stz-20220831

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 August 31, 2022


☐			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 14564

(Address of principal executive offices) (Zip code)

(585) 678-7100

(Registrant’s telephone number, including area code)

Not Applicable

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

Securities registered pursuant to Section 12(b) of the Act:


Title of Each 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 161,224,498 shares of Class A Common Stock, 23,205,885 shares of Class B Common Stock, and 51,965 shares of Class 1 Common Stock outstanding as of September 30, 2022.

Table of Contents

TABLE OF CONTENTS


		Page

DEFINED TERMS		i

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Comprehensive Income (Loss)		2
Consolidated Statements of Changes in Stockholders’ Equity		3
Consolidated Statements of Cash Flows		5
Notes to Consolidated Financial Statements
	1. Basis of Presentation	7
	2. Inventories	7


	3. Derivative Instruments	7
	4. Fair Value of Financial Instruments	10
	5. Goodwill	15
	6. Intangible Assets	16
	7. Equity Method Investments	16


	8. Borrowings	18
	9. Income Taxes	21


	10. Stockholders' Equity	22
	11. Net Income (Loss) Per Common Share Attributable to CBI	24
	12. Comprehensive Income (Loss) Attributable to CBI	24
	13. Business Segment Information	26


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3. Quantitative and Qualitative Disclosures About Market Risk		55
Item 4. Controls and Procedures		56

PART II – OTHER INFORMATION

Item 1A. Risk Factors		57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		58
Item 6. Exhibits		58

INDEX TO EXHIBITS		59

SIGNATURES		64

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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.”

Table of Contents

Defined Terms

Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to Constellation Brands, Inc. and its subsidiaries. We use terms in this Form 10-Q and in our Notes that are specific to us or are abbreviations that may not be commonly known or used.


Term						Meaning

$						U.S. dollars
2.65% November 2017 Senior Notes						$700.0 million principal amount of 2.65% senior notes issued in November 2017 and redeemed in August 2021, prior to maturity
2.70% May 2017 Senior Notes						$500.0 million principal amount of 2.70% senior notes issued in May 2017 and redeemed in August 2021, prior to maturity
3.20% February 2018 Senior Notes						$600.0 million principal amount of 3.20% senior notes issued in February 2018, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity
4.25% May 2013 Senior Notes						$1,050.0 million principal amount of 4.25% senior notes issued in May 2013, partially tendered in May 2022, and fully redeemed in June 2022, prior to maturity
2018 Authorization						authority to repurchase up to $3.0 billion of our Class A Stock and Class B Stock, authorized in January 2018 by our Board of Directors
2020 U.S. wildfires						significant wildfires that broke out in California, Oregon, and Washington states which affected the 2020 U.S. grape harvest

2021 Authorization						authority to repurchase up to $2.0 billion of our Class A Stock and Class B Stock, authorized in January 2021 by our Board of Directors
2022 Annual Report						our Annual Report on Form 10-K for the fiscal year ended February 28, 2022

2022 Credit Agreement						tenth amended and restated credit agreement, dated as of April 14, 2022, that provides for an aggregate revolving credit facility of $2.25 billion
2022 Restatement Agreement						restatement agreement, dated as of April 14, 2022, that amended and restated the ninth amended and restated agreement, dated as of March 26, 2020, which was our then-existing senior credit facility as of February 28, 2022
2022 Wine Divestiture						sale of certain mainstream and premium wine brands and related inventory
3-tier						distribution channel where products are sold to a distributor (wholesaler) who then sells to a retailer; the retailer sells the products to a consumer
3-tier eCommerce						digital commerce experience for our consumers to purchase beverage alcohol from retailers
ABA						alternative beverage alcohol
Acreage						Acreage Holdings, Inc.
Acreage Financial Instrument						a call option for Canopy to acquire 70% of the shares of Acreage at a fixed exchange ratio and 30% at a floating exchange ratio
Acreage Transaction						Canopy’s intention to acquire Acreage upon U.S. federal cannabis permissibility, subject to certain conditions
Administrative Agent						Bank of America, N.A., as administrative agent for the senior credit facility and term loan credit agreements

