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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 August 31, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     

Commission File Number: 001-08495
image_bw.jpg
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)

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 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).  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
¨ (Do not check if a smaller reporting company)
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 September 30, 2017, is set forth below:
Class
 
Number of Shares Outstanding
Class A Common Stock, par value $.01 per share
 
172,270,807
Class B Common Stock, par value $.01 per share
 
23,334,227
Class 1 Common Stock, par value $.01 per share
 
3,720

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 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 2017” refer to our fiscal year ended February 28, 2017. All references to “Fiscal 2018” refer to our fiscal year ending February 28, 2018.


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, 2017
 
February 28, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
125.6

 
$
177.4

Accounts receivable
853.3

 
737.0

Inventories
1,929.7

 
1,955.1

Prepaid expenses and other
464.8

 
360.5

Total current assets
3,373.4

 
3,230.0

Property, plant and equipment
4,464.2

 
3,932.8

Goodwill
8,114.2

 
7,920.5

Intangible assets
3,309.1

 
3,377.7

Other assets
157.5

 
141.4

Total assets
$
19,418.4

 
$
18,602.4

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Notes payable to banks
$
814.0

 
$
606.5

Current maturities of long-term debt
96.5

 
910.9

Accounts payable
601.7

 
559.8

Other accrued expenses and liabilities
577.8

 
620.4

Total current liabilities
2,090.0

 
2,697.6

Long-term debt, less current maturities
8,036.9

 
7,720.7

Deferred income taxes
1,167.1

 
1,133.6

Other liabilities
179.1

 
165.7

Total liabilities
11,473.1

 
11,717.6

Commitments and contingencies

 

CBI stockholders’ equity:
 
 
 
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued, 258,352,390 shares and 257,506,184 shares, respectively
2.6

 
2.6

Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000 shares; Issued, 28,340,027 shares and 28,358,527 shares, respectively
0.3

 
0.3

Additional paid-in capital
2,787.6

 
2,755.8

Retained earnings
8,011.0

 
7,310.0

Accumulated other comprehensive loss
(87.4
)
 
(399.8
)
 
10,714.1

 
9,668.9

Less: Treasury stock –
 
 
 
Class A Common Stock, at cost, 86,110,068 shares and 86,262,971 shares, respectively
(2,783.8
)
 
(2,775.5
)
Class B Convertible Common Stock, at cost, 5,005,800 shares
(2.2
)
 
(2.2
)
 
(2,786.0
)
 
(2,777.7
)
Total CBI stockholders’ equity
7,928.1

 
6,891.2

Noncontrolling interests
17.2

 
(6.4
)
Total stockholders’ equity
7,945.3

 
6,884.8

Total liabilities and stockholders’ equity
$
19,418.4

 
$
18,602.4


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 Six Months Ended August 31,
 
For the Three Months Ended August 31,
 
2017
 
2016
 
2017
 
2016
Sales
$
4,412.5

 
$
4,275.8

 
$
2,297.2

 
$
2,222.8

Less – excise taxes
(392.5
)
 
(382.8
)
 
(212.7
)
 
(201.6
)
Net sales
4,020.0

 
3,893.0

 
2,084.5

 
2,021.2

Cost of product sold
(1,959.4
)
 
(2,042.7
)
 
(1,019.2
)
 
(1,052.2
)
Gross profit
2,060.6

 
1,850.3

 
1,065.3

 
969.0

Selling, general and administrative expenses
(778.6
)
 
(686.7
)
 
(351.4
)
 
(358.1
)
Operating income
1,282.0

 
1,163.6

 
713.9

 
610.9

Equity in earnings of equity method investees
0.6

 
0.7

 
0.2

 
—

Interest expense
(163.7
)
 
(178.7
)
 
(81.3
)
 
(94.1
)
Loss on write-off of debt issuance costs
(8.8
)
 
—

 
(2.1
)
 
—

Income before income taxes
1,110.1

 
985.6

 
630.7

 
516.8

Provision for income taxes
(202.8
)
 
(313.3
)
 
(128.7
)
 
(163.6
)
Net income
907.3

 
672.3

 
502.0

 
353.2

Net (income) loss attributable to noncontrolling interests
(5.0
)
 
4.9

 
(2.5
)
 
5.7

Net income attributable to CBI
$
902.3

 
$
677.2

 
$
499.5

 
$
358.9

 
 
 
 
 
 
 
 
Comprehensive income
$
1,238.3

 
$
678.1

 
$
633.5

 
$
364.9

Comprehensive (income) loss attributable to noncontrolling interests
(23.6
)
 
8.5

 
(9.1
)
 
7.4

Comprehensive income attributable to CBI
$
1,214.7

 
$
686.6

 
$
624.4

 
$
372.3

 
 
 
 
 
 
 
 
Net income per common share attributable to CBI:
 
 
 
 
 
 
 
Basic – Class A Common Stock
$
4.67

 
$
3.42

 
$
2.58

 
$
1.81

Basic – Class B Convertible Common Stock
$
4.24

 
$
3.10

 
$
2.35

 
$
1.64

 
 
 
 
 
 
 
 
Diluted – Class A Common Stock
$
4.48

 
$
3.30

 
$
2.48

 
$
1.75

Diluted – Class B Convertible Common Stock
$
4.14

 
$
3.04

 
$
2.29

 
$
1.61

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic – Class A Common Stock
171.821

 
177.001

 
172.087

 
177.460

Basic – Class B Convertible Common Stock
23.341

 
23.353

 
23.338

 
23.353

 
 
 
 
 
 
 
 
Diluted – Class A Common Stock
201.199

 
205.508

 
201.346

 
205.650

Diluted – Class B Convertible Common Stock
23.341

 
23.353

 
23.338

 
23.353

 
 
 
 
 
 
 
 
Cash dividends declared per common share:
 
 
 
 
 
 
 
