Quarterly Report on Form 10-Q for the fiscal quarter ended AugustMay 31, 2018.2019.



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Item 3.Quantitative and Qualitative Disclosures About Market Risk.


As a result of our global operating, investment, acquisition, and financing activities, we are exposed to market risk associated with changes in foreign currency exchange rates, commodity prices, interest rates, and equity prices. To manage the volatility relating to these risks, we periodically purchase and/or sell derivative instruments including foreign currency forward and option contracts, commodity swap contracts, and interest rate swap contracts. We use derivative instruments to reduce earnings and cash flow volatility resulting from shifts in market rates, as well as to hedge economic exposures. We have not entered into derivative instruments to hedge our exposure to equity price risks. We do not enter into derivative instruments for trading or speculative purposes.


Foreign Currency and Commodity Price Risk

Foreign currency derivative instruments are or may be used to hedge existing foreign currency denominated assets and liabilities, forecasted foreign currency denominated sales/purchases to/from third parties as well as intercompany sales/purchases, intercompany principal and interest payments, and in connection with investments, acquisitions divestitures or investmentsdivestitures outside the U.S. As of November 30, 2018,August 31, 2019, we had exposures to foreign currency risk primarily related to the Mexican peso, euro, Canadian dollar, and New Zealand dollar and Canadian dollar. Approximately 81%87% of our balance sheet exposures and forecasted transactional exposures for the remaining threesix months of fiscal 20192020 were hedged as of November 30, 2018.August 31, 2019.


Commodity derivative instruments are or may be used to hedge forecasted commodity purchases from third parties as either economic hedges or accounting hedges. As of November 30, 2018,August 31, 2019, exposures to commodity price risk which we are currently hedging primarily include aluminum, corn, diesel fuel, natural gas, and aluminumwheat prices. Approximately 86%83% of our forecasted transactional exposures for the remaining threesix months of fiscal 20192020 were hedged as of November 30, 2018.August 31, 2019.


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We have performed a sensitivity analysis to estimate our exposure to market risk of foreign exchange rates and commodity prices reflecting the impact of a hypothetical 10% adverse change in the applicable market. The volatility of the applicable rates and prices is dependent on many factors which cannot be forecasted with reliable accuracy. LossesGains or gainslosses from the revaluation or settlement of the related underlying positions would substantially offset such gains or losses on the derivative instruments. The aggregate notional value, estimated fair value, and sensitivity analysis for our open foreign currency and commodity derivative instruments are summarized as follows:
Aggregate
Notional Value
 
Fair Value,
Net Asset (Liability)
 
Increase (Decrease)
in Fair Value –
Hypothetical
10% Adverse Change
Aggregate
Notional Value
 
Fair Value,
Net Asset (Liability)
 
Increase (Decrease)
in Fair Value –
Hypothetical
10% Adverse Change
November 30,
2018		 November 30,
2017		 November 30,
2018		 November 30,
2017		 November 30,
2018		 November 30,
2017		August 31,
2019		 August 31,
2018		 August 31,
2019		 August 31,
2018		 August 31,
2019		 August 31,
2018
(in millions)                      
Foreign currency contracts$1,955.5
 $1,871.5
 $(56.2) $3.2
 $136.5
 $(108.7)$2,741.1
 $5,193.8
 $(27.9) $2.8
 $200.9
 $149.3
Commodity derivative contracts$260.2
 $164.3
 $(8.9) $2.8
 $22.1
 $(14.8)$265.1
 $224.5
 $(24.8) $8.1
 $21.1
 $(19.7)


Interest Rate Risk

The estimated fair value of our fixed interest rate debt is subject to interest rate risk, credit risk, and foreign currency risk. In addition, we also have variable interest rate debt outstanding (primarily LIBOR-based), certain of which includes a fixed margin subject to the same risks identified for our fixed interest rate debt.

As of November 30, 2018, and November 30, 2017,August 31, 2019, we had $375.0 million of outstanding cash flow designated interest rate swap agreements which fixed LIBOR interest rates (to minimize interest rate volatility) on our floating LIBOR rate debt. There were no cash flow designated interest rate swap contracts outstanding. Refer to Note 10outstanding as of the Financial Statements for a discussionAugust 31, 2018.


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As of theAugust 31, 2018, we had outstanding forward-starting interest rate swap contracts entered into towith an aggregate notional value of $1,250.0 million which economically hedgehedged our exposure to interest rate volatility associated with the then anticipated debt financing forin connection with the November 2018 Canopy Transaction. The interest rate swap contracts were not designated as a hedge for accounting purposes. There were no undesignated interest rate swap contracts outstanding as of August 31, 2019.


