Constellation Brands Annual Report 2020

FY2020 Annual Report · Constellation Brands

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F I S C A L Y E A R 2 0 2 0 S U M M A R Y A N N U A L R E P O R T

W O RT H
R E AC H I N G
F O R

DEAR
SHAREHOLDERS

As we celebrate our 75th anniversary, the values established by our founder Marvin Sands centered around
people, integrity, quality, entrepreneurship, and customers continue to guide our actions and fuel our success.
In ﬁscal 2020, Constellation Brands delivered another strong performance that generated record cash
ﬂow, enabling our company to reduce outstanding debt by $1.4 billion and return more than $600 million
to shareholders in dividends and share repurchases. As we enter a new year, we continue to be optimistic
about our future and remain well-positioned for long-term, sustainable growth.

Our ambition remains unchanged. We are consumer-
obsessed and continue to focus on building industry-leading
brands people love. This relentless pursuit of our mission has
driven our success since our company’s inception and will
continue fueling our growth in the years ahead.

As part of our strategy, we continue to evolve our portfolio to
align with consumer-led premiumization trends and
offer a collection of higher-end brands that meet consumers’
needs. We leverage our consumer-obsessed culture to fuel
creative innovation and build a pipeline of products with
the potential to become our big brands of tomorrow. Our
commercial teams work tirelessly alongside our distributor
and retailer partners to deliver world-class execution
at retail. And our production teams in the U.S., Mexico,
Italy, and New Zealand continue to drive operational
excellence by delivering the highest quality products in a
highly efﬁcient and sustainable manner, to the right markets,
in the right quantities, at the right time.

For the third consecutive year, Constellation Brands was the
fastest growing large CPG company(1) in the U.S. and
a top contributor of dollar sales growth at retail
for beverage alcohol.(2) Our beer business, led by our
iconic Corona and Modelo brand families, reinforced its

FASTEST GROWING L ARGE CPG COMPANY

For the third consecutive year,
Constellation Brands was the fastest
growing large CPG company(1)
and continues to be a top contributor
for dollar sales growth at retail
for beverage alcohol.(2)

#1 IMPORTED BEER BR AND FAMILY

Our ﬂagship Corona brand family
remains the #1 imported beer brand
family in the U.S.(3)

#4 BEER BR AND OVER ALL IN THE U.S.

Modelo Especial is now the #4 brand
overall and the best-selling beer in
Chicago, Nevada and California, where
sales are greater than the top two domestic
premium light beers combined.(3)

Constellation Brands, Inc. FY 2020 Summary Annual Report

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position as a leader in the U.S. beer market.(3) Our wine and spirits consumer-led premiumization strategy
continued to gain momentum, with our higher-end power brands, including Kim Crawford, Meiomi, and The
Prisoner brand family, outperforming the U.S. wine category.(4) And, with strong leadership at the
helm, we believe Canopy Growth remains best-positioned to win long-term as the global cannabis market evolves.(5)

$4 MILLION IN COVID 19 RELIEF

Without a doubt, the foundation for our success is our people. I am
extremely proud of not only what our team has accomplished, but
how they’ve done it. Over the years, we’ve built a culture that drives
superior results the right way, never losing sight of our broader
responsibilities to also care for our communities and environment. Our
increased focus on corporate social responsibility and COVID-19
efforts are recent examples. Social distancing and safety measures
required many businesses such as restaurants and bars to temporarily
close, resulting in millions of people without work. We felt it was
important to support those that have supported our brands and
served our customers and communities throughout the years, so
Constellation and our family of brands contributed almost $4
million to help industry partners and communities most in need during the health crisis. We hope our contributions
are helping to pave a path of recovery. You can learn more about our speciﬁc efforts in our company proﬁle at
https://companyproﬁle.cbrands.com/2020.

When the COVID-19 health crisis
overtook day-to-day life, our company,
employees and family of brands
contributed a total of almost $4 million
dollars to help industry partners and
communities most in need during
the health crisis.

As we go through this period of uncertainty, the fundamentals of our business remain strong, our brands remain
healthy, and we remain committed to our proven strategy focused on long-term, proﬁtable, and sustainable
growth. Few companies have achieved the level of success we’ve realized over the years. I want to thank our

employees, partners, and shareholders for your
continued conﬁdence and support as we press
forward to deliver what’s next.

Bill Newlands

President & CEO

(1) Source: IRI data for multi-outlet and convenience (MULO+C). IRI Consulting & BCG analysis. Extra Small = <$100M, Small = <$1B, Medium = $1B-$5.5B, Large >$5.5B

(2) Source: IRI, Total U.S. Multi-Outlet + Convenience; reﬂects growth, 52 weeks ending February 23, 2020 against the comparable prior year period; National Alcohol Beverage
Control Association (NABCA), 12 months ending February 2020; TBA = Total Beverage Alcohol

(3) Source: IRI, Total U.S. Multi-Outlet + Convenience for the 52 weeks ending February 23, 2020

(4) Source: IRI, Total U.S. Multi-Outlet + Convenience, 52 weeks ending February 23, 2020; higher-end wine deﬁned as >$11 per bottle at retail for table wine and >$13 for sparkling wine

(5) Source: Canopy Growth third quarter ﬁscal 2020 company information

Constellation Brands, Inc. FY 2020 Summary Annual Report

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FISCAL 2020 HIGHLIGHTS

A DECADE OF
SUPERIOR
PERFORMANCE

TOTAL NET SALES GROWTH FISCAL 2010  FISCAL 2020

$10B

$8B

$6B

$4B

$2B

FISCAL 2010

FISCAL 2020

$600M $1.4B

~$2.6B

TO SHAREHOLDERS

Returned over $600 million
to shareholders in the form of
dividends and share repurchases.

REDUCTION IN DEBT

Reduced debt to our targeted
leverage range.

OPERATING CASH FLOW

Reported record operating
cash ﬂ ow of almost $2.6 billion
for ﬁ scal 2020.

Constellation Brands, Inc. FY 2020 Summary Annual Report

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

FORM 10-K

Table of Contents

(Mark One)

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

For the fiscal year ended February 29, 2020

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

For the transition period from to

Commission file number 001-08495

CONSTELLATION BRANDS, INC.
(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

Delaware

16-0716709

207 High Point Drive, Building 100, Victor, New York 14564

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code (585) 678-7100

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

Title of Each Class
Class A Common Stock
Class B Common Stock

Trading Symbol(s)
STZ
STZ.B

Name of Each Exchange on Which Registered
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit such files). Yes

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
Non-accelerated filer

Accelerated filer
Smaller reporting company
Emerging growth company

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the
closing sales prices of the registrant’s Class A and Class B Common Stock as reported on the New York Stock Exchange as of the
last business day of the registrant’s most recently completed second fiscal quarter was $32,806,810,830.

The number of shares outstanding with respect to each of the classes of common stock of Constellation Brands, Inc., as of
April 15, 2020, is set forth below:

Class

Class A Common Stock, par value $.01 per share

Class B Common Stock, par value $.01 per share

Class 1 Common Stock, par value $.01 per share

Number of Shares Outstanding

167,852,917

23,293,136

1,694,803

The Proxy Statement of Constellation Brands, Inc. to be issued for the Annual Meeting of Stockholders which is expected to be
held July 21, 2020 is incorporated by reference in Part III to the extent described therein.

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART I
Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Item 9.

Item 9A.

Item 9B.

PART III

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

PART IV

Item 15.

Item 16.

Financial Statements and Supplementary Data

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information

Directors, Executive Officers, and Corporate Governance

Executive Compensation

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accounting Fees and Services

Exhibits, Financial Statement Schedules

Form 10-K Summary

SIGNATURES

NA = Not Applicable

Page

122

123

124

125

133

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our
control, which could cause actual results to differ materially from those set forth in, or implied by, such
forward-looking statements. All statements other than statements of historical fact included in this Annual
Report on Form 10-K are forward-looking statements, including without limitation:

•
•

The statements regarding the current global COVID-19 pandemic.
The statements under Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” regarding:

our business strategy, future operations, future financial position, future net sales and
expected volume trends, expected effective tax rates and anticipated tax liabilities, prospects,
plans, and objectives of management;
information concerning expected or potential actions of third parties, including potential
changes to international trade agreements, tariffs, taxes, and other governmental rules and
regulations;
information concerning the future expected balance of supply and demand for our products;
timing and source of funds for operating activities and Canopy warrant exercises, if any;
the manner, timing, and duration of the share repurchase program and source of funds for
share repurchases; and
the amount and timing of future dividends.

•

The statements regarding our beer expansion, construction, and optimization activities, including
anticipated costs and timeframes for completion.
The statements regarding:

the volatility of the fair value of our investments in Canopy measured at fair value;
our activities surrounding our investments in Canopy;
the time to return to our targeted leverage ratio;
the New November 2018 Canopy Warrants; and
our future ownership level in Canopy and our future share of Canopy’s reported earnings and
losses.

The statements regarding the New Wine and Spirits Transactions and the Other Wine and Spirits
Transactions, including expected form and amount of consideration, amount and use of expected
proceeds, estimated remaining costs, and any expected restructuring charge.
The statements regarding Canopy’s transaction with Acreage.

When used in this Annual Report on Form 10-K, the words “anticipate,” “intend,” “expect,” and similar
expressions are intended to identify forward-looking statements, although not all forward-looking statements
contain such identifying words. All forward-looking statements speak only as of the date of this Annual Report
on Form 10-K. We undertake no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to
be correct. In addition to the risks and uncertainties of ordinary business operations and conditions in the
general economy and markets in which we compete, our forward-looking statements contained in this Annual
Report on Form 10-K are also subject to the risk and uncertainty that:

•

the duration and impact of the COVID-19 pandemic, including but not limited to the closure of non-
essential businesses, which may include our manufacturing facilities, and other associated
governmental containment actions, may vary from our current expectations;
the actual balance of supply and demand for our products will vary from current expectations due
to, among other reasons, actual raw material supply, actual shipments to distributors, and actual
consumer demand;
the actual demand, net sales, and volume trends for our products will vary from current
expectations due to, among other reasons, actual shipments to distributors, and actual consumer
demand;
the amount, timing, and source of funds for any share repurchases or Canopy warrant exercises, if
any, may vary due to market conditions; our cash and debt position; the impact of the beer

operations expansion activities; the impact of our investments in Canopy; any future exercise of
Canopy warrants; the expected impacts of the New Wine and Spirits Transactions, and the Other
Wine and Spirits Transactions; and other factors as determined by management from time to time;
the amount and timing of future dividends may differ from our current expectations if our ability to
use cash flow to fund dividends is affected by unanticipated increases in total net debt, we are
unable to generate cash flow at anticipated levels, or we fail to generate expected earnings;
the fair value of our investments in Canopy may vary due to market and economic conditions in
Canopy’s markets and business locations;
accuracy of management’s projections relating to the Canopy investment may vary from
management’s current expectations due to Canopy’s actual results of operations and market and
economic conditions;
the timeframe and actual costs associated with the beer operations expansion activities may vary
from management’s current expectations due to market conditions, our cash and debt position,
receipt of required regulatory approvals by the expected dates and on the expected terms, and
other factors as determined by management;
any consummation of the New Wine and Spirits Transactions, or the Other Wine and Spirits
Transactions, and any actual date of consummation of any of them may vary from our current
expectations; the actual restructuring charge, if any, will vary based on management’s final plans;
the amount of additional loss, if any, on the future write-down of assets held for sale will vary based
on the form of consideration, amount of consideration actually received, and future brand
performance;
any impact of U.S. federal laws on the transaction between Acreage and Canopy or upon the
implementation of that transaction, or the impact of the Acreage Transaction upon our future
ownership level in Canopy or our future share of Canopy’s reported earnings and losses, may vary
from management’s current expectations; and
the time to return to our targeted leverage ratio may vary from management’s current expectations
due to market conditions, our ability to generate cash flow at expected levels and our ability to
generate expected earnings.

•

The New Wine and Spirits Transactions are subject to the satisfaction of certain closing conditions,

including receipt of required regulatory clearances and governmental approvals. The Nobilo Transaction is also
conditioned on completion of the Revised Wine and Spirits Transaction. Additional important factors that could
cause actual results to differ materially from those set forth in or implied by our forward-looking statements
contained in this Annual Report on Form 10-K are those described in Item 1A “Risk Factors” and elsewhere in
this report and in our other filings with the Securities and Exchange Commission.

Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to

Constellation Brands, Inc. and its subsidiaries. All references to “net sales” refer to gross sales less
promotions, returns and allowances, and excise taxes consistent with the Company’s method of classification.
All references to “Fiscal 2020,” “Fiscal 2019,” and “Fiscal 2018” refer to the Company’s fiscal year ended the
last day of February of the indicated year. All references to “Fiscal 2021” refer to our fiscal year ending
February 28, 2021. All references to “$” are to U.S. dollars, all references to “C$” are to Canadian dollars, all
references to “MXN$” are to Mexican pesos, and all references to “A$” are to Australian dollars. Unless
otherwise defined herein, refer to the Notes to the Consolidated Financial Statements under Item 8 of this
Annual Report on Form 10-K for the definition of capitalized terms used herein.

Market positions and industry data discussed in this Annual Report on Form 10-K are as of calendar
2019 and have been obtained or derived from industry and government publications and our estimates. The
industry and government publications include: Beer Marketers Insights; Beverage Information Group; Growers
Network; Impact Databank Review and Forecast; International Wine and Spirits Research (IWSR); IRI; Beer
Institute; and National Alcohol Beverage Control Association. We have not independently verified the data from
the industry and government publications. Unless otherwise noted, all references to market positions are
based on equivalent unit volume.

PART I

ITEM 1. BUSINESS

ITEM 1. BUSINESS
Introduction

We are an international producer and marketer of beer, wine, and spirits with operations in the

U.S., Mexico, New Zealand, and Italy with powerful, consumer-connected, high-quality brands like Corona
Extra, Modelo Especial, Robert Mondavi, Kim Crawford, Meiomi, and SVEDKA Vodka. In the U.S. market,
we are one of the top growth contributors at retail among beverage alcohol suppliers. In the U.S. beer
market, we are the third-largest beer company and leader in the high-end. We are a leading, higher-end
wine and spirits company in the U.S. market. Many of our products are recognized as leaders in their
respective categories. This, combined with our strong market positions, makes us a supplier of choice to
many of our customers, who include wholesale distributors, retailers, and on-premise locations.

Our mission is to build brands that people love because they are Worth Reaching For. It’s worth

our dedication, hard work, and the bold calculated risks we take to deliver more for our consumers, trade
partners, shareholders, and communities in which we live and work. It’s what has made us one of the
fastest-growing large CPG companies in the U.S. at retail, and it drives our pursuit to deliver what’s next.

Our key values are:
•
•
•
•
•

people;
customer focus;
entrepreneurship;
quality; and
integrity.

The Company is a Delaware corporation incorporated on December 4, 1972, as the successor to a

business founded in 1945. We have approximately 9,000 employees located primarily in the U.S. and
Mexico, with our corporate headquarters located in Victor, New York. We conduct our business through
entities we wholly own as well as through a variety of joint ventures and other entities.

Strategy

Our overall strategy is to drive industry-leading growth, build unrivaled shareholder value, and

shape the future of our industry by building brands that people love. We position our portfolio to benefit
from the consumer-led trend toward premiumization, which we believe will continue to result in faster
growth rates in the higher-end of the beer, wine, and spirits categories.

To capitalize on premiumization trends, become more competitive, and grow our business, we

have employed a strategy dedicated to a combination of organic growth and acquisitions, with a focus on
the higher-margin, higher-growth categories of the beverage alcohol industry. Key elements of our
strategy include:

•

•
•

•

leveraging our leading position in total beverage alcohol and our scale with wholesalers and
retailers to expand distribution of our product portfolio;
strengthening relationships with wholesalers and retailers by providing consumer and
beverage alcohol insights;
investing in brand building and innovation activities;
positioning ourselves for success with consumer-led products that identify, meet, and stay
ahead of evolving consumer trends and market dynamics;
realizing operating efficiencies through expanding and enhancing production capabilities and
maximizing asset utilization; and
developing employees to enhance performance in the marketplace.

In the beer business, we have solidified our position in the high-end of the U.S. beer market;
enhanced our margins, results of operations, and operating cash flow; and provided new avenues for
growth. We have made capital investments and acquisitions to increase beer production capacity to
support the growth of the business. Additionally, in an effort to more fully compete in growing sectors of

Constellation Brands, Inc. FY 2020 Form 10-K

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PART I

ITEM 1. BUSINESS

the high-end segment of the U.S. beer market, we have leveraged our innovation capabilities to introduce
new brands that align with consumer trends.

