UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~November 30, 2019~~May 31, 2020



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

For the transition period from to

Commission File Number: 001-08495

CONSTELLATION BRANDS, INC.

(Exact name of registrant as specified in its charter)



Delaware			16-0716709
(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~~) (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 Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Common Stock	STZ	New York Stock Exchange
Class B Common Stock	STZ.B	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes☐ No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	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 ☒

There were ~~167,512,743~~168,020,436 shares of Class A Common Stock, ~~23,311,506~~23,285,074 shares of Class B Common Stock, and ~~823,377~~1,684,628 shares of Class 1 Common Stock outstanding as of ~~December 31, 2019.~~June 26, 2020.

Table of Contents

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets			1
Consolidated Statements of Comprehensive Income (Loss)			2
Consolidated Statements of Changes in Stockholders’ Equity			3
Consolidated Statements of Cash Flows			4
Notes to Consolidated Financial Statements
	1. Basis of Presentation	6
	2. Inventories	6
	3. Acquisitions, Divestitures, and Business Transformation	6
	4. Derivative Instruments	10
	5. Fair Value of Financial Instruments	12
	6. Goodwill	16
	7. Intangible Assets	17
	8. Equity Method Investments	17


	9. Borrowings	20
	10. Income Taxes	24


	11. Stockholders' Equity	25
	12. Net Income (Loss) Per Common Share Attributable to CBI	26
	13. Comprehensive Income (Loss) Attributable to CBI	27
	14. Business Segment Information	29


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			4833
Item 3. Quantitative and Qualitative Disclosures About Market Risk			7254
Item 4. Controls and Procedures			7355
PART II – OTHER INFORMATION
~~Item 1. Legal Proceedings~~	74


Item 4. Mine Safety Disclosures		74	NA
Item 6. Exhibits			7456
INDEX TO EXHIBITS			7557
SIGNATURES			8063

NA = Not Applicable

Table of Contents

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 22. “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 11. of this Quarterly Report on Form 10-Q for the definition of capitalized terms used herein. All references to “Fiscal ~~2019”~~2020” refer to our fiscal year ended February ~~28, 2019.~~29, 2020. All references to “Fiscal ~~2020”~~2021” refer to our fiscal year ending February ~~29, 2020.~~28, 2021. All references to “$” are to U.S. dollars and all references to “C$” 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.~~

Item 1. Financial Statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)
(unaudited)
November 30,
2019 February 28,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 93.7
$ 93.6
Accounts receivable 808.3
846.9
Inventories 1,358.8
2,130.4
Prepaid expenses and other 484.3
613.1
Assets held for sale - current 724.8
—
Total current assets 3,469.9
3,684.0
Property, plant, and equipment 5,187.2
5,267.3
Goodwill 7,771.8
8,088.8
Intangible assets 2,721.3
3,198.1
Equity method investments 3,058.7
3,465.6
Securities measured at fair value 1,040.2
3,234.7
Deferred income taxes 2,663.0
2,183.3
Assets held for sale 562.5
—
Other assets 619.1
109.7
Total assets $ 27,093.7
$ 29,231.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings $ 281.5
$ 791.5
Current maturities of long-term debt 734.8
1,065.2
Accounts payable 676.5
616.7
Other accrued expenses and liabilities 767.4
690.4
Total current liabilities 2,460.2
3,163.8
Long-term debt, less current maturities 11,339.7
11,759.8
Deferred income taxes and other liabilities 1,257.5
1,470.7
Total liabilities 15,057.4
16,394.3
Commitments and contingencies

CBI stockholders’ equity:
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued, 186,071,345 shares and 185,740,178 shares, respectively 1.9
1.9
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares; Issued, 28,319,606 shares and 28,322,419 shares, respectively 0.3
0.3
Additional paid-in capital 1,472.3
1,410.8
Retained earnings 13,439.4
14,276.2
Accumulated other comprehensive income (loss) (383.8 ) (353.9 )
14,530.1
15,335.3
Less: Treasury stock –
Class A Common Stock, at cost, 18,566,568 shares and 18,927,966 shares, respectively (2,818.5 ) (2,782.1 )
Class B Convertible Common Stock, at cost, 5,005,800 shares (2.2 ) (2.2 )
(2,820.7 ) (2,784.3 )
Total CBI stockholders’ equity 11,709.4
12,551.0
Noncontrolling interests 326.9
286.2
Total stockholders’ equity 12,036.3
12,837.2
Total liabilities and stockholders’ equity $ 27,093.7
$ 29,231.5
CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)


	May 31, 2020		February 29, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	302.8	$	81.4
Accounts receivable	700.5		864.8
Inventories	1,332.6		1,373.6
Prepaid expenses and other	470.1		535.8
Assets held for sale - current	590.2		628.5
Total current assets	3,396.2		3,484.1
Property, plant, and equipment	5,098.2		5,333.0
Goodwill	7,684.9		7,757.1
Intangible assets	2,735.4		2,718.9
Equity method investments	2,885.7		3,093.9
Securities measured at fair value	809.5		1,117.1
Deferred income taxes	2,599.5		2,656.3
Assets held for sale	376.4		552.1
Other assets	564.0		610.7
Total assets	$	26,149.8	$	27,323.2
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	—	$	238.9
Current maturities of long-term debt	534.7		734.9
Accounts payable	505.5		557.6
Other accrued expenses and liabilities	712.2		780.4
Total current liabilities	1,752.4		2,311.8
Long-term debt, less current maturities	11,639.3		11,210.8

Deferred income taxes and other liabilities	1,380.5		1,326.3
Total liabilities	14,772.2		14,848.9
Commitments and contingencies
CBI stockholders’ equity:
Class A Common Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 186,093,277 shares and 186,090,745 shares, respectively	1.9		1.9
Class B Convertible Common Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,297,674 shares and 28,300,206 shares, respectively	0.3		0.3
Additional paid-in capital	1,523.3		1,514.6
Retained earnings	13,374.1		13,695.3
Accumulated other comprehensive income (loss)	(1,022.4)		(266.3)
	13,877.2		14,945.8
Less: Treasury stock –
Class A Common Stock, at cost, 18,118,879 shares and 18,256,826 shares, respectively	(2,809.0)		(2,811.8)
Class B Convertible Common Stock, at cost, 5,005,800 shares	(2.2)		(2.2)
	(2,811.2)		(2,814.0)
Total CBI stockholders’ equity	11,066.0		12,131.8
Noncontrolling interests	311.6		342.5
Total stockholders’ equity	11,377.6		12,474.3
Total liabilities and stockholders’ equity	$	26,149.8	$	27,323.2

The accompanying notes are an integral part of these statements.



Constellation Brands, Inc. Q3Q1 FY ~~2020~~2021 Form 10-Q			#WORTHREACHINGFOR I1



FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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,
2019 2018 2019 2018
Sales $ 7,037.4
$ 6,916.3
$ 2,181.5
$ 2,160.6
Excise taxes (596.8 ) (597.5 ) (182.1 ) (188.0 )
Net sales 6,440.6
6,318.8
1,999.4
1,972.6
Cost of product sold (3,238.5 ) (3,132.0 ) (1,011.9 ) (1,002.6 )
Gross profit 3,202.1
3,186.8
987.5
970.0
Selling, general, and administrative expenses (1,251.7 ) (1,239.9 ) (406.3 ) (413.5 )
Impairment of assets held for sale (417.0 ) —
(390.0 ) —
Gain (loss) on sale of business 76.0
—
76.0
—
Operating income (loss) 1,609.4
1,946.9
267.2
556.5
Income (loss) from unconsolidated investments (2,711.8 ) 918.2
(456.5 ) (134.6 )
Interest expense (329.3 ) (248.6 ) (103.1 ) (72.8 )
Loss on extinguishment of debt (2.4 ) (1.7 ) —
(1.7 )
Income (loss) before income taxes (1,434.1 ) 2,614.8
(292.4 ) 347.4
(Provision for) benefit from income taxes 1,046.5
(405.1 ) 658.9
(35.3 )
Net income (loss) (387.6 ) 2,209.7
366.5
312.1
Net income (loss) attributable to noncontrolling interests (22.6 ) (13.3 ) (6.1 ) (9.0 )
Net income (loss) attributable to CBI $ (410.2 ) $ 2,196.4
$ 360.4
$ 303.1

Comprehensive income (loss) $ (419.6 ) $ 1,891.7
$ 466.6
$ 98.2
Comprehensive (income) loss attributable to noncontrolling interests (20.5 ) 1.7
(13.4 ) 3.6
Comprehensive income (loss) attributable to CBI $ (440.1 ) $ 1,893.4
$ 453.2
$ 101.8

Net income (loss) per common share attributable to CBI:
Basic – Class A Common Stock $ (2.17 ) $ 11.66
$ 1.90
$ 1.62
Basic – Class B Convertible Common Stock $ (1.98 ) $ 10.59
$ 1.73
$ 1.47

Diluted – Class A Common Stock $ (2.17 ) $ 11.21
$ 1.85
$ 1.56
Diluted – Class B Convertible Common Stock $ (1.98 ) $ 10.35
$ 1.71
$ 1.45

Weighted average common shares outstanding:
Basic – Class A Common Stock 168.258
167.203
168.346
166.364
Basic – Class B Convertible Common Stock 23.316
23.322
23.314
23.318

Diluted – Class A Common Stock 168.258
195.921
194.856
194.820
Diluted – Class B Convertible Common Stock 23.316
23.322
23.314
23.318

Cash dividends declared per common share:
Class A Common Stock $ 2.25
$ 2.22
$ 0.75
$ 0.74
Class B Convertible Common Stock $ 2.04
$ 2.01
$ 0.68
$ 0.67
(in millions, except per share data)

(unaudited)


	For the Three Months Ended May 31,
	2020		2019
Sales	$	2,131.7	$	2,282.5
Excise taxes	(168.3)		(185.3)
Net sales	1,963.4		2,097.2
Cost of product sold	(975.1)		(1,068.5)
Gross profit	988.3		1,028.7
Selling, general, and administrative expenses	(353.3)		(406.0)

Impairment of assets held for sale	(25.0)		—

Operating income (loss)	610.0		622.7
Income (loss) from unconsolidated investments	(571.2)		(930.6)
Interest expense	(100.0)		(114.6)
Loss on extinguishment of debt	(7.0)		—
Income (loss) before income taxes	(68.2)		(422.5)
(Provision for) benefit from income taxes	(104.4)		185.4
Net income (loss)	(172.6)		(237.1)
Net income (loss) attributable to noncontrolling interests	(5.3)		(8.3)
Net income (loss) attributable to CBI	$	(177.9)	$	(245.4)

Comprehensive income (loss)	$	(964.9)	$	(239.8)
Comprehensive (income) loss attributable to noncontrolling interests	30.9		(7.2)
Comprehensive income (loss) attributable to CBI	$	(934.0)	$	(247.0)

Net income (loss) per common share attributable to CBI:
Basic and Diluted – Class A Common Stock	$	(0.94)	$	(1.30)
Basic and Diluted – Class B Convertible Common Stock	$	(0.86)	$	(1.19)




Weighted average common shares outstanding:
Basic and Diluted – Class A Common Stock	169.604		168.118
Basic and Diluted – Class B Convertible Common Stock	23.293		23.317




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

The accompanying notes are an integral part of these statements.



Constellation Brands, Inc. Q3Q1 FY ~~2020~~2021 Form 10-Q			#WORTHREACHINGFOR I2



FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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
Comprehensive income (loss):
Net income (loss) —
—
—
360.4
—
—
6.1
366.5
Other comprehensive income (loss), net of income tax effect —
—
—
—
92.8
—
7.3
100.1
Comprehensive income (loss) 466.6
Dividends declared —
—
—
(142.4 ) —
—
—
(142.4 )
Shares issued under equity compensation plans —
—
3.0
—
—
0.9
—
3.9
Stock-based compensation —
—
17.2
—
—
—
—
17.2
Balance at November 30, 2019 $ 1.9
$ 0.3
$ 1,472.3
$ 13,439.4
$ (383.8 ) $ (2,820.7 ) $ 326.9
$ 12,036.3

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

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

Dividends declared	—		—		—		(143.3)		—		—		—		(143.3)
Shares issued under equity compensation plans	—		—		(6.0)		—		—		2.8		—		(3.2)
Stock-based compensation	—		—		14.7		—		—		—		—		14.7
Balance at May 31, 2020	$	1.9	$	0.3	$	1,523.3	$	13,374.1	$	(1,022.4)	$	(2,811.2)	$	311.6	$	11,377.6





















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



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	3



~~FINANCIAL STATEMENTS~~	~~Table of Contents~~

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, 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
Comprehensive income (loss):
Net income (loss) —
—
—
303.1
—
—
9.0
312.1
Other comprehensive income (loss), net of income tax effect —
—
—
—
(201.3 ) —
(12.6 ) (213.9 )
Comprehensive income (loss) 98.2
Retirement of treasury shares (0.7 ) —
(1,522.3 ) —
—
1,523.0
—
—
Dividends declared —
—
—
(139.2 ) —
—
—
(139.2 )
Shares issued under equity compensation plans —
—
11.0
—
—
—
—
11.0
Stock-based compensation —
—
14.8
—
—
—
—
14.8
Balance at November 30, 2018 $ 1.9
$ 0.3
$ 1,368.8
$ 13,176.8
$ (505.9 ) $ (2,785.2 ) $ 263.3
$ 11,520.0

The accompanying notes are an integral part of these statements.