We have performed a sensitivity analysis to estimate our exposure to market risk of interest rates reflecting the impact of a hypothetical 1% increase in the prevailing interest rates. The volatility of the applicable rates is dependent on many factors which cannot be forecasted with reliable accuracy. The aggregate notional value, estimated fair value and sensitivity analysis for our outstanding fixed and variable interest rate debt, including current maturities and open interest rate derivative instruments are summarized as follows:
Aggregate
Notional Value
 Fair Value 
Decrease
in Fair Value –
Hypothetical
1% Rate Increase
Aggregate
Notional Value
 
Fair Value,
Net Asset (Liability)
 
Increase (Decrease)
in Fair Value –
Hypothetical
1% Rate Increase
November 30,
2018		 November 30,
2017		 November 30,
2018		 November 30,
2017		 November 30,
2018		 November 30,
2017		August 31,
2019		 August 31,
2018		 August 31,
2019		 August 31,
2018		 August 31,
2019		 August 31,
2018
(in millions)                      
Fixed interest rate debt$10,282.1
 $7,490.8
 $9,855.4
 $7,720.7
 $(569.0) $(406.8)$10,675.2
 $8,780.6
 $(11,405.0) $(8,528.4) $(735.2) $(476.0)
Variable interest rate debt$3,376.5
 $1,923.8
 $3,333.6
 $1,902.8
 $(98.1) $(41.8)$2,354.7
 $1,213.4
 $(2,423.1) $(1,203.4) $(64.5) $(26.5)
Interest rate swap contracts$375.0
 $1,250.0
 $(0.7) $2.7
 $(2.2) $108.3


Equity Price Risk

The estimated fair value of our investments in the Canopy warrants and the Canopy convertible debt securities are subject to equity price risk, interest rate risk, credit risk, and foreign currency risk. These investments are recordedrecognized at fair value utilizing various option-pricing models and have the potential to fluctuate from, among other items, changes in the quoted market price of the underlying equity security. We manage our equity price risk exposure by closely monitoring the financial condition, performance, and outlook of Canopy Growth Corporation.


As of November 30, 2018,August 31, 2019, the fair value of our investments in the Canopy warrants and the Canopy convertible debt securities was $2,048.1$1,572.2 million, with an unrealized net gain (loss) on these investments of $494.0$(1,666.6) million recognized in our results of operations for the ninesix months ended November 30, 2018.August 31, 2019. We have performed a sensitivity analysis to estimate our exposure to market risk of the equity price reflecting the impact of a hypothetical

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10% adverse change in the quoted market price of the underlying equity security. As of November 30, 2018,August 31, 2019, such a hypothetical 10% adverse change would have resulted in a decrease in fair value of $288.5$235.2 million.


For additional discussion on our market risk, refer to Notes 45 and 56 of the Financial Statements.




Item 4.Controls and Procedures.


Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (i)  is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii)  is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



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Internal Control Over Financial Reporting

We plan to implement a new enterprise resource planning system across our business units using a phased approach over the next several years. There will be changes in our internal controls as this system becomes operational at each business unit.

In connection with the foregoing evaluation by our Chief Executive Officer and our Chief Financial Officer, no other changes were identified in the Company’s “internal control over financial reporting” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) that occurred during our fiscal quarter ended November 30, 2018,August 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




PART II – OTHER INFORMATION


Item 1. Legal Proceedings.

On August 21, 2019, Industria Vidriera de Coahuila, S. de R.L. de C.V. (“IVC”), the Mexican subsidiary of a consolidated joint venture of the Company, received from the Procuraduria de Protección al Ambiente de Coahuila (“PROPAEC”) notification of an enforcement action for violations of certain laws in the Mexican state of Coahuila de Zaragoza regulating the discharge of wastewater into the environment. The notification was based on PROPAEC’s evaluation of IVC’s May 22, 2019 response to allegations arising from an inspection of IVC’s facility originally conducted by PROPAEC on April 12, 2018. The allegations against IVC consist of the discharge of wastewater from evaporators without PROPAEC’s authorization and associated recordkeeping violations under relevant state environmental regulations. IVC has been assessed a penalty of approximately $110,000 (the United States dollar equivalent of MXN$ 2,196,740). The cost of remediation is not expected to be material to the Company, to the Company’s consolidated joint venture, or to IVC.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES
Period 
Total Number
of Shares
Purchased
 
Average
Price Paid
Per Share
 
Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Program
 
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Program (1)
June 1 – 30, 2019 —
 $—
 —
 $—
July 1 – 31, 2019 —
 $—
 —
 $—
August 1 – 31, 2019 265,593
 $188.28
 265,593
 $1,954,103,834
Total 265,593
 $188.28
 265,593
  
(1)
In January 2018, we announced that our Board of Directors authorized the repurchase of up to an aggregate amount of $3.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2018 Authorization. The Board of Directors did not specify a date upon which the 2018 Authorization would expire. Share repurchases for the periods included herein were effected through open market transactions.

