STZ 5.31.2015 10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2015
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
14564
 
(Address of principal executive offices)
(Zip Code)
 
 
 
 
(585) 678-7100
 
 
(Registrant’s telephone number, including area code)
 
 
 
 
 
 
 
(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.    Yes ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨

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 June 30, 2015, is set forth below:
Class
 
Number of Shares Outstanding
Class A Common Stock, par value $.01 per share
 
171,987,269
Class B Common Stock, par value $.01 per share
 
23,362,953
Class 1 Common Stock, par value $.01 per share
 
None


Table of Contents

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 Companys 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 “Managements 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.



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)
 
May 31,
2015
 
February 28,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
130.7

 
$
110.1

Accounts receivable
696.2

 
598.9

Inventories
1,783.7

 
1,827.2

Prepaid expenses and other
368.7

 
374.6

Total current assets
2,979.3

 
2,910.8

Property, plant and equipment
2,742.1

 
2,681.6

Goodwill
6,200.3

 
6,208.2

Intangible assets
3,166.7

 
3,181.0

Other assets
158.9

 
162.9

Total assets
$
15,247.3

 
$
15,144.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable to banks
$
100.9

 
$
52.4

Current maturities of long-term debt
178.5

 
158.1

Accounts payable
289.1

 
285.8

Accrued excise taxes
30.8

 
28.7

Other accrued expenses and liabilities
521.0

 
605.7

Total current liabilities
1,120.3

 
1,130.7

Long-term debt, less current maturities
7,038.2

 
7,137.5

Deferred income taxes
860.0

 
818.9

Other liabilities
176.9

 
176.1

Total liabilities
9,195.4

 
9,263.2

Commitments and contingencies

 

CBI stockholders’ equity:
 
 
 
Class A Common Stock, $.01 par value- Authorized, 322,000,000 shares; Issued, 251,209,452 shares and 250,839,359 shares, respectively
2.5

 
2.5

Class B Convertible Common Stock, $.01 par value- Authorized, 30,000,000 shares; Issued, 28,376,008 shares and 28,389,608 shares, respectively
0.3

 
0.3

Additional paid-in capital
2,307.3

 
2,269.8

Retained earnings
5,456.2

 
5,277.5

Accumulated other comprehensive loss
(184.8
)
 
(130.9
)
 
7,581.5

 
7,419.2

Less: Treasury stock –
 
 
 
Class A Common Stock, at cost, 79,306,503 shares and 79,681,859 shares, respectively
(1,636.8
)
 
(1,646.3
)
Class B Convertible Common Stock, at cost, 5,005,800 shares
(2.2
)
 
(2.2
)
 
(1,639.0
)
 
(1,648.5
)
Total CBI stockholders’ equity
5,942.5

 
5,770.7

Noncontrolling interests
109.4

 
110.6

Total stockholders’ equity
6,051.9

 
5,881.3

Total liabilities and stockholders’ equity
$
15,247.3

 
$
15,144.5


The accompanying notes are an integral part of these statements.

1



Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per share data)
(unaudited)
 
For the Three Months
Ended May 31,
 
2015
 
2014
Sales
$
1,798.0

 
$
1,687.1

Less – excise taxes
(166.7
)
 
(161.1
)
Net sales
1,631.3

 
1,526.0

Cost of product sold
(894.2
)
 
(855.9
)
Gross profit
737.1

 
670.1

Selling, general and administrative expenses
(309.8
)
 
(277.9
)
Operating income
427.3

 
392.2

Equity in earnings of equity method investees
1.0

 
0.5

Interest expense
(77.5
)
 
(86.4
)
Income before income taxes
350.8

 
306.3

Provision for income taxes
(110.6
)
 
(99.6
)
Net income
240.2

 
206.7

Net income attributable to noncontrolling interests
(1.6
)
 

Net income attributable to CBI
$
238.6

 
$
206.7

 
 
 
 
Comprehensive income
$
183.5

 
$
254.1

Comprehensive loss attributable to noncontrolling interests
1.2

 

Comprehensive income attributable to CBI
$
184.7

 
$
254.1

 
 
 
 
Net income per common share attributable to CBI:
 
 
 
Basic – Class A Common Stock
$
1.24

 
$
1.09

Basic – Class B Convertible Common Stock
$
1.12

 
$
0.99

 
 
 
 
Diluted – Class A Common Stock
$
1.18

 
$
1.03

Diluted – Class B Convertible Common Stock
$
1.09

 
$
0.95

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic – Class A Common Stock
171.370

 
168.158

Basic – Class B Convertible Common Stock
23.376

 
23.415

 
 
 
 
Diluted – Class A Common Stock
202.855

 
200.358

Diluted – Class B Convertible Common Stock
23.376

 
23.415

 
 
 
 
Cash dividends declared per common share:
 
 
 
Class A Common Stock
$
0.31

 
$

Class B Convertible Common Stock
$
0.28

 
$


The accompanying notes are an integral part of these statements.

