Constellation Brands : Quarterly report which provides a continuing view of a company's financial position

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended November 30, 2018 or

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

For the transition period from

to

Commission File Number: 001-08495

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 York

(Address of principal executive offices)

14564 (Zip Code)

[phone]

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨

No ý

The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of December 31, 2018, is set forth below:

Class	Number of Shares Outstanding
Class A Common Stock, par value $.01 per share	166,548,089
Class B Common Stock, par value $.01 per share	23,316,629
Class 1 Common Stock, par value $.01 per share	11,983

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements 1

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 35

Item 3. Quantitative and Qualitative Disclosures About Market Risk 54

Item 4. Controls and Procedures 56 PART II - OTHER INFORMATION

Item 4. Mine Safety Disclosures 56

Item 6. Exhibits 56

INDEX TO EXHIBITS 57

SIGNATURES 61

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

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

Item 1. Financial Statements.

Current assets:

Cash and cash equivalents Accounts receivable Inventories

Prepaid expenses and other

Total current assets

Property, plant and equipment Goodwill

Intangible assets

Equity method investments Other assets

Total assets

Current liabilities:

Short-term borrowings

LIABILITIES AND STOCKHOLDERS' EQUITY

Current maturities of long-term debt Accounts payable

Other accrued expenses and liabilities

Total current liabilities

Long-term debt, less current maturities Other liabilities

Total liabilities Commitments and contingencies CBI stockholders' equity:

PART I - FINANCIAL INFORMATION

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)

ASSETS

Class A Common Stock, $.01 par value - Authorized, 322,000,000 shares; Issued, 185,514,404 shares and 258,718,356 shares, respectively

Class B Convertible Common Stock, $.01 par value - Authorized, 30,000,000 shares; Issued, 28,322,429 shares and 28,335,387 shares, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss

$

3,638.53,474.0

4,986.3 4,789.7

8,061.88,083.1

3,307.8 3,304.8

3,583.0121.5

4,313.0 765.6

1,065.622.3

882.7 592.2

683.6678.3

3,363.4 2,039.6

11,772.59,417.6

1,234.5 1,089.8

16,370.412,547.0

1.9 2.6

0.30.3

1,368.8 2,825.3

13,176.89,157.2

November 30, 2018

130.6$ 90.3

837.2 776.2

2,198.0

472.7

$

27,890.4$

$

731.5

Less: Treasury stock -

Class A Common Stock, at cost, 18,970,734 shares and 90,743,239 shares, respectively Class B Convertible Common Stock, at cost, 5,005,800 shares

(505.9) 14,041.9

(2,783.0)

(2.2)

(2,785.2)Total CBI stockholders' equity Noncontrolling interests

Total stockholders' equityTotal liabilities and stockholders' equity

11,256.7

263.311,520.0

$

February 28, 2018

2,084.0

523.5

20,538.7

$ 746.8

(202.9) 11,782.5

(3,805.2)

(2.2)

(3,807.4)

7,975.1

16.6

7,991.7

27,890.4$

20,538.7

The accompanying notes are an integral part of these statements.

1

Sales Excise taxes

Net sales

Cost of product sold

Gross profit

Selling, general and administrative expenses

Operating income

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions, except per share data)

(unaudited)

For the Nine Months Ended November 30,2018

$

6,916.3$

(597.5)

6,318.8

(3,132.0)

3,186.8

(1,239.9)

1,946.9

Income (loss) from unconsolidated investments Interest expense

Loss on extinguishment of debt

Income before income taxes Provision for income taxes

Net income

Net income attributable to noncontrolling interests Net income attributable to CBI

918.2

(248.6)

(1.7)

2,614.8

(405.1)

2,209.7

(13.3)

$

2,196.4$

2017

6,390.6$

(572.3)

5,818.3

(2,851.0)

2,967.3

(1,199.3)

1,768.0

249.7

(245.1)

(19.1)

1,753.5

(352.0)

1,401.5

(8.6)

1,392.9$

For the Three Months Ended November 30,

2018

2,160.6$

(188.0)

1,972.6

(1,002.6)

2017

1,981.7

(179.8)