In our wine and spirits business, as part of our efforts to focus on higher-end brands, improve

margins, and create operating efficiencies, we have acquired higher-margin, higher-growth wine brands
and portfolios of brands, including Meiomi and Prisoner. We have strategically optimized the value of this
business through the divestiture of the Canadian wine business and the anticipated completion of the
transactions to divest a portion of our wine and spirits business, which include lower-margin, lower-
growth products. In addition, we have added higher-end brands to our spirits portfolio through the
acquisitions of Casa Noble tequila and High West craft whiskeys.

We complemented our total beverage alcohol strategy in an adjacent category by making
investments in Canopy, a world-leading, diversified cannabis company. These investments are consistent
with our long-term strategy to identify, meet, and stay ahead of evolving consumer trends and market
dynamics, and they represent a significant expansion of our strategic relationship to position Canopy as a
global leader in cannabis production, branding, intellectual property, and retailing.

For further information on our strategy, see Management’s Discussion and Analysis of Financial

Condition and Results of Operations under Item 7. of this Annual Report on Form 10-K (“MD&A”).

Investments, Acquisitions, and Divestitures

In connection with our strategy outlined above, during Fiscal 2020 we completed the following:

Transaction

Date

Strategic Contribution

Wine and Spirits Segment

Black Velvet Divestiture

November
2019

Divestiture of the lower-margin Black Velvet Canadian Whisky
business and the brands associated with the production facility.

Nelson’s Green Brier
acquisition

May
2019

Portfolio of award-winning, Tennessee-based craft bourbon and
whiskey products.

For further information about our significant Fiscal 2020, Fiscal 2019, and Fiscal 2018

transactions, refer to (i) MD&A and (ii) Notes 2 and 10 of the Notes to the Consolidated Financial
Statements under Item 8 of this Annual Report on Form 10-K (“Notes to the Financial Statements”).

Business Segments

We report our operating results in four segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate

Operations and Other, and (iv) Canopy. The business segments reflect how our operations are managed,
how resources are allocated, how operating performance is evaluated by senior management, and the
structure of our internal financial reporting. Amounts included below for the Canopy segment represent
100% of Canopy’s reported results on a two-month lag, prepared in accordance with U.S. GAAP, and
converted from Canadian dollars to U.S. dollars. Although we own less than 100% of the outstanding
shares of Canopy, 100% of the Canopy results are included in the information below and subsequently
eliminated in order to reconcile to our consolidated financial statements.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART I

ITEM 1. BUSINESS

We report net sales in three reportable segments, as follows:

(in millions)

Beer

Wine and Spirits:

Wine

Spirits

Total Wine and Spirits

Canopy

Consolidation and Eliminations

Consolidated Net Sales

Consolidated net sales are as follows:

For the Years Ended

February 29,
2020

February 28,
2019

5,615.9 $

5,202.1

2,367.5

360.1

2,727.6

290.2

(290.2)

2,532.5

381.4

2,913.9

48.6

(48.6)

8,343.5 $

8,116.0

Beer Segment
We are the #1 brewer and seller of imported beer in the U.S. beer market. We are also a leader in

the high-end segment of the U.S. beer market, which includes the imported, craft, and domestic super
premium beer and alternative beverage alcohol categories. We sell a number of brands in the high-end
categories, driven by our imported Mexican beer portfolio.

We have the exclusive right to import, market, and sell these Mexican brands in all 50 states of the

U.S.:

Corona Brand Family

Modelo Brand Family

Other Import Brands

Corona Extra
Corona Premier
Corona Familiar
Corona Light
Corona Refresca
Corona Hard Seltzer

Modelo Especial
Modelo Negra
Modelo Chelada

Pacifico
Victoria

In the U.S., we are the leading imported beer company and have eight of the 15 top-selling
imported beer brands. Modelo Especial is the best-selling imported beer, fourth best-selling beer overall,
and the fastest-growing major imported beer brand in the U.S. Corona Extra is the second largest
imported beer and seventh best-selling beer overall in the U.S.

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PART I

ITEM 1. BUSINESS

Since the June 2013 acquisition of the imported beer business, we have more than tripled our

production capacity in Mexico from 10 million to approximately 34 million hectoliters. Our current
production capacity provides us the opportunity to further expand our leadership position in the high-end
segment of the U.S. beer market by increasing our investment behind on-trend innovation. As part of
these efforts, in Fiscal 2019 we successfully introduced Corona Premier, a lower-calorie, lower-
carbohydrate product offering, which has become one of the top growth contributors in the high-end
segment of the U.S. beer market. During Fiscal 2020, we launched Corona Refresca and in early Fiscal
2021 we launched Corona Hard Seltzer. The national launches of Corona Refresca and Corona Hard
Seltzer are part of efforts to capitalize on the growth of the high-end alternative beverage alcohol
category. Additionally, we are continuing efforts focused on increasing sales distribution of products in
can, draft, single-serve, and larger package size formats.

Expansion and construction efforts continue under our Mexico Beer Expansion Projects. Since the

June 2013 acquisition of the imported beer business, we have invested approximately $4 billion for the
Mexico Beer Expansion Projects, with approximately $520 million during Fiscal 2020. To align with our
anticipated future growth expectations, we are targeting an additional five million hectoliters of
production capacity expansion activities to be completed at the Obregon Brewery and we are exploring
options to add further capacity in Mexico to meet our long-term needs.

In March 2020, we sold the Ballast Point craft beer business, including a number of its associated

production facilities and brewpubs. This divestiture is consistent with our strategic focus on our high-
performing import portfolio and upcoming new product introductions. For additional information
regarding the Ballast Point Transaction, refer to “Recent Developments” in MD&A and Note 2 of the Notes
to the Financial Statements.

Wine and Spirits Segment
We are a leading, higher-end wine and spirits company in the U.S. market, with a portfolio that

includes higher-margin, higher-growth wine and spirits brands. Our wine portfolio is supported by grapes
purchased from independent growers, primarily in the U.S., New Zealand, and Chile, and vineyard
holdings in the U.S., New Zealand, and Italy. Our wine produced in the U.S., New Zealand, and Italy is
primarily marketed in the U.S. In addition, we export our wine products to Canada and other major world
markets. Our spirits offerings include SVEDKA Vodka, which is imported from Sweden and is the largest
imported vodka brand in the U.S. Our higher-end spirits brands include Casa Noble tequila and High West
craft whiskeys.

In the U.S., we have 16 of the 100 top-selling wine brands. Some of our well-known wine and
spirits brands and portfolio of brands, sold in the U.S., which comprised our Fiscal 2020 U.S. Power
Brands (“Power Brands”), included:

Wine Brands

Wine Portfolio
of Brands

Spirits Brands

7 Moons

Auros

Drylands

SIMI

Charles Smith

Casa Noble

Kim Crawford

Spoken Barrel

Prisoner

High West

Champagne Palmer & Co

Meiomi

Robert Mondavi

Mi CAMPO

Cooper & Thief

Crafters Union

Cuvée Sauvage

Mount Veeder
Nobilo (1)
Ruffino

Schrader

Nelson’s Green Brier

SVEDKA

The Real McCoy

(1) See “Recent Developments” in MD&A and Note 2 of the Notes to the Financial Statements.

We dedicate a large share of sales and marketing resources to our Power Brands as they

represent a majority of our U.S. wine and spirits revenue and profitability, and generally hold strong
positions in their respective price categories.

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We have been increasing resources in support of on-trend product innovation as we believe this is
one of the key drivers of overall beverage alcohol category growth. In wine, we have launched varietal line
extensions behind many of our Power Brands, such as Bourbon Barrel Aged Robert Mondavi Private
Selection and Meiomi Rosé, and we have introduced newer brands like Derange, Spoken Barrel, Cooper &
Thief, and Crafters Union wine in a can. In spirits, we have introduced Mi CAMPO tequila.

In connection with our efforts to increase focus on higher-margin, higher-growth brands, in
April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business,
including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards,
offices, and facilities.

In December 2019, we agreed to revise and supersede the Wine and Spirits Transaction. The

We are pursuing other opportunities to divest the Paul Masson Grande Amber Brandy brand and

concentrate business excluded from the Revised Wine and Spirits Transaction to companies with more
aligned business strategies.

For further information about these transactions, refer to “Recent Developments” in MD&A and

Note 2 of the Notes to the Financial Statements.

Corporate Operations and Other
The Corporate Operations and Other segment includes traditional corporate-related items

including costs of executive management, corporate development, corporate finance, corporate growth
and strategy, human resources, internal audit, investor relations, legal, public relations, and information
technology, as well as our investments made through our corporate venture capital function.

Further information regarding net sales and operating income (loss) of each of our business
segments and information regarding geographic areas is set forth in Note 23 of the Notes to the Financial
Statements.

Marketing and Distribution

To focus on their respective product categories, build brand equity, and increase sales, our
segments employ full-time, in-house marketing, sales, and customer service functions. These functions
engage in a range of marketing activities and strategies, including market research, consumer and trade
advertising, price promotions, point-of-sale materials, event sponsorship, on-premise promotions, and
public relations. Where opportunities exist, particularly with national accounts in the U.S., we leverage
our sales and marketing skills across the organization.

In the U.S., our products are primarily distributed by wholesale distributors, with generally
separate distribution networks utilized for (i) our beer portfolio and (ii) our wine and spirits portfolio, as
well as state alcohol beverage control agencies. As is the case with all other beverage alcohol companies,
products sold through these agencies are subject to obtaining and maintaining listings to sell our
products in that agency’s state. State governments can affect prices paid by consumers of our products

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through the imposition of taxes or, in states in which the government acts as the distributor of our
products through an alcohol beverage control agency, by directly setting the retail prices.

Trademarks and Distribution Agreements

Trademarks are an important aspect of our business. We sell products under a number of
trademarks, which we own or use under license. Throughout our segments, we also have various
licenses and distribution agreements for the sale, or the production and sale, of our products, and
products of third parties. These licenses and distribution agreements have varying terms and durations.

Within the Beer segment, we have an exclusive sub-license to use trademarks related to our

Mexican beer brands in the U.S. This sub-license agreement is perpetual. Prior to our June 2013
acquisition of the imported beer business, Crown Imports had exclusive importation agreements with the
suppliers of certain imported beer products and had an exclusive renewable sub-license to use certain
trademarks related to the imported beer brands in the U.S.

Competition

The beverage alcohol industry is highly competitive. We compete on the basis of quality, price,

brand recognition, and distribution strength. Our beverage alcohol products compete with other alcoholic
and non-alcoholic beverages for consumer purchases, as well as shelf space in retail stores, restaurant
presence, and wholesaler attention. We compete with numerous multinational producers and distributors
of beverage alcohol products, some of which have greater resources than we do. Our principal
competitors include:

Beer

Wine

Anheuser-Busch InBev, Molson Coors, Heineken, The Boston Beer Company, Mark Anthony

E. & J. Gallo Winery, The Wine Group, Trinchero Family Estates, Treasury Wine Estates, Ste.
Michelle Wine Estates, Deutsch Family Wine & Spirits

Spirits

Diageo, Beam Suntory, Brown-Forman, Sazerac Company, Pernod Ricard

The Canopy Equity Method Investment makes up the Canopy segment. Canopy operates in the

recreational and medicinal cannabis market and they compete with numerous producers and distributors
of cannabis products. Canopy’s principal competitors include:

Canopy

Cronos Group, Aurora Cannabis, Aphria, Tilray

Production

Our current production capacity in Mexico at our Nava and Obregon breweries is approximately

34 million hectoliters. We are expanding the Obregon Brewery by an incremental five million hectoliters,
and based on our anticipated future growth expectations, we intend to expand our production capacity in
Mexico to approximately 44 million hectoliters in the future.

Our Daleville facility, located in Roanoke, Virginia, supports our craft and specialty business in

addition to our domestic innovation initiatives.

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In the U.S., we operate 17 wineries using many varieties of grapes grown principally in the Napa,

Sonoma, Monterey, and San Joaquin regions of California. We also operate three wineries in New Zealand
and six wineries in Italy. Grapes are crushed at most of our wineries and stored as wine until packaged
for sale under our brand names or sold in bulk. The inventories of wine are usually at their highest levels
during and after the crush of each year’s grape harvest and are reduced prior to the subsequent year’s
crush. Wine inventories are usually at their highest levels in September through November in the U.S.
and Italy, and in March through May in New Zealand.

We currently operate three facilities in the U.S. for the production of our High West whiskey brand.

The requirements for grains and bulk spirits used in the production of our spirits are purchased from
various suppliers.

Certain of our wines and spirits must be aged for multiple years. Therefore, our inventories of

wines and spirits may be larger in relation to sales and total assets than in many other businesses.

Sources and Availability of Production Materials

The principal components in the
production of our Mexican and craft beer brands
include water; agricultural products, such as
yeast and grains; and packaging materials,
which include glass, aluminum, and cardboard.

For our Mexican beer brands, packaging
materials represent the largest cost component of
production, with glass bottles representing the
largest cost component of our packaging
materials.

For Fiscal 2020, the package format mix of
our Mexican beer volume sold in the U.S. was as
follows:

The Nava and Obregon breweries receive water originating from aquifers. We believe we have

adequate access to water to support the breweries’ on-going requirements, as well as future
requirements after the completion of planned expansion activities.

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ITEM 1. BUSINESS

As part of our efforts to solidify our beer glass sourcing strategy over the long-term, we formed
an equally-owned joint venture with Owens-Illinois, the world’s largest glass container manufacturer. In
December 2014, the joint venture acquired a state-of-the-art glass production plant that is located
adjacent to our Nava Brewery in Mexico. The glass plant currently has five operational glass furnaces
which supply approximately 55% of the total annual glass bottle supply for our Mexican beer brands. We
also have long-term glass supply agreements with other glass producers.

The principal components in the production of our wine and spirits products are agricultural

products, such as grapes and grain, and packaging materials, primarily glass.

Most of our annual grape requirements are satisfied by grower purchases from each year’s

harvest which normally begins in August and runs through October in the U.S. and Italy, and begins in
February and runs through May in New Zealand. We receive grapes from approximately 720 independent
growers in the U.S. and approximately 195 independent growers located primarily in New Zealand and
Chile. We enter into purchase agreements with a majority of these growers with pricing that generally
varies year-to-year and is largely based on then-current market prices.

As of February 29, 2020, we owned or leased approximately 19,700 acres of land and vineyards,

either fully bearing or under development, in the U.S., New Zealand, and Italy. This acreage supplies only
a small percentage of our overall total grape needs for wine production. However, most of this acreage is
used to supply a large portion of the grapes used for the production of certain of our higher-end wines.
We continue to consider the purchase or lease of additional vineyards, and additional land for vineyard
plantings, to supplement our grape supply.

We believe that we have adequate sources of grape supplies to meet our sales expectations.
However, when demand for certain wine products exceeds expectations, we look to source the extra
requirements from the bulk wine markets around the world.

The distilled spirits manufactured and imported by us require various agricultural products,

neutral grain spirits, and bulk spirits, which we fulfill through purchases from various sources by
contractual arrangement and through purchases on the open market. We believe that adequate supplies
of the aforementioned products are available at the present time.

We utilize glass and polyethylene terephthalate (“PET”) bottles and other materials such as caps,
corks, capsules, labels, wine bags, and cardboard cartons in the bottling and packaging of our wine and
spirits products. After grape purchases, glass bottle costs are the largest component of our cost of
product sold. In the U.S., the glass bottle industry is highly concentrated with only a small number of
producers. We have traditionally obtained, and continue to obtain, our glass requirements from a limited
number of producers under long-term supply arrangements. Currently, one producer supplies most of
our glass container requirements for our U.S. operations. We have been able to satisfy our requirements
with respect to the foregoing and consider our sources of supply to be adequate at this time.

Government Regulation

We are subject to a range of laws and regulations in the countries in which we operate. Where we

produce products, we are subject to environmental laws and regulations, and may be required to obtain
environmental and alcohol beverage permits and licenses to operate our facilities. Where we market and
sell products, we may be subject to laws and regulations on brand registration, packaging and labeling,
distribution methods and relationships, pricing and price changes, sales promotions, advertising, and
public relations. We are also subject to rules and regulations relating to changes in officers or directors,
ownership, or control.

We believe we are in compliance in all material respects with all applicable governmental laws

and regulations in the countries in which we operate. We also believe that the cost of administration and

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ITEM 1. BUSINESS

compliance with, and liability under, such laws and regulations does not have, and is not expected to
have, a material adverse impact on our financial condition, results of operations, or cash flows.