2



Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
For the Three Months
Ended May 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
240.2

 
$
206.7

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
43.0

 
39.0

Deferred tax provision
38.3

 
39.6

Stock-based compensation
12.3

 
11.7

Amortization of intangible assets
11.7

 
10.5

Amortization of deferred financing costs
3.2

 
2.6

Change in operating assets and liabilities:
 
 
 
Accounts receivable
(98.3
)
 
(24.3
)
Inventories
37.0

 
(31.8
)
Prepaid expenses and other current assets
0.6

 
(17.4
)
Accounts payable
21.1

 
32.5

Accrued excise taxes
2.2

 
(0.3
)
Other accrued expenses and liabilities
(105.2
)
 
(44.1
)
Other
(0.4
)
 
7.6

Total adjustments
(34.5
)
 
25.6

Net cash provided by operating activities
205.7

 
232.3

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(129.7
)
 
(131.4
)
Other investing activities
(1.6
)
 
(4.9
)
Net cash used in investing activities
(131.3
)
 
(136.3
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Principal payments of long-term debt
(79.4
)
 
(4.8
)
Dividends paid
(59.8
)
 

Payments of minimum tax withholdings on stock-based payment awards
(38.3
)
 
(28.4
)
Excess tax benefits from stock-based payment awards
63.6

 
57.4

Net proceeds from notes payable
50.9

 
178.1

Proceeds from shares issued under equity compensation plans
9.6

 
10.8

Net cash provided by (used in) financing activities
(53.4
)
 
213.1

 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(0.4
)
 
5.0

 
 
 
 
Net increase in cash and cash equivalents
20.6

 
314.1

Cash and cash equivalents, beginning of period
110.1

 
63.9

Cash and cash equivalents, end of period
$
130.7

 
$
378.0


The accompanying notes are an integral part of these statements.

3



Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2015
(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, 2015 (the “2015 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 (computed in accordance with the first-in, first-out method) or market. Elements of cost include materials, labor and overhead and consist of the following:
 
May 31,
2015
 
February 28,
2015
(in millions)
 
 
 
Raw materials and supplies
$
98.4

 
$
106.0

In-process inventories
1,168.5

 
1,244.0

Finished case goods
516.8

 
477.2

 
$
1,783.7

 
$
1,827.2


3.    DERIVATIVE INSTRUMENTS:

Overview –
Our risk management and derivative accounting policies are presented in Notes 1 and 6 to our consolidated financial statements included in our 2015 Annual Report and have not changed significantly during the three months ended May 31, 2015.

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 May 31, 2015, the estimated fair value of derivative instruments in a net liability position due to counterparties was $75.9 million. If we were required to settle the net liability position under these derivative instruments on May 31, 2015, we would have had sufficient availability under our available liquidity on hand to satisfy this obligation.


4



Table of Contents

The aggregate notional value of outstanding derivative instruments is as follows:
 
May 31,
2015
 
February 28,
2015
(in millions)
 
 
 
Derivative instruments designated as hedging instruments
 
 
 
Foreign currency contracts
$
500.7

 
$
454.8

Interest rate swap contracts
$
500.0

 
$
500.0

 
 
 
 
Derivative instruments not designated as hedging instruments
 
 
 
Foreign currency contracts
$
981.6

 
$
1,548.5

Commodity derivative contracts
$
195.8

 
$
190.8

Interest rate swap contracts
$
1,000.0

 
$
1,000.0


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
 
May 31,
2015
 
February 28,
2015
 
 
May 31,
2015
 
February 28,
2015
(in millions)
 
 
 
 
 
 
 
 
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
4.6

 
$
5.3

 
Other accrued expenses and liabilities
$
26.3

 
$
23.1

Other assets
$
1.9

 
$
2.0

 
Other liabilities
$
9.5

 
$
9.5

Interest rate swap contracts:
Prepaid expenses and other
$

 
$

 
Other accrued expenses and liabilities
$
2.8

 
$
2.7

Other assets
$

 
$
0.2

 
Other liabilities
$
0.1

 
$

 
 
 
 
 
 
 
 
 
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
2.9

 
$
27.3

 
Other accrued expenses and liabilities
$
3.3

 
$
26.4

Commodity derivative contracts:
Prepaid expenses and other
$
0.6

 
$
0.5

 
Other accrued expenses and liabilities
$
17.9

 
$
18.0

Other assets
$
0.4

 
$
0.2

 
Other liabilities
$
9.1

 
$
9.4

Interest rate swap contracts:
Prepaid expenses and other
$
3.3

 
$
3.3

 
Other accrued expenses and liabilities
$
15.6

 
$
15.6

Other assets
$
0.1

 
$

 
Other liabilities
$
2.5

 
$
4.9



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Table of Contents

The effect of our derivative instruments designated in cash flow hedging relationships on our results of operations, as well as Other Comprehensive Income (“OCI”), net of income tax effect, is as follows:
Derivative Instruments in
Designated Cash Flow
Hedging Relationships
 