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FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	For the Three Months Ended May 31,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(172.6)	$	(237.1)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Unrealized net (gain) loss on securities measured at fair value	197.3		827.5
Deferred tax provision (benefit)	98.9		(245.4)
Depreciation	71.0		86.6
Stock-based compensation	14.6		15.5
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings	373.9		91.1
Noncash lease expense	20.9		22.8







Impairment of assets held for sale	25.0		—

Loss on inventory and related contracts	24.3		44.5
Loss on settlement of treasury lock contracts	(29.3)		—

Change in operating assets and liabilities, net of effects from purchases of businesses:
Accounts receivable	167.0		58.6
Inventories	48.6		(50.3)
Prepaid expenses and other current assets	40.5		(8.7)
Accounts payable	(28.4)		(22.3)
Deferred revenue	34.4		53.1
Other accrued expenses and liabilities	(155.5)		(77.4)
Other	(44.1)		34.6
Total adjustments	859.1		830.2
Net cash provided by (used in) operating activities	686.5		593.1

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment	(144.2)		(155.7)

Purchases of businesses, net of cash acquired	—		(36.2)
Investments in equity method investees and securities	(213.4)		(20.0)
Proceeds from sales of assets	17.7		0.3

Proceeds from sale of business	41.1		—
Other investing activities	(0.3)		(1.9)
Net cash provided by (used in) investing activities	(299.1)		(213.5)



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~~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,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (387.6 ) $ 2,209.7
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Unrealized net (gain) loss on securities measured at fair value 2,200.9
(786.5 )
Deferred tax provision (benefit) (1,192.8 ) 208.1
Depreciation 248.9
250.1
Stock-based compensation 50.6
51.1
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings 512.5
(18.4 )
Noncash lease expense 66.6
—
Impairment and amortization of intangible assets 15.3
4.5
Amortization of debt issuance costs and loss on extinguishment of debt 13.0
25.8
Net (gain) loss on sale of unconsolidated investment (0.4 ) (99.8 )
Impairment of assets held for sale 417.0
—
(Gain) loss on sale of business (76.0 ) —
Loss on inventory and related contracts 122.7
—
Net income tax benefit related to the Tax Cuts and Jobs Act —
(37.6 )
Change in operating assets and liabilities, net of effects from purchases of businesses:
Accounts receivable 41.3
(56.4 )
Inventories (134.5 ) (127.7 )
Prepaid expenses and other current assets 40.1
(56.6 )
Accounts payable 135.6
301.3
Other accrued expenses and liabilities (20.1 ) 33.7
Other 23.2
72.6
Total adjustments 2,463.9
(235.8 )
Net cash provided by (used in) operating activities 2,076.3
1,973.9
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment (538.3 ) (620.3 )
Purchases of businesses, net of cash acquired (36.2 ) (45.3 )
Investments in equity method investees and securities (33.7 ) (4,077.3 )
Proceeds from sales of assets 0.7
46.3
Proceeds from sale of unconsolidated investment —
110.2
Proceeds from sale of business 269.7
—
Other investing activities 1.9
(0.9 )
Net cash provided by (used in) investing activities (335.9 ) (4,587.3 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 1,291.3
3,657.6
Principal payments of long-term debt (2,061.0 ) (45.3 )
Net proceeds from (repayments of) short-term borrowings (510.0 ) (14.5 )
Dividends paid (427.0 ) (417.9 )
Purchases of treasury stock (50.0 ) (504.3 )
Proceeds from shares issued under equity compensation plans 38.9
32.6
Payments of minimum tax withholdings on stock-based payment awards (14.2 ) (13.6 )
Payments of debt issuance costs (8.2 ) (33.3 )
Net cash provided by (used in) financing activities (1,740.2 ) 2,661.3

Effect of exchange rate changes on cash and cash equivalents (0.1 ) (7.6 )

Net increase (decrease) in cash and cash equivalents 0.1
40.3
Cash and cash equivalents, beginning of period 93.6
90.3
Cash and cash equivalents, end of period $ 93.7
$ 130.6



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	5



FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
For the Nine Months Ended November 30,
2019 2018
Supplemental disclosures of noncash investing and financing activities
Additions to property, plant, and equipment $ 25.4
$ 130.9
Conversion of long-term debt to noncontrolling equity interest $ —
$ 248.4
(in millions)

(unaudited)


	For the Three Months Ended May 31,
	2020		2019
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt	1,194.6		—
Principal payments of long-term debt	(959.5)		(22.9)
Net proceeds from (repayments of) short-term borrowings	(238.9)		(205.0)
Dividends paid	(143.9)		(143.0)

Proceeds from shares issued under equity compensation plans	4.4		10.4
Payments of minimum tax withholdings on stock-based payment awards	(7.6)		(13.9)
Payments of debt issuance, debt extinguishment, and other financing costs	(18.1)		—




Net cash provided by (used in) financing activities	(169.0)		(374.4)

Effect of exchange rate changes on cash and cash equivalents	3.0		(0.1)

Net increase (decrease) in cash and cash equivalents	221.4		5.1
Cash and cash equivalents, beginning of period	81.4		93.6
Cash and cash equivalents, end of period	$	302.8	$	98.7

Supplemental disclosures of noncash investing and financing activities











Additions to property, plant, and equipment	$	64.5	$	35.6

The accompanying notes are an integral part of these statements.



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	6



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FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

~~NOVEMBER 30, 2019~~MAY 31, 2020

(unaudited)

1. 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, 2019~~29, 2020 (the ~~“2019~~“2020 Annual Report”)~~, and include the recently adopted accounting guidance described in Note 2 and Note 14 herein.~~. Results of operations for interim periods are not necessarily indicative of annual results.

2. ~~ACCOUNTING GUIDANCE~~

~~Recently adopted accounting guidance~~

In February 2016, the FASB issued guidance for the accounting for leases. Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases. Lease expense continues to be consistent with previous guidance. Additionally, this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements.

We adopted the guidance on March 1, 2019, using the modified retrospective approach, accordingly, prior period balances and disclosures have not been restated. We elected the package of transition practical expedients for expired or existing contracts, which retains prior conclusions reached on lease identification, classification, and initial direct costs incurred.

We finalized the implementation of changes to our accounting policies, systems and controls, including a new leasing software to capture the required data for accounting and disclosure. The adoption of this guidance resulted 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.

~~For additional information on leases, refer to Note 14.~~



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	7



~~FINANCIAL STATEMENTS~~	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~	~~Table of Contents~~

3. 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:


	May 31, 2020		February 29, 2020
(in millions)
Raw materials and supplies	$	161.5	$	171.7
In-process inventories	775.0		814.7
Finished case goods	396.1		387.2
	$	1,332.6	$	1,373.6

November 30,
2019 ⁽¹⁾
February 28,
2019
(in millions)
Raw materials and supplies $ 131.7
$ 182.6
In-process inventories 832.5
1,480.5
Finished case goods 394.6
467.3
$ 1,358.8
$ 2,130.4


⁽¹⁾ The inventories balance at May 31, 2020, and February 29, 2020, exclude amounts reclassified to assets held for sale (see Note 3).	~~The inventory balance at~~ ~~November 30, 2019, excludes amounts reclassified to assets held for sale (see Note~~ 4).

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.~~portfolio. Amounts purchased under these arrangements were ~~$155.2~~$9.1 million and ~~$172.4 million for the nine months ended November 30, 2019, and November 30, 2018, respectively, and $28.8 million and $48.7~~$88.5 million for the three months ended ~~November 30,~~May 31, 2020, and May 31, 2019, ~~and November 30, 2018,~~ respectively. The decrease in amounts purchased for the three months ended May 31, 2020, was largely driven by reduced production activity at our Mexican breweries in response to COVID-19 containment measures.

4.3. ACQUISITIONS, DIVESTITURES, AND BUSINESS TRANSFORMATION

~~We have committed~~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 25% noncontrolling interest. This acquisition included a portfolio of award-winning, Tennessee-based craft bourbon and whiskey products. The fair value of the business ~~transformation strategy which aligns our portfolio with consumer-led premiumization trends~~combination was allocated primarily to goodwill, trademarks, inventory, and ~~growing segments~~property, plant, and equipment. The results of operations of Nelson’s Green Brier are reported in the Wine and Spirits segment and ~~Beer markets.~~have been included in our consolidated results of operations from the date of acquisition.

~~Divestiture~~We recognized a gain of $11.8 million for the three months ended May 31, 2019, related to the remeasurement of our previously held 20% equity interest in Nelson’s Green Brier to the acquisition-date fair


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FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

value. This gain is included in selling, general, and ~~other recent developments~~administrative expenses within our consolidated results of operations.

Divestitures

Ballast Point Divestiture

On March 2, 2020, we sold the Ballast Point craft beer business, including a number of its associated production facilities and brewpubs (the “Ballast Point Divestiture”). We received cash proceeds of $41.1 million which were primarily utilized to reduce outstanding borrowings.

Black Velvet Divestiture

On November 1, 2019, we sold the Black Velvet Canadian Whisky business and the brand’s associated production facility, along with a subset of Canadian whisky brands produced at that facility, and related inventory at a transaction value of $266.3 million (the “Black Velvet Divestiture”). We received cash proceeds of $269.7 ~~million.~~million, subject to estimated working capital adjustments. The cash proceeds were utilized to partially repay the 2.00% November 2017 ~~Senior Notes (as defined in Note 11).~~senior notes. In total, we have recognized a $73.5 million net gain associated with the Black Velvet Divestiture, with a $74.1 million net gain recognized for the year ended February 29, 2020, and a $0.6 million net loss recognized for three months ended May 31, 2020. The following table summarizes the net gain recognized in connection with this ~~transaction for the nine months and three months ended November 30, 2019:~~divestiture:

(in millions)
Cash received from buyer $ 269.7
Net assets sold (211.5 )
AOCI reclassification adjustments, primarily foreign currency translation 21.0
Direct costs to sell (3.2 )
Gain on sale of business $ 76.0


(in millions)
Cash received from buyer	$	269.7
Net assets sold	(213.3)
AOCI reclassification adjustments, primarily foreign currency translation	20.9
Direct costs to sell	(3.8)


Gain on sale of business	$	73.5

Business transformation and other updates

We have committed to a business transformation strategy which aligns our portfolio with consumer-led premiumization trends and growing segments of the Wine and Spirits and Beer markets.

Original 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~~“Original Wine and Spirits Transaction”).



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	8



~~FINANCIAL STATEMENTS~~	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~	~~Table of Contents~~

~~Subsequent Events -~~

~~New~~ Wine and Spirits Transactions

In December 2019, we agreed to revise and supersede the Original Wine and Spirits Transaction. The revisions to the transaction address competitive concerns raised by the U.S. Federal Trade Commission (the “FTC”) specifically related to the sparkling wine, brandy, dessert wine, and concentrate categories. As a result, the brands Cook’s California Champagne, J. Roget American Champagne, Paul Masson Grande Amber Brandy, and our concentrate business will be excluded from the ~~transaction~~Original Wine and Spirits Transaction. In May 2020, we further revised the Original Wine and Spirits Transaction to also exclude the Mission Bell Winery in Madera, California and certain related real estate, equipment, contracts, and employees, resulting in an adjusted transaction price of approximately ~~$843~~$783 million, with the potential to earn an incremental $250 million of contingent consideration if certain brand performance provisions are met over a two-year period after closing (the ~~“Revised~~“Further Revised Wine and Spirits Transaction”). The Further Revised Wine and Spirits Transaction is expected to close byin the ~~end~~second quarter of ~~Fiscal 2020,~~fiscal 2021, and is subject to ~~required regulatory clearances and governmental~~FTC review and ~~approval.~~clearance. Additionally, in a separate, but related, transaction, we agreed that upon execution and delivery of a definitive agreement for the Further Revised Wine and Spirits Transaction, we would enter into an agreement to sell the New Zealand-based Nobilo Wine brand and certain related assets and liabilities for $130 million (the “Nobilo Wine Transaction”). The Nobilo Wine Transaction is expected to close inby the ~~first half~~end of second quarter of fiscal 2021, and is subject to FTC ~~and New Zealand regulatory~~ review and ~~approval.~~clearance. Completion of the Nobilo Transaction is also conditioned on completion of the Further Revised Wine and Spirits Transaction. We expect to use the net cash proceeds from the Further Revised Wine and Spirits Transaction and


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FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

the Nobilo Wine Transaction (collectively, the ~~“New Wine~~“Wine and Spirits Transactions”) primarily to reduce outstanding borrowings.

We have communicated our intent to retain the brands Cook’s California Champagne and J. Roget American Champagne and the Mission Bell Winery contemplated to be sold in the Original Wine and Spirits Transaction. The FTC is currently reviewing our business plans to support these brands in the future. The Mission Bell Winery has the production capability to support these retained brands.

Other Wine and Spirits Transactions

We ~~are pursuing other opportunities~~plan to divest the ~~brands~~Paul Masson Grande Amber Brandy brand and concentrate business excluded from the ~~Revised~~Original Wine and Spirits Transaction to companies ~~whose~~with more aligned business strategies ~~better align to the brands~~ (the “Other Wine and Spirits Transactions”). See “Subsequent Events - Paul Masson Transaction and Concentrate Business Transaction” below.

Assets held for sale

Primarily in contemplation of the Wine and Spirits segment transactions noted above, certain net assets met the held for sale criteria as of May 31, 2020, and February 29, 2020. For the three months ended May 31, 2020, long-lived asset impairments of $25.0 million were recognized. NaN long-lived asset impairment was recognized for the three months ended May 31, 2019. For additional information refer to Note 5.

The carrying value of assets held for sale consist of the following:


	May 31, 2020		February 29, 2020
	Wine and Spirits		Beer⁽¹⁾		Wine and Spirits		Consolidated
(in millions)
Assets
Accounts receivable	$	—	$	2.4	$	—	$	2.4
Inventories	570.2		13.7		576.9		590.6
Prepaid expenses and other	20.0		2.8		32.7		35.5
Assets held for sale - current	590.2		18.9		609.6		628.5

Property, plant, and equipment	115.9		55.9		172.6		228.5
Goodwill	290.6		4.7		304.3		309.0
Intangible assets	375.2		28.2		384.0		412.2
Equity method investments	0.4		—		1.0		1.0
Other assets	26.3		24.8		26.3		51.1
Less: Reserve for assets held for sale	(432.0)		(42.7)		(407.0)		(449.7)
Assets held for sale	376.4		70.9		481.2		552.1

Liabilities
Accounts payable	6.9		0.2		0.6		0.8
Other accrued expenses and liabilities	13.5		11.0		17.8		28.8
Deferred income taxes and other liabilities	—		33.3		—		33.3
Liabilities held for sale⁽²⁾	20.4		44.5		18.4		62.9
Net assets held for sale	$	946.2	$	45.3	$	1,072.4	$	1,117.7

⁽¹⁾In March 2020, we completed the Ballast Point Divestiture.

⁽²⁾Liabilities held for sale are included in the Consolidated Balance Sheets at May 31, 2020, and February 29, 2020, within the respective liability line items noted above.