Seasonality

The beverage alcohol industry is subject to seasonality in each major category. As a result, in

response to wholesaler and retailer demand which precedes consumer purchases, our beer sales are
typically highest during the first and second quarters of our fiscal year, which correspond to the Spring
and Summer periods in the U.S. Our wine and spirits Power Brand sales are typically highest during the
third quarter of our fiscal year, primarily due to seasonal holiday buying.

Employees

As of March 31, 2020, we had

approximately 9,000 employees. We may employ
additional workers during the grape crushing
seasons. Approximately 17% of our employees
are covered by collective bargaining agreements.
Collective bargaining agreements expiring within
one year are minimal. We consider our employee
relations generally to be good.

Employee geographic data is as follows:

Following the close of the anticipated Revised Wine and Spirits Transactions we are estimating a

reduction of approximately 700 employees.

Executive Officers of the Company

Information with respect to our current executive officers is as follows:

NAME

AGE

OFFICE OR POSITION HELD

William A. Newlands

Robert Sands

Richard Sands

James O. Bourdeau

Garth Hankinson

Robert Hanson

F. Paul Hetterich

Thomas M. Kane

Michael McGrew

Mallika Monteiro

James A. Sabia, Jr.

President and Chief Executive Officer

Executive Chairman of the Board

Executive Vice Chairman of the Board

Executive Vice President, General Counsel, and Secretary

Executive Vice President and Chief Financial Officer

Executive Vice President and President, Wine & Spirits Division

Executive Vice President and President, Beer Division

Executive Vice President and Chief Human Resources Officer

Executive Vice President and Chief Communications and CSR Officer

Executive Vice President and Chief Growth and Strategy Officer

Executive Vice President and Chief Marketing Officer

William A. Newlands is the President and Chief Executive Officer of the Company. He has served

as Chief Executive Officer of the Company and as a director since March 2019 and as President since
February 2018. He served as Chief Operating Officer from January 2017 through February 2019 and as
Executive Vice President of the Company from January 2015 until February 2018. From January 2016 to
January 2017 he performed the role of President, Wine & Spirits Division and from January 2015 through
January 2016 he performed the role of Chief Growth Officer. Mr. Newlands joined the Company in
January 2015. Prior to that he served from October 2011 until August 2014 as Senior Vice President and
President, North America of Beam Inc., as Senior Vice President and President, North America of Beam

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ITEM 1. BUSINESS

Global Spirits & Wine, Inc., from December 2010 to October 2011, and as Senior Vice President and
President, USA of Beam Global Spirits & Wine, Inc. from February 2008 to December 2010. Beam Inc., a
producer and seller of branded distilled spirits products, merged with a subsidiary of Suntory Holding
Limited, a Japanese company, in 2014. Prior to October 2011, Beam Global Spirits & Wine, Inc. was the
spirits operating segment of Fortune Brands, Inc., which was a leading consumer products company that
made and sold branded consumer products worldwide in the distilled spirits, home and security, and golf
markets.

Robert Sands is the Executive Chairman of the Board of the Company, having served in the role

since March 2019 and as a director since January 1990. Previously, he served as Chief Executive Officer of
the Company from July 2007 through February 2019. Mr. Sands also served as President from
December 2002 to February 2018, as Chief Operating Officer from December 2002 to July 2007, as Group
President from April 2000 through December 2002, as Chief Executive Officer, International from
December 1998 through April 2000, as Executive Vice President from October 1993 through April 2000, as
General Counsel from June 1986 through May 2000, and as Vice President from June 1990 through
October 1993. He is the brother of Richard Sands.

Richard Sands, Ph.D., is the Executive Vice Chairman of the Board of the Company, having served

in the role since March 2019. He previously served as Chairman of the Board from September 1999
through February 2019. He has been employed by the Company in various capacities since 1979. He has
served as a director since 1982. He served as Chief Executive Officer from October 1993 to July 2007, as
Executive Vice President from 1982 to May 1986, as President from May 1986 to December 2002, and as
Chief Operating Officer from May 1986 to October 1993. He is the brother of Robert Sands.

James O. Bourdeau is the Executive Vice President and General Counsel of the Company, having

served in the role since December 2017 and as the Company’s Secretary since April 2017. Prior to that, he
served as the Company’s Senior Vice President and General Counsel, Corporate Development, having
performed that role from September 2014 until December 2017. Before joining the Company in
September 2014, Mr. Bourdeau was an attorney with the law firm of Nixon Peabody LLP from July 2000
through September 2014, and a partner from February 2005 through September 2014. Mr. Bourdeau was
associated with another law firm from 1995 to 2000.

Garth Hankinson is the Executive Vice President and Chief Financial Officer of the Company,
having served in the role since January 2020. Prior to that, he served as the Company’s Senior Vice
President, Corporate Development, a position he had been in since February 2016, where he was
responsible for leading all of the Company’s financial planning, reporting, and analysis activities, as well
as all efforts related to mergers, acquisitions, ventures investments, and strategic alliances. From
October 2009 until February 2016, he served as the Vice President, Corporate Development of the
Company. From October 2007 until October 2009, Mr. Hankinson served as the Vice President, Business
Development for Constellation’s prior Canadian business, Constellation Brands Canada, Inc., which was a
Canadian subsidiary of the Company during that time. From March 2004 until October 2007, he served as
the Director of Corporate Development.

Robert Hanson is the Executive Vice President and President, Wine & Spirits Division of the
Company, having served in the role since June 2019. Prior to that, he served as Chief Executive Officer of
John Hardy Global Limited, a luxury jewelry brand, since August 2014. He served as Chief Executive
Officer and a Director of American Eagle Outfitters, Inc., a leading global specialty retailer of clothing,
accessories and personal care products from January 2012 to January 2014. He served Levi Strauss & Co.
from 1988 to 2011 in a variety of important leadership roles across multiple brands where he led cross-
functional teams, including merchandising, product development, multi-channel operations, marketing
and creative teams, in addition to a full support staff. Mr. Hanson’s roles at Levi’s included serving as
Global President of the Levi’s Brand from 2010 to 2011; President, Levi’s Strauss Americas/North
America from 2006 to 2010; President, Levi’s Brand U.S. from 2001 to 2006; and President/Vice President,
Levi’s Europe/Africa/Middle East from 1998 to 2001.

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ITEM 1. BUSINESS

F. Paul Hetterich is the Company’s Executive Vice President and President, Beer Division as well
as President of Crown Imports LLC, a wholly-owned subsidiary of the Company having performed these
roles since January 2016. He has been an Executive Vice President of the Company since June 2003. From
January 2015 through January 2016 he performed the role of Executive Vice President, Corporate
Development & Beer Operations. From June 2011 until January 2015 he served as Executive Vice
President, Business Development and Corporate Strategy, from July 2009 until June 2011 he served as
Executive Vice President, Business Development, Corporate Strategy and International, and from
June 2003 until July 2009 he served as Executive Vice President, Business Development and Corporate
Strategy. From April 2001 to June 2003 Mr. Hetterich served as the Company’s Senior Vice President,
Corporate Development. Prior to that, Mr. Hetterich held several increasingly senior positions in the
Company’s marketing and business development groups. Mr. Hetterich has been with the Company since
1986.

Thomas M. Kane is the Executive Vice President and Chief Human Resources Officer of the
Company, having served in the role since joining the Company in May 2013. Mr. Kane previously served as
Senior Vice President, Human Resources and Government Relations of Armstrong World Industries, Inc.,
a global producer of flooring products and ceiling systems, from February 2012 to May 2013, he served as
its Senior Vice President, Human Resources from August 2010 to February 2012 and served as its Chief
Compliance Officer from February 2011 to February 2012. Prior to that, Mr. Kane served as Global Vice
President, Human Resources for Black & Decker Power Tools, a manufacturer of power and hand tools,
from 2002 to 2010. From 1999 to 2002 Mr. Kane served as Global HR leader of GE Specialty Materials, a
large manufacturer of silicone products.

Michael McGrew is the Executive Vice President and Chief Communications and Corporate Social

Responsibility (“CSR”) Officer of the Company, having served in the role since April 2020. Prior to that,
since January 2019, he served as Senior Vice President, Corporate Communications, as Vice President,
Corporate Communications from January 2017 to January 2019, and as Vice President, Communications
and Brand Public Relations for Constellation’s beer division from March 2016 to January 2017. He joined
the Company in September 2014 as Senior Director, Communications and Brand Public Relations. Prior
that, since 2001 Mr. McGrew served in roles of increasing responsibility with W.W. Grainger, Inc., an
international provider of industrial supplies and equipment, including most recently as Senior Director,
Communications.

Mallika Monteiro is the Executive Vice President and Chief Growth and Strategy Officer of the

Company, having served in the role since October 2019. From October 2018 to October 2019 she served as
the Company's Senior Vice President and Chief Growth Officer, having joined Constellation in
October 2016 as Vice President, Beer Innovation. Prior to joining Constellation, from July 2014 to
September 2016, Ms. Monteiro was a Senior Marketing Director at Anheuser Busch InBev, a large
multinational brewing company. Prior to joining Anheuser Busch InBev, she served in roles of increasing
responsibility with Beam Suntory Inc., a producer and seller of branded distilled spirits products,
including as Senior Brand Manager - Vodka, from January 2012 to June 2014, Brand Manager - Cognac
from July 2009 to December 2011, and Associate Brand Manager - Jim Beam from July 2007 to
June 2009.

James A. Sabia, Jr. is the Executive Vice President and Chief Marketing Officer of the Company,
having served in the role since May 2018. Prior to that, Mr. Sabia was the Chief Marketing Officer of the
Company’s Beer Division, having performed that role from February 2009 through May 2018. From
February 2009 to June 2013, Mr. Sabia was employed by Crown Imports LLC (“Crown”), of which the
Company owned a 50% interest and was the Company’s beer business during that period. Effective
June 2013, the Company acquired the remaining 50% of Crown, which became a wholly-owned subsidiary
of the Company. Mr. Sabia originally joined the Company in August 2007 as Vice President, Marketing for
the Company’s spirits business, serving in that capacity until February 2009. Before that, Mr. Sabia was
with Molson Coors Brewing Company, a large international brewing company, from 1990 to 2007.

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Executive officers of the Company are generally chosen or elected to their positions annually and

hold office until the earlier of their removal or resignation or until their successors are chosen and
qualified.

Company Information

Our Internet website is https://www.cbrands.com. Our filings with the Securities and Exchange

Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, are accessible free of charge at https://www.cbrands.com
as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
The SEC maintains an Internet site that contains reports, proxy, and information statements, and other
information regarding issuers, such as ourselves, that file electronically with the SEC. The Internet
address of the SEC’s site is https://www.sec.gov.

We have adopted a Chief Executive Officer and Senior Financial Executive Code of Ethics that

specifically applies to our chief executive officer, our principal financial officer, and our controller, and is
available on our Internet site at https://www.cbrands.com/investors. This Chief Executive Officer and
Senior Financial Executive Code of Ethics meets the requirements as set forth in the Securities Exchange
Act of 1934, Item 406 of Regulation S-K. We also have adopted a Code of Business Conduct and Ethics
that applies to all employees, directors, and officers, including each person who is subject to the Chief
Executive Officer and Senior Financial Executive Code of Ethics. The Code of Business Conduct and Ethics
is available on our Internet website, together with our Global Code of Responsible Practices for Beverage
Alcohol Advertising and Marketing at https://www.cbrands.com/story/policies. Copies of these materials
are available in print to any shareholder who requests them. Shareholders should direct such requests in
writing to Investor Relations Department, Constellation Brands, Inc., 207 High Point Drive, Building 100,
Victor, New York 14564, or by telephoning our Investor Center at 1-888-922-2150.

Our Board of Directors Corporate Governance Guidelines and the Charters of the Board’s Audit
Committee, Human Resources Committee (which serves as the Board’s compensation committee) and
Corporate Governance Committee (which serves as the Board’s nominating committee) are accessible
on our Internet website at https://www.cbrands.com/investors. Amendments to, and waivers granted to
our directors and executive officers under our codes of ethics, if any, will be posted in this area of our
website.

The information regarding our website and its content is for your convenience only. The content of

our website is not deemed to be incorporated by reference in this report or filed with the SEC.

Constellation Brands, Inc. FY 2020 Form 10-K

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ITEM 1A. RISK FACTORS

In addition to information discussed elsewhere in this report, you should carefully consider the

following factors which could materially affect our business, liquidity, financial condition, and/or results of
operations. The risks described below are not the only risks we face. Additional factors not presently known to
us or that we currently deem to be immaterial may also have a material adverse effect on our business,
liquidity, financial condition, and/or results of operations in future periods.

Operational Risks

Pandemics, such as the current global COVID-19 virus, outbreaks of communicable infections or

diseases, or other public health concerns in the markets in which our consumers or employees live and/or in
which we or our distributors, retailers, and suppliers operate

Disease outbreaks and other public health conditions could result in disruptions and damage to

our business caused by potential negative consumer purchasing behavior as well as disruption to our
supply chains, production processes, and operations. Consumer purchasing behavior may be impacted by
reduced consumption by consumers who may not be able to leave home or otherwise shop in a normal
manner as a result of quarantines or other cancellations of public events and other opportunities to
purchase our products, from bar and restaurant closures, or from a reduction in consumer discretionary
income due to reduced or limited work and layoffs. Supply disruption may result from restrictions on the
ability of employees and others in the supply chain to travel and work, such as caused by quarantine or
individual illness, or which may result from border closures imposed by governments to deter the spread
of communicable infection or disease, or determinations by us or our suppliers or distributors to
temporarily suspend operations in affected areas, or other actions which restrict the ability to distribute
our products or which may otherwise negatively impact our ability to produce, bottle and ship our
product, for our distributors to distribute our products, or for our suppliers to provide us our raw
materials. Ports or channels of entry may be closed or operate at only a portion of capacity, or
transportation of product within a region or country may be limited, if workers are unable to report to
work due to travel restrictions or personal illness. Our operations and the operations of our suppliers
may become less efficient or otherwise become negatively impacted if our executive leaders or other
personnel critical to our operations are unable to work or if a significant percentage of the workforce is
unable to work or is required to work from home. Our cyber-security could be compromised if persons
who are forced to work from home do not maintain adequate information security. A prolonged
quarantine or border closure could result in temporary or longer-term disruptions of sales patterns,
consumption and trade patterns, supply chains, production processes, and operations. A widespread
health crisis, such as the COVID-19 pandemic, could negatively affect the economies and financial
markets of many countries resulting in a global economic downturn which could negatively impact
demand for our products and our ability to borrow money. Any of these events could have a material
adverse effect on our business, liquidity, financial condition, and/or results of operations.

International operations, worldwide and domestic economic trends and financial market conditions,
geopolitical uncertainty, or changes to international trade agreements and tariffs, import and excise duties,
other taxes, or other governmental rules and regulations

Our products are produced and sold in numerous countries, we have employees in various

countries, and we have production facilities currently in the U.S., Mexico, New Zealand, and Italy.

Risks associated with international operations, any of which could have a material adverse effect

on our business, liquidity, financial condition, and/or results of operations, include:

•
•

•

•
•

changes in local political, economic, social, and labor conditions;
potential disruption from socio-economic violence, including terrorism and drug-related
violence;
restrictions on foreign ownership and investments or on repatriation of cash earned in
countries outside the U.S.;
import and export requirements and border accessibility;
currency exchange rate fluctuations;

Constellation Brands, Inc. FY 2020 Form 10-K

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ITEM 1A. RISK FACTORS

•

a less developed and less certain legal and regulatory environment in some countries, which,
among other things, can create uncertainty regarding contract enforcement, intellectual
property rights, privacy obligations, real property rights, and liability issues; and
inadequate levels of compliance with applicable anti-bribery laws, including the Foreign
Corrupt Practices Act.

Unfavorable global or regional economic conditions, including economic slowdown and the
disruption, volatility and tightening of credit and capital markets, as well as unemployment, tax increases,
governmental spending cuts, or a return of high levels of inflation, could affect consumer spending
patterns and purchases of our products. These could also create or exacerbate credit issues, cash flow
issues, and other financial hardships for us and our suppliers, distributors, retailers, and consumers. The
inability of suppliers, distributors, and retailers to access liquidity could impact our ability to produce and
distribute our products.

We are also exposed to risks associated with interest rate fluctuations. We could experience
changes in our ability to manage fluctuations in interest rates and, accordingly, there can be no assurance
that we will be successful in reducing those risks.