Net
Gain (Loss)
Recognized
in OCI
(Effective
portion)
 
Location of Net Gain (Loss)
Reclassified from AOCI to
Income (Effective portion)
 
Net
Gain (Loss)
Reclassified
from AOCI to
Income
(Effective
portion)
(in millions)
 
 
 
 
 
 
For the Three Months Ended May 31, 2015
 
 
 
 
 
 
Foreign currency contracts
 
$
(2.9
)
 
Sales
 
$
(0.5
)
Foreign currency contracts
 
(4.0
)
 
Cost of product sold
 
(2.4
)
Interest rate swap contracts
 
(0.7
)
 
Interest expense
 
(2.1
)
 
 
$
(7.6
)
 
 
 
$
(5.0
)
 
 
 
 
 
 
 
For the Three Months Ended May 31, 2014
 
 
 
 
 
 
Foreign currency contracts
 
$
9.9

 
Sales
 
$
1.2

Foreign currency contracts
 
0.4

 
Cost of product sold
 
0.3

Interest rate swap contracts
 
(0.5
)
 
Interest expense
 
(2.0
)
 
 
$
9.8

 
 
 
$
(0.5
)
Derivative Instruments in
Designated Cash Flow
Hedging Relationships
 
 
 
Location of Net Loss
Recognized in Income
(Ineffective portion)
 
Net Loss
Recognized
in Income
(Ineffective
portion)
(in millions)
 
 
 
 
 
 
For the Three Months Ended May 31, 2015
 
 
 
 
 
 
Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
$
(0.1
)
 
 
 
 
 
 
 
For the Three Months Ended May 31, 2014
 
 
 
 
 
 
Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
$
(0.1
)

We expect $19.2 million of net losses, net of income tax effect, to be reclassified from accumulated other comprehensive income (loss) (“AOCI”) to our results of operations within the next 12 months.

The effect of our undesignated derivative instruments on our results of operations is as follows:
Derivative Instruments Not
Designated as Hedging Instruments
 
 
 
Location of Net Gain (Loss)
Recognized in Income
 
Net
Gain (Loss)
Recognized
in Income
(in millions)
 
 
 
 
 
 
For the Three Months Ended May 31, 2015
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
(5.2
)
Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(4.1
)
 
 
 
 
 
 
$
(9.3
)
 
 
 
 
 
 
 
For the Three Months Ended May 31, 2014
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
0.2

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(5.7
)
 
 
 
 
 
 
$
(5.5
)


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Table of Contents

4.    FAIR VALUE OF FINANCIAL INSTRUMENTS:

Authoritative guidance establishes a framework for measuring fair value and requires disclosures about fair value measurements for financial instruments. This guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. It establishes 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 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.

The methods and assumptions we use to estimate the fair value for each class of our financial instruments are presented in Notes 1 and 7 to our consolidated financial statements included in our 2015 Annual Report and have not changed significantly during the three months ended May 31, 2015. The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and notes payable to banks, approximate fair value as of May 31, 2015, and February 28, 2015, due to the relatively short maturity of these instruments. As of May 31, 2015, the carrying amount of long-term debt, including the current portion, was $7,216.7 million, compared with an estimated fair value of $7,559.7 million. As of February 28, 2015, the carrying amount of long-term debt, including the current portion, was $7,295.6 million, compared with an estimated fair value of $7,378.6 million.

The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis.
 
Fair Value Measurements Using
 
 
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
(in millions)
 
 
 
 
 
 
 
May 31, 2015
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
9.4

 
$

 
$
9.4

Commodity derivative contracts
$

 
$
1.0

 
$

 
$
1.0

Interest rate swap contracts
$

 
$
3.4

 
$

 
$
3.4

AFS debt securities
$

 
$

 
$
7.7

 
$
7.7

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
39.1

 
$

 
$
39.1

Commodity derivative contracts
$

 
$
27.0

 
$

 
$
27.0

Interest rate swap contracts
$

 
$
21.0

 
$

 
$
21.0


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Table of Contents

 
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)
 
 
 
 
 
 
 
February 28, 2015
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
34.6

 
$

 
$
34.6

Commodity derivative contracts
$

 
$
0.7

 
$

 
$
0.7

Interest rate swap contracts
$

 
$
3.5

 
$

 
$
3.5

Available-for-sale (“AFS”) debt securities
$

 
$

 
$
7.8

 
$
7.8

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
$

 
$
59.0

 
$

 
$
59.0

Commodity derivative contracts
$

 
$
27.4

 
$

 
$
27.4

Interest rate swap contracts
$

 
$
23.2

 
$

 
$
23.2


Our foreign currency contracts consist of foreign currency forward and option contracts which are valued using market-based inputs, obtained from independent pricing services, into valuation models. These valuation models require various inputs, including contractual terms, market foreign exchange prices, interest-rate yield curves and currency volatilities. Commodity derivative fair values are based on quotes from respective counterparties. Quotes are corroborated by using market data. Interest rate swap fair values are based on quotes from respective counterparties. Quotes are corroborated by using discounted cash flow calculations based upon forward interest-rate yield curves, which are obtained from independent pricing services. AFS debt securities are valued using market-based inputs into discounted cash flow models.