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FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

Wine and spirits optimization

We ~~do not expect to recognize a loss~~recognized charges in connection with our business transformation strategy which aligns our portfolio with consumer-led premiumization trends within the ~~Other~~ Wine and Spirits ~~Transactions.~~segment as follows:


		For the Three Months Ended May 31,
	Results of Operations Location	2020		2019
(in millions)
Loss on inventory write-downs	Cost of product sold	$	4.1	$	27.2
Contract termination costs	Cost of product sold	16.9		15.8
Employee termination costs	Selling, general, and administrative expenses	(1.3)		11.9
Other costs	Selling, general, and administrative expenses	—		6.3
Impairment of long-lived assets	Impairment of assets held for sale	25.0		—
		$	44.7	$	61.2

~~Ballast Point~~

Mexicali Brewery

In fiscal 2017, we began construction of a new, state-of-the-art brewery located in Mexicali, Baja California, Mexico (the “Mexicali Brewery”). In March 2020, a public consultation was held on the construction of the Mexicali Brewery. We have initiated early stage discussions with government officials in Mexico regarding next steps for our brewery construction project and options elsewhere in the country following the negative result of the public consultation. These discussions have been positive and we will continue working with government officials to mutually agree upon a path forward. At this time, we have paused all Mexicali Brewery construction activities. In the medium-term, we have ample capacity, based on current growth forecasts and production capabilities, under normal operating conditions, at the Nava and Obregon breweries, to meet consumer needs. As of May 31, 2020, we capitalized approximately $740 million of construction in progress and are committed to an estimated additional $200 million of expenditures. We are evaluating a variety of alternatives for the Mexicali Brewery and related assets. No conclusion to abandon the property or to sell the assets has been reached, therefore, as of May 31, 2020, 0 impairment has been recognized. Future impairments may result based upon our plans for these assets for any capitalized amounts that are not deemed recoverable.

Subsequent events

Empathy Wines

In June 2020, we acquired the Empathy Wines business, including the acquisition of a digitally-native wine brand (“Empathy Wines”) which strengthens our position in the direct-to-consumer and eCommerce markets. This transaction primarily included the acquisition of goodwill, trademarks, and inventory, plus an earn-out over five years based on performance. The results of operations of Empathy Wines will be reported in the Wine and Spirits segment and will be included in our consolidated results of operations from the date of acquisition.

Paul Masson Transaction

In ~~December 2019,~~June 2020, we entered into a definitive agreement to sell ~~our Ballast Point craft beer business, including a number~~the Paul Masson Grande Amber Brandy brand, related inventory and interests in certain contracts with an estimated aggregate purchase price of ~~its associated production facilities~~approximately $255 million, subject to certain purchase price and ~~brewpubs,~~closing adjustments (the ~~“Ballast Point~~“Paul Masson Transaction”). The ~~Ballast Point~~Paul Masson Transaction is subject to ~~the satisfaction of certain closing conditions,~~FTC review and clearance, and is expected to closeby in the ~~end~~second quarter of ~~Fiscal 2020.~~fiscal 2021. We expect to use the net cash proceeds from the ~~Ballast Point~~Paul Masson Transaction primarily to reduce outstanding borrowings.

~~Assets held for sale~~Concentrate Business Transaction

In ~~contemplation~~June 2020, we entered into a definitive agreement to sell certain brands used in our concentrates and high-color concentrate business, and certain intellectual property, inventory, goodwill, interests in certain contracts, assets, and liabilities of our concentrates and high-color concentrate business ( the ~~transactions noted above, certain net assets have met~~“Concentrate Business Transaction”). The Concentrate Business Transaction is subject to FTC review and clearance, and is expected to close in the ~~held for sale criteria as~~second quarter of November 30, 2019. For the nine months and three months ended November 30, 2019, long-lived asset impairments of $417.0 million and $390.0 million, respectively were recognized. For additional information refer to Note 6.fiscal 2021.

~~The carrying value of assets held for sale consists of the following:~~

November 30, 2019
Beer Wine and Spirits Total
(in millions)
Assets
Inventories $ 14.7
$ 699.1
$ 713.8
Prepaid expenses and other 1.3
9.7
11.0
Assets held for sale - current 16.0
708.8
724.8



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	9



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FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

Nobilo Wine Transaction

In June 2020, we entered into a definitive agreement to sell the New Zealand-based Nobilo Wine brand and certain related assets and liabilities, subject to certain purchase price adjustments. The definitive agreement was generally consistent with the terms described above.

November 30, 2019
Beer Wine and Spirits Total
(in millions)
Property, plant, and equipment 58.6
171.0
229.6
Goodwill 4.5
280.2
284.7
Intangible assets 28.2
384.0
412.2
Equity method investments —
1.0
1.0
Other assets 25.6
26.4
52.0
Less: Reserve for assets held for sale (50.0 ) (367.0 ) (417.0 )
Assets held for sale 66.9
495.6
562.5

Liabilities
Other accrued expenses and liabilities 9.3
26.8
36.1
Deferred income taxes and other liabilities 31.5
0.4
31.9
Liabilities held for sale⁽¹⁾
40.8
27.2
68.0
Net assets held for sale $ 42.1
$ 1,177.2
$ 1,219.3


⁽¹⁾	~~Liabilities held for sale are included in the Consolidated Balance Sheet as of~~ ~~November 30, 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 Nine Months Ended November 30, 2019 For the Three Months Ended November 30, 2019
(in millions)
Loss on inventory write-downs Cost of product sold $ 102.6
$ 61.7
Contract termination costs Cost of product sold 20.1
—
Employee termination costs Selling, general, and administrative expenses 12.3
0.2
Other costs Selling, general, and administrative expenses 8.0
1.7
Impairment of long-lived assets Impairment of assets held for sale 367.0
340.0
$ 510.0
$ 403.6

5.4. DERIVATIVE INSTRUMENTS

Overview

Our risk management and derivative accounting policies are presented in Notes 1 and 6 of our consolidated financial statements included in our ~~2019~~2020 Annual Report and have not changed significantly for the ~~nine months and~~ three months ended ~~November 30, 2019.~~May 31, 2020.

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 Canopy (see Note 9)8). These investments are included in securities measured at fair value and are accounted for at fair value, with the net gain (loss) from the changes in fair value of these investments recognized in income (loss) from unconsolidated investments (see Note 6)5).



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	10



~~FINANCIAL STATEMENTS~~	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~	~~Table of Contents~~

The aggregate notional value of outstanding derivative instruments is as follows:


	May 31, 2020		February 29, 2020
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts	$	1,668.4	$	1,831.0
Interest rate swap contracts	$	375.0	$	375.0
Treasury lock contracts	$	—	$	300.0

Derivative instruments not designated as hedging instruments
Foreign currency contracts	$	323.0	$	1,180.2
Commodity derivative contracts	$	268.3	$	282.8

November 30,
2019 February 28,
2019
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts $ 1,891.0
$ 1,579.3
Interest rate swap contracts $ 375.0
$ —

Derivative instruments not designated as hedging instruments
Foreign currency contracts $ 1,030.2
$ 460.3
Commodity derivative contracts $ 261.5
$ 284.7


			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


Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I25

~~16.~~


FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

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

For the three months ended ~~November 30,~~May 31, 2020, and May 31, 2019,, ~~and for the nine months and three months ended November 30, 2018,~~ 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 three months ended November 30, 2019, and for the nine months and three months ended November 30, 2018, net income (loss) per common share – diluted for Class B Convertible Common Stock hashave 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 23,315,761 of Class B Convertible Common Stock and 3,290,122 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 ~~nine months ended~~ ~~November 30, 2019, as the effect of including these would have been anti-dilutive.~~

method. The computation of basic and diluted net income (loss) per common share is as follows:


	For the Three Months Ended
	May 31, 2020						May 31, 2019
	Common Stock						Common Stock
	Class A⁽¹⁾		Class B		Class A⁽¹⁾		Class B
(in millions, except per share data)
Net income (loss) attributable to CBI allocated – basic and diluted	$	(158.0)	$	(19.9)	$	(217.7)	$	(27.7)




Weighted average common shares outstanding – basic and diluted	169.604		23.293		168.118		23.317




Net income (loss) per common share attributable to CBI – basic and diluted	$	(0.94)	$	(0.86)	$	(1.30)	$	(1.19)

For the Nine Months Ended
November 30, 2019 November 30, 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 $ (364.0 ) $ (46.2 ) $ 1,949.3
$ 247.1
Conversion of Class B common shares into Class A common shares —
—
247.1
—
Effect of stock-based awards on allocated net income (loss) —
—
—
(5.6 )
Net income (loss) attributable to CBI allocated – diluted $ (364.0 ) $ (46.2 ) $ 2,196.4
$ 241.5

Weighted average common shares outstanding – basic 168.258
23.316
167.203
23.322
Conversion of Class B common shares into Class A common shares —
—
23.322
—
Stock-based awards, primarily stock options —
—
5.396
—
Weighted average common shares outstanding – diluted 168.258
23.316
195.921
23.322

Net income (loss) per common share attributable to CBI – basic $ (2.17 ) $ (1.98 ) $ 11.66
$ 10.59
Net income (loss) per common share attributable to CBI – diluted $ (2.17 ) $ (1.98 ) $ 11.21
$ 10.35

⁽¹⁾

We have excluded the following weighted average common shares outstanding from the calculation of diluted net income (loss) per common share, as the effect of including these would have been anti-dilutive:

For the Three Months Ended

May 31, 2020

May 31, 2019

(in millions)

Class B Convertible Common Stock

23.293

23.317

Stock-based awards, primarily stock options

1.908

3.433



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	31



Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I26


FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents

For the Three Months Ended
November 30, 2019 November 30, 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 $ 320.1
$ 40.3
$ 268.9
$ 34.2
Conversion of Class B common shares into Class A common shares 40.3
—
34.2
—
Effect of stock-based awards on allocated net income (loss) —
(0.4 ) —
(0.5 )
Net income (loss) attributable to CBI allocated – diluted $ 360.4
$ 39.9
$ 303.1
$ 33.7

Weighted average common shares outstanding – basic 168.346
23.314
166.364
23.318
Conversion of Class B common shares into Class A common shares 23.314
—
23.318
—
Stock-based awards, primarily stock options 3.196
—
5.138
—
Weighted average common shares outstanding – diluted 194.856
23.314
194.820
23.318

Net income (loss) per common share attributable to CBI – basic $ 1.90
$ 1.73
$ 1.62
$ 1.47
Net income (loss) per common share attributable to CBI – diluted $ 1.85
$ 1.71
$ 1.56
$ 1.45



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	32



~~FINANCIAL STATEMENTS~~	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~	~~Table of Contents~~

~~17.~~13. COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CBI

Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustments, net unrealized gain (loss) on derivative instruments, ~~net unrealized gain (loss) on available-for-sale (“AFS”) debt securities,~~ pension/postretirement 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 Nine Months Ended November 30, 2019
Net income (loss) attributable to CBI $ (410.2 )
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net gain (loss) $ (4.5 ) $ —
(4.5 )
Reclassification adjustments (22.7 ) —
(22.7 )
Net gain (loss) recognized in other comprehensive income (loss) (27.2 ) —
(27.2 )
Unrealized gain (loss) on cash flow hedges:
Net derivative gain (loss) 18.5
3.7
22.2
Reclassification adjustments (8.4 ) (1.1 ) (9.5 )
Net gain (loss) recognized in other comprehensive income (loss) 10.1
2.6
12.7
Pension/postretirement adjustments:
Net actuarial gain (loss) —
—
—
Reclassification adjustments 1.8
(0.1 ) 1.7
Net gain (loss) recognized in other comprehensive income (loss) 1.8
(0.1 ) 1.7
Share of OCI of equity method investments
Net gain (loss) (22.3 ) 5.2
(17.1 )
Reclassification adjustments —
—
—
Net gain (loss) recognized in other comprehensive income (loss) (22.3 ) 5.2
(17.1 )
Other comprehensive income (loss) attributable to CBI $ (37.6 ) $ 7.7
(29.9 )
Comprehensive income (loss) attributable to CBI $ (440.1 )

For the Nine Months Ended November 30, 2018
Net income (loss) attributable to CBI $ 2,196.4
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net gain (loss) $ (248.4 ) $ —
(248.4 )
Reclassification adjustments —
—
—
Net gain (loss) recognized in other comprehensive income (loss) (248.4 ) —
(248.4 )
Unrealized gain (loss) on cash flow hedges:
Net derivative gain (loss) (61.7 ) 8.1
(53.6 )
Reclassification adjustments (5.0 ) 1.2
(3.8 )
Net gain (loss) recognized in other comprehensive income (loss) (66.7 ) 9.3
(57.4 )
Unrealized gain (loss) on AFS debt securities:
Net AFS debt securities gain (loss) (0.4 ) 0.1
(0.3 )
Reclassification adjustments 1.9
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) 0.2
(0.1 ) 0.1
Reclassification adjustments 0.3
(0.1 ) 0.2
Net gain (loss) recognized in other comprehensive income (loss) 0.5
(0.2 ) 0.3
Other comprehensive income (loss) attributable to CBI $ (313.1 ) $ 10.1
(303.0 )
Comprehensive income (loss) attributable to CBI $ 1,893.4


	Before Tax Amount		Tax (Expense) Benefit		Net of Tax Amount
(in millions)
For the Three Months Ended May 31, 2020
Net income (loss) attributable to CBI					$	(177.9)
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net gain (loss)	$	(619.9)	$	—	(619.9)
Reclassification adjustments	—		—		—
Net gain (loss) recognized in other comprehensive income (loss)	(619.9)		—		(619.9)
Unrealized gain (loss) on cash flow hedges:
Net derivative gain (loss)	(200.5)		5.3		(195.2)
Reclassification adjustments	7.7		(0.5)		7.2
Net gain (loss) recognized in other comprehensive income (loss)	(192.8)		4.8		(188.0)




Pension/postretirement adjustments:
Net actuarial gain (loss)	0.5		(0.2)		0.3
Reclassification adjustments	—		—		—
Net gain (loss) recognized in other comprehensive income (loss)	0.5		(0.2)		0.3
Share of OCI of equity method investments
Net gain (loss)	52.5		(1.0)		51.5
Reclassification adjustments	—		—		—
Net gain (loss) recognized in other comprehensive income (loss)	52.5		(1.0)		51.5
Other comprehensive income (loss) attributable to CBI	$	(759.7)	$	3.6	(756.1)
Comprehensive income (loss) attributable to CBI					$	(934.0)



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	33



Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I27


FINANCIAL STATEMENTS			NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			Table of Contents