Class A Common Stock
$
1.04

 
$
0.80

 
$
0.52

 
$
0.40

Class B Convertible Common Stock
$
0.94

 
$
0.72

 
$
0.47

 
$
0.36


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,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
907.3

 
$
672.3

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
140.9

 
113.9

Impairment and amortization of intangible assets
89.7

 
6.3

Stock-based compensation
28.9

 
31.4

Amortization and loss on write-off of debt issuance costs
14.4

 
6.4

Deferred tax provision
13.6

 
139.9

Change in operating assets and liabilities, net of effects from purchases of businesses:
 
 
 
Accounts receivable
(116.7
)
 
(94.9
)
Inventories
49.2

 
48.9

Prepaid expenses and other current assets
(89.7
)
 
(28.6
)
Accounts payable
40.2

 
144.3

Deferred revenue
27.4

 
12.8

Other accrued expenses and liabilities
(33.1
)
 
30.6

Other
30.8

 
(38.4
)
Total adjustments
195.6

 
372.6

Net cash provided by operating activities
1,102.9

 
1,044.9

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property, plant and equipment
(505.1
)
 
(368.6
)
Purchases of businesses
(131.8
)
 
(284.9
)
Payments related to sale of business
(5.0
)
 
—

Other investing activities
1.3

 
(0.1
)
Net cash used in investing activities
(640.6
)
 
(653.6
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Principal payments of long-term debt
(4,517.9
)
 
(842.4
)
Dividends paid
(201.0
)
 
(158.8
)
Payments of minimum tax withholdings on stock-based payment awards
(22.5
)
 
(64.7
)
Payments of debt issuance costs
(20.2
)
 
(4.6
)
Purchases of treasury stock
(14.3
)
 
(5.5
)
Proceeds from issuance of long-term debt
4,017.0

 
940.6

Net proceeds from (repayments of) notes payable
206.6

 
(295.8
)
Proceeds from shares issued under equity compensation plans
32.0

 
33.3

Excess tax benefits from stock-based payment awards
—

 
100.9

Net cash used in financing activities
(520.3
)
 
(297.0
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
6.2

 
(0.1
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(51.8
)
 
94.2

Cash and cash equivalents, beginning of period
177.4

 
83.1

Cash and cash equivalents, end of period
$
125.6

 
$
177.3

 
 
 
 
Supplemental disclosures of noncash investing and financing activities:
 
 
 
Additions to property, plant and equipment
$
172.8

 
$
209.4

The accompanying notes are an integral part of these statements.

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Table of Contents

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2017
(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, 2017 (the “2017 Annual Report”). Results of operations for interim periods are not necessarily indicative of annual results.

2.    RECENTLY ADOPTED ACCOUNTING GUIDANCE:

Stock-based employee compensation –
Effective March 1, 2017, we adopted the FASB amended guidance for, among other items, the accounting for income taxes related to share-based compensation and the related classification in the statement of cash flows. This guidance requires the recognition of excess tax benefits and deficiencies (resulting from an increase or decrease in the fair value of an award from grant date to the vesting or settlement date) in the provision for income taxes as a discrete item in the quarterly period in which they occur. Through February 28, 2017, these amounts were recognized in additional paid-in capital at the time of vesting or settlement. Additionally, effective March 1, 2017, excess tax benefits are classified as an operating activity in the statement of cash flows instead of as a financing activity where they were previously presented. We adopted this guidance on a prospective basis and, accordingly, prior periods have not been adjusted. Adoption of this guidance resulted in the recognition of excess tax benefits in our provision for income taxes rather than additional paid-in capital of $51.3 million and $18.8 million for the six months and three months ended August 31, 2017, respectively.

The adoption of this amended guidance also impacted our calculation of diluted earnings per share under the treasury stock method, as excess tax benefits and deficiencies resulting from share-based compensation are no longer included in the assumed proceeds calculation. This change in the assumed proceeds calculation resulted in a decrease in diluted earnings per share of $0.05 and $0.02 for the six months and three months ended August 31, 2017, respectively.

We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. The remaining provisions of this amended guidance did not have a material impact on our consolidated financial statements.


4


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:
 
August 31, 2017
 
February 28, 2017
(in millions)
 
 
 
Raw materials and supplies
$
172.9

 
$
149.7

In-process inventories
1,192.4

 
1,260.1

Finished case goods
564.4

 
545.3

 
$
1,929.7

 
$
1,955.1


4.    PREPAID EXPENSES AND OTHER:

The major components of prepaid expenses and other are as follows:
 
August 31, 2017
 
February 28, 2017
(in millions)
 
 
 
Prepaid excise, sales and value added taxes
$
247.6

 
$
136.1

Income taxes receivable
88.4

 
100.4

Other
128.8

 
124.0

 
$
464.8

 
$
360.5


5.    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 2017 Annual Report and have not changed significantly for the six months and three months ended August 31, 2017.

The aggregate notional value of outstanding derivative instruments is as follows:
 
August 31, 2017
 
February 28, 2017
(in millions)
 
 
 
Derivative instruments designated as hedging instruments
 
 
 
Foreign currency contracts
$
1,301.7

 
$
981.7

Interest rate swap contracts
$
200.0

 
$
250.0

 
 
 
 
Derivative instruments not designated as hedging instruments
 
 
 
Foreign currency contracts
$
283.0

 
$
389.9

Commodity derivative contracts
$
157.2

 
$
153.2


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.