Item 4.Mine Safety Disclosures.


Not Applicable.





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Item 6.Exhibits.


Exhibits required to be filed by Item 601 of Regulation S-K.


For the exhibits that are filed herewith or incorporated herein by reference, see the Index to Exhibits immediately following.


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INDEX TO EXHIBITS

Exhibit No.  
2.1 
Subscription Agreement, dated as of August 14, 2018, by and between CBG Holdings LLC and Canopy Growth Corporation, including, among other things, a form of the Amended and Restated Investor Rights Agreement (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated August 14, 2018, filed August 16, 2018, and incorporated herein by reference). + †
   
2.2 
Foreign Exchange Rate Agreement dated October 26, 2018 between CBG Holdings LLC and Canopy Growth Corporation (filed herewith)as Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2018 and incorporated herein by reference).
2.3
Asset Purchase Agreement made and entered into by and between the Company and E. & J. Gallo Winery (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 3, 2019, filed April 8, 2019 and incorporated herein by reference). †
   
3.1 
Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein by reference). #
   
3.2 
Certificate of Amendment to the Certificate of Incorporation of the Company (filed as Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein by reference). #
   
3.3 
By-Laws of the Company, amended and restated as of October 3, 2018 (filed as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2018 and incorporated herein by reference).
   
4.1 
Indenture, dated as of April 17, 2012, by and among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 17, 2012, filed April 23, 2012 and incorporated herein by reference). #
   
4.2 
Supplemental Indenture No. 1, with respect to 6.0% Senior Notes due May 2022, dated as of April 17, 2012, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (no longer outstanding) (filed as Exhibit 4.1.1 to the Company’s Current Report on Form 8-K dated April 17, 2012, filed April 23, 2012 and incorporated herein by reference). #
   
4.3 
Supplemental Indenture No. 3, with respect to 3.75% Senior Notes due May 2021, dated as of May 14, 2013, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 14, 2013, filed May 16, 2013 and incorporated herein by reference). #
   
4.4 
Supplemental Indenture No. 4, with respect to 4.25% Senior Notes due May 2023, dated as of May 14, 2013, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 14, 2013, filed May 16, 2013 and incorporated herein by reference). #
   
4.5 
Supplemental Indenture No. 5, dated as of June 7, 2013, among the Company, Constellation Brands Beach Holdings, Inc., Crown Imports LLC, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K dated June 7, 2013, filed June 11, 2013 and incorporated herein by reference). #
   

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4.6 
Supplemental Indenture No. 6, dated as of May 28, 2014, among the Company, Constellation Marketing Services, Inc., and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.21 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2014 and incorporated herein by reference). #
   
4.7 
Supplemental Indenture No. 7, with respect to 3.875% Senior Notes due 2019, dated as of November 3, 2014, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (no longer outstanding) (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 3, 2014, filed November 7, 2014 and incorporated herein by reference). #
   
4.8 
Supplemental Indenture No. 8, with respect to 4.750% Senior Notes due 2024, dated as of November 3, 2014, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated November 3, 2014, filed November 7, 2014 and incorporated herein by reference). #
   
4.9 
Supplemental Indenture No. 9, with respect to 4.750% Senior Notes due 2025, dated as of December 4, 2015, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 4, 2015, filed December 8, 2015 and incorporated herein by reference).
   
4.10 
Supplemental Indenture No. 10, dated as of January 15, 2016, among the Company, Home Brew Mart, Inc. and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.26 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2016 and incorporated herein by reference).
   

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4.11 
Supplemental Indenture No. 11 with respect to 3.700% Senior Notes due 2026, dated as of December 6, 2016, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee, (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 6, 2016, filed December 6, 2016 and incorporated herein by reference).
   
4.12 
Supplemental Indenture No. 12 with respect to 2.700% Senior Notes due 2022, dated as of May 9, 2017, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 9, 2017, filed May 9, 2017 and incorporated herein by reference).
   
4.13 
Supplemental Indenture No. 13 with respect to 3.500% Senior Notes due 2027, dated as of May 9, 2017, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 9, 2017, filed May 9, 2017 and incorporated herein by reference).
   