5.    GOODWILL:

The changes in the carrying amount of goodwill are as follows:
 
Beer
 
Wine and Spirits
 
Consolidated
(in millions)
 
 
 
 
 
Balance, February 28, 2014
$
3,714.6

 
$
2,432.2

 
$
6,146.8

Purchase accounting allocations (1)
66.7

 
34.0

 
100.7

Foreign currency translation adjustments
(5.1
)
 
(34.2
)
 
(39.3
)
Balance, February 28, 2015
3,776.2

 
2,432.0

 
6,208.2

Foreign currency translation adjustments
(1.2
)
 
(6.7
)
 
(7.9
)
Balance, May 31, 2015
$
3,775.0

 
$
2,425.3

 
$
6,200.3

(1) 
Purchase accounting allocations associated with acquisitions of a glass production plant (Beer) and a super-premium tequila brand (Wine and Spirits).

As of May 31, 2015, and February 28, 2015, we have accumulated impairment losses of $232.2 million and$231.0 million, respectively, within our Wine and Spirits segment.

Meiomi –
In June 2015, we signed a definitive agreement to acquire the Meiomi wine brand for approximately $315 million, subject to customary closing conditions and adjustments. The transaction includes the acquisition of the Meiomi trademark, related inventories and certain grape supply contracts (“Meiomi”). The transaction is expected to close around the beginning of August. The results of operations of Meiomi will be reported in the Wine and Spirits segment and will be included in our consolidated results of operations from the date of acquisition.

8



Table of Contents


6.    INTANGIBLE ASSETS:

The major components of intangible assets are as follows:
 
May 31, 2015
 
February 28, 2015
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
(in millions)
 
 
 
 
 
 
 
Amortizable intangible assets
 
 
 
 
 
 
 
Customer relationships
$
100.9

 
$
62.0

 
$
100.9

 
$
63.3

Favorable interim supply agreement
68.3

 
25.0

 
68.3

 
33.9

Other
21.0

 
4.1

 
21.0

 
5.5

Total
$
190.2

 
91.1

 
$
190.2

 
102.7

 
 
 
 
 
 
 
 
Nonamortizable intangible assets
 
 
 
 
 
 
 
Trademarks
 
 
3,071.2

 
 
 
3,073.9

Other
 
 
4.4

 
 
 
4.4

Total
 
 
3,075.6

 
 
 
3,078.3

Total intangible assets
 
 
$
3,166.7

 
 
 
$
3,181.0


We did not incur costs to renew or extend the term of acquired intangible assets for the three months ended May 31, 2015, and May 31, 2014. Net carrying amount represents the gross carrying value net of accumulated amortization. Amortization expense for intangible assets was $11.7 million and $10.5 million for the three months ended May 31, 2015, and May 31, 2014, respectively. Estimated amortization expense for the remaining nine months of fiscal 2016 and for each of the five succeeding fiscal years and thereafter is as follows:
(in millions)
 
2016
$
28.2

2017
$
10.3

2018
$
5.4

2019
$
5.4

2020
$
5.4

2021
$
5.4

Thereafter
$
31.0



9



Table of Contents

7.    BORROWINGS:

Borrowings consist of the following:
 
May 31, 2015
 
February 28,
2015
 
Current
 
Long-term
 
Total
 
Total
(in millions)
 
 
 
 
 
 
 
Notes payable to banks
 
 
 
 
 
 
 
Senior Credit Facility – Revolving Credit Loans
$

 
$

 
$

 
$

Other
100.9

 

 
100.9

 
52.4

 
$
100.9

 
$

 
$
100.9

 
$
52.4

 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
Senior Credit Facility – Term Loans
$
160.3

 
$
2,607.5

 
$
2,767.8

 
$
2,792.1

Senior Notes

 
4,348.9

 
4,348.9

 
4,348.6

Other
18.2

 
81.8

 
100.0

 
154.9

 
$
178.5

 
$
7,038.2

 
$
7,216.7

 
$
7,295.6


Senior credit facility –
The Company, CIH International S.à r.l., an indirect wholly-owned subsidiary of ours (“CIH” and together with the Company, the “Borrowers”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders (all such parties other than either of the Borrowers are collectively referred to as the “Lenders”) are parties to a credit agreement, as amended (the “2014 Credit Agreement”).