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In addition, our derivative instruments are not subject to credit rating contingencies or collateral requirements. As of August 31, 2017, the estimated fair value of derivative instruments in a net liability position due to counterparties was $3.8 million. If we were required to settle the net liability position under these derivative instruments on August 31, 2017, 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 6):
Assets
 
Liabilities
 
August 31, 2017
 
February 28, 2017
 
 
August 31, 2017
 
February 28, 2017
(in millions)
 
 
 
 
 
 
 
 
Derivative instruments designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
23.8

 
$
5.2

 
Other accrued expenses and liabilities
$
4.8

 
$
30.4

Other assets
$
19.2

 
$
6.0

 
Other liabilities
$
5.7

 
$
37.4

Interest rate swap contracts:
Prepaid expenses and other
$
0.7

 
$
0.3

 
Other accrued expenses and liabilities
$
—

 
$
0.3

Other assets
$
2.0

 
$
4.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments not designated as hedging instruments
Foreign currency contracts:
Prepaid expenses and other
$
2.3

 
$
2.0

 
Other accrued expenses and liabilities
$
0.7

 
$
2.6

Commodity derivative contracts:
Prepaid expenses and other
$
5.5

 
$
4.3

 
Other accrued expenses and liabilities
$
4.3

 
$
6.9

Other assets
$
2.5

 
$
1.5

 
Other liabilities
$
4.0

 
$
4.7


The principal 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 Six Months Ended August 31, 2017
 
 
 
 
 
 
Foreign currency contracts
 
$
62.4

 
Sales
 
$
0.1

 
 
 
 
Cost of product sold
 
(2.0
)
Interest rate swap contracts
 
(2.4
)
 
Interest expense
 
(0.1
)
 
 
$
60.0

 
 
 
$
(2.0
)
 
 
 
 
 
 
 
For the Six Months Ended August 31, 2016
 
 
 
 
 
 
Foreign currency contracts
 
$
(0.6
)
 
Sales
 
$
0.2

 
 
 
 
Cost of product sold
 
(10.7
)
Interest rate swap contracts
 
0.1

 
Interest expense
 
(3.7
)
 
 
$
(0.5
)
 
 
 
$
(14.2
)
 
 
 
 
 
 
 

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Table of Contents

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 August 31, 2017
 
 
 
 
 
 
Foreign currency contracts
 
$
23.8

 
Sales
 
$
(0.2
)
 
 
 
 
Cost of product sold
 
0.7

Interest rate swap contracts
 
(0.4
)
 
Interest expense
 
—

 
 
$
23.4

 
 
 
$
0.5

 
 
 
 
 
 
 
For the Three Months Ended August 31, 2016
 
 
 
 
 
 
Foreign currency contracts
 
$
1.7

 
Sales
 
$
0.1

 
 
 
 
Cost of product sold
 
(5.7
)
Interest rate swap contracts
 
(0.8
)
 
Interest expense
 
(1.8
)
 
 
$
0.9

 
 
 
$
(7.4
)

We expect $14.5 million of net gains, 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 Six Months Ended August 31, 2017
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
0.8

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
6.4

 
 
 
 
 
 
$
7.2

 
 
 
 
 
 
 
For the Six Months Ended August 31, 2016
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
7.7

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(14.3
)
 
 
 
 
 
 
$
(6.6
)
 
 
 
 
 
 
 
For the Three Months Ended August 31, 2017
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
3.9

Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
1.7

 
 
 
 
 
 
$
5.6

 
 
 
 
 
 
 
For the Three Months Ended August 31, 2016
 
 
 
 
 
 
Commodity derivative contracts
 
 
 
Cost of product sold
 
$
(5.4
)
Foreign currency contracts
 
 
 
Selling, general and administrative expenses
 
(3.8
)
 
 
 
 
 
 
$
(9.2
)

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6.    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.

Fair value methodology and assumptions –
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 of our consolidated financial statements included in our 2017 Annual Report and have not changed significantly for the six months and three months ended August 31, 2017. 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 August 31, 2017, and February 28, 2017, due to the relatively short maturity of these instruments. As of August 31, 2017, the carrying amount of long-term debt, including the current portion, was $8,133.4 million, compared with an estimated fair value of $8,515.8 million. As of February 28, 2017, the carrying amount of long-term debt, including the current portion, was $8,631.6 million, compared with an estimated fair value of $8,845.5 million.

Recurring basis measurements –
The following table presents our financial assets and liabilities measured at estimated fair value on a recurring basis:
 
Fair Value Measurements Using
 
 
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
(in millions)
 
 
 
 
 
 
 
August 31, 2017
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Foreign currency contracts
$
—

 
$
45.3

 
$
—

 
$
45.3

Commodity derivative contracts
$
—

 
$
8.0

 
$
—

 
$
8.0

Interest rate swap contracts
$
—

 
$
2.7

 
$
—

 
$
2.7

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

 
$
—

 
$
9.9

 
$
9.9

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
$
—

 
$
11.2

 
$
—

 
$
11.2

Commodity derivative contracts
$
—

 
$
8.3

 
$
—

 
$
8.3

 
 
 
 
 
 
 
 

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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, 2017
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Foreign currency contracts
$
—

 
$
13.2

 
$
—

 
$
13.2

Commodity derivative contracts
$
—

 
$
5.8

 
$
—

 
$
5.8

Interest rate swap contracts
$
—

 
$
4.7

 
$
—

 
$
4.7

AFS debt securities
$
—

 
$
—

 
$
9.5

 
$
9.5

Liabilities:
 
 
 
 
 
 
 
Foreign currency contracts
$
—

 
$
70.4

 
$
—

 
$
70.4

Commodity derivative contracts
$
—

 
$
11.6

 
$
—

 
$
11.6

Interest rate swap contracts
$
—

 
$
0.3

 
$
—

 
$
0.3


Nonrecurring basis measurements –
The following table presents our assets and liabilities measured at estimated fair value on a nonrecurring basis for which an impairment assessment was performed for the period presented:
 
Fair Value Measurements Using
 
 
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Losses
(in millions)
 
 
 
 
 
 
 
For the Six Months Ended August 31, 2017
 
 
 
 
 
 
 
Trademarks
$
—

 
$
—

 
$
136.0

 
$
86.8


Trademarks:
For the first quarter of fiscal 2018, we identified certain negative trends within our Beer segment’s Ballast Point craft beer portfolio which, when combined with the recent negative craft beer industry trends, including slower growth rates and increased competition, indicated that it was more likely than not that the fair value of our indefinite lived intangible asset associated with the craft beer trademarks might be below its carrying value. These negative trends were the result of (i)  a disruption in our distribution network transition plan, (ii)  an unexpected decrease in sales from product innovations and (iii)  a significant shift in market conditions for our craft beer portfolio, all of which resulted in a decline in net sales and depletion trends, which represent distributor shipments of our branded products to retail customers, for the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017, following consecutive quarters of significant net sales and depletion volume growth for our craft beer portfolio. Additionally, net sales for the first quarter of fiscal 2018 were below our forecasted net sales for the first quarter of fiscal 2018. Accordingly, we performed a quantitative assessment for impairment of the craft beer trademark asset. As a result of this assessment, the craft beer trademark asset with a carrying value of $222.8 million was written down to its estimated fair value of $136.0 million, resulting in an impairment of $86.8 million. This impairment is included in selling, general and administrative expenses.