	Before Tax Amount		Tax (Expense) Benefit		Net of Tax Amount
(in millions)
For the Three Months Ended May 31, 2019
Net income (loss) attributable to CBI					$	(245.4)
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net gain (loss)	$	18.3	$	—	18.3
Reclassification adjustments	—		—		—
Net gain (loss) recognized in other comprehensive income (loss)	18.3		—		18.3
Unrealized gain (loss) on cash flow hedges:
Net derivative gain (loss)	(4.4)		1.7		(2.7)
Reclassification adjustments	(2.3)		(0.6)		(2.9)
Net gain (loss) recognized in other comprehensive income (loss)	(6.7)		1.1		(5.6)




Pension/postretirement adjustments:
Net actuarial gain (loss)	0.1		—		0.1
Reclassification adjustments	—		—		—
Net gain (loss) recognized in other comprehensive income (loss)	0.1		—		0.1
Share of OCI of equity method investments
Net gain (loss)	(18.8)		4.4		(14.4)
Reclassification adjustments	—		—		—
Net gain (loss) recognized in other comprehensive income (loss)	(18.8)		4.4		(14.4)
Other comprehensive income (loss) attributable to CBI	$	(7.1)	$	5.5	(1.6)
Comprehensive income (loss) attributable to CBI					$	(247.0)

Before Tax
Amount

Tax (Expense)
Benefit

Net of Tax
Amount
(in millions)
For the Three Months Ended November 30, 2019
Net income (loss) attributable to CBI $ 360.4
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net gain (loss) $ 53.7
$ —
53.7
Reclassification adjustments (22.7 ) —
(22.7 )
Net gain (loss) recognized in other comprehensive income (loss) 31.0
—
31.0
Unrealized gain (loss) on cash flow hedges:
Net derivative gain (loss) 56.9
(0.1 ) 56.8
Reclassification adjustments (2.4 ) (0.5 ) (2.9 )
Net gain (loss) recognized in other comprehensive income (loss) 54.5
(0.6 ) 53.9
Pension/postretirement adjustments:
Net actuarial gain (loss) —
—
—
Reclassification adjustments 1.7
(0.1 ) 1.6
Net gain (loss) recognized in other comprehensive income (loss) 1.7
(0.1 ) 1.6
Share of OCI of equity method investments
Net gain (loss) 8.3
(2.0 ) 6.3
Reclassification adjustments —
—
—
Net gain (loss) recognized in other comprehensive income (loss) 8.3
(2.0 ) 6.3
Other comprehensive income (loss) attributable to CBI $ 95.5
$ (2.7 ) 92.8
Comprehensive income (loss) attributable to CBI $ 453.2

For the Three Months Ended November 30, 2018
Net income (loss) attributable to CBI $ 303.1
Other comprehensive income (loss) attributable to CBI:
Foreign currency translation adjustments:
Net gain (loss) $ (155.9 ) $ —
(155.9 )
Reclassification adjustments —
—
—
Net gain (loss) recognized in other comprehensive income (loss) (155.9 ) —
(155.9 )
Unrealized gain (loss) on cash flow hedges:
Net derivative gain (loss) (52.5 ) 7.1
(45.4 )
Reclassification adjustments (0.3 ) 0.2
(0.1 )
Net gain (loss) recognized in other comprehensive income (loss) (52.8 ) 7.3
(45.5 )
Pension/postretirement adjustments:
Net actuarial gain (loss) 0.2
(0.1 ) 0.1
Reclassification adjustments —
—
—
Net gain (loss) recognized in other comprehensive income (loss) 0.2
(0.1 ) 0.1
Other comprehensive income (loss) attributable to CBI $ (208.5 ) $ 7.2
(201.3 )
Comprehensive income (loss) attributable to CBI $ 101.8



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	34



~~FINANCIAL STATEMENTS~~	~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~	~~Table of Contents~~

Accumulated other comprehensive 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 29, 2020	$	(345.7)	$	62.5	$	(2.6)	$	19.5	$	(266.3)
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassification adjustments	(619.9)		(195.2)		0.3		51.5		(763.3)
Amounts reclassified from accumulated other comprehensive income (loss)	—		7.2		—		—		7.2
Other comprehensive income (loss)	(619.9)		(188.0)		0.3		51.5		(756.1)
Balance, May 31, 2020	$	(965.6)	$	(125.5)	$	(2.3)	$	71.0	$	(1,022.4)

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 (4.5 ) 22.2
—
(17.1 ) 0.6
Amounts reclassified from accumulated other comprehensive income (loss) (22.7 ) (9.5 ) 1.7
—
(30.5 )
Other comprehensive income (loss) (27.2 ) 12.7
1.7
(17.1 ) (29.9 )
Balance, November 30, 2019 $ (433.7 ) $ 37.8
$ (0.4 ) $ 12.5
$ (383.8 )


⁽²⁾			~~Includes~~The decrease in Beer net sales is primarily due to $89.3 million of volume decline within our Mexican beer portfolio, which was impacted by COVID-19 containment measures negatively affecting on-premise sales and production activity at our major breweries in Mexico, and $28.6 million from the Ballast Point Divestiture. The decline was partially offset by an ~~adjustment~~$18.7 million favorable impact from pricing in select markets within our Mexican beer portfolio. The depletion volume trend outpaced the shipment volume trend for First Quarter Fiscal 2021, driven by reduced production activity in response to ~~remove~~COVID-19 containment measures. We expect shipment volume ~~associated~~will begin to align with depletion volume during the ~~Black Velvet Divestiture~~third quarter of fiscal 2021 as we replenish distribution channels and COVID-19 containment measures allow for ~~the period November 1, 2018, through November 30, 2018.~~return to on-premise.

The decrease in Wine and Spirits net sales is primarily due to a $83.9 million decline in branded wine and spirits volume and $8.5 million from the Black Velvet Divestiture, partially offset by a $24.3 million increase from favorable product mix shift. The Wine and Spirits Third Quarter 2020 results have been negatively impacted by transition activities with distributors who are repositioning for ownership of brands upon closing the New Wine and Spirits Transactions and the Black Velvet Divestiture.

~~Canopy Segment~~

~~Our ownership interest in Canopy allows us to exercise significant influence, but not control, and, therefore, we account for our investment in Canopy under the equity method.~~ ~~Amounts included 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 and subsequently eliminated in order to reconcile to our consolidated~~ ~~financial statements. See “Income (Loss) from Unconsolidated Investments” below for a discussion of Canopy’s net sales, gross profit (loss), selling, general, and administrative expenses, and operating income (loss).~~

~~Gross Profit~~

Third
Quarter
2020 Third
Quarter
2019 Dollar
Change Percent
Change
(in millions)
Beer $ 735.3
$ 651.0
$ 84.3
13 %
Wine and Spirits 310.6
340.9
(30.3 ) (9 %)
Canopy (7.3 ) NA
(7.3 ) NM
Consolidation and Eliminations 7.3
—
7.3
NM
Comparable Adjustments (58.4 ) (21.9 ) (36.5 ) 167 %
Consolidated gross profit $ 987.5
$ 970.0
$ 17.5
2 %

The increase in Beer is primarily due to $46.9 million of volume growth, $26.0 million favorable impact from pricing, and $16.2 million of lower cost of product sold for our Mexican beer business. The lower cost of product sold is primarily due to $8.1 million of foreign currency transactional benefits and



Constellation Brands, Inc. Q3Q1 FY ~~2020~~2021 Form 10-Q			58 #WORTHREACHINGFOR I42


MD&A			Table of Contents


Wine and Spirits segment	First Quarter 2021		First Quarter 2020		Dollar Change		Percent Change
(in millions, branded product, 9-liter case equivalents)
Net sales	$	579.3	$	619.8	$	(40.5)	(7	%)

Shipment volume
Total	10.8		12.4				(12.9	%)
Organic ⁽³⁾	10.8		11.9				(9.2	%)

U.S. Domestic	9.9		11.3				(12.4	%)
Organic U.S. Domestic ⁽³⁾	9.9		10.8				(8.3	%)

U.S. Domestic Power Brands	5.0		4.5				11.1	%


Depletion volume ⁽²⁾
U.S. Domestic ⁽³⁾							(1.1	%)
U.S. Domestic Power Brands							4.7	%

⁽³⁾Includes an adjustment to remove volume associated with the Black Velvet Divestiture for the period March 1, 2019, through May 31, 2019.


			The decrease in Wine and Spirits net sales is primarily due to a $49.7 million decline in branded wine and spirits volume and $18.7 million from the Black Velvet Divestiture, partially offset by $20.8 million from favorable pricing and $13.6 million increase from favorable product mix shift. The Wine and Spirits First Quarter 2021 results have been negatively impacted by (i) on-premise and retail tasting room closures as a result of COVID-19 containment measures and (ii) transition activities with distributors who are repositioning for ownership of brands upon closing the Wine and Spirits Transactions, partially offset by an increase in off-premise, including eCommerce. During Fiscal 2021 as these transition activities with distributors continue to occur we do not expect shipment volume to be aligned with depletion volume.


			Canopy segment Our ownership interest in Canopy allows us to exercise significant influence, but not control, and, therefore, we account for our investment in Canopy under the equity method. Amounts included 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 and subsequently eliminated in order to reconcile to our consolidated financial statements. See “Income (Loss) from Unconsolidated Investments” below for a discussion of Canopy’s net sales, gross profit (loss), selling, general, and administrative expenses, and operating income (loss).

Gross profit


	First Quarter 2021		First Quarter 2020		Dollar Change		Percent Change
(in millions)
Beer	$	769.7	$	819.5	$	(49.8)	(6	%)
Wine and Spirits	263.9		271.7		(7.8)		(3	%)
Canopy	(57.3)		11.3		(68.6)		NM
Consolidation and Eliminations	57.3		(11.3)		68.6		NM
Comparable Adjustments	(45.3)		(62.5)		17.2		28	%
Consolidated gross profit	$	988.3	$	1,028.7	$	(40.4)	(4	%)

NM = Not Meaningful



~~MD&A~~Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I43


MD&A			Table of Contents


			The decrease in Beer is primarily due to $50.4 million of volume decline and $7.0 million of higher cost of product sold, partially offset by $18.7 million favorable impact from pricing. The higher cost of product sold is largely related to COVID-19 containment measures and increased focus on the production of our fastest moving products and packaging sizes to meet forecasted demand. This drove a $9.8 million increase in operational costs primarily consisting of higher material costs, including glass, pallets, and cartons, and unfavorable fixed cost absorption.

~~$4.3 million of decreased operational costs. The lower operational costs are attributable to an immaterial contractor cost reimbursement, brewery sourcing benefits, and lower depreciation.~~

The decrease in Wine and Spirits is largely due to $36.2 million of decline in branded wine and spirits volume, $13.1 million higher cost of product sold, and a decrease in gross profit due to the Black Velvet Divestiture of $4.1 million, partially offset by $27.8 million of favorable product mix shift. The higher cost of product sold is largely attributable to higher grape raw material and processing costs.


			The decrease in Wine and Spirits is largely due to $19.7 million of decline in branded wine and spirits volume, a decrease of $8.5 million in gross profit due to the Black Velvet Divestiture, $5.1 million of decline driven by retail tasting room closures as a result of COVID-19 containment measures, and $3.8 million higher cost of product sold, partially offset by $20.8 million from favorable pricing and $8.5 million of favorable product mix shift.

Gross profit as a percent of net salesincreased~~slightly~~ to~~49.4%~~ 50.3% for~~Third~~ First Quarter ~~2020~~2021 compared with 49.1% for First Quarter 2020. ~~49.2%forThird Quarter 2019.~~This was largely due to (i) ~~the lower cost~~a favorable change of ~~product sold within the Beer segment, which resulted in~~ approximately 8590 basis points ~~of rate growth,~~in Comparable Adjustments and (ii) ~~favorable impact from Wine and Spirits product mix shift, which resulted in approximately 85 basis points of rate growth, (iii)~~a favorable impact from Beer pricing in select markets, which contributed 70approximately 50 basis points of rate growth, (iv) approximately 30 basis points of rate growth from volume within the Wine and Spirits segment as the decline in Wine and Spirits net sales exceeded the decline in Wine and Spirits gross profit, and (v) favorable volume growth within the Beer segment, which resulted in approximately 25 basis points of rate growth. The rate growth was largely offset by (i) an unfavorable change of approximately 195 basis points in Comparable Adjustments and (ii) higher cost of product sold within the Wine and Spirits segment, which resulted in 70 basis points of rate decline.

Selling, ~~General, and Administrative Expenses~~

Third
Quarter
2020 Third
Quarter
2019 Dollar
Change Percent
Change
(in millions)
Beer $ 220.4
$ 200.1
$ 20.3
10 %
Wine and Spirits 130.2
134.9
(4.7 ) (3 %)
Corporate Operations and Other 51.3
45.0
6.3
14 %
Canopy 203.5
NA
203.5
NM
Consolidation and Eliminations (203.5 ) —
(203.5 ) NM
Comparable Adjustments 4.4
33.5
(29.1 ) NM
Consolidated selling, general, and administrative expenses $ 406.3
$ 413.5
$ (7.2 ) (2 %)

The increase in Beer is primarily due to an increase of $15.0 million in marketing 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 $3.3 million in~~ general, and administrative ~~expenses. The decrease in general and administrative~~ expenses ~~is largely driven by certain cost saving initiatives including decreased compensation and benefits.~~


	First Quarter 2021		First Quarter 2020		Dollar Change		Percent Change
(in millions)
Beer	$	191.9	$	238.9	$	(47.0)	(20	%)
Wine and Spirits	99.9		110.9		(11.0)		(10	%)
Corporate Operations and Other	50.5		43.7		6.8		16	%
Canopy	675.9		181.3		494.6		NM
Consolidation and Eliminations	(675.9)		(181.3)		(494.6)		NM
Comparable Adjustments	11.0		12.5		(1.5)		(12	%)
Consolidated selling, general, and administrative expenses	$	353.3	$	406.0	$	(52.7)	(13	%)

~~The increase in Corporate Operations and Other is largely due to an increase of approximately $7 million in compensation and benefits.~~


			The decrease in Beer is primarily due to a decrease of $41.2 million in marketing spend that largely resulted from COVID-19 containment measures. Our planned investment to support the growth of our Mexican beer portfolio through media and event sponsorships was suspended and/or canceled in First Quarter 2021. The favorable marketing spend as a percentage of net sales recognized in First Quarter 2021 is expected to return to targeted assumptions during the remainder of Fiscal 2021.