We could also be affected by nationalization of our international operations, unstable
governments, unfamiliar or biased legal systems, intergovernmental disputes or animus against the
United States. Any determination that our operations or activities did not comply with applicable U.S. or
foreign laws or regulations could result in the imposition of fines and penalties, interruptions of business,
terminations of necessary licenses and permits, and other legal and equitable sanctions.

The U.S. and other countries in which we operate impose duties, excise taxes, and/or other taxes

on beverage alcohol products, and/or on certain raw materials used to produce our beverage alcohol
products, in varying amounts. The U.S. federal government or other governmental bodies may propose
changes to international trade agreements, tariffs, taxes, and other government rules and regulations.
Significant increases in import and excise duties or other taxes on, or that impact, beverage alcohol
products could have a material adverse effect on our business, liquidity, financial condition, and/or
results of operations. Any such tariffs, particularly on imports from Mexico and any retaliatory tariffs
imposed by the Mexican government, may have a material adverse effect on our results of operations,
including our sales and profitability.

In addition, federal, state, provincial, local, and foreign governmental agencies extensively

regulate the beverage alcohol products industry concerning such matters as licensing, warehousing,
trade and pricing practices, permitted and required labeling, advertising and relations with wholesalers
and retailers. Certain federal, state, or local regulations also require warning labels and signage. New or
revised regulations or increased licensing fees, requirements, or taxes could have a material adverse
effect on our business, liquidity, financial condition, and/or results of operations. Additionally, various
jurisdictions may seek to adopt significant additional product labeling or warning requirements or
limitations on the marketing or sale of our products because of what our products contain or allegations
that our products cause adverse health effects. If these types of requirements become applicable to one
or more of our major products under current or future environmental or health laws or regulations, they
may inhibit sales of such products.

These international, economic, and political uncertainties and regulatory changes could have a

material adverse effect on our business, liquidity, financial condition, and/or results of operations,
especially to the extent these matters, or the decisions, policies or economic strength of our suppliers
and distributors, affect our business, liquidity, financial condition, and/or results of operations.

Dependence on limited facilities for production of our Mexican beer brands, and expansion and

construction issues

We are dependent on our Nava and Obregon breweries as our sole sources of supply to fulfill our

Mexican beer brands product requirements, both now as well as for the near term.

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We are expanding our Obregon Brewery and our joint venture with Owens-Illinois expanded its

glass plant with an additional furnace having become operational in February 2020. These are multi-
million-dollar expansion activities, which could have the potential risk of completion delays and cost
overruns. Abandonment of our expansion and construction activities could have a material adverse effect
on our financial condition.

Expansion of current production facilities and construction of new production facilities are subject

to various regulatory and developmental risks, including but not limited to: (i) our ability to obtain timely
certificate authorizations, necessary approvals and permits from regulatory agencies and on terms that
are acceptable to us; (ii) potential changes in federal, state, and local statutes and regulations, including
environmental requirements, that prevent a project from proceeding or increase the anticipated cost of
the project; (iii) inability to acquire rights-of-way or land or water rights on a timely basis on terms that
are acceptable to us; (iv) inability to acquire the necessary energy supplies, including electricity, natural
gas, and diesel fuel; or (v) a temporary halt in construction activities due to COVID-19. Any of these events
could delay the expansion or construction of our production facilities. Recently, in a public consultation
process in Mexicali, Baja California, Mexico, voters voiced opposition to the construction of our Mexicali
Brewery. We are currently working with local authorities, government officials and members of the
community in Mexicali on next steps related to that brewery construction project and options elsewhere
in Mexico.

We may not be able to satisfy our product supply requirements for the Mexican beer brands in the
event of a significant disruption, partial destruction, or total destruction of the Nava or Obregon breweries
or the glass plant, or difficulty shipping raw materials and product into or out of the United States, or
temporary inability to produce our product due to closure or lower production levels of one or more of our
Mexican breweries as a result of COVID-19. Also, if the contemplated expansions of the Obregon Brewery
and the glass plant and construction of additional brewery capacity in Mexico are not completed by their
targeted completion dates, we may not be able to produce sufficient quantities of our Mexican beer to
satisfy our needs. Under such circumstances, we may be unable to obtain our Mexican beer at a
reasonable price from another source, if at all. A significant disruption at our Nava or Obregon breweries,
or the glass plant, even on a short-term basis, could impair our ability to produce and ship products to
market on a timely basis. Alternative facilities with sufficient capacity or capabilities may not readily be
available, may cost substantially more or may take a significant time to start production, any of which
could have a material adverse effect on our business, liquidity, financial condition, and/or results of
operations.

Operational disruptions or catastrophic loss to breweries, wineries, other production facilities, or

distribution systems

All of our Mexican beer brands product supply is currently produced at our breweries in Nava,

Coahuila, Mexico and Obregon, Sonora, Mexico. Many of the workers at these breweries are covered by
collective bargaining agreements. The glass plant currently has five operational glass furnaces which
supply approximately 55% of the total annual glass bottle supply for our Mexican beer brands. Several of
our vineyards and production and distribution facilities, including certain California wineries and our
planned Mexicali Brewery, are in areas prone to seismic activity. Additionally, we have various vineyards
and wineries in the state of California which has recently experienced wildfires and landslides.

If any of these or other of our properties and production facilities were to experience a significant
operational disruption or catastrophic loss, it could delay or disrupt production, shipments, and revenue,
and result in potentially significant expenses to repair or replace these properties. Also, our production
facilities are asset intensive. As our operations are concentrated in a limited number of production and
distribution facilities, we are more likely to experience a significant operational disruption or catastrophic
loss in any one location from acts of war or terrorism, fires, floods, earthquakes, hurricanes, pandemics,
labor strike, or other labor activities, cyber-attacks, and other attempts to penetrate our information
technology systems or the information technology used by our employees who work from home during
the COVID-19 pandemic, unavailability of raw or packaging materials, or other natural or man-made

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ITEM 1A. RISK FACTORS

events. If a significant operational disruption or catastrophic loss were to occur, we could breach
agreements, our reputation could be harmed, and our business, liquidity, financial condition, and/or
results of operations could be adversely affected due to higher maintenance charges, unexpected capital
spending, or product supply constraints.

Our insurance policies do not cover certain types of catastrophes and may not cover certain events

such as pandemics. Economic conditions and uncertainties in global markets may adversely affect the
cost and other terms upon which we are able to obtain property damage and business interruption
insurance. If our insurance coverage is adversely affected, or to the extent we have elected to self-insure,
we may be at greater risk that we may experience an adverse impact to our business, liquidity, financial
condition, and/or results of operations. If one or more significant uninsured or under-insured events
occur, we could suffer a major financial loss.

Supply of quality water, agricultural, and other raw materials, certain raw materials and packaging

materials purchased under short-term supply contracts, limited group of suppliers of glass bottles

The quality and quantity of water available for use is important to the supply of our agricultural
raw materials and our ability to operate our business. Water is a limited resource in many parts of the
world and if climate patterns change and droughts become more severe, there may be a scarcity of water
or poor water quality which may affect our production costs or impose capacity constraints. We are
dependent on sufficient amounts of quality water for operation of our breweries, our wineries, and our
distilleries, as well as to irrigate our vineyards and conduct our other operations. The suppliers of the
agricultural raw materials we purchase are also dependent upon sufficient supplies of quality water for
their vineyards and fields. If water available to our operations or the operations of our suppliers becomes
scarce or the quality of that water deteriorates, we may incur increased production costs or face
manufacturing constraints. In addition, water purification and waste treatment infrastructure limitations
could increase costs or constrain operation of our production facilities and vineyards. A substantial
reduction in water supplies could result in material losses of grape crops and vines or other crops, such
as barley or hops, which could lead to a shortage of our product supply.

We have substantial brewery operations in the country of Mexico, brewery operations in the states
of Texas, Virginia, and Florida and we currently have substantial wine operations in the state of California
as well. In the past, California had endured an extended period of drought and instituted restrictions on
water usage. A recurrence of severe drought conditions in California could have an adverse effect upon
those operations, which effect could become more significant depending upon actual future drought
conditions. Our Mexico brewery operations currently receive allocations of water sufficient for their
operations. Although we anticipate our operations will have adequate sources of water to support their
on-going requirements, there is no guarantee that the sources of water, methods of water delivery, or
water requirements will not change materially in the future.

Our breweries, the glass plant, our wineries, and our distilleries use a large volume of
agricultural and other raw materials to produce their products. These include corn starch and sugars,
malt, hops, fruits, yeast, and water for our breweries; soda ash and silica sand for the glass plant; grapes
and water for our wineries; and grain and water for our distilleries. Our breweries, wineries, and
distilleries all use large amounts of various packaging materials, including glass, aluminum, cardboard,
and other paper products. Our production facilities also use electricity, natural gas, and diesel fuel in
their operations. Certain raw materials and packaging materials are purchased under contracts of
varying maturities. The supply and price of raw materials, packaging materials, and energy can be
affected by many factors beyond our control, including market demand, global geopolitical events
(especially as to their impact on crude oil prices), droughts, and other weather conditions or natural or
man-made events, economic factors affecting growth decisions, inflation, plant diseases, and theft.

Our breweries, wineries, and distilleries are also dependent upon an adequate supply of glass

bottles. Glass bottle costs are one of our largest components of cost of product sold. We currently have a
small number of suppliers of glass bottles for our Mexican beer brands. In the U.S., glass bottles have
only a small number of producers. Currently, one producer supplies most of our glass container

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ITEM 1A. RISK FACTORS

requirements for our U.S. wine and spirits operations and two producers supply our glass bottles for our
craft beer.

To the extent any of the foregoing factors increases the costs of our finished products or lead to a
shortage of our product supply, we could experience a material adverse effect on our business, liquidity,
financial condition, and/or results of operations.

Reliance on wholesale distributors, major retailers, and government agencies
Local market structures and distribution channels vary worldwide. Within our primary market in

the U.S., we offer a range of beverage alcohol products across the beer, wine, and spirits categories, with
generally separate distribution networks utilized for our beer portfolio and our wine and spirits portfolio.
In the U.S., we sell our products principally to wholesalers for resale to retail outlets and directly to
government agencies, and we have entered into exclusive arrangements with certain wholesalers that
generate a large portion of our U.S. wine and spirits net sales. Wholesalers and retailers of our products
offer products which compete directly with our products for retail shelf space, promotional support and
consumer purchases, and wholesalers or retailers may give higher priority to products of our
competitors. The replacement or poor performance of our major wholesalers, retailers, or government
agencies could result in temporary or longer-term sales disruptions or could have a material adverse
effect on our business, liquidity, financial condition, and/or results of operations.

Reliance upon complex information systems and third party global networks, cyber-attacks, and design

and ongoing implementation of our new global enterprise resource planning system (“ERP”)

We depend on information technology to enable us to operate efficiently and interface with
customers and suppliers, as well as maintain financial accuracy and efficiency, and effect accurate and
timely governmental reporting. If we do not allocate and effectively manage the resources necessary to
build and sustain the proper technology infrastructure, we could be subject to transaction errors,
processing inefficiencies, the loss of customers, business disruptions, the loss of or damage to
intellectual property through security breach, or penalties associated with the failure to timely file
governmental reports. We recognize that many groups on a world-wide basis have experienced increases
in security breaches, cyber-attacks, and other hacking activities such as denial of service, malware, and
ransomware. As with all large information technology systems, our systems could be penetrated by
increasingly sophisticated outside parties intent on extracting confidential or proprietary information,
corrupting our information, disrupting our business processes, or engaging in the unauthorized use of
strategic information about us or our employees, customers, or consumers. Such unauthorized access
could disrupt our operations and could result in the loss of assets or revenues, litigation, remediation
costs, damage to our reputation, or the failure by us to retain or attract customers following such an
event.

We have outsourced various functions to third-party service providers and may outsource other

functions in the future. We rely on those third-party service providers to provide services on a timely and
effective basis. However, we do not ultimately control their performance. Their failure to perform as
expected or as required by contract could result in significant disruptions and costs to our operations.

We are in the process of a multi-year implementation of a new ERP system. On December 1, 2019,

we replaced the portion of our ERP system servicing our Mexican operations. The ERP system for the
balance of our business is scheduled to be replaced in Fiscal 2022. We are designing the ERP system to
accurately maintain our financial records, enhance operational functionality, and provide timely
information to our management team related to the operation of the business. We expect the
implementation process will continue to require the investment of significant personnel and financial
resources. Companies which implement new ERP systems may experience delays, increased costs, and
other difficulties. If we are not successful in designing and implementing our ERP system as planned or if
it does not operate as intended, the effectiveness of our internal control over financial reporting could be
adversely affected, our ability to assess those controls adequately could be delayed, or we may not be
able to operate our business.

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To the extent any of the foregoing factors result in significant disruptions and costs to our
operations, or reduce the effectiveness of our internal control over financial reporting, we could have a
material adverse effect on our business, liquidity, financial condition, and/or results of operations.

Contamination and degradation of product quality from diseases, pests, and weather conditions
Our success depends upon the positive image that consumers have of our brands and of the safety
and quality of our products. Contamination, whether arising accidentally or through deliberate third-party
action, or other events that harm the integrity or consumer support for our brands, could adversely affect
their sales. Various diseases, pests, fungi, viruses, drought, frosts, and certain other weather conditions
could affect the quality and quantity of barley, hops, grapes, and other agricultural raw materials
available, decreasing the supply and quality of our products. We cannot guarantee that our grape
suppliers or our suppliers of other agricultural raw materials will succeed in preventing contamination in
existing vineyards or fields or that we will succeed in preventing contamination in our existing vineyards
or future vineyards we may acquire. Future government restrictions regarding the use of certain
materials used in growing grapes or other agricultural raw materials may increase vineyard costs and/or
reduce production of grapes or other crops. It is also possible that a supplier may not provide materials
or product components which meet our required standards or may falsify documentation associated with
the fulfillment of those requirements.

Product contamination or tampering or the failure to maintain our standards for product quality,
safety, and integrity, including with respect to raw materials, naturally occurring compounds, packaging
materials, or product components obtained from suppliers, may also reduce demand for our products or
cause production and delivery disruptions. Contaminants or other defects in raw materials, packaging
materials, or product components purchased from third parties and used in the production of our beer,
wine, or spirits products, or defects in the fermentation or distillation process could lead to low beverage
quality as well as illness among, or injury to, consumers of our products and may result in reduced sales
of the affected brand or all our brands.

If any of our products become unsafe or unfit for consumption, are misbranded, or cause injury,

we may have to engage in a product recall and/or be subject to liability and incur additional costs. A
widespread product recall, multiple product recalls, or a significant product liability judgment could
cause our products to be unavailable for a period, which could further reduce consumer demand and
brand equity.

Climate change and environmental regulatory compliance
Our business depends upon agricultural activity and natural resources. There has been much

public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere
may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of
extreme weather and natural disasters. Severe weather events, such as drought or flooding in California
or a prolonged cold winter in New York, and climate change may negatively affect agricultural productivity
in the regions from which we presently source our various agricultural raw materials. Decreased
availability of our raw materials may increase the cost of goods for our products. Severe weather events
or changes in the frequency or intensity of weather events can also disrupt our supply chain, which may
affect production operations, insurance cost and coverage, as well as delivery of our products to
wholesalers, retailers, and consumers. Natural disasters such as floods and earthquakes may also
negatively impact the ability of consumers to purchase our products.

We may experience significant future increases in the costs associated with environmental

regulatory compliance, including fees, licenses, and the cost of capital improvements for our operating
facilities to meet environmental regulatory requirements. In addition, we may be party to various
environmental remediation obligations arising in the normal course of our business or relating to
historical activities of businesses we acquire. Due to regulatory complexities, uncertainties inherent in
litigation, and the risk of unidentified contaminants in our current and former properties, the potential
exists for remediation, liability, and indemnification costs to differ materially from the costs that we have
estimated. We may incur costs associated with environmental compliance arising from events we cannot

Constellation Brands, Inc. FY 2020 Form 10-K

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ITEM 1A. RISK FACTORS

control, such as unusually severe floods, hurricanes, earthquakes, or fires. We cannot assure that our
costs in relation to these matters will not exceed our projections or otherwise have a material adverse
effect upon our business, liquidity, financial condition, or results of operations.