4.14 
Supplemental Indenture No. 14 with respect to 4.500% Senior Notes due 2047, dated as of May 9, 2017, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated May 9, 2017, filed May 9, 2017 and incorporated herein by reference).
   
4.15 
Supplemental Indenture No. 15 with respect to 2.000% Senior Notes due 2019, dated as of November 7, 2017, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 7, 2017, filed November 7, 2017 and incorporated herein by reference).
   
4.16 
Supplemental Indenture No. 16 with respect to 2.250% Senior Notes due 2020, dated as of November 7, 2017, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated November 7, 2017, filed November 7, 2017 and incorporated herein by reference).
   

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4.17 
Supplemental Indenture No. 17 with respect to 2.650% Senior Notes due 2022, dated as of November 7, 2017, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated November 7, 2017, filed November 7, 2017 and incorporated herein by reference).
   
4.18 
Supplemental Indenture No. 18 with respect to 3.200% Senior Notes due 2023, dated as of February 7, 2018, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 7, 2018 filed February 7, 2018 and incorporated herein by reference).
   
4.19 
Supplemental Indenture No. 19 with respect to 3.600% Senior Notes due 2028, dated as of February 7, 2018, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated February 7, 2018 filed February 7, 2018 and incorporated herein by reference).
   
4.20 
Supplemental Indenture No. 20 with respect to 4.100% Senior Notes due 2048, dated as of February 7, 2018, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated February 7, 2018 filed February 7, 2018 and incorporated herein by reference).
   
4.21 
Restatement Agreement, dated as of August 10, 2018, by and among the Company, CIH International S.à r.l., CB International Finance S.à r.l., Bank of America, N.A., as Administrative Agent, and the Lenders party thereto, including the Seventh Amended and Restated Credit Agreement dated as of August 10, 2018, by and among the Company, CB International Finance S.à r.l., Bank of America, N.A., as Administrative Agent, and the Lenders party thereto (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated August 10, 2018, filed August 14, 2018 and incorporated herein by reference).
4.22
Restatement Agreement, dated as of September 14, 2018, by and among the Company, CB International Finance S.à r.l., certain of the Company’s subsidiaries as guarantors, Bank of America, N.A., as Administrative Agent, and the Lenders party thereto, including the Eighth Amended and Restated Credit Agreement dated as of September 14, 2018, by an among the Company, CB International Financing S.à r.l., Bank of America, N.A., as Administrative Agent, and the Lenders party thereto (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).
4.23
Term Loan Credit Agreement, dated as of September 14, 2018, by and among the Company, Bank of America, N.A., as Administrative Agent, and the Lenders party thereto (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).
4.24
Bridge Credit Agreement, dated September 14, 2018, by and among the Company, Bank of America, N.A., as Administrative Agent, and the Lenders party thereto (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).

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4.25
Supplemental Indenture No. 21 with respect to Senior Floating Rate Notes due 2021, dated as of October 29, 2018, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 29, 2018, filed October 29, 2018, and incorporated herein by reference).
   
4.264.22 
Supplemental Indenture No. 22 with respect to 4.400% Senior Notes due 2025, dated as of October 29, 2018, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated October 29, 2018, filed October 29, 2018, and incorporated herein by reference).
   
4.274.23 
Supplemental Indenture No. 23 with respect to 4.650% Senior Notes due 2028, dated as of October 29, 2018, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated October 29, 2018, filed October 29, 2018 and incorporated herein by reference).
4.28
4.24 
Supplemental Indenture No. 24 with respect to 5.250% Senior Notes due 2048, dated as of October 29, 2018, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K dated October 29, 2018, filed October 29, 2018 and incorporated herein by reference).
4.25
Supplemental Indenture No. 25 with respect to 3.150% Senior Notes due 2029, dated as of July 29, 2019, among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 29, 2019, filed July 29, 2019 and incorporated herein by reference).
4.26
Restatement Agreement, dated as of September 14, 2018, by and among the Company, CB International Finance S.à r.l., certain of the Company’s subsidiaries as guarantors, Bank of America, N.A., as Administrative Agent, and the Lenders party thereto, including the Eighth Amended and Restated Credit Agreement dated as of September 14, 2018, by and among the Company, CB International Finance S.à r.l., Bank of America, N.A., as Administrative Agent, and the Lenders party thereto (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).
4.27
2018 Term Loan Credit Agreement, dated as of September 14, 2018, by and among the Company, Bank of America, N.A., as Administrative Agent, and the Lenders party thereto (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).