			The decrease in Wine and Spirits is primarily due to a decrease of $9.6 million in general and administrative expenses. The decrease in general and administrative expenses is largely driven by certain cost saving initiatives including decreased compensation and benefits and decreased travel and entertainment expenses resulting from COVID-19 containment measures.


			The increase in Corporate Operations and Other is largely due to approximately $5 million of unfavorable foreign currency losses and an increase of approximately $3 million in charitable contributions, primarily driven by COVID-19 support efforts.

Selling, general, and administrative expenses as a percent of net sales decreased to ~~20.3%~~18.0% for ~~Third~~First Quarter ~~2020~~2021 as compared with ~~21.0%~~19.4% for ~~Third~~First Quarter ~~2019~~2020. The decrease is driven largely by a favorable change of approximately 165 basis points in Comparable Adjustments, partially offset by (i) an unfavorable change of approximately 55 basis points of rate growth as the decline in Wine and Spirits net sales exceeded the decline in Wine and SpiritsBeer selling, general, and administrative expenses, ~~and (ii) an increase in Corporate Operations and Other general and administrative expenses,~~largely related to decreased marketing spend, which ~~resulted~~results in approximately 35150 basis points of rate ~~growth.~~decline.



Constellation Brands, Inc. Q3Q1 FY ~~2020~~2021 Form 10-Q			59 #WORTHREACHINGFOR I44



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Operating income (loss)


	First Quarter 2021		First Quarter 2020		Dollar Change		Percent Change
(in millions)
Beer	$	577.8	$	580.6	$	(2.8)	—	%
Wine and Spirits	164.0		160.8		3.2		2	%
Corporate Operations and Other	(50.5)		(43.7)		(6.8)		(16	%)
Canopy	(733.2)		(170.0)		(563.2)		NM
Consolidation and Eliminations	733.2		170.0		563.2		NM
Comparable Adjustments	(81.3)		(75.0)		(6.3)		(8	%)
Consolidated operating income (loss)	$	610.0	$	622.7	$	(12.7)	(2	%)

~~Operating Income (Loss)~~


			The decrease in Beer is primarily attributable to the net sales decline and higher cost of product sold, partially offset by decreased marketing spend and favorable pricing impact.

Third
Quarter
2020 Third
Quarter
2019 Dollar
Change Percent
Change
(in millions)
Beer $ 514.9
$ 450.9
$ 64.0
14 %
Wine and Spirits 180.4
206.0
(25.6 ) (12 %)
Corporate Operations and Other (51.3 ) (45.0 ) (6.3 ) (14 %)
Canopy (210.8 ) NA
(210.8 ) NM
Consolidation and Eliminations 210.8
—
210.8
NM
Comparable Adjustments (376.8 ) (55.4 ) (321.4 ) NM
Consolidated operating income (loss) $ 267.2
$ 556.5
$ (289.3 ) (52 %)


			The decrease in Wine and Spirits was driven by the decline in branded wine and spirits volume and the Black Velvet Divestiture, partially offset by favorable pricing and decreased compensation and benefits.


			As previously discussed, the Corporate Operations and Other increase in operating loss is due largely to unfavorable foreign currency losses and an increase in charitable contributions.

The increase in Beer is primarily attributable to the strong net sales growth and favorable pricing impact, partially offset by the planned increase in marketing spend. The decrease in Wine and Spirits was driven by the decline in branded wine and spirits volume and unfavorable cost of product sold, partially offset by favorable product mix shift. As previously discussed, the Corporate Operations and Other increase in operating loss is due largely to the increase in compensation and benefit costs.

Income ~~(Loss) From Unconsolidated Investments~~(loss) from unconsolidated investments

General

Loss from unconsolidated investments ~~increased~~decreased to ~~$456.5~~$571.2 million for ~~Third~~First Quarter 2021 from $930.6 million for First Quarter 2020, ~~from $134.6 million for Third Quarter 2019, an increase~~a decrease of ~~$321.9~~$359.4 million. This ~~increase~~decrease is driven largely by an unrealized net loss from the changes in fair value of our securities measured at fair value of ~~$534.3~~$197.3 million for ~~Third~~First Quarter ~~2020,~~2021, as compared to ~~$163.9~~$827.5 million for ~~Third~~First Quarter ~~2019.~~2020. The ~~Third~~First Quarter ~~2020 increase~~2021 decrease in loss from unconsolidated investments was partially offset by ~~$46.2~~$377.6 million of equity in ~~earnings~~losses from Canopy’s results of operations, and related activities in ~~Third~~First Quarter 2021, as compared to $106.0 million for First Quarter 2020.

~~Canopy Segment~~ The First Quarter 2021 equity losses included $235.4 million of costs designed to improve their organizational focus, streamline operations, and align production capability with projected demand.

Canopy’s Third Quarter 2020 net sales; gross profit (loss); selling, general, and administrative expenses; and operating income (loss) are not comparable against Third Quarter 2019 due to the timing of the November 2018 Canopy Investment, recognizing equity in earnings (losses) and related activities on a two-month lag, ~~and Canopy becoming a segment on March 1, 2019.~~


			Canopy segment Canopy net sales increased to $80.3 million for First Quarter 2021 from $70.7 million for First Quarter 2020. This increase of $9.6 million, or 14% is primarily attributable to an increase in medical sales, largely resulting from their April 2019 acquisition of C³, Europe’s largest cannabinoid-based pharmaceuticals company, partially offset by a decline in Canadian recreational sales. Canopy gross profit (loss) decreased to $(57.3) million for First Quarter 2021 from $11.3 million or First Quarter 2020. This decrease of $68.6 million is primarily driven by inventory write-downs related to its organizational and strategic review of their business and detailed evaluation of inventory. Canopy selling, general, and administrative expenses increased $494.6 million primarily from their decision to close greenhouse facilities as well as other changes related to its organizational and strategic review of their business. The combination of these factors were the main contributors to the decrease in operating income (loss) of $563.2 million.

Interest ~~Expense~~expense

Interest expense ~~increased~~decreased to ~~$103.1~~$100.0 million for ~~Third~~First Quarter ~~2020~~2021 from ~~$72.8~~$114.6 million for ~~Third~~First Quarter ~~2019.~~2020. This ~~increase~~decrease of ~~$30.3~~$14.6 million or ~~42%~~13% is predominantly due to ~~higher~~lower average borrowings of approximately ~~$1.5~~$1.2 billion primarily attributable to the partial repayment of financing entered into in connection with the November 2018 Canopy Transaction.


Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I45


MD&A			Table of Contents

(Provision ~~For) Benefit From Income Taxes~~for) benefit from income taxes

Our effective tax rate for ~~Third~~First Quarter ~~2020~~2021 was ~~225.3%~~153.1% of tax expense as compared with 43.9% of tax benefit ~~as compared with 10.2% of tax expense~~ for ~~Third~~First Quarter ~~2019. The change in effective tax rate was driven~~2020. In comparison to prior year, our taxes were negatively impacted primarily by the recognition of a $547.4 million net income tax benefit resulting from the remeasurement of our deferred tax assets for Third Quarter 2020 in connection with the September 2019 enactment of tax reform in Switzerland. The Third Quarter 2020 effective tax rate also benefited from a higher effective rate of tax benefit from our foreign businesses including the tax benefits recordedby:

•valuation allowances 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);

•valuation allowances on existing capital loss carryforwards; and ~~related activities.~~to a lesser extent,

•the recognition of tax expense resulting from legislative and governmental initiatives under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in the First Quarter 2021.

For additional information, refer to Note 1210 of the Financial Statements.



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	60



~~MD&A~~	~~Table of Contents~~

~~Net Income (Loss) Attributable to CBI~~

Net income (loss) attributable to CBI increased to $360.4 million for Third Quarter 2020 from $303.1 million for Third Quarter 2019. This increase of $57.3 million is largely attributable to the net income tax benefit discussed above and by solid operating performance from Beer contributing an additional $64.0 million of operating income, partially offset by the decrease in income (loss) from unconsolidated investments, an impairment of long-lived assets held for sale, as well as the decline in operating performance from Wine and Spirits.

~~NINE MONTHS 2020 COMPARED TO NINE MONTHS 2019~~

~~Net Sales~~

Nine
Months
2020 Nine
Months
2019 Dollar
Change Percent
Change
(in millions)
Beer $ 4,428.4
$ 4,112.0
$ 316.4
8 %
Wine and Spirits:
Wine 1,747.3
1,933.1
(185.8 ) (10 %)
Spirits 264.9
273.7
(8.8 ) (3 %)
Total Wine and Spirits 2,012.2
2,206.8
(194.6 ) (9 %)
Canopy 196.4
NA
196.4
NM
Consolidation and Eliminations (196.4 ) —
(196.4 ) NM
Consolidated net sales $ 6,440.6
$ 6,318.8
$ 121.8
2 %

Beer Segment Nine
Months
2020 Nine
Months
2019 Dollar
Change Percent
Change
(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales $ 4,428.4
$ 4,112.0
$ 316.4
8 %

Shipment volume 246.6
233.2
5.7 %

Depletion volume ⁽¹⁾
6.6 %


⁽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 $250.8 million of volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, increased marketing spend, and new product introductions; and a $97.0 million favorable impact from pricing in select markets within our Mexican beer portfolio. The increase was partially offset by a decline of $19.0 million in craft beer net sales. The shipment volume timing benefit that occurred at the end of Fiscal 2019 only partially reversed for Nine Months 2020, 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 fourth quarter of fiscal 2020.~~



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	61



~~MD&A~~	~~Table of Contents~~

Wine and Spirits Segment Nine
Months
2020 Nine
Months
2019 Dollar
Change Percent
Change
(in millions, branded product, 9-liter case equivalents)
Net sales $ 2,012.2
$ 2,206.8
$ (194.6 ) (9 %)

Shipment volume
Total 39.6
44.3
(10.6 %)
Organic ⁽²⁾
39.6
44.0
(10.0 %)

U.S. Domestic 36.4
41.1
(11.4 %)
Organic U.S. Domestic⁽²⁾
36.4
40.8
(10.8 %)

U.S. Domestic Power Brands 16.7
17.5
(4.6 %)

Depletion volume ⁽¹⁾

U.S. Domestic⁽²⁾
(7.0 %)
U.S. Domestic Power Brands 1.0 %


⁽²⁾	~~Includes an adjustment to remove volume associated with the Black Velvet Divestiture for the period November 1, 2018, through November 30, 2018.~~

The decrease in Wine and Spirits net sales is primarily due to (i) $205.9 million decline in branded wine and spirits volume and (ii) $8.5 million decrease in net sales from the Black Velvet Divestiture, partially offset by (i) $11.8 million favorable impact from pricing, and (ii) $7.4 million of favorable product mix shift. The Wine and Spirits Nine Months 2020 results have been negatively impacted by transition activities with distributors who are repositioning for ownership of brands upon closing the New Wine and Spirits Transactions and the Black Velvet Divestiture.

~~Gross Profit~~

Nine
Months
2020 Nine
Months
2019 Dollar
Change Percent
Change
(in millions)
Beer $ 2,468.1
$ 2,243.8
$ 224.3
10 %
Wine and Spirits 874.4
968.3
(93.9 ) (10 %)
Canopy 13.8
NA
13.8
NM
Consolidation and Eliminations (13.8 ) —
(13.8 ) NM
Comparable Adjustments (140.4 ) (25.3 ) (115.1 ) NM
Consolidated gross profit $ 3,202.1
$ 3,186.8
$ 15.3
— %

The increase in Beer is primarily due to $139.1 million of volume growth, $97.0 million of favorable impact from pricing, and $6.3 million of lower cost of product sold for our Mexican beer business, partially offset by a decline of $11.8 million in our craft beer portfolio. The lower cost of product sold is largely due to foreign currency transactional benefits of $18.6 million, partially offset by increased transportation costs of $7.6 million and operational costs of $4.7 million.

~~The decrease in~~ Wine and Spirits is largely due to $90.7 million of decline in branded wine and spirits volume and $25.9 million higher cost of product sold, partially offset by $17.5 million of favorable product mix shift. The higher cost of product sold is largely attributable to increased transportation costs as well as higher grape raw material and processing costs.



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~~MD&A~~	~~Table of Contents~~

Gross profit as a percent of net sales decreased to 49.7% for Nine Months 2020 compared with 50.4% for Nine Months 2019. This was largely due to an unfavorable change of approximately 175 basis points in Comparable Adjustments and higher cost of product sold within the Wine and Spirits segment, which resulted in approximately 40 basis points of rate decline, partially offset by rate growth from (i) the favorable impact from Beer pricing in select markets, which contributed approximately 75 basis points, (ii) favorable impact from Wine and Spirits product mix shift, which resulted in approximately 20 basis points, (iii) favorable volume growth from Beer which resulted in approximately 20 basis points, and (iv) approximately 20 basis points from volume within the Wine and Spirits segment as the decline in Wine and Spirits net sales exceeded the decline in Wine and Spirits gross profit.

~~Selling, General, and Administrative Expenses~~

Nine
Months
2020 Nine
Months
2019 Dollar
Change Percent
Change
(in millions)
Beer $ 687.3
$ 642.3
$ 45.0
7 %
Wine and Spirits 372.8
393.1
(20.3 ) (5 %)
Corporate Operations and Other 148.7
146.5
2.2
2 %
Canopy 555.1
NA
555.1
NM
Consolidation and Eliminations (555.1 ) —
(555.1 ) NM
Comparable Adjustments 42.9
58.0
(15.1 ) NM
Consolidated selling, general, and administrative expenses $ 1,251.7
$ 1,239.9
$ 11.8
1 %

The increase in Beer is primarily due to an increase of $42.6 million in marketing spend. The increase in marketing spend is due 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 largely due to a decrease of $17.5 million in general and administrative expenses. The decrease in general and administrative expenses is driven by certain cost saving initiatives including decreased compensation and benefits. The increase in Corporate Operations and Other is due to an increase of approximately $8 million in compensation and benefits partially offset by a decrease of approximately $6 million in consulting costs as compared with Nine Months 2019.

~~Selling, general, and administrative expenses as a percent of net salesdecreased~~ to ~~19.4%forNine Months 2020as compared with19.6%for~~Nine Months 2019. The decrease is driven largely by (i) a favorable change of approximately 35 basis points in Comparable Adjustments and (ii) by Beer with approximately 35 basis points of rate decline as the growth in Beer net sales exceeded the growth in Beer selling, general, and administrative expenses. The rate declines were offset by Wine and Spirits with approximately 40 basis points of rate increase as the decline in Wine and Spirits net sales exceeded the decline in selling, general, and administrative expenses.