Amended and Restated Charter						form of our amended and restated certificate of incorporation, attached to the Registration Statement on Form S-4, which will effectuate the Reclassification and be in effect at and following the Effective Time
AOCI						accumulated other comprehensive income (loss)
April 2022 Term Credit Agreement						June 2021 Term Credit Agreement, inclusive of amendment dated as of April 14, 2022
ASR						accelerated share repurchase agreement with a third-party financial institution
August 2022 Term Credit Agreement						term loan credit agreement, dated as of August 9, 2022, that provides for a $1.0 billion unsecured delayed draw three-year term loan facility
Austin Cocktails						we made an initial investment in the Austin Cocktails business and subsequently acquired the remaining ownership interest


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Table of Contents


Term						Meaning

C$						Canadian dollars
Canopy						we made an investment in Canopy Growth Corporation, an Ontario, Canada-based public company
Canopy Debt Securities						debt securities issued by Canopy, as amended to remove Canopy's right to settle such debt securities on conversion into Canopy common shares
Canopy Equity Method Investment						November 2017 Canopy Investment, November 2018 Canopy Investment, May 2020 Canopy Investment, and July 2022 Canopy Investment, collectively
Canopy Strategic Transaction(s)						any potential acquisition, divestiture, investment, or other similar transaction made by Canopy, including but not limited to the Acreage Transaction
CARES Act						Coronavirus Aid, Relief, and Economic Security Act
CB International						CB International Finance S.à r.l., a wholly-owned subsidiary of ours
Class 1 Stock						our Class 1 Convertible Common Stock, par value $0.01 per share
Class A Stock						our Class A Common Stock, par value $0.01 per share
Class B Stock						our Class B Convertible Common Stock, par value $0.01 per share
CODM						chief operating decision maker
Comparable Adjustments						certain items affecting comparability that have been excluded by management
DEI						diversity, equity, and inclusion
Depletions						represent U.S. domestic distributor shipments of our respective branded products to retail customers, based on third-party data
Digital Business Acceleration						a phased initiative by the Company to create a cohesive digital strategy and build an advanced digital business in the coming years
DTC						direct-to-consumer inclusive of (i) a digital commerce experience for consumers to purchase directly from brand websites with inventory coming straight from the supplier and (ii) consumer purchases at hospitality locations (tasting rooms and tap rooms) from the supplier
Effective Time						the time that the Amended and Restated Charter has been duly filed with the Secretary of State of the State of Delaware (or such later time as we and WildStar Partners LLC will agree and set forth in the Amended and Restated Charter)
ERP						enterprise resource planning system
ESG						environmental, social, and governance
Exchange Act						Securities Exchange Act of 1934, as amended
Financial Statements						our consolidated financial statements and notes thereto included herein
Fiscal 2022						the Company’s fiscal year ended February 28, 2022
Fiscal 2023						the Company’s fiscal year ending February 28, 2023
Fiscal 2024						the Company’s fiscal year ending February 29, 2024
Fiscal 2025						the Company’s fiscal year ending February 28, 2025
Fiscal 2026						the Company’s fiscal year ending February 28, 2026
Fiscal 2027						the Company’s fiscal year ending February 28, 2027
Fiscal 2028						the Company’s fiscal year ending February 29, 2028
Five-Year Term Facility						a five-year term loan facility under the April 2022 Term Credit Agreement
Form 10-Q						this Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2022, unless otherwise specified
GHG						greenhouse gas
July 2022 Canopy Investment						in July 2022, we received 29.2 million common shares of Canopy through the exchange of C$100.0 million principal amount of our Canopy Debt Securities
June 2021 Term Credit Agreement						amended and restated term loan credit agreement, dated as of March 26, 2020, that provided for aggregate facilities of $491.3 million, consisting of the Five-Year Term Facility, inclusive of amendment dated as of June 10, 2021