Cannabis is currently illegal under U.S. federal law and in other jurisdictions; we do not control

Canopy’s business or operations

The ability of Canopy to achieve its business objectives is contingent, in part, upon the legality of

the cannabis industry, Canopy’s compliance with regulatory requirements enacted by various
governmental authorities, and Canopy obtaining all regulatory approvals, where necessary, for the
production and sale of its products. The laws and regulations governing medical and recreational
cannabis are still developing, including in ways that we may not foresee. Although the Agriculture
Improvement Act of 2018 has taken hemp and hemp derived cannabinoids out of the most restrictive
class of controlled substances, marijuana is a schedule-1 controlled substance in the U.S. and is
currently illegal under U.S. federal law. Even in those U.S. states in which the recreational use of
marijuana has been legalized, its use remains a violation of U.S. federal law. Since U.S. federal laws
criminalizing the use of marijuana preempt state laws that legalize its use, continuation of U.S. federal
law in its current state regarding marijuana would likely limit the expansion of Canopy’s business into the
U.S. Similar issues of illegality apply in other countries. Any amendment to or replacement of existing
laws to make them more onerous, or delays in amending or replacing existing laws to liberalize the legal
possession and use of cannabis, or delays in obtaining, or the failure to obtain, any necessary regulatory
approvals may significantly delay or impact negatively Canopy’s markets, products, and sales initiatives
and could have a material adverse effect on Canopy’s business, liquidity, financial condition, and/or
results of operations. Were that to occur, we may not be able to recover the value of our investments in
Canopy.

We have the right to nominate four members of the Canopy board of directors. While we do not

control Canopy’s business or operations, we do rely on Canopy’s internal controls and procedures for
operation of that business. Nevertheless, our financing arrangements require us to certify, among other
things, that to our knowledge (i) Canopy is properly licensed and operating in accordance with Canadian
laws in all material respects; (ii) Canopy does not knowingly or intentionally purchase, manufacture,
distribute, import, and/or sell marijuana, or any other controlled substance in or from the United States
of America or any other jurisdiction, in each case, where such purchase, manufacture, distribution,
importation, or sale of marijuana or such other controlled substance is illegal, except in compliance with
all applicable Federal, state, local, or foreign laws, rules and regulations; and (iii) Canopy does not
knowingly or intentionally partner with, invest in, or distribute marijuana or any other controlled
substance to any third-party that knowingly or intentionally purchases, sells, manufactures, or distributes
marijuana or any other controlled substance in the United States of America or any other jurisdiction, in
each case, where such purchase, sale, manufacture, or distribution of marijuana or such other controlled
substance is illegal, except in compliance with all applicable Federal, state, local, or foreign laws, rules
and regulations. Were we to know that Canopy was knowingly or intentionally violating any of these
applicable laws, we would be unable to make the required certification under our financing
arrangements, which could lead to a default under those financing arrangements.

Strategic Risks

Competition
We are in a highly competitive industry and our sales could be negatively affected by numerous

factors including:

our inability to maintain or increase prices;

•
• new entrants in our market or categories;
•

•

the decision of wholesalers, retailers, or consumers to purchase competitors’ products
instead of ours; or
a general decline in beverage alcohol consumption due to consumer dietary preference
changes or consumers substituting legalized marijuana or other similar products in lieu of
beverage alcohol.

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ITEM 1A. RISK FACTORS

Sales could also be affected by pricing, purchasing, financing, operational, advertising, or

promotional decisions made by wholesalers, state and other local agencies, and retailers which could
affect their supply of, or consumer demand for, our products. We could also experience higher than
expected selling, general, and administrative expenses if we find it necessary to increase the number of
our personnel or our advertising or marketing expenditures to maintain our competitive position or for
other reasons. We cannot guarantee that we will be able to increase our prices to pass along to our
customers any increased costs we incur.

Potential decline in the consumption of products we sell; dependence on sales of our Mexican beer

brands

Our business depends upon consumers’ consumption of our beer, wine, and spirits brands, and

sales of our Mexican beer brands in the U.S. are a significant portion of our business. Accordingly, a
decline in the growth rate, amount, or profitability of our sales of the Mexican beer brands in the U.S.
could adversely affect our business. Further, consumer preferences and tastes may shift due to, among
other reasons, changing taste preferences, demographics, or perceived value. Consequently, any material
shift in consumer preferences and taste in our major markets away from our beer, wine, and spirits
brands, and our Mexican beer brands in particular, or from the categories in which they compete could
have a negative impact on our business, liquidity, financial condition, and/or results of operations.
Consumer preferences may shift due to a variety of factors, including changes in demographic or social
trends, public health policies may be put into effect to deal with the spread of COVID-19, and changes in
leisure, dining, and beverage consumption patterns. A limited or general decline in consumption in one or
more of our product categories could occur in the future due to a variety of factors, including:

•
•

•

•
•

•

a general decline in economic or geopolitical conditions;
concern about the health consequences of consuming beverage alcohol products and about
drinking and driving;
a general decline in the consumption of beverage alcohol products in on-premise
establishments, such as may result from stricter laws relating to driving while under the
influence of alcohol;
the increased activity of anti-alcohol groups;
increased federal, state, provincial, and foreign excise, or other taxes on beverage alcohol
products and possible restrictions on beverage alcohol advertising and marketing;
increased regulation placing restrictions on the purchase or consumption of beverage alcohol
products or increasing prices due to the imposition of duties or excise tax or changes to
international trade agreements or tariffs;
inflation; and

•
• wars, health epidemics or pandemics, quarantines, weather, and natural or man-made

disasters.

Acquisition, divestiture, investment, and new product development strategies
From time to time, we acquire businesses, assets, or securities of companies that we believe will
provide a strategic fit with our business. We integrate acquired businesses with our existing operations;
our overall internal control over financial reporting processes; and our financial, operations, and
information systems. If the financial performance of our business, as supplemented by the assets and
businesses acquired, does not meet our expectations, it may make it more difficult for us to service our
debt obligations and our results of operations may fail to meet market expectations. We may not
effectively assimilate the business or product offerings of acquired companies into our business or within
the anticipated costs or timeframes, retain key customers and suppliers or key employees of acquired
businesses, or successfully implement our business plan for the combined business. In addition, our final
determinations and appraisals of the estimated fair value of assets acquired and liabilities assumed in
our acquisitions may vary materially from earlier estimates and we may fail to realize fully anticipated
cost savings, growth opportunities or other potential synergies. We cannot assure that the fair value of
acquired businesses or investments will remain constant.

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We may also divest ourselves of businesses, assets, or securities of companies that we believe no

longer provide a strategic fit with our business. We may provide various indemnifications in connection
with the divestiture of businesses or assets. Divestitures of portions of our business may also result in
costs stranded in our remaining business. Delays in developing or implementing plans to address such
costs could delay or prevent the accomplishment of our financial objectives.

We have also acquired or retained ownership interests in companies which we do not control, such

as our joint venture to operate a glass plant adjacent to our Nava Brewery, our interest in Canopy, and
investments made through our corporate ventures capital function, and have acquired control of
companies which we do not wholly own, such as our 75% interest in Nelson’s Green Brier. Our joint
venture partners or the other parties that hold the remaining ownership interests in companies which we
do not control may at any time have economic, business, or legal interests or goals that are inconsistent
with our goals or the goals of the joint ventures or those companies. Our joint venture arrangements and
the arrangements through which we acquired or hold our other equity or membership interests may
require us, among other matters, to pay certain costs, to make capital investments, to fulfill alone our
joint venture partners’ obligations, or to purchase other parties’ interests. The internal control over
financial reporting of entities which we consolidate but either do not control or do not wholly own, may
not be as robust as our internal controls.

In calendar 2018 we increased our investment in Canopy and through exercise of our warrants in

Canopy we may further increase our investment in the future. While we will not develop, distribute,
manufacture, or sell cannabis products in the U.S., or anywhere else in the world, unless it is legally
permissible to do so at all governmental levels in the particular jurisdiction, this investment could affect
consumer perception of our existing brands and our reputation with various constituencies.

In addition, our continued success depends, in part, on our ability to develop new products such as

our Corona Hard Seltzer. The launch and ongoing success of new products are inherently uncertain,
especially with respect to consumer appeal. The launch of a new product can give rise to a variety of costs
and an unsuccessful launch, among other things, can affect consumer perception of existing brands, and
our reputation. Unsuccessful implementation or short-lived popularity of our product innovations may
result in inventory write-offs and other costs.

We cannot assure that we will realize the expected benefits of acquisitions, divestitures, or
investments. We also cannot assure that our acquisitions, investments, or joint ventures will be profitable
or that forecasts regarding acquisition, divestiture, or investment activities will be accurate or that the
internal control over financial reporting of entities which we must consolidate as a result of our
investment activities will be as robust as the internal control over financial reporting for our wholly-
owned entities. Our failure to adequately manage the risks associated with acquisitions or divestitures, or
the failure of an entity in which we have an equity or membership interest, could have a material adverse
effect on our business, liquidity, financial condition, and/or results of operations.

Sale of a portion of our wine and spirits business and sale of a portion of our craft beer business
As previously announced, we sold our Black Velvet Canadian Whisky business on November 1,

2019, and on March 2, 2020, we sold our Ballast Point craft beer brand and certain related assets,
including a number of its associated production facilities and brewpubs. We also plan to enter into a
revised definitive agreement to sell a portion of our wine and spirits business, including approximately 30
lower-margin, lower-growth wine and spirits brands, wineries, vineyards, offices, and facilities. We also
plan to sell our Nobilo Wine brand, our Paul Masson brand and our concentrate business. The divestiture
of these portions of our business will enable us to focus on our higher-margin, higher-growth wine and
spirits brands. The New Wine and Spirits Transactions and Other Wine and Spirits Transactions are each
subject to the satisfaction of certain closing conditions, including receipt of required regulatory
clearances and governmental approvals, and the Nobilo Wine Transaction is subject to the closing of the
Revised Wine and Spirits Transaction. We cannot guarantee any of these transactions will occur on the
terms, conditions, or timetables that we currently anticipate. We intend to use the net proceeds from
these transactions primarily to reduce our outstanding borrowings. A delay in completing these

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ITEM 1A. RISK FACTORS

transactions, or the failure to complete these transactions, could delay the accomplishment of our
strategic and financial objectives and divert the attention of our management and other employees from
their day to day business and operations in preparation for the transactions. Moreover, the New Wine and
Spirits Transactions and Other Wine and Spirits Transactions will reduce the diversification of our
portfolio. We may not fully realize the expected benefits of a portfolio of higher-end wine and spirits
brands if we are not able to align our cost structures and operate the brand portfolio we have following
the consummation of these transactions.

Our Canopy investments are dependent upon an emerging market and legal sales of cannabis products
The legal cannabis market is an emerging market. The legislative framework pertaining to the

Canadian cannabis market, as well as cannabis markets in other countries, is uncertain. The success of
the Canopy transactions will depend on, among other things, the ability of Canopy to create a strong
platform for us to operate successfully in the cannabis market space and the presence of sufficient retail
outlets. There are also concerns about health issues associated with certain types of form factors for
cannabis products, such as those used in vaping. These issues may result in a less robust consumer
demand for certain form factors. There is no assurance a robust cannabis consumer market will develop
consistent with our expectations or that consumers will purchase any Canopy products.

A failure in the demand for Canopy’s products to materialize as a result of competition, consumer
desire, competition from legal and illegal market entrants or other products, or other factors could have
a material adverse effect on Canopy’s business, liquidity, financial condition, and/or results of operations.
We have evaluated the Canopy Equity Method Investment as of February 29, 2020, and determined that
there was not an other-than-temporary-impairment. Were that to occur, we may have to write-down the
value of our investments in Canopy. As of February 29, 2020, the fair value indicates that the investment
was impaired by $595.4 million. The changing legal landscape and the lack of consumer market data
makes it difficult to predict the pace at which the cannabis market may grow, if at all, and the products
that consumers will purchase in the cannabis marketplace.

For example, the Canadian Cannabis Act prohibits testimonials, lifestyle branding and packaging

that is appealing to youth. The restrictions on advertising, marketing, and the use of logos and brand
names could have a material adverse effect on Canopy’s business, liquidity, financial condition, and/or
results of operations, and our investment in Canopy.

Additionally, Canopy must rely on its own market research to forecast sales as detailed forecasts

may not be fully available at this early stage in the cannabis industry in Canada and globally. Market
research relating to the adult-use recreational legal cannabis industry is in its early stages and, as such,
trends can only be forecasted.

Dependence upon trademarks and proprietary rights, failure to protect our intellectual property rights
Our future success depends significantly on our ability to protect our current and future brands

and products and to defend our intellectual property rights. We have been granted numerous trademark
registrations covering our brands and products and have filed, and expect to continue to file, trademark
applications seeking to protect newly developed brands and products. We cannot be sure that trademark
registrations will be issued with respect to any of our trademark applications. We could also, by omission,
fail to timely renew or protect a trademark and our competitors could challenge, invalidate, or circumvent
any existing or future trademarks issued to, or licensed by, us.

Financial Risks

Indebtedness
We have incurred indebtedness to finance investments and acquisitions, fund beer operations

expansion and construction activities and repurchase shares of our common stock. In the future, we may
continue to incur additional indebtedness to finance investments and acquisitions, repurchase shares of
our stock, and fund other general corporate purposes, including beer operations expansion and
construction activities. We cannot assure that our business will generate sufficient cash flow from
operations to meet all our debt service requirements; return value to shareholders such as through

Constellation Brands, Inc. FY 2020 Form 10-K

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PART I

ITEM 1A. RISK FACTORS

payment of dividends or repurchase of shares of our common stock; and fund our general corporate and
capital requirements.

Our current and future debt service obligations and covenants could have important

consequences. These consequences include, or may include, the following:

•

•
•

our ability to obtain financing for future working capital needs or investments/acquisitions or
other purposes may be limited;
our funds available for operations, expansions and construction, dividends, or other
distributions, or stock repurchases may be reduced because we dedicate a significant portion
of our cash flow from operations to the payment of principal and interest on our indebtedness;
our ability to conduct our business could be limited by restrictive covenants; and
our vulnerability to adverse economic conditions may be greater than less leveraged
competitors and, thus, our ability to withstand competitive pressures may be limited.

Additionally, any failure to meet required payments on our debt, or failure to comply with any

covenants in the instruments governing our debt, could result in an event of default under the terms of
those instruments and a downgrade to our credit ratings. A downgrade in our credit ratings would
increase our borrowing costs and could affect our ability to issue commercial paper. Certain of our debt
facilities also contain change of control provisions which, if triggered, may result in an acceleration of our
obligation to repay the debt. In addition, certain of our current and future debt and derivative financial
instruments have, or in the future, could have interest rates that are tied to reference rates, such as
LIBOR or SOFR. The volatility and availability of such reference rates, including establishment of
alternative reference rates, is out of our control. Changes to or the unavailability of such rates or the
manner for calculation of such reference rates, could result in increases to the cost of our debt.

If we fail to comply with the obligations contained in our senior credit facility, our existing or future
indentures, or other loan agreements, we could be in default under such debt facilities or agreements. In
the event of a default, the holders of our debt could elect to declare all amounts outstanding under such
instrument to be due and payable. A default could also require the immediate repayment of outstanding
obligations under other debt facilities or agreements that contain cross-acceleration or cross-default
provisions. If that were to occur, we might not have available funds to satisfy such repayment obligations.

Changes to tax laws, fluctuations in our effective tax rate, accounting for tax positions and the

resolution of tax disputes, and changes to accounting standards, elections, or assertions

The U.S. federal budget and individual state, provincial, local municipal budget deficits, or deficits

in other governmental entities, could result in increased taxes on our products, business, customers, or
consumers. Various proposals to increase taxes on beverage alcohol products have been made at the
federal and state levels or at other governmental bodies in recent years. Federal, state, provincial, local,
or foreign governmental entities may consider increasing taxes upon beverage alcohol products as they
explore available alternatives for raising funds.

In addition, significant judgment is required to determine our effective tax rate and evaluate our

tax positions. Our provision for income taxes includes a provision for uncertain tax positions. Fluctuations
in federal, state, local, and foreign taxes or a change to uncertain tax positions, including related interest
and penalties, may impact our effective tax rate and our financial results. When tax matters arise, several
years may elapse before such matters are audited and finally resolved. Unfavorable resolution of any tax
matter could increase our effective tax rate and resolution of a tax issue may require the use of cash in
the year of resolution.