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	63



~~MD&A~~	~~Table of Contents~~

~~Operating Income (Loss)~~

Nine
Months
2020 Nine
Months
2019 Dollar
Change Percent
Change
(in millions)
Beer $ 1,780.8
$ 1,601.5
$ 179.3
11 %
Wine and Spirits 501.6
575.2
(73.6 ) (13 %)
Corporate Operations and Other (148.7 ) (146.5 ) (2.2 ) (2 %)
Canopy (541.3 ) NA
(541.3 ) NM
Consolidation and Eliminations 541.3
—
541.3
NM
Comparable Adjustments (524.3 ) (83.3 ) (441.0 ) NM
Consolidated operating income (loss) $ 1,609.4
$ 1,946.9
$ (337.5 ) (17 %)

The increase in Beer is primarily attributable to the strong volume growth and favorable pricing impact, partially offset by the planned increase in marketing spend combined with the decline in craft beer. The decrease in Wine and Spirits was driven largely by the decline in branded wine and spirits volume and higher cost of product sold, partially offset by the favorable impact of product mix shift, lower general and administrative expenses, and the favorable impact from pricing. As previously discussed, Corporate Operations and Other increase in operating loss is due largely to increased compensation and benefits, partially offset by lower consulting costs.

~~Income (Loss) From Unconsolidated Investments~~

~~General~~

Income (loss) from unconsolidated investments decreased to $(2,711.8) million for Nine Months 2020 from $918.2 million for Nine Months 2019, a decrease of $3,630.0 million. This decrease is driven largely by an unrealized net loss of $2,200.9 million for Nine Months 2020, which consists of an unrealized net loss from the changes in fair value of our securities measured at fair value of $3,376.9 million, partially 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 $786.5 million recognized for Nine Months 2019. Nine Months 2020 was also negatively impacted by $544.2 million of equity in losses from Canopy’s results of operations, and related activities, while Nine 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 Nine Months 2020 net sales; gross profit (loss); selling, general, and administrative expenses; and operating income (loss) are not comparable against Nine Months 2019 due the timing of the November 2018 Canopy Investment, recognizing equity in earnings (losses) and related activities on a two-month lag, ~~and Canopy becoming a segment on March 1, 2019.~~

~~Interest Expense~~

Interest expense increased to $329.3 million for Nine Months 2020 from $248.6 million for Nine Months 2019, an increase of $80.7 million, or 32%. This increase is predominantly due to higher average borrowings of approximately $2.7 billion primarily attributable to the November 2018 Canopy Transaction.

~~(Provision For) Benefit From Income Taxes~~

Our effective tax rate for Nine Months 2020 was 73.0% of tax benefit as compared with 15.5% of tax expense for Nine Months 2019. The change in effective tax rate was driven primarily by the recognition of a $547.4 million net income tax benefit resulting from the remeasurement of our deferred tax assets for Nine Months 2020 in connection with the September 2019 enactment of tax reform in Switzerland. The Nine Months 2020 rate also 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



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	64



~~MD&A~~	~~Table of Contents~~

~~of our investments in Canopy and the tax benefits recorded on the Canopy equity in losses and related activities.~~

~~For additional information, refer to Note 12 of the Financial Statements.~~

We expect our reported effective tax rate for Fiscal 2020 to be in the range of 97% to 99% due to the remeasurement of our deferred tax assets as a result of tax reform in Switzerland and net unrealized losses and related tax benefits from our Canopy investments for the Nine Months 2020. This includes an estimated impact for (i) benefits related to the recognition of the income tax effect of stock-based compensation awards in the income statement when the awards vest or are settled and (ii) lower effective tax rates applicable to our foreign businesses. Since estimates are not currently available, this range does not reflect (i) any future changes in the fair value of our Canopy investments measured at fair value and any future equity in earnings (losses) and related activities from the Canopy Equity Method Investment and (ii) any additional gain (loss) recognized in connection with the New Wine and Spirits Transactions, the Other Wine and Spirits Transaction, and the Ballast Point Transaction.

~~Net Income (Loss) Attributable~~ to CBI

Net income (loss) attributable to CBI decreased to ~~$(410.2)~~$(177.9) million for ~~Nine Months 2020~~First Quarter 2021 from ~~$2,196.4~~$(245.4) million for ~~Nine Months 2019.~~First Quarter 2020. This decrease in net loss of ~~$2,606.6~~$67.5 million is largely attributable to the ~~significant~~ decrease in ~~income (loss)~~loss from unconsolidated investments, ~~discussed above, an impairment of long-lived assets held for sale as well as the decline in operating performance from Wine and Spirits. These decreases were partially~~largely offset by ~~solid operating performance~~the First Quarter 2021 provision for income taxes as compared with a benefit from ~~Beer contributing an additional $179.3 million of operating income.~~income taxes for First Quarter 2020.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

General

Our ability to consistently generate cash flow from operating activities is one of our most significant financial strengths. Our strong cash flows enable us to invest in our people and our brands, make appropriate capital investments, provide a quarterly cash dividend program, and from time-to-time, repurchase shares of our common stock, and make strategic investments and acquisitions that we believe will enhance 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. COVID-19 has negatively impacted the global economy and financial markets which could interfere with our ability to access sources of liquidity at favorable rates and generate operating cash flows. We are taking advantage of opportunities to temporarily defer some payments including certain excise and payroll taxes under the CARES Act.

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

We ~~have plans~~plan to sell a portion of our ~~U.S.~~ wine and spirits ~~business as well as a portion of our craft beer~~ business. We expect to use the net cash proceeds from closing these transactions primarily to reduce outstanding borrowings.

~~The~~On May 1, 2020, we exercised the November 2017 Canopy Warrants ~~with~~at an exercise price of C$12.98 per warrant share ~~will expire on~~for C$245.0 million, or $173.9 million. The May ~~1, 2020. We will evaluate exercise of the warrants immediately prior to expiration. If a~~2020 Canopy Transaction was funded with cash from operations.



Constellation Brands, Inc. Q3Q1 FY ~~2020~~2021 Form 10-Q			65 #WORTHREACHINGFOR I46



MD&A			Table of Contents

Cash flows

~~decision is made to exercise the November 2017 Canopy Warrants, we expect to fund the C$245 million transaction with commercial paper borrowings and cash from operations.~~


	First Quarter 2021		First Quarter 2020		Dollar Change
(in millions)
Net cash provided by (used in):
Operating activities	$	686.5	$	593.1	$	93.4
Investing activities	(299.1)		(213.5)		(85.6)
Financing activities	(169.0)		(374.4)		205.4
Effect of exchange rate changes on cash and cash equivalents	3.0		(0.1)		3.1
Net increase (decrease) in cash and cash equivalents	$	221.4	$	5.1	$	216.3

~~Cash Flows~~

Nine
Months
2020 Nine
Months
2019 Dollar
Change
(in millions)
Net cash provided by (used in):
Operating activities $ 2,076.3
$ 1,973.9
$ 102.4
Investing activities (335.9 ) (4,587.3 ) 4,251.4
Financing activities (1,740.2 ) 2,661.3
(4,401.5 )
Effect of exchange rate changes on cash and cash equivalents (0.1 ) (7.6 ) 7.5
Net increase (decrease) in cash and cash equivalents $ 0.1
$ 40.3
$ (40.2 )

Operating ~~Activities~~activities

The increase in net cash provided by operating activities for ~~Nine Months 2020~~First Quarter 2021 is largely due to ~~strong cash flow~~benefits from reduced inventory levels for the Beer segment ~~driven primarily by~~and decreased accounts receivable related to net sales decline for 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~~Beer and Wine and Spirits segments all largely resulting from lower income tax payments largely due to a change in estimated taxable income, timing of payments, and the receipt of a higher federal tax refund for Nine Months 2020 as compared with Nine Months 2019.COVID-19 containment measures. The increase in net cash provided by operating activities was partially offset by higher ~~cash outflows from accounts payable~~income tax payments in First Quarter 2021 primarily ~~attributable~~due to the ~~timing~~receipt of ~~payments for both the Wine and Spirits and Beer segments.~~a federal tax refund in First Quarter 2020.

Investing ~~Activities~~activities

Net cash used in investing activities for ~~Nine Months 2020 decreased~~First Quarter 2021 increased primarily due to the ~~$3,869.9~~$173.9 million ~~November 2018 Canopy Transaction, proceeds~~exercise of ~~$269.7 million from~~ the November ~~2019 Black Velvet Divestiture, and lower Nine Months 2020 capital expenditures of $82.0 million.~~2017 Canopy Warrants in May 2020. The ~~decrease~~increase in net cash used in investing activities was partially offset by proceeds ~~received in Nine Months 2019~~ of ~~$110.2~~$41.1 million from the ~~May 2018 sale~~March 2020 Ballast Point Divestiture and lower First Quarter 2021 business acquisition activity of ~~our Accolade Wine Investment.~~$36.2 million.

Financing ~~Activities~~activities

The ~~increase~~decrease in net cash provided by (used in) financing activities consists of:


	First Quarter 2021		First Quarter 2020		Dollar Change
(in millions)
Net proceeds from (payments of) debt, current and long-term, and related activities	$	(21.9)	$	(227.9)	$	206.0
Dividends paid	(143.9)		(143.0)		(0.9)

Net cash provided by stock-based compensation activities	(3.2)		(3.5)		0.3
Net cash provided by (used in) financing activities	$	(169.0)	$	(374.4)	$	205.4


Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I47

Nine
Months
2020 Nine
Months
2019 Dollar
Change
(in millions)
Net proceeds from (payments of) debt, current and long-term, and related activities $ (1,287.9 ) $ 3,564.5
$ (4,852.4 )
Dividends paid (427.0 ) (417.9 ) (9.1 )
Purchases of treasury stock (50.0 ) (504.3 ) 454.3
Net cash provided by stock-based compensation activities 24.7
19.0
5.7
Net cash provided by (used in) financing activities $ (1,740.2 ) $ 2,661.3
$ (4,401.5 )


MD&A			Table of Contents

Debt

Total debt outstanding as of ~~November 30, 2019,~~May 31, 2020, amounted to ~~$12,356.0~~$12,174.0 million, a decrease of ~~$1,260.5~~$10.6 million from February ~~28, 2019.~~29, 2020. This decrease ~~was primarily due to~~consisted of:

Bank facilities

In March 2020, we entered into the 2020 Restatement Agreement that amended and restated the 2018 Credit Agreement. The 2020 Restatement Agreement resulted in (i) the ~~maturity~~removal of the ~~$600.0 million 2.00% November 2017 Senior Notes,~~subsidiary guarantees and termination of the guarantee agreement, (ii) the ~~$520.0 million partial repayment~~inclusion of the ~~Five-Year~~parent guaranty provisions in connection with the termination of the guarantee agreement, (iii) the removal of certain provisions pertaining to term loans since no term loans are outstanding, and (iv) the revision of the LIBOR successor rate provisions to permit the use of rates based on the SOFR administered by the Federal Reserve Bank of New York.

In March 2020, we entered into the Term ~~Facility under our~~Loan Restatement Agreement and the 2020 Term Loan Restatement Agreement, that amended and restated the Term Credit Agreement ~~(iii) a reduction in commercial paper outstanding of~~



~~Constellation Brands, Inc. Q3 FY 2020 Form 10-Q~~	66



~~MD&A~~	~~Table of Contents~~

~~$451.0 million,~~ and ~~(iv) the early redemption of the $400.0 million 3.875% November 2014 Senior Notes, partially offset by the issuance of the $800.0 million July 2019 Senior Notes.~~

~~2019 Term Credit Agreement~~

~~In June 2019, we entered into~~ the 2019 Term Credit Agreement, ~~which~~respectively. The Term Loan Restatement Agreement and the 2020 Term Loan Restatement Agreement each resulted in (i) the ~~creation~~removal of ~~a $491.3 million five-year term loan facility. We utilized~~ the ~~proceeds from borrowings under~~subsidiary guarantees and termination of the ~~2019 Term Credit Agreement~~respective guarantee agreements and (ii) the revision of the LIBOR successor rate provisions in each to ~~repay in full~~permit the ~~U.S. Term A-1 Facility under the 2018 Credit Agreement.~~use of rates based on SOFR.

~~Senior Notes~~

In July ~~2019,~~2020, we prepaid the remaining outstanding borrowings of $317.5 million on our Five-Year Term Facility and made an additional $25.0 million partial prepayment on the Three-Year Term Facility, both under our 2020 Term Credit Agreement.

Senior notes

In April 2020, we issued the ~~July 2019~~April 2020 Senior Notes. Proceeds from this offering, net of discount and debt issuance costs, of ~~$793.0~~$1,183.4 million were primarily used for the repayment of our ~~3.875%~~2.25% November ~~2014~~2017 Senior Notes and the repayment of a portion of the Three-Year Term Facility outstanding obligations under ~~the Five-Year Term Facility under~~ our 2020 Term Credit Agreement.

General

The majority of our outstanding borrowings as of ~~November 30, 2019,~~May 31, 2020, consisted of fixed-rate senior unsecured notes, with maturities ranging from calendar ~~2020~~2021 to calendar ~~2048,~~2050, and variable-rate senior unsecured term loan facilities under our Term Credit Agreement and 2019 Term Credit Agreement, with maturities ranging from calendar 2021 to calendar 2024.


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Additionally, we have a commercial paper program which provides for the issuance of up to an aggregate principal amount of $2.0 billion of commercial paper. Our commercial paper program is backed by unused commitments under our revolving credit facility under our ~~2018~~2020 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under our ~~2018~~2020 Credit Agreement.

We do not have purchase commitments from buyers for our commercial paper and, therefore, our ability to issue commercial paper is subject to market demand. If the commercial paper market is not available to us for any reason when outstanding commercial paper borrowings mature, we will utilize unused commitments under our revolving credit facility under our ~~2018~~2020 Credit Agreement to repay commercial paper borrowings. We do not expect that fluctuations in demand for commercial paper will affect our liquidity given our borrowing capacity available under our revolving credit facility under our ~~2018~~2020 Credit Agreement.