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Term						Meaning

Lender						Bank of America, N.A., as lender for the April 2022 Term Credit Agreement
LIBOR						London Interbank Offered Rate
Lingua Franca						Lingua Franca, LLC business, acquired by us
May 2020 Canopy Investment						in May 2020, we made an incremental investment for 18.9 million common shares of Canopy through the exercise of warrants obtained in November 2017
May 2022 Senior Notes						$1,850.0 million aggregate principal amount of senior notes issued in May 2022
MD&A						Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2. of this Form 10-Q
Mexicali Brewery						canceled brewery construction project located in Mexicali, Baja California, Mexico
Mexico Beer Projects						expansion, optimization, and/or construction activities at the Obregon Brewery, Nava Brewery, and Veracruz Brewery
M&T						Manufacturers and Traders Trust Company
My Favorite Neighbor						we made an initial investment in My Favorite Neighbor, LLC and subsequently acquired the remaining ownership interest
NA						not applicable

Nava						Nava, Coahuila, Mexico
Nava Brewery						brewery located in Nava
Net sales						gross sales less promotions, returns and allowances, and excise taxes
NM						not meaningful
Note(s)						notes to the consolidated financial statements
November 2017 Canopy Investment						in November 2017, we made an initial investment for 18.9 million common shares of Canopy
November 2018 Canopy Investment						in November 2018, we made an incremental investment for 104.5 million common shares of Canopy

November 2018 Canopy Warrants						Tranche A Warrants, Tranche B Warrants, and Tranche C Warrants, collectively
NYSE						New York Stock Exchange
Obregon						Obregon, Sonora, Mexico
Obregon Brewery						brewery located in Obregon
OCI						other comprehensive income (loss)
Pre-issuance hedge contracts						treasury lock and/or swap lock contracts designated as cash flow hedges entered into to hedge treasury rate volatility on future debt issuances
Reclassification						the plan to reclassify the Company’s common stock to eliminate the existing Class B Stock pursuant to the terms and conditions of the Reclassification Agreement
Reclassification Agreement						reclassification agreement in support of the Reclassification, dated June 30, 2022, among the Company and the Sands Family Stockholders
Reclassification Proposal						proposal to approve and adopt the Amended and Restated Charter, which will effectuate the Reclassification
Registration Statement on Form S-4						our Registration Statement on Form S-4, including our proxy statement/prospectus, in connection with the Reclassification declared effective by the SEC on September 21, 2022, as may be amended or supplemented from time to time
RTD						ready-to-drink
SEC						Securities and Exchange Commission
Sands Family Stockholders						RES Master LLC, RES Business Holdings LP, SER Business Holdings LP, RHT 2015 Business Holdings LP, RSS Master LLC, RSS Business Holdings LP, SSR Business Holdings LP, RSS 2015 Business Holdings LP, RCT 2015 Business Holdings LP, RCT 2020 Investments LLC, NSDT 2009 STZ LLC, NSDT 2011 STZ LLC, RSS Business Management LLC, SSR Business Management LLC, LES Lauren Holdings LLC, MES Mackenzie Holdings LLC, Abigail Bennett, Zachary Stern, A&Z 2015 Business Holdings LP, Marilyn Sands Master Trust, MAS Business Holdings LP, Sands Family Foundation, Richard Sands, Robert Sands, WildStar Partners LLC, and Astra Legacy LLC


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Term						Meaning

Second Quarter 2022						the Company’s three months ended August 31, 2021
Second Quarter 2023						the Company’s three months ended August 31, 2022
Securities Act						Securities Act of 1933, as amended
Six Months 2022						the Company’s six months ended August 31, 2021
Six Months 2023						the Company’s six months ended August 31, 2022
SOFR						secured overnight financing rate administered by the Federal Reserve Bank of New York