U.S. tax changes or changes in how international corporations are taxed, including changes in

how existing tax laws are interpreted or enforced, or changes to accounting standards, elections or
assertions could have a material adverse effect on our business, liquidity, financial condition, and/or
results of operations.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 23

PART I

ITEM 1A. RISK FACTORS

Securities measured at fair value
The value of the warrants and convertible debt we hold in Canopy through our subsidiaries is

subject to the volatility of the market price of Canopy’s common stock. This volatility subjects our
financial statements to volatility. The market price of Canopy’s common stock has experienced significant
volatility, and that volatility may continue in the future and may also be subject to wide fluctuations in
response to many factors beyond the control of Canopy, or of us. These factors include, but are not limited
to:

•
•
•

actual or anticipated fluctuations in Canopy’s reported results of operations;
recommendations by securities analysts;
impact of COVID-19 on Canopy’s operations and revenues, on Canopy’s ability to access
financial markets, and on the cannabis industry generally;
changes in the market valuations of companies in the industry in which Canopy operates;
announcement of developments and material events by Canopy or its competitors;
fluctuations in the costs of vital production materials and services;
addition or departure of Canopy executive officers or other key personnel;

•
•
•
•
• news reports relating to trends, concerns, technological, or competitive developments,
regulatory changes and other related issues in Canopy’s industry or target markets;
regulatory changes affecting the cannabis industry generally and Canopy’s business and
operations; and
administrative obligations associated with Health Canada requirements and compliance with
all associated rules and regulations including, but not limited to, the Canadian Cannabis Act.

•

We modified the terms of certain warrants we hold in Canopy to, among other things, extend the
expiry of those warrants and extend the time period through which the value of those warrants and our
financial statements are subject to the volatility of the market price of Canopy’s common stock. We
currently account for our shares in Canopy under the equity method. We recognize our equity in Canopy’s
earnings on a two-month lag primarily because of the availability of Canopy’s financial results since
Canopy’s fiscal year ends annually March 31 while our fiscal year ends annually on the last day of
February.

Intangible assets, such as goodwill and trademarks
We have a significant amount of intangible assets such as goodwill and trademarks and may
acquire more intangible assets in the future. Intangible assets are subject to a periodic impairment
evaluation under applicable accounting standards. We recently wrote down a portion of our craft beer
business. The write-down of any of these intangible assets could have a material adverse effect on our
business, liquidity, financial condition, and/or results of operations.

Canopy’s corporate governance
Canopy’s business is subject to evolving corporate governance and public disclosure regulations
that may from time to time increase both Canopy’s compliance costs and the risk of its non-compliance.
These include changing rules and regulations promulgated by a number of governmental and self-
regulated organizations, including, but not limited to, the Canadian Securities Administrators, the TSX,
the International Accounting Standards Board, the SEC, and the NYSE. These rules continue to evolve in
scope and complexity creating new requirements for Canopy. Canopy was previously exempt from certain
NYSE corporate governance requirements because it was a foreign private issuer listed on the NYSE and
registered with the SEC and was subject to Canadian requirements. When Canopy originally registered
with the SEC, it did not need to test its internal control procedures to satisfy the requirements pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”) that require management of Canopy to perform an
annual assessment of the effectiveness of Canopy’s internal control over financial reporting and its
registered public accounting firm to provide an attestation report as to the effectiveness of such controls.
As of September 30, 2019, Canopy no longer met the test to qualify as a foreign private issuer and,
effective April 1, 2020, Canopy must comply with all the NYSE corporate governance requirements and
the SOX internal control procedures. The application of SOX to Canopy will require management of
Canopy to perform an annual assessment of Canopy’s internal control over financial reporting and its

Constellation Brands, Inc. FY 2020 Form 10-K

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PART I

ITEM 1A. RISK FACTORS

registered public accounting firm to conduct an independent assessment of the effectiveness of such
controls. Canopy has disclosed a material weakness in internal controls over financial reporting. Canopy
may not be able to remediate the material weakness timely. Also, Canopy’s internal controls may not be
adequate, or Canopy may not be able to maintain adequate internal controls as required by SOX. Canopy
may not be able to maintain effective internal controls over financial reporting on an ongoing basis if
standards are modified, supplemented, or amended from time to time. If Canopy does not satisfy SOX
requirements on an ongoing and timely basis, investors could lose confidence in the reliability of its
financial statements, which could harm Canopy’s business and have a negative impact on the trading
price or market value of Canopy securities. In addition, we record as equity in earnings our proportional
share of Canopy’s results. We could have a material weakness in the event the proportional share of
Canopy’s results that we record contains an error as a result of an error in Canopy’s financial statements
that we do not detect.

Although we do not control Canopy, we do have significant influence over Canopy. Our amended

and restated Investor Rights Agreement gives us the right to nominate four members of the Canopy
Board of Directors. If we controlled Canopy, we would have to consolidate Canopy into our financial
statements even though we do not wholly-own Canopy. If we have to consolidate Canopy into our financial
statements and Canopy had a material weakness, we would inherit Canopy’s material weakness through
consolidation. In such an event, even if Canopy’s financial statements were correct, the fact that Canopy
had a material weakness could result in a material weakness for us.

Other Risks
Damage to our reputation
The success of our brands depends upon the positive image that consumers have of those brands

and maintaining a good reputation is critical to selling our branded products. Contamination, whether
arising accidentally or through deliberate third-party action, or other events that harm the integrity or
consumer support for our brands, could adversely affect their sales and our reputation. Our reputation
could also be impacted negatively by public perception, adverse publicity (whether or not valid, such as
the similarity of the name of certain of our brands or trademarks and a type of virus), negative comments
in social media, or our responses relating to:

•

a perceived failure to maintain high ethical and environmental, social and governance (“ESG”)
standards and practices for all our operations and activities;
a perceived failure to address concerns relating to the quality, safety, or integrity of our
products;
allegations that we, or persons associated with us or formerly associated with us, have
violated applicable laws or regulations, including but not limited to those related to safety,
employment, discrimination, harassment, whistle-blowing, privacy, corporate citizenship,
improper business practices, or cyber-security;
our environmental impact, including use of agricultural materials, packaging, water and
energy use, and waste management; or
efforts that are perceived as insufficient to promote the responsible use of alcohol or
cannabis.

Failure to comply with federal, state, or local laws and regulations, maintain an effective system of
internal controls, provide accurate and timely financial statement information, or protect our information
systems against service interruptions, misappropriation of data, or breaches of security, could also hurt
our reputation. Damage to our reputation or loss of consumer confidence in our products for any of these
or other reasons could result in decreased demand for our products and could have a material adverse
effect on our business, liquidity, financial condition and/or results of operations, as well as require
additional resources to rebuild our reputation, competitive position and brand equity and renew investor
confidence.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART I

ITEM 1A. RISK FACTORS

Class action or other litigation relating to abuse of our products, the misuse of our products, product

liability, or marketing or sales practices

There has been public attention directed at the beverage alcohol industry, which we believe is due

to concern over problems related to harmful use of alcohol, including drinking and driving, underage
drinking and health consequences from the misuse of alcohol. We could be exposed to lawsuits relating
to product liability or marketing or sales practices. Adverse developments in lawsuits concerning these
types of matters or a significant decline in the social acceptability of beverage alcohol products that may
result from lawsuits could have a material adverse effect on our business, liquidity, financial condition
and/or results of operations.

Control by the Sands family
Our Class B Common Stock is principally held by members of the Sands family, either directly or

through entities controlled by members of the Sands family. Holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled to 10 votes per share.
Holders of Class 1 Common Stock generally do not have voting rights. The stock ownership of the Sands
family and entities controlled by members of the Sands family represents a majority of the combined
voting power of all classes of our common stock as of April 15, 2020, voting as a single class.
Consequently, the Sands family has the power to elect a majority of our directors and approve actions
requiring the approval of the stockholders of the Company voting as a single class. In addition, if
significant stock indices decide to prohibit the inclusion of companies with dual class structures, the price
of our Class A Common Stock could be negatively impacted and could become more volatile.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART I

OTHER KEY INFORMATION

ITEM 2. PROPERTIES

We operate breweries, wineries, distilling plants, and bottling plants, many of which include

warehousing and distribution facilities on the premises, and through a joint venture, we operate a glass
production plant. In addition to our material properties described below, certain of our businesses
maintain office space for sales and similar activities and offsite warehouse and distribution facilities in a
variety of geographic locations.

Our corporate headquarters are located in leased offices in Victor, New York. Our segments also

maintain leased office spaces in other locations in the U.S. and internationally.

We believe that our facilities, taken as a whole, are in good condition and working order. Within the

Wine and Spirits segment, we have adequate capacity to meet our needs for the foreseeable future.
Within the Beer segment, we have adequate capacity to meet our current needs and we have undertaken
activities to increase our production capacity to address our anticipated future demand. As of
February 29, 2020, our material properties by segment, all of which are owned, unless otherwise noted,
consist of:

Beer

Wine and Spirits

Breweries
Compañía Cervecera de Coahuila in Nava, Coahuila,
Mexico
Compañía Cervecera de Obregón in Obregon, Sonora,
Mexico

Glass production plant
Industria Vidriera de Coahuila in Nava, Coahuila,
Mexico (1)

Wineries
Canandaigua Winery in Canandaigua, New York, U.S. (2)
Gonzales Winery in Gonzales, California, U.S.
Mission Bell Winery in Madera, California, U.S. (2)
Woodbridge Winery in Acampo, California, U.S.
Drylands Winery in Marlborough, South Island, New
Zealand

Warehouse, distribution, and other production facilities
Lodi Distribution Center in Lodi, California, U.S. (3)
Pontassieve Winery in Florence, Italy

(1) The glass production plant in Nava, Coahuila, Mexico is owned and operated by an equally-owned joint

venture with Owens-Illinois and is located adjacent to our Nava Brewery.

(2)

In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits business,
including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries, vineyards,
offices, and facilities. The transaction will include two of our material Wine and Spirits segment
properties: the Canandaigua Winery and the Mission Bell Winery. For further information about this
transaction, refer to “Recent Developments” in MD&A and Note 2 of the Notes to the Financial
Statements.

(3) The distribution center in Lodi, California is a leased facility.

Within our Wine and Spirits segment, as of February 29, 2020, we owned, leased, or had interests

in approximately 11,600 acres of vineyards in California (U.S.), 6,800 acres of vineyards in New Zealand,
and 1,300 acres of vineyards in Italy.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of their business, the Company and its subsidiaries are subject to lawsuits,

arbitrations, claims, and other legal proceedings in connection with their business. Some of the legal
actions include claims for substantial or unspecified compensatory and/or punitive damages. A
substantial adverse judgment or other unfavorable resolution of these matters could have a material
adverse effect on the Company’s financial condition, results of operations, and cash flows. Management
believes that the Company has adequate legal defenses with respect to the legal proceedings to which it
is a defendant or respondent and that the outcome of these pending proceedings is not likely to have a

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 27

PART I

OTHER KEY INFORMATION

material adverse effect on the financial condition, results of operations, or cash flows of the Company.
However, the Company is unable to predict the outcome of these matters.

Regulatory Matters – The Company and its subsidiaries are in discussions with various
governmental agencies concerning matters raised during regulatory examinations or otherwise subject
to such agencies’ inquiry. These matters could result in censures, fines, or other sanctions. Management
believes the outcome of any pending regulatory matters will not have a material adverse effect on the
Company’s financial condition, results of operations, or cash flows. However, the Company is unable to
predict the outcome of these matters.

As previously reported in the Company’s Quarterly Reports on Form 10-Q for the fiscal quarters

ended August 31, 2019 and November 30, 2019, on August 21, 2019, Industria Vidriera de Coahuila, S. de
R.L. de C.V. (“IVC”), the Mexican subsidiary of a consolidated joint venture of the Company, received from
the Procuraduria de Protección al Ambiente de Coahuila (“PROPAEC”) notification of an enforcement
action for violations of certain laws in the Mexican state of Coahuila de Zaragoza regulating the discharge
of wastewater into the environment. The notification was based on PROPAEC’s evaluation of IVC’s May 22,
2019 response to allegations arising from an inspection of IVC’s facility originally conducted by PROPAEC
on April 12, 2018. The allegations against IVC consisted of the discharge of wastewater from evaporators
without PROPAEC’s authorization and associated recordkeeping violations under relevant state
environmental regulations. On September 19, 2019, IVC paid a penalty of MXN$2,196,740 (approximately
$113,000) and related tax of MXN$494,267 (approximately $25,000). The Company believes this matter is
fully settled.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A Common Stock and Class B Common Stock trade on the New York Stock Exchange®

(“NYSE”) under the symbols STZ and STZ.B, respectively. There is no public trading market for our
Class 1 Common Stock. At April 15, 2020, the number of holders of record of our Class A Common Stock,
Class B Common Stock, and Class 1 Common Stock were 517, 97, and 13, respectively.

For information regarding dividends and share repurchase programs, see MD&A.

For information on securities authorized for issuance under our equity compensation plans, see

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
under Item 12. of this Annual Report on Form 10-K.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

OTHER KEY INFORMATION

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with MD&A and our
consolidated financial statements and notes thereto under Item 8 of this Annual Report on Form 10-K
(the “Financial Statements”).

February 29,
2020 (1)

February 28,
2019

For the Years Ended
February 28,
2018

February 28,
2017 (2)

February 29,
2016

9,113.0 $
(769.5)
8,343.5
(4,191.6)
4,151.9

8,884.3 $
(768.3)
8,116.0
(4,035.7)
4,080.3

8,322.1 $
(741.8)
7,580.3
(3,767.8)
3,812.5

8,051.2 $
(730.1)
7,321.1
(3,802.1)
3,519.0

7,223.8
(675.4)
6,548.4
(3,606.1)
2,942.3

(1,621.8)

(1,668.1)

(1,532.7)

(1,392.4)

(1,177.2)

(449.7)

74.1

2,154.5

(2,668.6)

(428.7)

(2.4)

(945.2)

966.6

21.4

—

2,412.2

2,279.8

487.2

(332.0)

(97.0)

2,101.6

(367.1)

(1.7)

4,145.0

(685.9)

3,459.1

—

262.4

2,389.0

27.3

(333.3)

—

1,765.1

51.1

(313.9)

(1.1)

2,338.0

2,083.0

1,501.2

(22.7)

2,315.3

(550.3)

1,532.7

(440.6)

1,060.6

(in millions, except per share data)
Sales
Excise taxes
Net sales
Cost of product sold (3)
Gross profit

Selling, general, and administrative
expenses (4)
Impairment of assets held for sale

Gain (loss) on sale of business

Operating income (loss)

Income (loss) from unconsolidated
investments (5) (6) (7)
Interest expense
Loss on extinguishment of debt (8)
Income (loss) before income taxes

(Provision for) benefit from income
taxes (9)
Net income (loss)

Net (income) loss attributable to
noncontrolling interests

(33.2)

(23.2)

(11.9)

(4.1)

(5.7)

Net income (loss) attributable to CBI $

(11.8) $

3,435.9 $

2,303.4 $

1,528.6 $

1,054.9

Net income (loss) per common
share attributable to CBI:
Basic – Class A Common Stock

Basic – Class B Convertible Common
Stock
Diluted – Class A Common Stock
Diluted – Class B Convertible
Common Stock

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

Total assets

Long-term debt, including current
maturities

$
$

(0.07) $

18.24 $

11.96 $

7.76 $

(0.07) $

16.57 $

17.57 $

10.86 $

11.47 $

(0.07) $

16.21 $

10.59 $

7.04 $

7.49 $

6.90 $

3.00 $
2.72 $

2.96 $
2.68 $

2.08 $
1.88 $

1.60 $
1.44 $

5.42

4.92

5.18

4.79

1.24
1.12

27,323.2 $

29,231.5 $

20,538.7 $

18,602.4 $

16,695.0

11,945.7 $

12,825.0 $

9,439.9 $

8,631.6 $

7,672.9

(1)

Includes an impairment of long-lived assets held for sale in connection with the New Wine and Spirits
Transactions, Other Wine and Spirits Transactions, and the Ballast Point Transaction (refer to Notes 2
and 7 of the Notes to the Financial Statements for additional discussion). Additionally, in
November 2019, we sold the Black Velvet Canadian Whisky business and recognized a net gain on sale
of business (refer to Note 2 of the Notes to the Financial Statements for additional discussion).

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PART II

OTHER KEY INFORMATION

(2)

(3)

(4)

(5)

(6)

(7)

In December 2016, we sold the Wine and Spirits Canadian wine business and recognized a net gain on
sale of business.

Includes a loss on inventory write-downs of $102.9 million in connection with the wine and spirits
optimization activities for the year ended February 29, 2020 (refer to Note 2 of the Notes to the Financial
Statements for additional discussion).

Includes impairment of intangible assets of $11.0 million, $108.0 million, $86.8 million, and $46.0
million for the years ended February 29, 2020, February 28, 2019, February 28, 2018, and February 28,
2017, respectively (refer to Note 7 of the Notes to the Financial Statements for additional discussion).