We measured the amount of impairment by calculating the amount by which the carrying value of the trademark asset exceeded its estimated fair value. The estimated fair value was determined based on an income approach using the relief from royalty method, which assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of the trademark asset. The cash flow projections we use to estimate the fair values of our trademarks involve several assumptions, including (i)  projected revenue

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growth rates, (ii)  estimated royalty rates, (iii)  after-tax royalty savings expected from ownership of the trademarks and (iv)  discount rates used to derive the estimated fair value of the trademarks.

7.    GOODWILL:

The changes in the carrying amount of goodwill are as follows:
 
Beer
 
Wine and Spirits
 
Consolidated
(in millions)
 
 
 
 
 
Balance, February 29, 2016
$
4,530.1

 
$
2,608.5

 
$
7,138.6

Purchase accounting allocations (1)
510.8

 
373.7

 
884.5

Canadian Divestiture (2)
—

 
(126.1
)
 
(126.1
)
Foreign currency translation adjustments
12.1

 
11.4

 
23.5

Balance, February 28, 2017
5,053.0

 
2,867.5

 
7,920.5

Purchase accounting allocations (3)
63.2

 
57.6

 
120.8

Foreign currency translation adjustments
71.4

 
1.5

 
72.9

Balance, August 31, 2017
$
5,187.6

 
$
2,926.6

 
$
8,114.2

(1) 
Preliminary purchase accounting allocations associated with the acquisition of the Obregon Brewery (Beer) and purchase accounting allocations primarily associated with the acquisitions of Prisoner, High West and Charles Smith (Wine and Spirits). See defined acquisition terms below.
(2) 
Includes accumulated impairment losses of C$289.1 million, or $216.8 million.
(3) 
Preliminary purchase accounting allocations associated primarily with the acquisitions of the Obregon Brewery ($12.2 million) and Funky Buddha (Beer) and Schrader Cellars (Wine and Spirits). See defined acquisition terms below.

Acquisitions –
Obregon Brewery:
In December 2016, we acquired a brewery operation business in Obregon, Sonora, Mexico from Grupo Modelo, S. de R.L. de C.V., formerly known as Grupo Modelo, S.A.B. de C.V., (“Modelo”), a subsidiary of Anheuser-Busch InBev SA/NV for cash paid of $569.7 million, net of cash acquired (the “Obregon Brewery”). The transaction primarily included the acquisition of operations; goodwill; property, plant and equipment; and inventories. The purchase accounting has not yet been finalized due primarily to an incomplete valuation of property, plant and equipment. Further changes to the preliminary purchase price allocation will be recognized as valuations are finalized. This acquisition provided us with immediate functioning brewery capacity to support our fast-growing, high-end Mexican beer portfolio and flexibility for future innovation initiatives. It also enabled us to become fully independent from an interim supply agreement with Modelo, which was terminated at the time of this acquisition. The results of operations of the Obregon Brewery are reported in the Beer segment and have been included in our consolidated results of operations from the date of acquisition.

High West:
In October 2016, we acquired all of the issued and outstanding common and preferred membership interests of High West Holdings, LLC for $136.6 million, net of cash acquired (“High West”). This transaction primarily included the acquisition of operations, goodwill, trademarks, inventories and property, plant and equipment. This acquisition included a portfolio of craft whiskeys and other select spirits. The results of operations of High West are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Charles Smith:
In October 2016, we acquired the Charles Smith Wines, LLC business, a collection of five super and ultra-premium wine brands, for $120.8 million (“Charles Smith”). This transaction primarily included the acquisition of goodwill, trademarks, inventories and certain grape supply contracts, plus an earn-out over three years based on the

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performance of the brands. The results of operations of Charles Smith are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Prisoner:
In April 2016, we acquired The Prisoner Wine Company business, including a portfolio of five super-luxury wine brands, for $284.9 million (“Prisoner”). This transaction primarily included the acquisition of goodwill, inventories, trademarks and certain grape supply contracts. The results of operations of Prisoner are reported in the Wine and Spirits segment and have been included in our results of operations from the date of acquisition.

Other Acquisitions:
During the three months ended August 31, 2017, we acquired the Funky Buddha Brewery LLC business, which included a portfolio of high-quality, Florida-based craft beers (“Funky Buddha”), and the Schrader Cellars, LLC business, which included a collection of highly-rated, limited-production fine wines (“Schrader Cellars”), for a combined purchase price of $130.8 million. The purchase price for each acquisition was primarily allocated to goodwill and trademarks. In addition, the purchase price for Funky Buddha includes an earn-out over five years based on the performance of the brands. The results of operations of Funky Buddha are reported in the Beer segment and the results of operations of Schrader Cellars are reported in the Wine and Spirits segment, and each have been included in our consolidated results of operations from their respective date of acquisition.