THC						tetrahydrocannabinol
Tranche A Warrants						warrants which give us the option to purchase 88.5 million common shares of Canopy expiring November 1, 2023
Tranche B Warrants						warrants which give us the option to purchase 38.4 million common shares of Canopy expiring November 1, 2026
Tranche C Warrants						warrants which give us the option to purchase 12.8 million common shares of Canopy expiring November 1, 2026
TSX						Toronto Stock Exchange
U.S.						United States of America
U.S. GAAP						generally accepted accounting principles in the U.S.
Veracruz						Heroica Veracruz, Veracruz, Mexico
Veracruz Brewery						a new brewery to be constructed in Veracruz
VWAP Exercise Price						volume-weighted average of the closing market price of Canopy’s common shares on the TSX for the five trading days immediately preceding the exercise date


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FINANCIAL STATEMENTS			Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

(unaudited)


	August 31, 2022		February 28, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	165.1	$	199.4
Accounts receivable	978.9		899.0
Inventories	1,651.0		1,573.2
Prepaid expenses and other	735.2		658.1

Total current assets	3,530.2		3,329.7
Property, plant, and equipment	6,234.0		6,059.6
Goodwill	7,898.6		7,862.4
Intangible assets	2,763.6		2,755.2
Equity method investments	833.4		2,688.7
Securities measured at fair value	91.8		191.4
Deferred income taxes	2,292.3		2,351.5

Other assets	637.0		617.3
Total assets	$	24,280.9	$	25,855.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	663.9	$	323.0
Current maturities of long-term debt	7.6		605.3
Accounts payable	959.1		899.2
Other accrued expenses and liabilities	881.3		871.3
Total current liabilities	2,511.9		2,698.8
Long-term debt, less current maturities	10,278.7		9,488.2

Deferred income taxes and other liabilities	1,779.4		1,621.0
Total liabilities	14,570.0		13,808.0
Commitments and contingencies
CBI stockholders’ equity:
Class A Stock, $0.01 par value – Authorized, 322,000,000 shares; Issued, 189,461,263 shares and 187,263,859 shares, respectively	1.9		1.9
Class B Stock, $0.01 par value – Authorized, 30,000,000 shares; Issued, 28,211,685 shares and 28,212,340 shares, respectively	0.3		0.3
Additional paid-in capital	1,860.4		1,808.9
Retained earnings	13,448.4		14,505.4
Accumulated other comprehensive income (loss)	(355.4)		(412.7)
	14,955.6		15,903.8
Less: Treasury stock –
Class A Stock, at cost, 28,239,095 shares and 22,824,607 shares, respectively	(5,564.4)		(4,169.7)
Class B Stock, at cost, 5,005,800 shares	(2.2)		(2.2)
	(5,566.6)		(4,171.9)
Total CBI stockholders’ equity	9,389.0		11,731.9
Noncontrolling interests	321.9		315.9
Total stockholders’ equity	9,710.9		12,047.8
Total liabilities and stockholders’ equity	$	24,280.9	$	25,855.8

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 COMPREHENSIVE INCOME (LOSS)

(in millions, except per share data)

(unaudited)


	For the Six Months Ended August 31,				For the Three Months Ended August 31,
	2022		2021		2022		2021
Sales	$	5,405.0	$	4,753.3	$	2,864.3	$	2,565.0
Excise taxes	(386.7)		(355.7)		(209.2)		(193.9)
Net sales	5,018.3		4,397.6		2,655.1		2,371.1
Cost of product sold	(2,437.4)		(2,048.6)		(1,329.2)		(1,141.4)
Gross profit	2,580.9		2,349.0		1,325.9		1,229.7
Selling, general, and administrative expenses	(951.4)		(868.8)		(512.8)		(490.5)
Impairment of brewery construction in progress	—		(665.9)		—		—