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4.28
2019 Term Loan Credit Agreement, dated as of June 28, 2019, by and among the Company and Bank of America, N.A., as Administrative Agent and Lender (filed as Exhibit 4.1 to the Company Current Report on Form 8-K dated June 28, 2019, filed July 3, 2019 and incorporated herein by reference).†
   
10.1 
Amended and Restated Guarantee Agreement, dated as of July 14, 2017, made by the subsidiaries of Constellation Brands, Inc. from time to time party thereto and Constellation Brands, Inc. in favor of Bank of America, N.A., as Administrative Agent, for the ratable benefit of the Lenders party to the Credit Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 14, 2017, filed July 19, 2017 and incorporated herein by reference).
   
10.2 
Guarantee Agreement (Term(2018 Term Loan Credit Agreement), dated as of September 14, 2018, made by the subsidiaries of Constellation Brands, Inc. from time to time party thereto in favor of Bank of America, N.A., as Administrative Agent, for the ratable benefit of the Lenders party to the 2018 Term Loan Credit Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).
   
10.3 
Guarantee Agreement (Bridge(2019 Term Loan Credit Agreement), dated as of September 14, 2018,June 28, 2019, made by the subsidiaries of Constellation Brands, Inc. from time to time party thereto in favor of Bank of America, N.A., as Administrative Agent, for the ratable benefit of the Lenders party to the Bridge2019 Term Loan Credit Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by reference).
10.4
Third Amendment to the Company’s 2005 Supplemental Executive Retirement Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 2, 2018,June 28, 2019, filed October 4, 2018July 3, 2019 and incorporated herein by reference).
10.4
Executive Employment Agreement made as of June 3, 2019, between Constellation Brands, Inc. and Robert L. Hanson (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2019 and incorporated herein by reference). *
   
10.5 
Constellation Brands, Inc. Non-Qualified Savings Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 2, 2018, filed October 4, 2018 and incorporated herein by reference). *
10.6
Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan (relating to contingent grants)margin and market performance) (filed herewith). * †
10.6
Form of Stock Option Agreement for Directors with respect to grants of options to purchase Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on and after July 16, 2019) (filed herewith). *
10.7
Form of Restricted Stock Unit Agreement for Directors with respect to awards of restricted stock units pursuant to the Company’s Long-Term Stock Inventive Plan (grants on an after July 16, 2019) (filed herewith). *
10.8
Description of Compensation Arrangements for Non-Management Directors (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 19, 2018,September 24, 2019, filed October 22, 2018September 25, 2019 and incorporated herein by reference). *
   
31.1 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).
   
31.2 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).
   
32.1 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
   
32.2 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
   
101.199.1 The following materials from the Company’s Quarterly Report on
Consent Agreement, dated April 18, 2019, by and between CBG Holdings LLC and Canopy Growth Corporation (incorporated herein by reference to Exhibit 99.4 of Canopy Growth Corporation’s Form 10-Q for the fiscal quarter ended November6-K filed April 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of November 30, 2018 and February 28, 2018, (ii) Consolidated Statements of Comprehensive Income for the nine months and three months ended November 30, 2018 and 2017, (iii) Consolidated Statements of Cash Flows for the nine months ended November 30, 2018 and 2017, and (iv) Notes to Consolidated Financial Statements.2019).


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OTHER KEY INFORMATION
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99.2
Second Amended and Restated Investor Rights Agreement, dated April 18, 2019, by and among Greenstar Canada Investment Limited Partnership, CBG Holdings LLC and Canopy Growth Corporation (incorporated herein by reference to Exhibit 99.3 of Canopy Growth Corporation’s Form 6-K filed April 30, 2019).
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (filed herewith).
101.SCHXBRL Taxonomy Extension Schema Document (filed herewith).
101.CALXBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEFXBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LABXBRL Taxonomy Extension Labels Linkbase Document (filed herewith).
101.PREXBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

#Company’s Commission File No. 001-08495.
*Designates management contract or compensatory plan or arrangement.
†Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
+ The disclosure schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Constellation Brands agrees to furnish supplementally a copy of such disclosure schedules, or any section thereof, to the SEC upon request.

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The Company agrees, upon request of the Securities and Exchange Commission, to furnish copies of each instrument that defines the rights of holders of long-term debt of the Company or its subsidiaries that is not filed herewith pursuant to Item 601(b)(4)(iii)(A) because the total amount of long-term debt authorized under such instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


  CONSTELLATION BRANDS, INC.
    
Date:January 9,October 3, 2019By:/s/ Thomas M. McCorry
   
Thomas M. McCorry, Senior Vice President
and Controller
    
Date:January 9,October 3, 2019By:/s/ David Klein
   
David Klein, Executive Vice President and
Chief Financial Officer (principal financial
officer and principal accounting officer)


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