Includes a net gain in connection with the sale of our Accolade Wine Investment of $99.8 million for the
year ended February 28, 2019 (refer to Note 2 of the Notes to the Financial Statements for additional
discussion).

Includes unrealized net gain (loss) from the changes in fair value of the Canopy securities measured at
fair value of $(2,126.4) million, $1,971.2 million, and $464.3 million for the years ended February 29,
2020, February 28, 2019, and February 28, 2018, respectively (refer to Note 7 of the Notes to the
Financial Statements for additional discussion).

Includes equity in earnings (losses) from Canopy of $(575.9) million and $(2.6) million for the years
ended February 29, 2020, and February 28, 2019, respectively (refer to Note 10 of the Notes to the
Financial Statements for additional discussion).

(8) Consists of a make-whole payment of $73.6 million in connection with the early redemption of our
April 2012 senior notes and the write-off of debt issuance costs of $23.4 million in connection with
prior-to-maturity repayments of various debt obligations for the year ended February 28, 2018 (refer to
Note 13 of the Notes to the Financial Statements for additional discussion).

(9)

Includes a net income tax benefit of $547.4 million for the year ended February 29, 2020, resulting from
the remeasurement of our deferred tax assets in connection with the enactment of tax reform in
Switzerland and a provisional net income tax benefit of $351.2 million for the year ended February 28,
2018, associated with the enactment of the TCJ Act (refer to Note 14 of the Notes to the Financial
Statements for additional discussion).

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PART II

ITEM 7. MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

INTRODUCTION

We have elected to omit discussion on the earliest of the three years covered by the consolidated

financial statement presented. Refer to Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Financial Liquidity and Capital Resources” located in our
Form 10-K for the fiscal year ended February 28, 2019, filed on April 23, 2019, for reference to discussion
of the fiscal year ended February 28, 2018, the earliest of the three fiscal years presented. This MD&A,
which should be read in conjunction with our Financial Statements, provides additional information on
our businesses, current developments, financial condition, cash flows, and results of operations. It is
organized as follows:

• Overview. This section provides a general description of our business, which we believe is
important in understanding the results of our operations, financial condition, and potential
future trends.

• Strategy. This section provides a description of our strategy and a discussion of recent

developments, significant investments, acquisitions, and divestitures.

• Results of operations. This section provides an analysis of our results of operations presented
on a business segment basis. In addition, a brief description of significant transactions and
other items that affect the comparability of the results is provided.

•

Financial liquidity and capital resources. This section provides an analysis of our cash flows,
outstanding debt, and commitments. Included in the analysis of outstanding debt is a
discussion of the amount of financial capacity available to fund our ongoing operations and
future commitments, as well as a discussion of other financing arrangements.

• Critical accounting estimates and policies. This section identifies those accounting policies that

are considered important to our results of operations and financial condition, require
significant judgment and involve significant management estimates. Our significant
accounting policies, including those considered to be critical accounting policies, are
summarized in Note 1 of the Notes to the Financial Statements.

OVERVIEW

We are an international beverage alcohol company with a broad portfolio of consumer-preferred

high-end imported beer brands, and higher-end wine and spirits brands. Many of our products are
recognized as leaders in their respective categories. We are one of the leading U.S. growth drivers at
retail among beverage alcohol suppliers. In the U.S. market, we are the third-largest beer company and a
leading higher-end wine company.

Through February 28, 2019, our internal management financial reporting consisted of two

business divisions: (i) Beer and (ii) Wine and Spirits. Beginning March 1, 2019, as a result of our
November 2018 Canopy Investment and a change in our CODM on March 1, 2019, we have changed our
internal management financial reporting to consist of three business divisions: (i) Beer, (ii) Wine and
Spirits, and (iii) Canopy. Consequently, beginning with the first quarter of fiscal 2020, we report our
operating results in four segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate Operations and Other, and
(iv) Canopy. Our Canopy Equity Method Investment makes up the Canopy segment.

In the Beer segment, our portfolio consists of high-end imported and craft beer and alternative
beverage alcohol brands. We have an exclusive perpetual brand license to import, market, and sell our

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PART II

ITEM 7. MD&A

Mexican beer portfolio in the U.S. In the Wine and Spirits segment, our portfolio includes higher-margin,
higher-growth wine brands complemented by certain higher-end spirits brands. Amounts included in the
Corporate Operations and Other segment consist of costs of executive management, corporate
development, corporate finance, corporate growth and strategy, human resources, internal audit, investor
relations, legal, public relations, and information technology, as well as our investments made through
our corporate venture capital function. All costs included in the Corporate Operations and Other segment
are general costs that are applicable to the consolidated group and are therefore not allocated to the
other reportable segments. All costs reported within the Corporate Operations and Other segment are
not included in our CODM’s evaluation of the operating income (loss) performance of the other reportable
segments. The new business segments reflect how our operations are managed, how resources are
allocated, how operating performance is evaluated by senior management, and the structure of our
internal financial reporting.

STRATEGY

Our overall strategy is to drive industry-leading growth, build unrivaled shareholder value, and

shape the future of our industry by building brands that people love. We believe sharing a toast,
unwinding after a day, celebrating milestones, and helping people connect, is Worth Reaching For. We
position our portfolio to benefit from the consumer-led trend towards premiumization, which we believe
will continue to result in faster growth rates in the higher-end of the beer, wine, and spirits categories.
We focus on developing our expertise in consumer insights and category management, as well as our
strong distributor network, which provides an effective route-to-market. Additionally, we leverage our
scale across the total beverage alcohol market and our level of diversification hedges our portfolio risk. In
addition to growing our existing business, we focus on targeted acquisitions of, and investments in,
businesses that are higher-margin, higher-growth, consumer-led, have a low integration risk, and/or fill
a gap in our portfolio. We also strive to identify, meet, and stay ahead of evolving consumer trends and
market dynamics (see “Investments, Acquisitions, and Divestitures – Canopy Investments” below).

We strive to strengthen our portfolio of higher-end beer, wine, and spirits brands and differentiate

ourselves through:

•

•
•

•

Our business strategy for the Beer segment focuses on leading the high-end segment of the U.S.

beer market and includes continued focus on growing our beer portfolio in the U.S. through expanding
distribution for key brands, as well as new product development and innovation within the existing
portfolio of brands, and continued expansion, construction, and optimization activities for our Mexico beer
operations. Additionally, in an effort to more fully compete in growing sectors of the high-end segment of
the U.S. beer market, we have leveraged our innovation capabilities to introduce new brands that align
with consumer trends. We continue to refine our options to optimize the value of our Beer segment and
drive increased focus on our high-performing import portfolio and upcoming new product introductions.
See “Recent Developments - Ballast Point Transaction” below.

In connection with our business strategy for the Beer segment, we have more than tripled the
production capacity of our brewery located in Nava, Coahuila, Mexico since its June 2013 acquisition.

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ITEM 7. MD&A

Additionally, we are continuing to invest to expand our brewery operations in Obregon, Sonora, Mexico,
where expansion is expected to be completed by the end of Fiscal 2021, although containment actions
associated with COVID-19 may alter that timeline. See “Capital Expenditures” below for discussion of a
recent public consultation on construction of a new brewery in Mexicali, Baja California, Mexico.
Expansion, construction, and optimization efforts continue under our previously-announced Mexico Beer
Expansion Projects (as defined below in “Capital Expenditures”) to align with our anticipated future
growth expectations (see “Capital Expenditures” below).

Our business strategy for the Wine and Spirits segment is to build an industry-leading portfolio of

higher-end wine and spirits brands. We are investing to meet the evolving needs of consumers; building
brands through consumer insights, sensory expertise, and innovation; and refreshing existing brands, as
we continue to focus on moving our branded wine and spirits portfolio towards a higher-margin, higher-
growth portfolio of brands. We dedicate a large share of our sales and marketing resources to well-
known wine and spirits brands sold in the U.S., which comprise the U.S. Power Brands as they represent
a majority of our U.S. wine and spirits revenue and profitability, and generally hold strong positions in
their respective price categories. We focus our innovation and investment dollars on those brands within
our portfolio which position us to benefit from the consumer-led trend towards premiumization.
Additionally, in connection with the New Wine and Spirits Transactions, Other Wine and Spirits
Transactions, and the Black Velvet Divestiture, we expect to optimize the value of our wine and spirits
portfolio by driving increased focus on our higher-end Power Brands to accelerate growth and improve
overall operating margins. In markets where it is feasible, we entered into contractual arrangements to
consolidate our U.S. distribution network in order to obtain dedicated distributor selling resources which
focus on our U.S. wine and spirits portfolio to drive organic growth. This consolidated U.S. distribution
network currently represents about 70% of our branded wine and spirits volume in the U.S. Throughout
the terms of these contracts, we generally expect shipments on an annual basis to these distributors to
essentially equal the distributors’ shipments to retailers.

Marketing, sales, and distribution of our products are managed on a geographic basis in order to
fully leverage leading market positions. In addition, market dynamics and consumer trends vary across
each of our markets. Within our primary market in the U.S., we offer a range of beverage alcohol products
across the imported beer, craft beer, branded wine, and spirits categories, with generally separate
distribution networks utilized for (i) our beer portfolio and (ii) our wine and spirits portfolio. The
environment for our products is competitive in each of our markets.

We remain committed to our long-term financial model of: growing sales, expanding margins, and
increasing cash flow in order to achieve earnings per share growth, maintain our targeted leverage ratio,
and deliver returns to shareholders through the payment of quarterly cash dividends and periodic share
repurchases.

Recent Developments

COVID-19
We have an existing Crisis Management Committee that has been closely monitoring the impact of

the novel strain of a virus, COVID-19, on our Company and our workforce since January 2020. In March
2020, the World Health Organization (“WHO”) recognized COVID-19 as a pandemic. COVID-19 has severely
restricted the level of economic activity around the world. In response to COVID-19, the governments of
many countries, states, cities, and other geographic regions have taken preventative or protective actions,
such as imposing restrictions on travel and business operations and advising or requiring individuals to

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PART II

ITEM 7. MD&A

limit or forgo their time outside of their homes. Temporary closures of businesses have been ordered and
numerous other businesses have temporarily closed voluntarily. Further, individuals' ability to travel has
been curtailed through mandated travel restrictions and may be further limited through additional
voluntary or mandated closures of travel-related businesses. In most of our locations, the beverage
alcohol industry has been classified as an essential business and as such we are still able to produce and
sell our products. COVID-19 has affected us primarily in the reduction of depletion volume on our
products in the on-premise business due to shelter in place mandates and bar and restaurant closures.
The on-premise business has historically been about 10% to 15% of our depletion volume for beer, wine,
and spirits.

Currently, our major breweries, wineries, and bottling facilities are still operating but, in some

instances, at lower production levels than planned. We have closed all hospitality, tasting rooms, retail,
restaurants, and other non-essential public facilities. However, our supply chains and distribution
channels have not been materially impacted and we have adequate supply of products to meet forecasted
demand. The March 2020 closure of the U.S. and Mexico border to non-essential travel does not impact
the movement of commercial products including the products we manufacture in Mexico and import to
the U.S.

We have implemented various measures to reduce the spread of the virus including working from

home, restricting visitors to our production locations, splitting our production workforces, reducing the
on-site production workforce levels, screening workers before they enter facilities, implementing social
distancing, and encouraging employees to adhere to prevention measures recommended by the Center
for Disease Control (“CDC”) and the WHO. Since our non-production workforce is able to work remotely
using various technology tools, we are able to maintain our operations and internal controls over financial
reporting and disclosures.

At this time, we are not able to estimate the long-term impact of COVID-19 on our business,

financial condition, results of operations, and/or cash flow. We believe we have sufficient liquidity
available from operating cash flow, cash on hand, and availability under our $2.0 billion revolving credit
facility. We expect to have continued access to capital markets and to continue to return value to
shareholders.

New Wine and Spirits Transactions
In April 2019, we entered into a definitive agreement with E. & J. Gallo Winery (“Gallo”) to sell a
portion of our wine and spirits business, including approximately 30 lower-margin, lower-growth wine
and spirits brands, wineries, vineyards, offices, and facilities.

In December 2019, we agreed to revise and supersede the Wine and Spirits Transaction. The

revisions to the transaction address competitive concerns raised by the FTC specifically related to the
sparkling wine, brandy, dessert wine, and concentrate categories. As a result, the brands Cook’s
California Champagne, J. Roget American Champagne, Paul Masson Grande Amber Brandy, and our
concentrate business will be excluded from the transaction with Gallo resulting in an adjusted transaction
price of approximately $843 million, with the potential to earn an incremental $250 million of contingent
consideration if certain brand performance provisions are met over a two-year period after closing. The
Revised Wine and Spirits Transaction is expected to close around the end of first quarter of fiscal 2021,
and is subject to required regulatory clearances and governmental review and approval. Additionally, in a
separate, but related, transaction we agreed that upon execution and delivery of a definitive agreement
for the Revised Wine and Spirits Transaction, we would enter into an agreement to sell the New Zealand-
based Nobilo Wine brand and certain related assets for $130 million to Gallo. The Nobilo Wine
Transaction is expected to close by the end of second quarter of fiscal 2021 and is subject to FTC and New
Zealand regulatory review and approval. Completion of the Nobilo Transaction is also conditioned on
completion of the Revised Wine and Spirits Transaction. We expect to use the net cash proceeds from the
New Wine and Spirits Transactions primarily to reduce outstanding borrowings. The New Wine and Spirits
Transactions are consistent with our strategic focus on higher-margin, higher-growth brands.

Constellation Brands, Inc. FY 2020 Form 10-K

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ITEM 7. MD&A

We have communicated our intent to retain the brands Cook’s California Champagne and J. Roget

American Champagne contemplated under the Wine and Spirits Transaction and the FTC is currently
reviewing our business plans to support these brands in the future.

Other Wine and Spirits Transactions
We are pursuing other opportunities to divest the Paul Masson Grande Amber Brandy brand and

concentrate business excluded from the Revised Wine and Spirits Transaction to companies with more
aligned business strategies.

In connection with the New Wine and Spirits Transactions and the Other Wine and Spirits

Transactions, we have wine and spirits net assets of $1,072.4 million that have met the held for sale
criteria as of February 29, 2020.

Selected financial information included in our results of operations for the portion of the business

that we expect will no longer be part of our consolidated results after the closing of the New Wine and
Spirits Transactions and Other Wine and Spirits Transactions is as follows:

Net Sales

Gross Profit Marketing (1)

(in millions)

Fiscal 2020

Wine and Spirits segment results

875 $

336 $

(1) This expense is included in selling, general, and administrative expenses within our consolidated results of

operations.

For additional information regarding the New Wine and Spirits Transactions and the Other Wine

and Spirits Transactions, refer to Note 2 of the Notes to the Financial Statements.

Ballast Point Transaction
In March 2020, we sold the Ballast Point craft beer business, including a number of its associated

Primarily in connection with the Ballast Point Transaction, we have beer net assets of $45.3

million that met the held for sale criteria as of February 29, 2020.

Canopy production optimization
In March 2020, Canopy announced its plans to close two Canadian greenhouse facilities as part of

its efforts to align supply and demand while improving production efficiencies over time. In April 2020,
Canopy announced its plans to close an additional Canadian greenhouse facility, exit its operations in
Africa, and reduce Latin America and United States cultivation activities. Canopy expects to record an
estimated pre-tax loss of approximately C$700 million to C$800 million in their fourth quarter fiscal 2020
results from the facilities closures as well as other changes related to its organizational and strategic
review. We will record our proportional share of Canopy’s estimated pre-tax loss of approximately C$245
million to C$280 million, in our first quarter fiscal 2021 results.

Constellation Brands, Inc. FY 2020 Form 10-K

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ITEM 7. MD&A

Investments, Acquisitions, and Divestitures

Canopy Segment
Canopy Investments
Our investments in Canopy, and the method of accounting for these investments, consist of the

following:

Date of
Investment

Investment
Acquired

(in millions)

Nov 2017

Common shares

Nov 2017 Warrants

June 2018 Convertible debt securities

Nov 2018
Nov 2018 Warrants (3)

Common shares

Purchase
Price

Method of
Accounting

130.1 Fair value / equity method (1)
61.2 Fair value

191.3

150.5 Fair value

2,740.3 Equity method

1,146.8 Fair value
3,887.1 (2)

We recognized an unrealized net gain (loss) from the changes in fair value of these investments

accounted for at fair value in income (loss) from unconsolidated investments, as follows:

Date of
Investment

(in millions)

Investment

Nov 2017

Common shares (1)

Nov 2017 Warrants

June 2018 Convertible debt securities
Nov 2018 Warrants (3)

Fiscal 2020

Fiscal 2019

— $

(543.7)

(94.6)

(1,488.1)

(2,126.4) $

292.5

465.5

55.5

1,157.7

1,971.2

(1) Accounted for at fair value from the date of investment in November 2017 through October 31, 2018.
Accounted for under the equity method from November 1, 2018 (see Note 10 of the Notes to the
Financial Statements).