Operating income (loss)	1,629.5		814.3		813.1		739.2
Income (loss) from unconsolidated investments	(1,907.0)		(1,370.0)		(1,719.1)		(470.8)
Interest expense	(182.8)		(182.5)		(94.3)		(95.8)
Loss on extinguishment of debt	(23.3)		(29.4)		(8.0)		(29.4)
Income (loss) before income taxes	(483.6)		(767.6)		(1,008.3)		143.2
(Provision for) benefit from income taxes	(257.8)		(117.8)		(132.4)		(131.3)
Net income (loss)	(741.4)		(885.4)		(1,140.7)		11.9
Net (income) loss attributable to noncontrolling interests	(20.3)		(21.2)		(10.5)		(10.4)
Net income (loss) attributable to CBI	$	(761.7)	$	(906.6)	$	(1,151.2)	$	1.5

Comprehensive income (loss)	$	(675.9)	$	(838.6)	$	(1,334.2)	$	(45.8)
Comprehensive (income) loss attributable to noncontrolling interests	(28.5)		(22.9)		(6.1)		(6.5)
Comprehensive income (loss) attributable to CBI	$	(704.4)	$	(861.5)	$	(1,340.3)	$	(52.3)

Net income (loss) per common share attributable to CBI:
Basic – Class A Stock	$	(4.13)	$	(4.77)	$	(6.30)	$	0.01
Basic – Class B Stock	$	(3.77)	$	(4.34)	$	(5.73)	$	0.01

Diluted – Class A Stock	$	(4.13)	$	(4.77)	$	(6.30)	$	0.01
Diluted – Class B Stock	$	(3.77)	$	(4.34)	$	(5.73)	$	0.01

Weighted average common shares outstanding:
Basic – Class A Stock	163.532		169.025		161.730		167.447
Basic – Class B Stock	23.206		23.234		23.206		23.222

Diluted – Class A Stock	163.532		169.025		161.730		192.530
Diluted – Class B Stock	23.206		23.234		23.206		23.222

Cash dividends declared per common share:
Class A Stock	$	1.60	$	1.52	$	0.80	$	0.76
Class B Stock	$	1.44	$	1.38	$	0.72	$	0.69

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 CHANGES IN STOCKHOLDERS’ EQUITY (in millions) (unaudited)
	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, 2022	$	1.9	$	0.3	$	1,808.9	$	14,505.4	$	(412.7)	$	(4,171.9)	$	315.9	$	12,047.8

Comprehensive income (loss):
Net income (loss)	—		—		—		389.5		—		—		9.8		399.3
Other comprehensive income (loss), net of income tax effect	—		—		—		—		246.4		—		12.6		259.0
Comprehensive income (loss)															658.3
Repurchase of shares	—		—		—		—		—		(1,007.6)		—		(1,007.6)
Dividends declared	—		—		—		(148.7)		—		—		—		(148.7)
Noncontrolling interest distributions	—		—		—		—		—		—		(11.2)		(11.2)
Shares issued under equity compensation plans	—		—		(0.6)		—		—		3.8		—		3.2
Stock-based compensation	—		—		16.7		—		—		—		—		16.7
Balance at May 31, 2022	1.9		0.3		1,825.0		14,746.2		(166.3)		(5,175.7)		327.1		11,558.5
Comprehensive income (loss):
Net income (loss)	—		—		—		(1,151.2)		—		—		10.5		(1,140.7)
Other comprehensive income (loss), net of income tax effect	—		—		—		—		(189.1)		—		(4.4)		(193.5)
Comprehensive income (loss)															(1,334.2)
Repurchase of shares	—		—		—		—		—		(392.9)		—		(392.9)
Dividends declared	—		—		—		(146.6)		—		—		—		(146.6)

Noncontrolling interest distributions	—		—		—		—		—		—		(11.3)		(11.3)
Shares issued under equity compensation plans	—		—		14.5		—		—		2.0		—		16.5
Stock-based compensation	—		—		20.9		—		—		—		—		20.9
Balance at August 31, 2022	$	1.9	$	0.3	$	1,860.4	$	13,448.4	$	(355.4)	$	(5,566.6)	$	321.9	$	9,710.9