Divestiture –
Canadian Divestiture:
In December 2016, we sold the Wine and Spirits’ Canadian wine business, which included Canadian wine brands such as Jackson-Triggs and Inniskillin, wineries, vineyards, offices, facilities and Wine Rack retail stores, at a transaction value of C$1.03 billion, or $775.1 million, (the “Canadian Divestiture”). We received cash proceeds of $570.3 million, net of outstanding debt and direct costs to sell of $194.9 million and $9.9 million, respectively. The following table summarizes the net gain recognized in connection with this divestiture:
(in millions)
 
Cash received from buyer
$
580.2

Net assets sold
(175.3
)
AOCI reclassification adjustments, primarily foreign currency translation
(122.5
)
Direct costs to sell
(9.9
)
Other
(10.1
)
Gain on sale of business
$
262.4


Additionally, our Wine and Spirits’ U.S. business recognized an impairment of $8.4 million for the fourth quarter of fiscal 2017 for trademarks associated with certain U.S. brands sold exclusively through the Canadian wine business for which we expect future sales of these brands to be minimal subsequent to the Canadian Divestiture. We have also recognized $15.2 million of other costs associated with the Canadian Divestiture, with $12.0 million recognized for the year ended February 28, 2017, primarily in connection with the evaluation of the merits of executing an initial public offering for a portion of our then-owned Canadian wine business, and $3.2 million recognized for the first quarter of fiscal 2018 in connection with the sale of the Canadian wine business. These amounts are included in selling, general and administrative expenses. In total, we have recognized $238.8 million of net gains associated with the Canadian Divestiture, with $242.0 million of net gains recognized for the year ended February 28, 2017, and $3.2 million of net losses recognized for the six months ended August 31, 2017, as follows:
(in millions)
 
Gain on sale of business
$
262.4

Impairment of trademarks
(8.4
)
Other net costs
(15.2
)
Net gain associated with the Canadian Divestiture and related activities
$
238.8



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8.    INTANGIBLE ASSETS:

The major components of intangible assets are as follows:
 
August 31, 2017
 
February 28, 2017
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Net
Carrying
Amount
(in millions)
 
 
 
 
 
 
 
Amortizable intangible assets
 
 
 
 
 
 
 
Customer relationships
$
89.9

 
$
46.9

 
$
89.1

 
$
48.6

Other
20.0

 
1.5

 
19.9

 
1.7

Total
$
109.9

 
48.4

 
$
109.0

 
50.3

 
 
 
 
 
 
 
 
Nonamortizable intangible assets
 
 
 
 
 
 
 
Trademarks
 
 
3,260.7

 
 
 
3,327.4

Total intangible assets
 
 
$
3,309.1

 
 
 
$
3,377.7


We did not incur costs to renew or extend the term of acquired intangible assets for the six months and three months ended August 31, 2017, and August 31, 2016. Net carrying amount represents the gross carrying value net of accumulated amortization. Amortization expense for intangible assets was $2.9 million and $6.3 million for the six months ended August 31, 2017, and August 31, 2016, respectively, and $1.5 million and $2.1 million for the three months ended August 31, 2017 and August 31, 2016, respectively. Estimated amortization expense for the remaining six months of fiscal 2018 and for each of the five succeeding fiscal years and thereafter is as follows:
(in millions)
 
2018
$
2.9

2019
$
5.9

2020
$
5.7

2021
$
5.3

2022
$
5.1

2023
$
3.2

Thereafter
$
20.3


9.    BORROWINGS:

Borrowings consist of the following:
 
August 31, 2017
 
February 28, 2017
 
Current
 
Long-term
 
Total
 
Total
(in millions)
 
 
 
 
 
 
 
Notes payable to banks
 
 
 
 
 
 
 
Senior Credit Facility – Revolving Credit Loans
$
458.0

 
$
—

 
$
458.0

 
$
231.0

Other
356.0

 
—

 
356.0

 
375.5

 
$
814.0

 
$
—

 
$
814.0

 
$
606.5

 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
Senior Credit Facility – Term Loans
$
78.7

 
$
2,408.7

 
$
2,487.4

 
$
3,787.5

Senior Notes
—

 
5,402.6

 
5,402.6

 
4,617.0

Other
17.8

 
225.6

 
243.4

 
227.1

 
$
96.5

 
$
8,036.9

 
$
8,133.4

 
$
8,631.6



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Senior credit facility –
The Company, CIH International S.à r.l., a wholly-owned indirect subsidiary of ours (“CIH”), CB International Finance S.à r.l., a wholly-owned indirect subsidiary of ours (“CB International”), CIH Holdings S.à r.l., a wholly-owned indirect subsidiary of ours (“CIHH”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders are parties to a credit agreement, as amended and restated (the “2016 Credit Agreement”).

In May 2017, we repaid the outstanding obligations under the U.S. Term A loan facility under the 2016 Credit Agreement primarily with a portion of the proceeds from the May 2017 Senior Notes (as defined below) and revolver borrowings under the 2016 Credit Agreement.

In July 2017, the Company, CIH, CB International (together with CIH, the “European Borrowers”), CIHH, the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2017 Restatement Agreement”) that amended and restated the 2016 Credit Agreement (as amended and restated by the 2017 Restatement Agreement, the “2017 Credit Agreement”). The principal changes effected by the 2017 Restatement Agreement were:

•
The refinance and increase of the existing U.S. Term A-1 loan facility with a new $500.0 million U.S. Term A-1 loan facility and extension of its maturity to July 14, 2024;
•
The creation of a new $2.0 billion European Term A loan facility into which the then-existing European Term A loan facility, European Term A-1 loan facility and European Term A-2 loan facility were combined;
•
The increase of the revolving credit facility by $350.0 million to $1.5 billion and extension of its maturity to July 14, 2022; and
•
The removal of CIHH as a borrower under the 2017 Restatement Agreement.

In addition, the Company and certain of our U.S. subsidiaries executed an amended and restated guarantee agreement which, among other things, released certain of our U.S. subsidiaries as guarantors of borrowings under the 2017 Credit Agreement. Furthermore, the European Borrowers executed an amended and restated cross-guarantee agreement which, among other things, removed CIHH as a party to the amended and restated cross-guarantee agreement. The U.S. obligations under the 2017 Credit Agreement are guaranteed by certain of our U.S. subsidiaries. The European obligations under the 2017 Credit Agreement are guaranteed by us and certain of our U.S. subsidiaries. The European obligations are cross-guaranteed by the European Borrowers whereby each guarantees the other’s obligations.