As of May 31, 2015, information with respect to borrowings under the 2014 Credit Agreement is as follows:
 
Revolving
Credit
Facility
 
U.S.
Term A
Facility
 
U.S.
Term A-1
Facility
 
U.S.
Term A-2
Facility
 
European
Term A
Facility
 
European
Term B-1
Facility
(in millions)
 
 
 
 
 
 
 
 
 
 
 
Outstanding borrowings
$

 
$
470.5

 
$
242.6

 
$
615.9

 
$
456.2

 
$
982.6

Interest rate
%
 
1.7
%
 
1.9
%
 
1.7
%
 
1.7
%
 
1.9
%
Libor margin
1.5
%
 
1.5
%
 
1.75
%
 
1.5
%
 
1.5
%
 
1.75
%
Outstanding letters of credit
$
15.3

 
 
 
 
 
 
 
 
 
 
Remaining borrowing capacity
$
834.7

 
 
 
 
 
 
 
 
 
 

In addition, in April 2012, we entered into interest rate swap agreements which fixed our interest rates on $500.0 million of our floating LIBOR rate debt at an average rate of 2.8% (exclusive of borrowing margins) through September 1, 2016.

Accounts receivable securitization facilities –
On September 29, 2014, we entered into an amended 364-day revolving trade accounts receivable securitization facility (the “CBI Facility”). Under the CBI Facility, trade accounts receivable generated by us and certain of our subsidiaries are sold by us to a wholly-owned bankruptcy remote single purpose subsidiary (the “CBI SPV”), which is consolidated by us for financial reporting purposes. The CBI Facility provides borrowing capacity of $190.0 million up to $290.0 million structured to account for the seasonality of our business, subject to further limitations based upon various pre-agreed formulas.

Also, on September 29, 2014, Crown Imports entered into a 364-day revolving trade accounts receivable securitization facility (the “Crown Facility”). Under the Crown Facility, trade accounts receivable generated by Crown Imports are sold by Crown Imports to its wholly-owned bankruptcy remote single purpose subsidiary (the “Crown SPV”), which is consolidated by us for financial reporting purposes. The Crown Facility provides

10



Table of Contents

borrowing capacity of $100.0 million up to $160.0 million structured to account for the seasonality of Crown Imports’ business.

As of May 31, 2015, our accounts receivable securitization facilities are as follows:
 
Outstanding Borrowings
 
Weighted Average Interest Rate
 
Remaining Borrowing Capacity
(in millions)
 
 
 
 
 
CBI Facility
$

 
%
 
$
270.0

Crown Facility
$

 
%
 
$
160.0


8.    INCOME TAXES:

Our effective tax rate for the three months ended May 31, 2015, and May 31, 2014, was 31.5% and 32.5%, respectively. Our effective tax rates for the three months ended May 31, 2015, and May 31, 2014, were lower than the federal statutory rate of 35% primarily due to lower effective tax rates applicable to our foreign businesses. Our effective tax rate for the three months ended May 31, 2015, also benefited from a decrease in uncertain tax positions.

We are currently under examination by the Internal Revenue Service (“IRS”). Subsequent to May 31, 2015, we received a Revenue Agent’s Report (“RAR”) from the IRS proposing tax assessments for the 2010 and 2011 tax years. We disagree with certain assessments in this report and intend to submit a written protest stating our formal disagreement with the conclusions presented in the RAR. We believe that our position will be successfully sustained.

9.    NET INCOME PER COMMON SHARE ATTRIBUTABLE TO CBI:

For the three months ended May 31, 2015, and May 31, 2014, net income per common share – diluted for Class A Common Stock has been calculated using the if-converted method. For the three months ended May 31, 2015, and May 31, 2014, net income per common share – diluted for Class B Convertible Common Stock is presented without assuming conversion into Class A Common Stock and is computed using the two-class computation method.

The computation of basic and diluted net income per common share is as follows:
 
For the Three Months
Ended May 31,
 
2015
 
2014
(in millions, except per share data)
 
 
 
Net income attributable to CBI
$
238.6

 
$
206.7

 
 
 
 
Weighted average common shares outstanding – basic:
 
 
 
Class A Common Stock
171.370

 
168.158

Class B Convertible Common Stock
23.376

 
23.415

 
 
 
 
Weighted average common shares outstanding – diluted:
 
 
 
Class A Common Stock
171.370

 
168.158

Class B Convertible Common Stock
23.376

 
23.415

Stock-based awards, primarily stock options
8.109

 
8.785

Weighted average common shares outstanding – diluted
202.855

 
200.358

 
 
 
 

11



Table of Contents

 
For the Three Months
Ended May 31,
 
2015
 
2014
(in millions, except per share data)
 
 
 
Net income per common share attributable to CBI – basic:
 
 
 
Class A Common Stock
$
1.24

 
$
1.09

Class B Convertible Common Stock
$
1.12

 
$
0.99

 
 
 
 
Net income per common share attributable to CBI – diluted:
 
 
 