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FINANCIAL STATEMENTS			Table of Contents


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

Comprehensive income (loss):
Net income (loss)	—		—		—		(908.1)		—		—		10.8		(897.3)
Other comprehensive income (loss), net of income tax effect	—		—		—		—		98.9		—		5.6		104.5
Comprehensive income (loss)															(792.8)
Repurchase of shares	—		—		—		—		—		(400.8)		—		(400.8)
Dividends declared	—		—		—		(146.1)		—		—		—		(146.1)
Noncontrolling interest distributions	—		—		—		—		—		—		(10.6)		(10.6)
Shares issued under equity compensation plans	—		—		(0.9)		—		—		3.8		—		2.9
Stock-based compensation	—		—		15.9		—		—		—		—		15.9
Balance at May 31, 2021	1.9		0.3		1,619.2		14,063.6		(236.6)		(3,186.8)		336.0		12,597.6
Comprehensive income (loss):
Net income (loss)	—		—		—		1.5		—		—		10.4		11.9
Other comprehensive income (loss), net of income tax effect	—		—		—		—		(53.8)		—		(3.9)		(57.7)
Comprehensive income (loss)															(45.8)
Repurchase of shares	—		—		—		—		—		(904.2)		—		(904.2)
Dividends declared	—		—		—		(142.9)		—		—		—		(142.9)

Noncontrolling interest distributions	—		—		—		—		—		—		(10.6)		(10.6)
Shares issued under equity compensation plans	—		—		8.9		—		—		1.4		—		10.3
Stock-based compensation	—		—		20.2		—		—		—		—		20.2
Balance at August 31, 2021	$	1.9	$	0.3	$	1,648.3	$	13,922.2	$	(290.4)	$	(4,089.6)	$	331.9	$	11,524.6

The accompanying notes are an integral part of these statements.


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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	For the Six Months Ended August 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	(741.4)	$	(885.4)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Unrealized net (gain) loss on securities measured at fair value	31.7		1,335.1
Deferred tax provision (benefit)	208.6		(19.2)
Depreciation	183.5		162.3
Stock-based compensation	37.8		36.0
Equity in (earnings) losses of equity method investees and related activities, net of distributed earnings	815.6		35.3
Noncash lease expense	44.4		40.1

Amortization of debt issuance costs and loss on extinguishment of debt	28.2		35.1


Impairment of Canopy Equity Method Investment	1,060.3		—
Impairment of brewery construction in progress	—		665.9



Gain (loss) on settlement of Pre-issuance hedge contracts	20.7		—

Change in operating assets and liabilities, net of effects from purchase and sale of business:
Accounts receivable	(84.8)		(187.8)
Inventories	(86.3)		(49.3)
Prepaid expenses and other current assets	165.6		10.1
Accounts payable	188.9		245.9
Deferred revenue	9.5		144.6
Other accrued expenses and liabilities	(287.7)		(3.8)
Other	59.7		(39.0)
Total adjustments	2,395.7		2,411.3
Net cash provided by (used in) operating activities	1,654.3		1,525.9

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment	(435.0)		(353.4)

Purchase of business, net of cash acquired	(37.2)		—
Investments in equity method investees and securities	(21.0)		(28.6)
Proceeds from sale of assets	6.6		1.3

Proceeds from sale of business	—		4.6
Other investing activities	0.6		(1.0)
Net cash provided by (used in) investing activities	(486.0)		(377.1)