The 2017 Credit Agreement provides for aggregate credit facilities of $4,000.0 million, consisting of the following:
 
Amount
 
Maturity
(in millions)
 
 
 
Revolving Credit Facility (1) (2)
$
1,500.0

 
July 14, 2022
U.S. Term A-1 Facility (1) (3)
500.0

 
July 14, 2024
European Term A Facility (1) (3)
2,000.0

 
July 14, 2020
 
$
4,000.0

 
 
(1) 
Contractual interest rate varies based on our debt rating (as defined in the 2017 Credit Agreement) and is a function of LIBOR plus a margin, or the base rate plus a margin.
(2) 
Consists of a $190.0 million U.S. Revolving Credit Facility and a $1,310.0 million European Revolving Credit Facility. We are the borrower under the $1,500.0 million Revolving Credit Facility (inclusive of the U.S. Revolving Credit Facility and the European Revolving Credit Facility). CIH and/or CB International are additional borrowers under the European Revolving Credit Facility. Includes two sub-facilities for letters of credit of up to $200.0 million in the aggregate.
(3) 
We are the borrower under the U.S. Term A-1 loan facility. CIH is the borrower under the European Term A loan facility.

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The 2017 Credit Agreement also permits us to elect, subject to the willingness of existing or new lenders to fund such increase or term loans and other customary conditions, to increase the revolving credit commitments or add one or more tranches of additional term loans (the “Incremental Facilities”). The Incremental Facilities may be an unlimited amount so long as our leverage ratio, as defined and computed pursuant to the 2017 Credit Agreement, is no greater than 4.00 to 1.00 subject to certain limitations and for the period defined pursuant to the 2017 Credit Agreement.

We and our subsidiaries are subject to covenants that are contained in the 2017 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.

As of August 31, 2017, information with respect to borrowings under the 2017 Credit Agreement is as follows:
 
Revolving
Credit
Facility
 
U.S.
Term A-1
Facility (1)
 
European
Term A
Facility (1)
(in millions)
 
 
 
 
 
Outstanding borrowings
$
458.0

 
$
498.8

 
$
1,988.6

Interest rate
2.5
%
 
2.8
%
 
2.5
%
LIBOR margin
1.25
%
 
1.55
%
 
1.25
%
Outstanding letters of credit
$
13.7

 
 
 
 
Remaining borrowing capacity
$
1,028.3

 
 
 
 
(1) 
Outstanding term loan facility borrowings are net of unamortized debt issuance costs.

As of August 31, 2017, the required principal repayments of the term loans under the 2017 Credit Agreement (excluding unamortized debt issuance costs of $12.6 million) for the remaining six months of fiscal 2018 and for each of the five succeeding fiscal years and thereafter are as follows:
 
U.S.
Term A-1
Facility
 
European
Term A
Facility
 
Total
(in millions)
 
 
 
 
 
2018
$
1.3

 
$
25.0

 
$
26.3

2019
5.0

 
100.0

 
105.0

2020
5.0

 
100.0

 
105.0

2021
5.0

 
1,775.0

 
1,780.0

2022
5.0

 
—

 
5.0

2023
5.0

 
—

 
5.0

Thereafter
473.7

 
—

 
473.7

 
$
500.0

 
$
2,000.0

 
$
2,500.0


Interest rate swap contracts –
We have entered into interest rate swap agreements, which are designated as cash flow hedges for $200.0 million of our floating LIBOR rate debt. As a result of these hedges, we have fixed our interest rates on $200.0 million of our floating LIBOR rate debt at an average rate of 1.0% (exclusive of borrowing margins) from September 1, 2016, through July 1, 2020.


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Senior notes –
In May 2017, we issued $1,500.0 million aggregate principal amount of Senior Notes (the “May 2017 Senior Notes”). Proceeds from this offering, net of discount and debt issuance costs, were $1,482.5 million. The May 2017 Senior Notes consist of:
 
Date of
 
 
 
Maturity
 
Interest
Payments
 
Principal
(in millions)
 
 
 
 
 
2.70% Senior Notes (1) (2)
May 2022
 
May/Nov
 
$
500.0

3.50% Senior Notes (1) (3)
May 2027
 
May/Nov
 
$
500.0

4.50% Senior Notes (1) (4)
May 2047
 
May/Nov
 
$
500.0

(1) 
Senior unsecured obligations which rank equally in right of payment to all of our existing and future senior unsecured indebtedness. Guaranteed by certain of our U.S. subsidiaries on a senior unsecured basis.
(2) 
Redeemable, in whole or in part, at our option at any time prior to April 9, 2022, at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 15 basis points. On or after April 9, 2022, redeemable, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest.
(3) 
Redeemable, in whole or in part, at our option at any time prior to February 9, 2027, at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 20 basis points. On or after February 9, 2027, redeemable, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest.
(4) 
Redeemable, in whole or in part, at our option at any time prior to November 9, 2046, at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest and a make-whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 25 basis points. On or after November 9, 2046, redeemable, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount, plus accrued and unpaid interest.

In January 2008, we issued $700.0 million aggregate principal amount of 7.25% Senior Notes due May 2017 (the “January 2008 Senior Notes”) in exchange for notes originally issued in May 2007. In May 2017, we repaid the January 2008 Senior Notes with a portion of the proceeds from the May 2017 Senior Notes.