Class A Common Stock
$
1.18

 
$
1.03

Class B Convertible Common Stock
$
1.09

 
$
0.95


10.    COMPREHENSIVE INCOME ATTRIBUTABLE TO CBI:

Comprehensive income consists of net income, foreign currency translation adjustments, net unrealized gains (losses) on derivative instruments, net unrealized gains (losses) on AFS debt securities and pension/postretirement adjustments. The reconciliation of net income attributable to CBI to comprehensive income attributable to CBI is as follows:
 
Before Tax
Amount
 
Tax (Expense) Benefit
 
Net of Tax
Amount
(in millions)
 
 
 
 
 
For the Three Months Ended May 31, 2015
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
238.6

Other comprehensive loss:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net losses
$
(50.7
)
 
$
(0.6
)
 
(51.3
)
Reclassification adjustments

 

 

Net loss recognized in other comprehensive loss
(50.7
)
 
(0.6
)
 
(51.3
)
Unrealized loss on cash flow hedges:
 
 
 
 
 
Net derivative losses
(10.5
)
 
2.9

 
(7.6
)
Reclassification adjustments
7.6

 
(2.5
)
 
5.1

Net loss recognized in other comprehensive loss
(2.9
)
 
0.4

 
(2.5
)
Unrealized loss on AFS debt securities:
 
 
 
 
 
Net AFS debt securities losses
(0.1
)
 

 
(0.1
)
Reclassification adjustments

 

 

Net loss recognized in other comprehensive loss
(0.1
)
 

 
(0.1
)
Pension/postretirement adjustments:
 
 
 
 
 
Net actuarial losses
(0.1
)
 

 
(0.1
)
Reclassification adjustments
0.1

 

 
0.1

Net loss recognized in other comprehensive loss

 

 

Other comprehensive loss attributable to CBI
$
(53.7
)
 
$
(0.2
)
 
(53.9
)
Comprehensive income attributable to CBI
 
 
 
 
$
184.7

 
 
 
 
 
 

12



Table of Contents

 
Before Tax
Amount
 
Tax (Expense) Benefit
 
Net of Tax
Amount
(in millions)
 
 
 
 
 
For the Three Months Ended May 31, 2014
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
206.7

Other comprehensive income:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net gains
$
37.5

 
$
(0.7
)
 
36.8

Reclassification adjustments

 

 

Net gain recognized in other comprehensive income
37.5

 
(0.7
)
 
36.8

Unrealized gain on cash flow hedges:
 
 
 
 
 
Net derivative gains
13.6

 
(3.8
)
 
9.8

Reclassification adjustments
1.4

 
(0.8
)
 
0.6

Net gain recognized in other comprehensive income
15.0

 
(4.6
)
 
10.4

Unrealized gain on AFS debt securities:
 
 
 
 
 
Net AFS debt securities gains
0.3

 
(0.1
)
 
0.2

Reclassification adjustments

 

 

Net gain recognized in other comprehensive income
0.3

 
(0.1
)
 
0.2

Other comprehensive income attributable to CBI
$
52.8

 
$
(5.4
)
 
47.4

Comprehensive income attributable to CBI
 
 
 
 
$
254.1


Accumulated other comprehensive loss, net of income tax effect, includes the following components:
 
Foreign
Currency
Translation
Adjustments
 
Net
Unrealized
Losses on
Derivative Instruments
 
Net
Unrealized
Losses
on AFS Debt
Securities
 
Pension/
Postretirement
Adjustments
 
Accumulated
Other
Comprehensive
Loss
(in millions)
 
 
 
 
 
 
 
 
 
Balance, February 28, 2015
$
(86.1
)
 
$
(29.1
)
 
$
(2.5
)
 
$
(13.2
)
 
$
(130.9
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Other comprehensive loss before reclassification adjustments
(51.3
)
 
(7.6
)
 
(0.1
)
 
(0.1
)
 
(59.1
)
Amounts reclassified from accumulated other comprehensive loss

 
5.1

 

 
0.1

 
5.2

Other comprehensive loss
(51.3
)
 
(2.5
)
 
(0.1
)
 

 
(53.9
)
Balance, May 31, 2015
$
(137.4
)
 
$
(31.6
)
 
$
(2.6
)
 
$
(13.2
)
 
$
(184.8
)

11.    CONDENSED CONSOLIDATING FINANCIAL INFORMATION:

The following information sets forth the condensed consolidating balance sheets as of May 31, 2015, and February 28, 2015, the condensed consolidating statements of comprehensive income for the three months ended May 31, 2015, and May 31, 2014, and the condensed consolidating statements of cash flows for the three months ended May 31, 2015, and May 31, 2014, for the parent company, our combined subsidiaries which guarantee our senior notes (“Subsidiary Guarantors”), our combined subsidiaries which are not Subsidiary Guarantors (primarily foreign subsidiaries) (“Subsidiary Nonguarantors”) and the Company. The Subsidiary Guarantors are 100% owned, directly or indirectly, by the parent company and the guarantees are joint and several obligations of each of the Subsidiary Guarantors. The guarantees are full and unconditional, as those terms are used in Rule 3-10 of Regulation S-X, except that a Subsidiary Guarantor can be automatically released and relieved of its obligations under certain customary circumstances contained in the indentures governing our senior notes. These customary circumstances include, so long as other applicable provisions of the indentures are adhered to, the termination or release of a Subsidiary Guarantor’s guarantee of other indebtedness or upon the legal defeasance or covenant defeasance or satisfaction and discharge of our senior notes. Separate financial statements for our Subsidiary Guarantors are not presented because we have