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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	For the Six Months Ended August 31,
	2022		2021
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt	1,846.8		1,001.9
Principal payments of long-term debt	(1,654.7)		(1,357.1)
Net proceeds from (repayments of) short-term borrowings	340.9		486.0
Dividends paid	(295.3)		(289.3)
Purchases of treasury stock	(1,400.5)		(1,305.0)
Proceeds from shares issued under equity compensation plans	30.5		22.9
Payments of minimum tax withholdings on stock-based payment awards	(10.5)		(9.8)
Payments of debt issuance, debt extinguishment, and other financing costs	(33.3)		(34.8)
Distributions to noncontrolling interests	(22.5)		(21.2)




Net cash provided by (used in) financing activities	(1,198.6)		(1,506.4)

Effect of exchange rate changes on cash and cash equivalents	(4.0)		0.4

Net increase (decrease) in cash and cash equivalents	(34.3)		(357.2)
Cash and cash equivalents, beginning of period	199.4		460.6
Cash and cash equivalents, end of period	$	165.1	$	103.4

Supplemental disclosures of noncash investing and financing activities











Additions to property, plant, and equipment	$	69.1	$	196.5

The accompanying notes are an integral part of these statements.


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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

AUGUST 31, 2022

(unaudited)

1. BASIS OF PRESENTATION

We have prepared the Financial Statements, without audit, pursuant to the rules and regulations of the SEC 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 Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in the 2022 Annual Report. Results of operations for interim periods are not necessarily indicative of annual results.

2. INVENTORIES

Inventories are stated at the lower of cost (primarily computed in accordance with the first-in, first-out method) or net realizable value. Elements of cost include materials, labor, and overhead and consist of the following:


	August 31, 2022		February 28, 2022
(in millions)
Raw materials and supplies	$	225.0	$	185.3
In-process inventories	851.6		804.8
Finished case goods	574.4		583.1
	$	1,651.0	$	1,573.2

We assess the valuation of our inventories and reduce the carrying value of those inventories that are obsolete or in excess of our forecasted usage to their estimated net realizable value based on analyses and assumptions including, but not limited to, historical usage, future demand, and market requirements. We evaluated the carrying value of certain inventories and recognized the following in cost of product sold within our consolidated results of operations:


	For the Six Months Ended August 31,				For the Three Months Ended August 31,
	2022		2021 (1)		2022		2021 (1)
(in millions)
Loss on inventory write-down	$	11.2	$	82.6	$	5.1	$	66.6

(1)We recognized a loss predominantly from excess inventory of hard seltzers, within the Beer segment, largely resulting from a slowdown in the overall category which occurred in Fiscal 2022.

3. 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 2022 Annual Report and have not changed significantly for the six months and three months ended August 31, 2022.

We have an investment 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 7). This investment is


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included in securities measured at fair value and is accounted for at fair value, with the net gain (loss) from the changes in fair value of this investment recognized in income (loss) from unconsolidated investments (see Note 4).

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


	August 31, 2022		February 28, 2022
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts	$	2,013.3	$	1,863.2


Pre-issuance hedge contracts	$	—	$	100.0

Derivative instruments not designated as hedging instruments
Foreign currency contracts	$	720.5	$	497.6
Commodity derivative contracts	$	328.9	$	291.1

Credit risk

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

In addition, our derivative instruments are not subject to credit rating contingencies or collateral requirements. As of August 31, 2022, the estimated fair value of derivative instruments in a net liability position due to counterparties was $17.9 million. If we were required to settle the net liability position under these derivative instruments on August 31, 2022, we would have had sufficient available liquidity on hand to satisfy this obligation.

Results of period derivative activity

The estimated fair value and location of our derivative instruments on our balance sheets are as follows (see Note 4):


Assets					Liabilities
	August 31, 2022		February 28, 2022			August 31, 2022		February 28, 2022
(in millions)
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other	$	55.5	$	28.6	Other accrued expenses and liabilities	$	15.6	$	5.9
Other assets	$	66.6	$	25.1	Deferred income taxes and other liabilities	$	10.4	$	8.6



Pre-issuance hedge contracts:

Other assets	$	—	$	—	Deferred income taxes and other liabilities	$	—	$	0.4


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