Debt payments –
As of August 31, 2017, the required principal repayments under long-term debt obligations (excluding unamortized debt issuance costs and unamortized discount of $55.1 million and $4.9 million, respectively) for the remaining six months of fiscal 2018 and for each of the five succeeding fiscal years and thereafter are as follows:
(in millions)
 
2018
$
33.7

2019
121.7

2020
513.9

2021
1,784.4

2022
505.9

2023
1,105.0

Thereafter
4,128.8

 
$
8,193.4


Accounts receivable securitization facilities –
In September 2016, we amended our prior trade accounts receivable securitization facility (as amended, the “CBI Facility”) for an additional 364-day term. 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

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CBI SPV, which is consolidated by us for financial reporting purposes. The CBI Facility provides borrowing capacity of $235.0 million up to $340.0 million structured to account for the seasonality of our business, subject to further limitations based upon various pre-agreed formulas.

Also, in September 2016, Crown Imports amended its prior trade accounts receivable securitization facility (as amended, the “Crown Facility”) for an additional 364-day term. 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 borrowing capacity of $120.0 million up to $210.0 million structured to account for the seasonality of Crown Imports’ business.

As of August 31, 2017, our accounts receivable securitization facilities are as follows:
 
Outstanding
Borrowings
 
Weighted
Average
Interest Rate
 
Remaining
Borrowing
Capacity
(in millions)
 
 
 
 
 
CBI Facility
$
215.4

 
2.1
%
 
$
84.6

Crown Facility
$
122.4

 
2.1
%
 
$
52.6


In September 2017, our existing accounts receivable securitization facilities were amended, resulting in the extension of each facility for an additional 364-day term. In addition, the newly amended CBI Facility provides borrowing capacity of $230.0 million up to $330.0 million and the newly amended Crown Facility provides borrowing capacity of $130.0 million up to $250.0 million. The remaining provisions of the amended facilities are substantially identical in all material respects to the prior facilities.

10.    INCOME TAXES:

Our effective tax rate for the six months ended August 31, 2017, and August 31, 2016, was 18.3% and 31.8%, respectively. Our effective tax rate for the three months ended August 31, 2017, and August 31, 2016, was 20.4% and 31.7%, respectively.

For the six months and three months ended August 31, 2017, our effective tax rate was lower than the federal statutory rate of 35% primarily due to (i)  lower effective tax rates applicable to our foreign businesses, including our assertion regarding indefinitely reinvesting earnings of certain foreign subsidiaries, which was asserted in the third quarter of fiscal 2017, and (ii)  the recognition of the income tax effect of stock-based compensation awards in the income statement when the awards vest or are settled in connection with our March 1, 2017, adoption of the FASB’s amended share-based compensation guidance. For the six months and three months ended August 31, 2016, our effective tax rate was lower than the federal statutory rate primarily due to lower effective tax rates applicable to our foreign businesses.

11.    STOCKHOLDERS’ EQUITY:

In November 2016, our Board of Directors authorized the repurchase of up to $1.0 billion of our Class A Common Stock and Class B Convertible Common Stock (the “2017 Authorization”). The Board of Directors did not specify a date upon which this authorization would expire. Shares repurchased under the 2017 Authorization have become treasury shares.

For the six months ended August 31, 2017, we repurchased 73,129 shares of Class A Common Stock pursuant to the 2017 Authorization at an aggregate cost of $14.3 million through open market transactions.


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As of August 31, 2017, total shares repurchased under the 2017 Authorization are as follows:
 
 
 
Class A Common Shares
 
Repurchase Authorization
 
Dollar Value of Shares Repurchased
 
Number of Shares Repurchased
(in millions, except share data)
 
 
 
 
 
2017 Authorization
$
1,000.0

 
$
467.4

 
3,079,676

12.    NET INCOME PER COMMON SHARE ATTRIBUTABLE TO CBI:

For the six months and three months ended August 31, 2017, and August 31, 2016, net income 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 six months and three months ended August 31, 2017, and August 31, 2016, net income per common share – diluted for Class B Convertible Common Stock has been computed using the two-class method and does not assume conversion of Class B Convertible Common Stock into shares of Class A Common Stock.

The computation of basic and diluted net income per common share is as follows:
 
For the Six Months Ended
 
August 31, 2017
 
August 31, 2016
 
Common Stock
 
Common Stock
 
Class A
 
Class B
 
Class A
 
Class B
(in millions, except per share data)
 
 
 
 
 
 
 
Net income attributable to CBI allocated – basic
$
803.2

 
$
99.1

 
$
604.9

 
$
72.3

Conversion of Class B common shares into Class A common shares
99.1

 
—

 
72.3

 
—

Effect of stock-based awards on allocated net income
—

 
(2.4
)
 
—

 
(1.4
)
Net income attributable to CBI allocated – diluted
$
902.3

 
$
96.7

 
$
677.2

 
$
70.9

 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
171.821

 
23.341

 
177.001

 
23.353

Conversion of Class B common shares into Class A common shares
23.341

 
—

 
23.353

 
—

Stock-based awards, primarily stock options
6.037

 
—

 
5.154

 
—

Weighted average common shares outstanding – diluted
201.199

 
23.341

 
205.508

 
23.353

 
 
 
 
 
 
 
 
Net income per common share attributable to CBI – basic
$
4.67

 
$
4.24

 
$
3.42

 
$
3.10

Net income per common share attributable to CBI – diluted
$
4.48

 
$
4.14

 
$
3.30

 
$
3.04

 
 
 
 
 
 
 
 

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Table of Contents

 
For the Three Months Ended
 
August 31, 2017
 
August 31, 2016
 
Common Stock
 
Common Stock
 
Class A
 
Class B
 
Class A
 
Class B
(in millions, except per share data)
 
 
 
 
 
 
 
Net income attributable to CBI allocated – basic
$
444.7

 
$
54.8

 
$
320.7

 
$
38.2

Conversion of Class B common shares into Class A common shares
54.8

 
—

 
38.2

 
—

Effect of stock-based awards on allocated net income
—

 
(1.3
)
 
—

 
(0.7
)
Net income attributable to CBI allocated – diluted
$
499.5

 
$
53.5

 
$
358.9

 
$
37.5

 
 
 
 
 
 
 
 