We had the following borrowing capacity available under our ~~2018~~2020 Credit Agreement:


	Remaining Borrowing Capacity
	May 31, 2020		June 26, 2020
(in millions)
Revolving Credit Facility ⁽¹⁾	$	1,988.2	$	1,988.2

Remaining Borrowing Capacity
November 30,
2019 December 31,
2019
(in millions)
Revolving Credit Facility ⁽¹⁾
$ 1,706.2
$ 1,788.2
⁽¹⁾Net of outstanding revolving credit facility borrowings and outstanding letters of credit under our 2020 Credit Agreement and outstanding borrowings under our commercial paper program.


⁽¹⁾	~~Net of outstanding revolving credit facility borrowings and outstanding letters of credit under our 2018 Credit Agreement and outstanding borrowings under our commercial paper program.~~

The financial institutions participating in our ~~2018~~2020 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 our ~~2018~~2020 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 our ~~2018~~2020 Credit Agreement. As of



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~~November 30, 2019,~~ under our ~~2018~~2020 Credit Agreement, the minimum interest coverage ratio was 2.5x and the maximum net leverage ratio was ~~5.0x.~~4.5x.

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 our 2020 Term Credit Agreement and our ~~2019~~March 2020 Term Credit Agreement are substantially similar to those set forth in our ~~2018~~2020 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, 2019,~~May 31, 2020, we were in compliance with our covenants under our ~~2018~~2020 Credit Agreement, our 2020 Term Credit Agreement, our ~~2019~~March 2020 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 1213 of our consolidated financial statements included in our ~~2019~~2020 Annual Report and Note 119 of the Financial Statements.


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Common ~~Stock Dividends~~stock dividends

On ~~January 7,~~June 30, 2020, our Board of Directors declared a quarterly cash dividend of $0.75 per share of Class A Common Stock, $0.68 per share of Class B Convertible Common Stock, and $0.68 per share of Class 1 Common Stock payable on ~~February~~August 25, 2020, to stockholders of record of each class on ~~February~~August 11, 2020.

We currently expect to continue to pay a regular quarterly cash dividend to stockholders of our common stock in the future, but such payments are subject to approval of our Board of Directors and are dependent upon our financial condition, results of operations, capital requirements, and other factors, including those set forth under Item 1A “Risk Factors” of our ~~2019~~2020 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 May 31, 2019.~~Report.

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. No shares were repurchased during ~~Third~~First Quarter ~~2020.~~2021.

As of ~~November 30, 2019,~~May 31, 2020, total shares repurchased under this authorization 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

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



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~~MD&A~~	~~Table of Contents~~

transactions. We may fund future share repurchases with cash generated from operations and/or proceeds from borrowings. Any repurchased shares will become treasury shares.

We currently expect to continue to repurchase shares in the future, but such repurchases are dependent upon our financial condition, results of operations, capital requirements, and other factors, including those set forth under Item 1A “Risk Factors” of our 2020 Annual Report.

For additional information, refer to Note 1618 of our consolidated financial statements included in our ~~2019~~2020 Annual Report and Note 1511 of the Financial Statements.

~~Critical Accounting Estimates and Policies~~

Our significant accounting policies are more fully described in Note 1 of our consolidated financial statements included 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~~

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.~~

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. Management applies significant judgment in its determination of expected volatility. We consider both historical and implied volatility levels of the underlying equity security and apply limited consideration of historical peer group volatility levels.

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



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Capital expenditures

~~price, remaining term, expected volatility, risk-free interest rate,~~

Management reviews the capital expenditure program periodically and ~~expected dividend yield,~~modifies it as ~~applicable.~~required to meet current business needs. We do not believe it is prudent at this time to provide capital expenditure guidance for Fiscal 2021 as we are not able to estimate the long-term impact of COVID-19, including the demand for our products and the impact on the timeframes for completion of our expansion, construction, and optimization projects in Mexico. To the extent possible, we plan to continue capital expenditures during Fiscal 2021 for the Beer segment associated primarily with our Obregon Brewery optimization and expansion.

~~Management’s estimate~~In fiscal 2017, we began construction of ~~fair value requires significant management judgment~~the Mexicali Brewery. In March 2020, a public consultation on the construction of our Mexicali Brewery was held. We have initiated early stage discussions with government officials in Mexico regarding next steps for our brewery construction project and ~~is subject~~options elsewhere in the country following the negative result of the public consultation. These discussions have been positive and we will continue working with government officials to mutually agree upon a ~~high degree~~path forward. At this time, we have paused all construction activities at our Mexicali Brewery. As of ~~variability~~May 31, 2020, we capitalized approximately $740 million of construction in progress related to the Mexicali Brewery. Future impairments may result based upon ~~market conditions,~~our plans for these assets for any capitalized amounts that are not deemed recoverable.

Guidance

Accounting guidance

Accounting guidance adopted for First Quarter 2021 did not have a material impact on our consolidated

financial statements.

Disclosure guidance

In May 2020, the ~~availability of specific information~~Securities and ~~management’s assumptions.~~

~~For further discussion on fair value of our~~Exchange Commission (“SEC”) issued a final rule that amends business acquisition and disposition financial ~~instruments, refer to Note 6~~disclosure requirements. Among other modifications, the amendments change certain criteria in the ~~Notes~~significance tests used to determine audited financial statements and related pro forma financial information requirements, the ~~Financial Statements.~~

~~ACCOUNTING GUIDANCE~~

~~Refer to Notes 2~~periods audited financial statements must cover, and 14the form and content of the ~~Financial Statements~~pro forma financial information. We are required to comply with this rule for ~~information~~our annual and interim periods beginning March 1, 2021, however early compliance is permitted. We are currently assessing the impact of this rule on ~~recently adopted accounting guidance.~~our SEC filings.

INFORMATION 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:

•The statements regarding the current global COVID-19 pandemic.

•The statements under Part I –- Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding:

◦our business strategy, future operations, future financial position, future net sales and expected volume trends, 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;

◦information concerning the future expected balance of supply and demand for our products;

◦timing and source of funds for operating activities and New November 2018 Canopy Warrant exercises, if any;


◦Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			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; #WORTHREACHINGFOR I51


◦MD&A			~~information concerning expected or potential actions~~ Table of ~~third parties, including potential changes to international trade agreements, tariffs, taxes, and other governmental rules and regulations;~~Contents


◦	~~information concerning the future expected balance of supply and demand for our products;~~


◦	~~timing and source of funds for operating activities and Canopy warrant exercises, if any;~~


◦	~~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 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 expansion, construction, and optimization activities, including anticipated costs and timeframes for ~~completion.~~completion, discussions with government officials in Mexico, and potential future impairment of non-recoverable brewery construction assets.

•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 and our future share of Canopy’s reported earnings and losses.~~

◦the volatility of the fair value of our investments in Canopy measured at fair value;

◦our activities surrounding our investments in Canopy;

◦our targeted leverage ratio;

◦the New November 2018 Canopy Warrants; and

◦our future ownership level in Canopy and our future share of Canopy’s reported earnings and losses.

•The statements regarding the ~~New~~ Wine and Spirits Transactions and the Other Wine and Spirits Transactions, ~~and the Ballast Point Transaction,~~ including expected ~~gain or loss,~~ form and amount of consideration, amount and use of expected proceeds, estimated remaining costs, and any expected restructuring charge.

•The statements regarding Canopy’s transaction with Acreage.



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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:

•the duration and impact of the COVID-19 pandemic, including but not limited to the closure of non-essential businesses, which may include our manufacturing facilities, and other associated governmental containment actions, may vary from our current expectations;

•the actual balance of supply and demand for our products will vary from current expectations due to, among other reasons, actual raw material supply, actual shipments to distributors, and actual consumer demand;

•the actual demand, net sales, and volume trends for our products will vary from current expectations due to, among other reasons, actual shipments to distributors and actual consumer demand;

•the amount, timing, and source of funds for any share repurchases or Canopy warrant exercises, if any, 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; any future exercise of the New November 2018 Canopy ~~warrants;~~Warrants; the expected impacts of the ~~New Wine and Spirits Transactions, the Other~~ Wine and Spirits Transactions and the ~~Ballast Point Transaction;~~Other Wine and Spirits Transactions; and other factors as determined by management from time to 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;

•the fair value of our investments in Canopy may vary due to market and economic conditions in Canopy’s markets and business locations;

•the accuracy of management’s projections relating to the Canopy investment may vary from management’s current expectations due to Canopy’s actual results of operations and market and economic conditions;

•the timeframe and actual costs associated with the beer operations expansion activities and amount of impairment, if any, for non-recoverable brewery construction assets in Mexico 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, results of discussions


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with government officials in Mexico, actual amount of non-recoverable brewery construction assets, and other factors as determined by management;

•any consummation of the ~~New~~ Wine and Spirits Transactions or the Other Wine and Spirits Transactions ~~or of the Ballast Point Transaction,~~ and any actual date of consummation of ~~either~~any of them may vary from our current expectations; the actual restructuring charge, if any, will vary based on management’s final plans; and the amount of additional loss, if any, on the future write-down of assets held for sale will vary based on the 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, or the impact of the Acreage Transaction upon our future ownership level in Canopy or our future share of Canopy’s reported earnings and losses, 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 ~~New~~ Wine and Spirits Transactions are subject to the satisfaction of certain closing ~~conditions, including receipt of required regulatory clearances and governmental approvals, and the Ballast Point Transaction is subject to certain customary closing~~ conditions. The Nobilo Transaction is also conditioned on completion of the Further Revised Wine and Spirits Transaction. For additional information about risks and uncertainties that could adversely affect our ~~forward-looking~~forward looking statements, please refer to Item 1A1A. “Risk Factors” of our ~~2019~~2020 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 May 31, 2019.~~

Report.



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OTHER KEY INFORMATION			Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk.


~~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, and treasury lock contracts. We use derivative instruments to reduce earnings and cash flow volatility resulting from shifts in market rates, as well as to hedge economic exposures. We do not enter into derivative instruments for trading or speculative purposes.

Foreign ~~Currency~~currency and ~~Commodity Price Risk~~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, or divestitures outside the U.S. As of ~~November 30, 2019,~~May 31, 2020, we had exposures to foreign currency risk primarily related to the Mexican peso, euro, Canadian dollar, and New Zealand dollar. Approximately ~~88%~~100% of our balance sheet exposures and 77% of our forecasted transactional exposures for the remaining ~~three~~nine months of fiscal ~~2020~~2021 were hedged as of ~~November 30, 2019.~~May 31, 2020.

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, 2019,~~May 31, 2020, exposures to commodity price risk which we are currently hedging include aluminum, corn, diesel fuel, natural gas, and wheat prices. Approximately ~~87%~~77% of our forecasted transactional exposures for the remaining ~~three~~nine months of fiscal ~~2020~~2021 were hedged as of ~~November 30, 2019.~~May 31, 2020.

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. Gains or losses 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
	May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
(in millions)
Foreign currency contracts	$	1,991.4	$	2,155.5	$	(102.0)	$	13.9	$	144.9	$	(157.5)
Commodity derivative contracts	$	268.3	$	271.3	$	(56.2)	$	(17.3)	$	19.8	$	22.2

Aggregate
Notional Value

Fair Value,
Net Asset (Liability)

Increase (Decrease)
in Fair Value –
Hypothetical
10% Adverse Change
November 30,
2019 November 30,
2018 November 30,
2019 November 30,
2018 November 30,
2019 November 30,
2018
(in millions)
Foreign currency contracts $ 2,921.2
$ 1,955.5
$ 33.9
$ (56.2 ) $ (208.8 ) $ 136.5
Commodity derivative contracts $ 261.5
$ 260.2
$ (18.5 ) $ (8.9 ) $ 18.2
$ 22.1

Interest ~~Rate Risk~~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, 2019,~~May 31, 2020, 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 as of



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~~OTHER KEY INFORMATION~~	~~Table of Contents~~

~~November 30, 2018.~~ May 31, 2019. As of ~~November 30,~~May 31, 2020, and May 31, 2019, ~~and November 30, 2018,~~ there were no undesignated interest rate swap contracts outstanding.

As of May 31, 2020, and May 31, 2019, we had no treasury lock contracts outstanding.


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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~~fixed-rate debt, including current maturities and open interest rate derivative instruments are summarized as follows:


	Aggregate Notional Value						Fair Value, Net Asset (Liability)						Increase (Decrease) in Fair Value – Hypothetical 1% Rate Increase ⁽¹⁾
	May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
(in millions)
Fixed interest rate debt	$	10,572.0	$	10,274.8	$	(11,445.0)	$	(10,487.0)	$	(841.2)	$	(616.5)

Interest rate swap contracts	$	375.0	$	—	$	(0.6)	$	—	$	—	$	—

Aggregate
Notional Value

Fair Value,
Net Asset (Liability)

Increase (Decrease)
in Fair Value –
Hypothetical
1% Rate Increase
November 30,
2019 November 30,
2018 November 30,
2019 November 30,
2018 November 30,
2019 November 30,
2018
(in millions)
Fixed interest rate debt $ 10,076.3
$ 10,282.1
$ (10,692.7 ) $ (9,855.4 ) $ (697.9 ) $ (569.0 )
Variable interest rate debt $ 2,359.1
$ 3,376.5
$ (2,389.4 ) $ (3,333.6 ) $ (54.5 ) $ (98.1 )
Interest rate swap contracts $ 375.0
$ —
$ (0.6 ) $ —
$ (1.2 ) $ —
⁽¹⁾In May 2020, the final settlement rates on the outstanding interest rate swap contracts were locked, therefore, there was no future exposure to interest rate risk as of May 31, 2020. There were no cash flow designated interest rate swap contracts outstanding as of May 31, 2019.

A 1% hypothetical change in the prevailing interest rates would have increased interest expense on our variable interest rate debt by $4.9 million and $8.6 million for the three months ended May 31, 2020, and May 31, 2019, respectively.

Equity ~~Price Risk~~price risk

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

As of ~~November 30, 2019,~~May 31, 2020, the fair value of our investments in the Canopy warrants and the Canopy convertible debt securities was ~~$1,040.2~~$809.5 million, with an unrealized net gain (loss) on these investments of ~~$(2,200.9)~~$(197.3) million recognized in our results of operations for the ~~nine~~three months ended ~~November 30, 2019.~~May 31, 2020. We have performed a sensitivity analysis to estimate our exposure to market risk of the equity price reflecting the impact of a hypothetical 10% adverse change in the quoted market price of the underlying equity security. As of ~~November 30, 2019,~~May 31, 2020, such a hypothetical 10% adverse change would have resulted in a decrease in fair value of ~~$173.4~~$121.5 million.