1,801.9

(891.6)

970.0

910.3

(413.5) (420.7)

556.5489.6

(134.6) 249.1

(72.8)(81.4)

(1.7) (10.3)

347.4647.0

(35.3) (150.6)

312.1496.4

(9.0) (3.6)

303.1$ 492.8

Comprehensive income

Comprehensive (income) loss attributable to noncontrolling interests Comprehensive income attributable to CBI

Net income per common share attributable to CBI:

Basic - Class A Common Stock

Basic - Class B Convertible Common Stock

Diluted - Class A Common Stock

Diluted - Class B Convertible Common Stock

$

1,891.7$ 1.7

$

1,893.4$

$ $ $ $

11.66

10.59$ 11.21$ 10.35 $

Weighted average common shares outstanding:

Basic - Class A Common Stock

Basic - Class B Convertible Common Stock

Diluted - Class A Common Stock

Diluted - Class B Convertible Common Stock

Cash dividends declared per common share:

Class A Common Stock

Class B Convertible Common Stock

167.20323.322 195.921 23.322

1,605.3$

(21.6)

1,583.7$

$

7.22

6.55$ 6.92$ 6.40 $

171.85423.339 201.183 23.339

$ $

2.22 $ 2.01$

1.56 $ 1.41$

The accompanying notes are an integral part of these statements.

2

98.2$ 369.2

3.6 2.0

101.8$ 371.2

$

1.62

1.47$ 2.32

1.56$ 2.45

1.45 $ 2.26

$ 2.55

166.364171.922

23.318 23.333

194.820 201.177

23.31823.333

0.74 $ 0.52

0.67$ 0.47

Cash flows from operating activities:

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

Net income

For the Nine Months Ended November 30,

2018

$

2,209.7

2017

$

1,401.5

Adjustments to reconcile net income to net cash provided by operating activities:

Unrealized net gain on securities measured at fair value

Net gain on sale of unconsolidated investment

Net income tax benefit related to the Tax Cuts and Jobs Act

Equity in earnings of equity method investees, net of distributed earnings Depreciation

Deferred tax provision Stock-based compensation

Amortization of debt issuance costs and loss on extinguishment of debt Amortization and impairment of intangible assets

Loss on contract termination

Change in operating assets and liabilities, net of effects from purchases of businesses:

Accounts receivable

Inventories

Prepaid expenses and other current assets Accounts payable

Other accrued expenses and liabilities Other

Total adjustments

Net cash provided by operating activities

Cash flows from investing activities:

Investments in equity method investees and securities Purchases of property, plant and equipment Purchases of businesses, net of cash acquired Proceeds from sale of unconsolidated investment Proceeds from sales of assets

Other investing activities

Net cash used in investing activities

(56.4) (38.4)

(127.7)(221.7)

(56.6) (78.3)

301.3157.7

33.7 (67.8)

72.623.9

(235.8) 1,973.9

(4,077.3) (191.3)

(620.3)(705.6)

(45.3) (131.9)

(786.5)(99.8) (37.6)

(18.4) (20.5)

250.1214.4

208.1 91.1

51.145.5

25.8 27.6

4.591.2

- 59.0

110.246.3 (0.9)(4,587.3)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

Proceeds from shares issued under equity compensation plans Purchases of treasury stock

Dividends paid

Principal payments of long-term debt Payments of debt issuance costs

Net proceeds from (repayments of) short-term borrowings

Payments of minimum tax withholdings on stock-based payment awards

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period

Supplemental disclosures of noncash investing and financing activities:

Additions to property, plant and equipment

Conversion of long-term debt to noncontrolling equity interest

3,657.6

(216.8)

- -

66.9 1,468.4

-1.2 (10.7)

(1,038.3)

6,017.9

32.6

37.5

(504.3)(239.2)

(417.9) (301.1)

(45.3)(6,522.8)

(33.3) (32.4)

(14.5)604.9

(13.6) (22.9)

2,661.3

(458.1)

(7.6)5.1

40.3(22.9)

90.3 177.4

$

130.6$ 154.5

$ $

130.9

$

155.7

248.4$

-