Weighted average common shares outstanding – basic
172.087

 
23.338

 
177.460

 
23.353

Conversion of Class B common shares into Class A common shares
23.338

 
—

 
23.353

 
—

Stock-based awards, primarily stock options
5.921

 
—

 
4.837

 
—

Weighted average common shares outstanding – diluted
201.346

 
23.338

 
205.650

 
23.353

 
 
 
 
 
 
 
 
Net income per common share attributable to CBI – basic
$
2.58

 
$
2.35

 
$
1.81

 
$
1.64

Net income per common share attributable to CBI – diluted
$
2.48

 
$
2.29

 
$
1.75

 
$
1.61


13.    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 Six Months Ended August 31, 2017
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
902.3

Other comprehensive income (loss) attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net gains
$
253.5

 
$
(1.0
)
 
252.5

Reclassification adjustments
—

 
—

 
—

Net gain recognized in other comprehensive income
253.5

 
(1.0
)
 
252.5

Unrealized gain on cash flow hedges:
 
 
 
 
 
Net derivative gains
83.9

 
(23.9
)
 
60.0

Reclassification adjustments
(0.2
)
 
(0.1
)
 
(0.3
)
Net gain recognized in other comprehensive income
83.7

 
(24.0
)
 
59.7

Unrealized gain on AFS debt securities:
 
 
 
 
 
Net AFS debt securities gains
0.4

 
(0.2
)
 
0.2

Reclassification adjustments
—

 
—

 
—

Net gain recognized in other comprehensive income
0.4

 
(0.2
)
 
0.2

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

 
—

Reclassification adjustments
—

 
—

 
—

Net loss recognized in other comprehensive income
(0.1
)
 
0.1

 
—

Other comprehensive income attributable to CBI
$
337.5

 
$
(25.1
)
 
312.4

Comprehensive income attributable to CBI
 
 
 
 
$
1,214.7

 
 
 
 
 
 

18


Table of Contents

 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)
 
 
 
 
 
For the Six Months Ended August 31, 2016
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
677.2

Other comprehensive income (loss) attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net losses
$
(2.8
)
 
$
(1.7
)
 
(4.5
)
Reclassification adjustments
—

 
—

 
—

Net loss recognized in other comprehensive income
(2.8
)
 
(1.7
)
 
(4.5
)
Unrealized loss on cash flow hedges:
 
 
 
 
 
Net derivative losses
(3.1
)
 
2.6

 
(0.5
)
Reclassification adjustments
20.9

 
(6.7
)
 
14.2

Net gain recognized in other comprehensive income
17.8

 
(4.1
)
 
13.7

Unrealized gain on AFS debt securities:
 
 
 
 
 
Net AFS debt securities gains
0.2

 
0.1

 
0.3

Reclassification adjustments
—

 
—

 
—

Net gain recognized in other comprehensive income
0.2

 
0.1

 
0.3

Pension/postretirement adjustments:
 
 
 
 
 
Net actuarial losses
(0.6
)
 
0.2

 
(0.4
)
Reclassification adjustments
0.3

 
—

 
0.3

Net loss recognized in other comprehensive income
(0.3
)
 
0.2

 
(0.1
)
Other comprehensive income attributable to CBI
$
14.9

 
$
(5.5
)
 
9.4

Comprehensive income attributable to CBI
 
 
 
 
$
686.6

 
 
 
 
 
 
For the Three Months Ended August 31, 2017
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
499.5

Other comprehensive income (loss) attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net gains
$
104.8

 
$
(0.8
)
 
104.0

Reclassification adjustments
—

 
—

 
—

Net gain recognized in other comprehensive income
104.8

 
(0.8
)
 
104.0

Unrealized gain on cash flow hedges:
 
 
 
 
 
Net derivative gains
32.0

 
(8.6
)
 
23.4

Reclassification adjustments
(4.0
)
 
1.1

 
(2.9
)
Net gain recognized in other comprehensive income
28.0

 
(7.5
)
 
20.5

Unrealized gain on AFS debt securities:
 
 
 
 
 
Net AFS debt securities gains
0.7

 
(0.2
)
 
0.5

Reclassification adjustments
—

 
—

 
—

Net gain recognized in other comprehensive income
0.7

 
(0.2
)
 
0.5

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

 
—

Reclassification adjustments
(0.1
)
 
—

 
(0.1
)
Net loss recognized in other comprehensive income
(0.2
)
 
0.1

 
(0.1
)
Other comprehensive income attributable to CBI
$
133.3

 
$
(8.4
)
 
124.9

Comprehensive income attributable to CBI
 
 
 
 
$
624.4

 
 
 
 
 
 

19


Table of Contents

 
Before Tax
Amount
 
Tax (Expense)
Benefit
 
Net of Tax
Amount
(in millions)
 
 
 
 
 
For the Three Months Ended August 31, 2016
 
 
 
 
 
Net income attributable to CBI
 
 
 
 
$
358.9

Other comprehensive income attributable to CBI:
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
Net gains
$
4.6

 
$
0.1

 
4.7

Reclassification adjustments
—

 
—

 
—

Net gain recognized in other comprehensive income
4.6

 
0.1

 
4.7

Unrealized gain on cash flow hedges:
 
 
 
 
 
Net derivative gains
0.1

 
0.8

 
0.9

Reclassification adjustments
10.8

 
(3.3
)
 
7.5

Net gain recognized in other comprehensive income
10.9

 
(2.5
)
 
8.4

Unrealized gain on AFS debt securities:
 
 
 
 
 
Net AFS debt securities gains
0.1

 
0.1

 
0.2

Reclassification adjustments
—

 
—

 
—

Net gain recognized in other comprehensive income
0.1

 
0.1

 
0.2

Pension/postretirement adjustments:
 
 
 
 
 
Net actuarial gains
—

 
—

 
—

Reclassification adjustments
0.1

 
—

 
0.1

Net gain recognized in other comprehensive income
0.1

 
—

 
0.1

Other comprehensive income attributable to CBI
$