13



Table of Contents

determined that such financial statements would not be material to investors. The accounting policies of the parent company, the Subsidiary Guarantors and the Subsidiary Nonguarantors are the same as those described for the Company in Note 1 to our consolidated financial statements included in our 2015 Annual Report. There are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to us in the form of cash dividends, loans or advances.
 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
(in millions)
 
 
 
 
 
 
 
 
 
Condensed Consolidating Balance Sheet at May 31, 2015
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
33.9

 
$
1.2

 
$
95.6

 
$

 
$
130.7

Accounts receivable
1.1

 
20.6

 
674.5

 

 
696.2

Inventories
159.2

 
1,368.6

 
380.4

 
(124.5
)
 
1,783.7

Intercompany receivable
14,007.5

 
19,737.1

 
7,179.7

 
(40,924.3
)
 

Prepaid expenses and other
52.2

 
60.1

 
393.6

 
(137.2
)
 
368.7

Total current assets
14,253.9

 
21,187.6

 
8,723.8

 
(41,186.0
)
 
2,979.3

Property, plant and equipment
58.3

 
836.3

 
1,847.5

 

 
2,742.1

Investments in subsidiaries
12,181.3

 
15.3

 

 
(12,196.6
)
 

Goodwill

 
5,411.2

 
789.1

 

 
6,200.3

Intangible assets

 
700.8

 
2,461.8

 
4.1

 
3,166.7

Intercompany notes receivable
3,836.9

 
87.4

 

 
(3,924.3
)
 

Other assets
59.3

 
69.6

 
30.0

 

 
158.9

Total assets
$
30,389.7

 
$
28,308.2

 
$
13,852.2

 
$
(57,302.8
)
 
$
15,247.3

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Notes payable to banks
$

 
$

 
$
100.9

 
$

 
$
100.9

Current maturities of long-term debt
106.8

 
16.5

 
55.2

 

 
178.5

Accounts payable
31.7

 
109.5

 
147.9

 

 
289.1

Accrued excise taxes
13.9

 
10.7

 
6.2

 

 
30.8

Intercompany payable
18,323.0

 
15,274.8

 
7,326.5

 
(40,924.3
)
 

Other accrued expenses and liabilities
334.7

 
169.5

 
193.3

 
(176.5
)
 
521.0

Total current liabilities
18,810.1

 
15,581.0

 
7,830.0

 
(41,100.8
)
 
1,120.3

Long-term debt, less current maturities
5,571.2

 
27.1

 
1,439.9

 

 
7,038.2

Deferred income taxes
19.3

 
650.2

 
190.5

 

 
860.0

Intercompany notes payable

 
3,906.9

 
17.4

 
(3,924.3
)
 

Other liabilities
46.6

 
34.7

 
95.6

 

 
176.9

Total liabilities
24,447.2

 
20,199.9

 
9,573.4

 
(45,025.1
)
 
9,195.4

Total CBI stockholders’ equity
5,942.5

 
8,108.3

 
4,169.4

 
(12,277.7
)
 
5,942.5

Noncontrolling interests

 

 
109.4

 

 
109.4

Total stockholders’ equity
5,942.5

 
8,108.3

 
4,278.8

 
(12,277.7
)
 
6,051.9

Total liabilities and stockholders’ equity
$
30,389.7

 
$
28,308.2

 
$
13,852.2

 
$
(57,302.8
)
 
$
15,247.3

 
 
 
 
 
 
 
 
 
 

14



Table of Contents

 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
(in millions)
 
 
 
 
 
 
 
 
 
Condensed Consolidating Balance Sheet at February 28, 2015
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
24.5

 
$
0.7

 
$
84.9

 
$

 
$
110.1

Accounts receivable
0.8

 
27.3

 
570.8

 

 
598.9

Inventories
153.3

 
1,419.0

 
357.7

 
(102.8
)
 
1,827.2

Intercompany receivable
13,158.7

 
18,389.9

 
6,512.0

 
(38,060.6
)
 

Prepaid expenses and other
46.2

 
94.0

 
427.0

 
(192.6
)
 
374.6

Total current assets
13,383.5

 
19,930.9

 
7,952.4

 
(38,356.0
)
 
2,910.8

Property, plant and equipment
59.3

 
854.5

 
1,767.8

 

 
2,681.6

Investments in subsidiaries
11,657.2

 
13.8

 

 
(11,671.0
)
 