For additional discussion on our market risk, refer to Notes 54 and 65 of the Financial Statements.


~~Item 4.~~	~~Controls and Procedures.~~

Item 4. Controls and Procedures.

Disclosure ~~Controls~~controls and ~~Procedures~~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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	May 31, 2020 ^{(1) (2)}									February 29, 2020 ⁽²⁾
	New Tranche A Warrants⁽³⁾			New Tranche B Warrants ⁽⁴⁾			New Tranche A Warrants ⁽³⁾			New Tranche B Warrants ⁽⁴⁾			November 2017 Canopy Warrants ⁽³⁾
Exercise price ⁽⁵⁾	C$	50.40		C$	76.68		C$	50.40		C$	76.68		C$	12.98
Valuation date stock price ⁽⁶⁾	C$	24.21		C$	24.21		C$	25.17		C$	25.17		C$	25.17
Remaining contractual term⁽⁷⁾	3.4 years			6.4 years			3.7 years			6.7 years			0.2 years
Expected volatility ⁽⁸⁾	70.0		%	70.0		%	70.0		%	70.0		%	105.3		%
Risk-free interest rate ⁽⁹⁾	0.3		%	0.4		%	1.1		%	1.1		%	1.5		%
Expected dividend yield ⁽¹⁰⁾	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%



	November 30, 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$	24.51		C$	24.51		C$	24.51		C$	62.38		C$	62.38
Expected life⁽⁶⁾	3.9 years			6.9 years			0.4 years			2.7 years			1.2 years
Expected volatility ⁽⁷⁾	65.0		%	65.0		%	93.0		%	79.3		%	87.8		%
Risk-free interest rate ⁽⁸⁾	1.5		%	1.5		%	1.7		%	1.8		%	1.8		%
Expected dividend yield ⁽⁹⁾	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%


	May 31, 2020			February 29, 2020
Conversion price ⁽¹⁾	C$	48.17		C$	48.17
Valuation date stock price ⁽²⁾	C$	24.21		C$	25.17
Remaining term⁽³⁾	3.1 years			3.4 years
Expected volatility ⁽⁴⁾	60.3		%	58.2		%
Risk-free interest rate ⁽⁵⁾	0.3		%	1.1		%
Expected dividend yield ⁽⁶⁾	0.0		%	0.0		%


⁽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 Three Months Ended May 31,
		2020		2019
	(in millions)
	November 2017 Canopy Warrants⁽ⁱ⁾	$	(61.8)	$	(134.1)
	November 2018 Canopy Warrants ⁽ⁱⁱ⁾	(123.0)		(660.8)
	Canopy Debt Securities	(12.5)		(32.6)
		$	(197.3)	$	(827.5)

⁽ⁱ⁾	The November 2017 Canopy Warrants were exercised in May 2020. For additional information on the November 2017 Canopy Warrants and the related exercise, refer to Note 8.
⁽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 8.



⁽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 Nine Months Ended					For the Three Months Ended
			November 30, 2019			November 30, 2018		November 30, 2019			November 30, 2018
	(in millions)
	November 2017 Canopy Investment ⁽ⁱ⁾		$	—		$	292.5	$	—		$	(168.5	)
	November 2017 Canopy Warrants		(542.7		)	223.5		(91.9		)	(212.4		)
	November 2018 Canopy Warrants ⁽ⁱⁱ⁾		(1,561.2		)	257.6		(426.8		)	257.6
	Canopy Debt Securities		(97.0		)	12.9		(15.6		)	(40.6		)
			$	(2,200.9	)	$	786.5	$	(534.3	)	$	(163.9	)
	⁽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. For the nine months ended November 30, 2019, amounts are net of a $1,176.0 million unrealized gain resulting from the June 2019 Warrant Modification.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except share and per share data) (unaudited)

	November 30, 2019			February 28, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	93.7		$	93.6
Accounts receivable	808.3			846.9
Inventories	1,358.8			2,130.4
Prepaid expenses and other	484.3			613.1
Assets held for sale - current	724.8			—
Total current assets	3,469.9			3,684.0
Property, plant, and equipment	5,187.2			5,267.3
Goodwill	7,771.8			8,088.8
Intangible assets	2,721.3			3,198.1
Equity method investments	3,058.7			3,465.6
Securities measured at fair value	1,040.2			3,234.7
Deferred income taxes	2,663.0			2,183.3
Assets held for sale	562.5			—
Other assets	619.1			109.7
Total assets	$	27,093.7		$	29,231.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	281.5		$	791.5
Current maturities of long-term debt	734.8			1,065.2
Accounts payable	676.5			616.7
Other accrued expenses and liabilities	767.4			690.4
Total current liabilities	2,460.2			3,163.8
Long-term debt, less current maturities	11,339.7			11,759.8
Deferred income taxes and other liabilities	1,257.5			1,470.7
Total liabilities	15,057.4			16,394.3
Commitments and contingencies
CBI stockholders’ equity:
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued, 186,071,345 shares and 185,740,178 shares, respectively	1.9			1.9
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares; Issued, 28,319,606 shares and 28,322,419 shares, respectively	0.3			0.3
Additional paid-in capital	1,472.3			1,410.8
Retained earnings	13,439.4			14,276.2
Accumulated other comprehensive income (loss)	(383.8		)	(353.9		)
	14,530.1			15,335.3
Less: Treasury stock –
Class A Common Stock, at cost, 18,566,568 shares and 18,927,966 shares, respectively	(2,818.5		)	(2,782.1		)
Class B Convertible Common Stock, at cost, 5,005,800 shares	(2.2		)	(2.2		)
	(2,820.7		)	(2,784.3		)
Total CBI stockholders’ equity	11,709.4			12,551.0
Noncontrolling interests	326.9			286.2
Total stockholders’ equity	12,036.3			12,837.2
Total liabilities and stockholders’ equity	$	27,093.7		$	29,231.5

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,
	2019			2018			2019			2018
Sales	$	7,037.4		$	6,916.3		$	2,181.5		$	2,160.6
Excise taxes	(596.8		)	(597.5		)	(182.1		)	(188.0		)
Net sales	6,440.6			6,318.8			1,999.4			1,972.6
Cost of product sold	(3,238.5		)	(3,132.0		)	(1,011.9		)	(1,002.6		)
Gross profit	3,202.1			3,186.8			987.5			970.0
Selling, general, and administrative expenses	(1,251.7		)	(1,239.9		)	(406.3		)	(413.5		)
Impairment of assets held for sale	(417.0		)	—			(390.0		)	—
Gain (loss) on sale of business	76.0			—			76.0			—
Operating income (loss)	1,609.4			1,946.9			267.2			556.5
Income (loss) from unconsolidated investments	(2,711.8		)	918.2			(456.5		)	(134.6		)
Interest expense	(329.3		)	(248.6		)	(103.1		)	(72.8		)
Loss on extinguishment of debt	(2.4		)	(1.7		)	—			(1.7		)
Income (loss) before income taxes	(1,434.1		)	2,614.8			(292.4		)	347.4
(Provision for) benefit from income taxes	1,046.5			(405.1		)	658.9			(35.3		)
Net income (loss)	(387.6		)	2,209.7			366.5			312.1
Net income (loss) attributable to noncontrolling interests	(22.6		)	(13.3		)	(6.1		)	(9.0		)
Net income (loss) attributable to CBI	$	(410.2	)	$	2,196.4		$	360.4		$	303.1

Comprehensive income (loss)	$	(419.6	)	$	1,891.7		$	466.6		$	98.2
Comprehensive (income) loss attributable to noncontrolling interests	(20.5		)	1.7			(13.4		)	3.6
Comprehensive income (loss) attributable to CBI	$	(440.1	)	$	1,893.4		$	453.2		$	101.8

Net income (loss) per common share attributable to CBI:
Basic – Class A Common Stock	$	(2.17	)	$	11.66		$	1.90		$	1.62
Basic – Class B Convertible Common Stock	$	(1.98	)	$	10.59		$	1.73		$	1.47

Diluted – Class A Common Stock	$	(2.17	)	$	11.21		$	1.85		$	1.56
Diluted – Class B Convertible Common Stock	$	(1.98	)	$	10.35		$	1.71		$	1.45

Weighted average common shares outstanding:
Basic – Class A Common Stock	168.258			167.203			168.346			166.364
Basic – Class B Convertible Common Stock	23.316			23.322			23.314			23.318

Diluted – Class A Common Stock	168.258			195.921			194.856			194.820
Diluted – Class B Convertible Common Stock	23.316			23.322			23.314			23.318

Cash dividends declared per common share:
Class A Common Stock	$	2.25		$	2.22		$	0.75		$	0.74
Class B Convertible Common Stock	$	2.04		$	2.01		$	0.68		$	0.67



	November 30, 2019 ⁽¹⁾		February 28, 2019
(in millions)
Raw materials and supplies	$	131.7	$	182.6
In-process inventories	832.5		1,480.5
Finished case goods	394.6		467.3
	$	1,358.8	$	2,130.4



	Results of Operations Location	For the Nine Months Ended November 30, 2019		For the Three Months Ended November 30, 2019
(in millions)
Loss on inventory write-downs	Cost of product sold	$	102.6	$	61.7
Contract termination costs	Cost of product sold	20.1		—
Employee termination costs	Selling, general, and administrative expenses	12.3		0.2
Other costs	Selling, general, and administrative expenses	8.0		1.7
Impairment of long-lived assets	Impairment of assets held for sale	367.0		340.0
		$	510.0	$	403.6


Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I10


Derivative Instruments in Designated Cash Flow Hedging Relationships	Net Gain (Loss) Recognized in OCI		Location of Net Gain (Loss) Reclassified from AOCI to Income (Loss)	Net Gain (Loss) Reclassified from AOCI to Income (Loss)
(in millions)
For the Three Months Ended May 31, 2020
Foreign currency contracts	$	(193.4)	Sales	$	0.4
			Cost of product sold	(8.5)
Interest rate swap contracts	(0.3)		Interest expense	(0.4)
Treasury lock contracts	(16.1)		Interest expense	—
	$	(209.8)		$	(8.5)

For the Three Months Ended May 31, 2019
Foreign currency contracts	$	(2.4)	Sales	$	—
			Cost of product sold	3.6

	$	(2.4)		$	3.6


Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I11



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 Nine Months Ended November 30, 2019
Commodity derivative contracts	Cost of product sold	$	(23.7	)
Foreign currency contracts	Selling, general, and administrative expenses	(7.4		)
		$	(31.1	)

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	)


Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I12


⁽¹⁾ ⁽⁹⁾Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expiration date of the applicable warrants. ⁽¹⁰⁾Based on historical dividend levels.	~~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 TSX as of the applicable date.~~


⁽⁷⁾	~~Based on consideration of historical and/or implied volatility levels of the underlying equity security and limited consideration of historical peer group volatility levels.~~


⁽⁸⁾	~~Based on the implied yield currently available on Canadian Treasury zero coupon issues with a remaining term equal to the expected life.~~



Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I13


⁽³⁾	~~Based on the contractual maturity date of the notes.~~


⁽⁴⁾	~~Based on historical volatility levels of the underlying equity security reduced to account for certain risks not incorporated into the option-pricing model.~~



Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I14


	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
(in millions)
May 31, 2020
Assets:
Foreign currency contracts	$	—	$	11.2	$	—	$	11.2
Commodity derivative contracts	$	—	$	1.6	$	—	$	1.6

Equity securities ⁽¹⁾	$	—	$	693.4	$	—	$	693.4
Canopy Debt Securities ⁽¹⁾	$	—	$	116.1	$	—	$	116.1

Liabilities:
Foreign currency contracts	$	—	$	113.2	$	—	$	113.2
Commodity derivative contracts	$	—	$	57.8	$	—	$	57.8
Interest rate swap contracts	$	—	$	0.6	$	—	$	0.6


February 29, 2020
Assets:
Foreign currency contracts	$	—	$	96.3	$	—	$	96.3
Commodity derivative contracts	$	—	$	0.6	$	—	$	0.6
Equity securities ⁽¹⁾	$	—	$	991.5	$	—	$	991.5
Canopy Debt Securities ⁽¹⁾	$	—	$	125.6	$	—	$	125.6
Liabilities:
Foreign currency contracts	$	—	$	34.4	$	—	$	34.4
Commodity derivative contracts	$	—	$	40.9	$	—	$	40.9
Interest rate swap contracts	$	—	$	0.8	$	—	$	0.8
Treasury lock contracts	$	—	$	7.6	$	—	$	7.6



Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I15


	Fair Value Measurements Using								Total Losses
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		For the Three Months Ended May 31, 2020
(in millions)
Long-lived assets held for sale	$	—	$	—	$	784.0	$	25.0


⁽¹⁾	~~The balance at~~ ~~November 30, 2019, has been reclassified to assets held for sale (see “Trademarks” below for further discussion).~~


⁽¹⁾	Purchase accounting allocations associated primarily with the acquisition of F~~our Corners (Beer). See defined acquisition term below.~~


⁽²⁾	~~Preliminary purchase accounting allocations associated primarily with the acquisition of Nelson’s Green Brier (Wine and Spirits). See defined acquisition term below.~~



Constellation Brands, Inc. Q1 FY 2021 Form 10-Q			#WORTHREACHINGFOR I16


	May 31, 2020						February 29, 2020
	Gross Carrying Amount		Net Carrying Amount		Gross Carrying Amount		Net Carrying Amount
(in millions)
Amortizable intangible assets
Customer relationships	$	87.6	$	30.7	$	87.4	$	31.8
Other	20.4		0.3		20.2		0.3
Total	$	108.0	31.0		$	107.6	32.1

Nonamortizable intangible assets
Trademarks			2,704.4				2,686.8
Total intangible assets			$	2,735.4			$	2,718.9


	May 31, 2020						February 29, 2020
	Carrying Value		Ownership Percentage⁽¹⁾		Carrying Value		Ownership Percentage ⁽¹⁾
(in millions)
Canopy Equity Method Investment	$	2,667.6	35.2	%	$	2,911.7	35.3	%
Other equity method investments ⁽²⁾	218.1		20%-50%		182.2		20%-50%
	$	2,885.7			$	3,093.9


⁽¹⁾	~~The other equity method investments balance at~~ ~~November 30, 2019, excludes investments reclassified to assets held for sale.~~