Goodwill

 
5,411.3

 
796.9

 

 
6,208.2

Intangible assets

 
703.3

 
2,474.3

 
3.4

 
3,181.0

Intercompany notes receivable
4,087.3

 
129.9

 

 
(4,217.2
)
 

Other assets
61.4

 
68.4

 
33.1

 

 
162.9

Total assets
$
29,248.7

 
$
27,112.1

 
$
13,024.5

 
$
(54,240.8
)
 
$
15,144.5

 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Notes payable to banks
$

 
$

 
$
52.4

 
$

 
$
52.4

Current maturities of long-term debt
92.3

 
16.9

 
48.9

 

 
158.1

Accounts payable
41.2

 
113.2

 
131.4

 

 
285.8

Accrued excise taxes
12.6

 
11.3

 
4.8

 

 
28.7

Intercompany payable
17,206.7

 
14,201.6

 
6,652.3

 
(38,060.6
)
 

Other accrued expenses and liabilities
462.5

 
211.2

 
156.9

 
(224.9
)
 
605.7

Total current liabilities
17,815.3

 
14,554.2

 
7,046.7

 
(38,285.5
)
 
1,130.7

Long-term debt, less current maturities
5,601.4

 
30.9

 
1,505.2

 

 
7,137.5

Deferred income taxes
17.6

 
633.6

 
167.7

 

 
818.9

Intercompany notes payable

 
3,863.4

 
353.8

 
(4,217.2
)
 

Other liabilities
43.7

 
36.7

 
95.7

 

 
176.1

Total liabilities
23,478.0

 
19,118.8

 
9,169.1

 
(42,502.7
)
 
9,263.2

Total CBI stockholders’ equity
5,770.7

 
7,993.3

 
3,744.8

 
(11,738.1
)
 
5,770.7

Noncontrolling interests

 

 
110.6

 

 
110.6

Total stockholders’ equity
5,770.7

 
7,993.3

 
3,855.4

 
(11,738.1
)
 
5,881.3

Total liabilities and stockholders’ equity
$
29,248.7

 
$
27,112.1

 
$
13,024.5

 
$
(54,240.8
)
 
$
15,144.5



15



Table of Contents

 
Parent
Company
 
Subsidiary
Guarantors
 
Subsidiary
Nonguarantors
 
Eliminations
 
Consolidated
(in millions)
 
 
 
 
 
 
 
 
 
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended May 31, 2015
Sales
$
558.6

 
$
1,424.9

 
$
825.2

 
$
(1,010.7
)
 
$
1,798.0

Less – excise taxes
(76.2
)
 
(75.1
)
 
(15.4
)
 

 
(166.7
)
Net sales
482.4

 
1,349.8

 
809.8

 
(1,010.7
)
 
1,631.3

Cost of product sold
(390.8
)
 
(1,003.6
)
 
(486.1
)
 
986.3

 
(894.2
)
Gross profit
91.6

 
346.2

 
323.7

 
(24.4
)
 
737.1

Selling, general and administrative expenses
(102.8
)
 
(177.2
)
 
(33.5
)
 
3.7

 
(309.8
)
Operating income (loss)
(11.2
)
 
169.0

 
290.2

 
(20.7
)
 
427.3

Equity in earnings of equity method investees and subsidiaries
304.2

 
2.2

 
0.2

 
(305.6
)
 
1.0

Interest income
0.1

 

 
0.2

 

 
0.3

Intercompany interest income
45.8

 
63.9

 

 
(109.7
)
 

Interest expense
(69.3
)
 
(0.3
)
 
(8.2
)
 

 
(77.8
)
Intercompany interest expense
(63.6
)
 
(45.9
)
 
(0.2
)
 
109.7

 

Income before income taxes
206.0

 
188.9

 
282.2

 
(326.3
)
 
350.8

(Provision for) benefit from income taxes
32.6

 
(73.1
)
 
(76.7
)
 
6.6

 
(110.6
)
Net income
238.6


115.8

 
205.5

 
(319.7
)
 
240.2

Net income attributable to noncontrolling interests

 

 
(1.6
)
 

 
(1.6
)
Net income attributable to CBI
$
238.6

 
$
115.8

 
$
203.9

 
$
(319.7
)
 
$
238.6

 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to CBI
$
184.7

 
$
115.1

 
$
149.6

 
$
(264.7
)
 
$
184.7

 
 
 
 
 
 
 
 
 
 
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended May 31, 2014
Sales
$
544.5

 
$
1,302.3

 
$
814.0

 
$
(973.7
)
 
$
1,687.1

Less – excise taxes
(76.3
)
 
(67.6
)
 
(17.2
)
 

 
(161.1
)
Net sales
468.2

 
1,234.7

 
796.8

 
(973.7
)
 
1,526.0

Cost of product sold
(378.3
)
 
(923.3
)
 
(508.7
)
 
954.4

 
(855.9
)
Gross profit
89.9