(2)

(3)

Includes $17.2 million of direct acquisition costs capitalized under the equity method cost accumulation
model. Excludes $7.3 million of direct acquisition costs associated with the investment in warrants
which are expensed as incurred in selling, general, and administrative expenses.

In June 2019, the Canopy Shareholders approved the modification of the terms of the November 2018
Canopy Warrants. For additional information refer to Note 10 of the Notes to the Financial Statements.
Fiscal 2020 includes a $1,176.0 million unrealized gain resulting from the June 2019 Warrant
Modification.

We expect the value of the Canopy investments accounted for at fair value to be volatile in future
periods. We evaluated the Canopy investments as of February 29, 2020, and determined that there was
not an other-than-temporary-impairment. Additionally, since November 1, 2018, we recognize equity in
earnings (losses) and related activities for our Canopy Equity Method Investment on a two-month lag.
Accordingly, we recognized our share of Canopy’s earnings (losses) from January through December
2019, in our Fiscal 2020 results. We recognized our share of Canopy’s losses from November and
December 2018, in our Fiscal 2019 results. We expect Canopy’s earnings to be volatile in future periods.

As of February 29, 2020, the conversion of Canopy equity securities held by its employees and/or

held by other third parties, excluding our November 2017 Canopy Warrants, New November 2018 Canopy
Warrants, Canopy Debt Securities, and the Acreage Call Option, would not have a significant effect on our
share of Canopy’s reported earnings or losses. Additionally, under an amended and restated investor

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PART II

ITEM 7. MD&A

rights agreement, we have the option to purchase additional common shares of Canopy at the then-
current price of the underlying equity security to allow us to maintain our relative ownership interest. If
we exercised all of our outstanding November 2017 Canopy Warrants and New November 2018 Canopy
Warrants, it could have a significant effect on our share of Canopy’s reported earnings or losses and our
ownership interest in Canopy would be expected to increase to greater than 50 percent. In connection
with the Acreage Transaction, Canopy has the Acreage Call Option, which would require the issuance of
Canopy shares. If Canopy exercised the Acreage Call Option it could have a significant effect on our share
of Canopy’s reported earnings or losses and our ownership interest in Canopy would decrease and no
longer be expected to be greater than 50 percent.

As previously noted, these investments are consistent with our long-term strategy to identify,

meet, and stay ahead of evolving consumer trends and market dynamics, and they represent a significant
expansion of our strategic relationship to position Canopy as a global leader in cannabis production,
branding, intellectual property, and retailing.

Beer Segment
Four Corners acquisition
In July 2018, we acquired Four Corners, which primarily included the acquisition of operations,
goodwill, property, plant, and equipment, and trademarks. This acquisition included a portfolio of high-
quality, dynamic, and bicultural, Texas-based craft beers which further strengthened our position in the
high-end segment of the U.S. beer market. The results of operations of Four Corners are reported in the
Beer segment and have been included in our consolidated results of operations from the date of
acquisition.

Wine and Spirits Segment
Black Velvet Divestiture
On November 1, 2019, we sold the Black Velvet Canadian Whisky business and the brand’s
associated production facility, along with a subset of Canadian whisky brands produced at that facility, and
related inventory at a transaction value of $266.3 million. Accordingly, our consolidated results of
operations include the results of operations of our Canadian whisky business through the date of
divestiture. We received cash proceeds of $269.7 million, subject to estimated working capital
adjustments. This divestiture is consistent with our strategic focus on higher-margin, higher-growth
brands. We recognized a net gain of $74.1 million on the sale of the business for the year ended
February 29, 2020.

Nelson’s Green Brier acquisition
In May 2019, we increased our ownership interest in Nelson’s Green Brier to 75%, resulting in

consolidation of the business and recognition of a 25% noncontrolling interest. This acquisition included a
portfolio of award-winning, Tennessee-based craft bourbon and whiskey products. The preliminary fair
value of the business combination was allocated primarily to goodwill, trademarks, inventory, and
property, plant, and equipment. The results of operations of Nelson’s Green Brier are reported in the
Wine and Spirits segment and have been included in our consolidated results of operations from the date
of acquisition.

Sale of Accolade Wine Investment
In May 2018, we completed the sale of our remaining interest in our previously-owned Australian

and European business for A$149.1 million, or $113.6 million. We received cash proceeds, net of direct
costs to sell, of $111.7 million. This interest consisted of an investment accounted for under the cost
method and AFS debt securities. We recognized net gains of $0.4 million and $99.8 million in connection
with this transaction for the years ended February 29, 2020, and February 28, 2019, respectively. These
net gains are included in income from unconsolidated investments.

For additional information on these recent developments, investments, acquisitions, and

divestitures refer to Notes 2, 7, and 10 of the Notes to the Financial Statements.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

RESULTS OF OPERATIONS

FINANCIAL HIGHLIGHTS

References to organic throughout the following discussion exclude the impact of divested brand

activity in connection with the Black Velvet Divestiture (wine and spirits), as appropriate.

Financial Highlights for Fiscal 2020:

• Our results of operations were negatively impacted by (i) an unrealized net loss from the

changes in fair value of our investments in Canopy, (ii) equity in losses from Canopy’s results
of operations and related activities, and (iii) an impairment of long-lived assets held for sale
primarily in connection with the New Wine and Spirits Transactions, partially offset by (i) an
unrealized gain resulting from the June 2019 modification of the terms of the November 2018
Canopy Warrants and (ii) the continued improvements within the Beer segment.

• Net sales increased 3% primarily due to an increase in Beer net sales driven predominantly by
volume growth and a favorable impact from pricing within our Mexican beer portfolio, partially
offset by a decrease in Wine and Spirits net sales led by branded volume decline largely from
brands to be divested.

• Operating income (loss) decreased 11% largely due to an impairment of long-lived assets held
for sale primarily in connection with the New Wine and Spirits Transactions and restructuring
and other strategic business development costs incurred in connection with ongoing efforts to
gain efficiencies and reduce our cost structure primarily within the Wine and Spirits segment,
partially offset by the net sales volume growth and favorable impact from pricing within our
Mexican beer portfolio and a net gain related to the Black Velvet Divestiture.

• Net income (loss) attributable to CBI and diluted net income (loss) per common share

attributable to CBI decreased significantly primarily due to an unrealized net loss on our
investments in Canopy for Fiscal 2020, as compared with an unrealized net gain from the
changes in fair value on our investments for Fiscal 2019, partially offset by a net income tax
benefit recognized as a result of tax reform enacted in Switzerland.

COMPARABLE ADJUSTMENTS

Management excludes items that affect comparability from its evaluation of the results of each

operating segment as these Comparable Adjustments are not reflective of core operations of the
segments. Segment operating performance and segment management compensation are evaluated
based on core segment operating income (loss). As such, the performance measures for incentive
compensation purposes for segment management do not include the impact of these Comparable
Adjustments.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

As more fully described herein and in the related Notes to the Financial Statements, the

Comparable Adjustments that impacted comparability in our segment results for each period are as
follows:

Fiscal 2020

Fiscal 2019

(in millions)

Cost of product sold

Strategic business development costs

(124.5) $

Net gain (loss) on undesignated commodity derivative contracts

Accelerated depreciation

Flow through of inventory step-up

Settlements of undesignated commodity derivative contracts

Recovery of (loss on) inventory write-down

Total cost of product sold

Selling, general, and administrative expenses

Restructuring and other strategic business development costs

Impairment of intangible assets

Transaction, integration, and other acquisition-related costs

Net gain (loss) on foreign currency derivative contracts associated with acquisition
of investment

Deferred compensation

Other gains (losses)

Total selling, general, and administrative expenses

Impairment of assets held for sale

Gain (loss) on sale of business

Comparable Adjustments, Operating income (loss)

Income (loss) from unconsolidated investments

(49.0)

(7.6)

(1.5)

11.7

8.6

(6.0)

1.8

(8.9)

(4.9)

(8.6)

(3.3)

(162.3)

(29.9)

(25.3)

(11.0)

(9.2)

—

5.5

(40.0)

(449.7)

74.1

(17.1)

(108.0)

(10.2)

(32.6)

(16.3)

10.1

(174.1)

—

(577.9) $

(204.0)

(2,480.1) $

2,084.9

Cost of Product Sold
Strategic Business Development Costs
We recognized costs primarily in connection with losses on write-downs of excess inventory, bulk

wine sales, and contract terminations resulting from our ongoing efforts to optimize our portfolio, gain
efficiencies, and reduce our cost structure within the Wine and Spirits segment.

Undesignated Commodity Derivative Contracts
Net gain (loss) on undesignated commodity derivative contracts represents a net gain (loss) from
the changes in fair value of undesignated commodity derivative contracts. The net gain (loss) is reported
outside of segment operating results until such time that the underlying exposure is recognized in the
segment operating results. At settlement, the net gain (loss) from the changes in fair value of the
undesignated commodity derivative contracts is reported in the appropriate operating segment, allowing
the results of our operating segments to reflect the economic effects of the commodity derivative
contracts without the resulting unrealized mark to fair value volatility.

Accelerated Depreciation
We recognized accelerated depreciation for certain assets primarily in connection with our current

multi-year implementation of a new ERP system which is intended to replace our existing operating and
financial systems.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

Inventory Step-Up
In connection with acquisitions, the allocation of purchase price in excess of book value for certain

inventories on hand at the date of acquisition is referred to as inventory step-up. Inventory step-up
represents an assumed manufacturing profit attributable to the acquired business prior to acquisition.

Recovery of (Loss on) Inventory Write-Down
We recognized a reimbursement from our insurance carriers for losses recognized on the write-

down of certain bulk wine inventory as a result of smoke damage sustained during the Fall 2017
California wildfires (Fiscal 2020). We recognized a loss on the write-down of certain bulk wine inventory
as a result of smoke damage sustained during the Fall 2017 California wildfires (Fiscal 2019). For
additional information, refer to Note 17 of the Notes to the Financial Statements.

Selling, General, and Administrative Expenses
Restructuring and Other Strategic Business Development Costs
We recognized costs primarily in connection with (i) costs from our ongoing efforts to gain

efficiencies and reduce our cost structure in connection with a program intended to optimize the Wine
and Spirits segment (Fiscal 2020) and (ii) costs recognized in connection with the development of a
program specifically intended to identify opportunities for further streamlining of processes and
improving capabilities, linking strategy with execution, prioritizing resources, and enabling a new ERP
system.

Impairment of Intangible Assets
We recognized trademark impairment losses related to our Beer segment’s Ballast Point craft

beer trademark asset. For additional information, refer to Note 7 of the Notes to the Financial
Statements.

Transaction, Integration, and Other Acquisition-Related Costs
We recognized transaction, integration, and other acquisition-related costs in connection with our

acquisitions, divestitures, and investments.

Net Gain (Loss) on Foreign Currency Derivative Contracts Associated with Acquisition of Investment
We recognized a net loss in connection with the settlement of foreign currency option contracts

entered into to fix the U.S. dollar cost of the November 2018 Canopy Transaction.

Deferred Compensation
We recognized an adjustment related to prior periods to correct for previously unrecognized

deferred compensation costs associated with certain employment agreements.

Other Gains (Losses)
We recognized other gains (losses) primarily in connection with (i) a gain on the remeasurement of
our previously held equity interest in Nelson’s Green Brier to the acquisition-date fair value (Fiscal 2020),
(ii) an increase in estimated fair value of a contingent liability associated with a prior period acquisition
(Fiscal 2020), (iii) recognition of previously deferred gain upon release of a related guarantee (Fiscal
2020), and (iv) a gain primarily in connection with the sale of certain non-core assets (Fiscal 2019).

Impairment of Assets Held for Sale
We recognized an impairment of long-lived assets held for sale in connection with the New Wine

and Spirits Transactions, Other Wine and Spirits Transactions, and the Ballast Point Transaction.

Gain (Loss) on Sale of Business
We recognized a net gain on sale of the Black Velvet Canadian Whisky business.

Income (Loss) from Unconsolidated Investments
We recognized an unrealized gain (loss) primarily from (i) the changes in fair value of our
securities measured at fair value, (ii) the increase in fair value resulting from the June 2019 modification

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

of the terms of the November 2018 Canopy Warrants (Fiscal 2020), (iii) equity in earnings (losses) from
Canopy’s results of operations and related activities, and (iv) a net gain in connection with the sale of our
Accolade Wine Investment (Fiscal 2019). For additional information, refer to Notes 7, 10, and 23 of the
Notes to the Financial Statements.

Net Sales

(in millions)
Beer
Wine and Spirits:

Wine
Spirits

Total Wine and Spirits
Canopy
Consolidation and Eliminations
Consolidated net sales

NM = Not Meaningful

Beer Segment

Fiscal 2020

Fiscal 2019

Dollar
Change

Percent
Change

5,615.9 $

5,202.1 $

413.8

2,367.5
360.1
2,727.6
290.2
(290.2)
8,343.5 $

2,532.5
381.4
2,913.9
48.6
(48.6)
8,116.0 $

(165.0)
(21.3)
(186.3)
241.6
(241.6)
227.5

(7%)
(6%)
(6%)
NM
NM
3%

Fiscal 2020

Fiscal 2019

Dollar
Change

Percent
Change

(in millions, branded product, 24-pack, 12-ounce case equivalents)
Net sales

5,615.9 $

5,202.1 $

413.8

Shipment volume

Depletion volume (1)

311.9

294.1

6.1%

7.5%

(1) Depletions represent distributor shipments of our respective branded products to retail customers,

based on third-party data.

The increase in Beer net sales is primarily due to $330.9 million of volume growth within our
Mexican beer portfolio, which benefited from continued consumer demand, increased marketing
spend, and new product introductions; and a $118.4 million favorable impact from pricing in
select markets within our Mexican beer portfolio. The increase was partially offset by a decline of
$25.2 million in craft beer net sales. The shipment volume timing benefit that occurred at the
end of Fiscal 2019 reversed in Fiscal 2020.

Wine and Spirits Segment

Fiscal 2020

Fiscal 2019

Dollar
Change

Percent
Change

(in millions, branded product, 9-liter case equivalents)
Net sales

2,727.6 $

2,913.9 $

(186.3)

(6%)

Shipment volume

Total
Organic (2)

U.S. Domestic
Organic U.S. Domestic (2)

U.S. Domestic Power Brands

Depletion volume (1)
U.S. Domestic (2)
U.S. Domestic Power Brands

53.6
53.6

49.5
49.5

23.0

58.5
57.8

54.4
53.7

23.4

(8.4%)
(7.3%)

(9.0%)
(7.8%)

(1.7%)

(5.2%)
1.9%

(2)

Includes an adjustment to remove volume associated with the Black Velvet Divestiture for the period
November 1, 2018, through February 28, 2019.

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ITEM 7. MD&A

The decrease in Wine and Spirits net sales is primarily due to (i) $193.0 million decline in
branded wine and spirits volume and (ii) $26.0 million decrease in net sales from the Black
Velvet Divestiture, partially offset by (i) $20.0 million of favorable product mix shift and
(ii) $7.7 million favorable impact from pricing. The Wine and Spirits Fiscal 2020 results have been
negatively impacted by transition activities with distributors who are repositioning for ownership
of brands upon closing the New Wine and Spirits Transactions and the Black Velvet Divestiture.

Canopy Segment
Our ownership interest in Canopy allows us to exercise significant influence, but not control, and,
therefore, we account for our investment in Canopy under the equity method. Amounts included
for the Canopy segment represent 100% of Canopy’s reported results on a two-month lag,
prepared in accordance with U.S. GAAP, and converted from Canadian dollars to U.S. dollars.
Although we own less than 100% of the outstanding shares of Canopy, 100% of the Canopy
results are included and subsequently eliminated in order to reconcile to our consolidated
financial statements. Canopy segment amounts reflect twelve months of activity for Fiscal 2020
as compared with two months of activity for Fiscal 2019, due to the timing of the November 2018
Canopy Investment. See “Income (Loss) from Unconsolidated Investments” below for a
discussion of Canopy’s net sales, gross profit (loss), selling, general, and administrative
expenses, and operating income (loss).

Gross Profit

(in millions)
Beer

Wine and Spirits

Canopy

Consolidation and Eliminations

Comparable Adjustments

Consolidated gross profit

Fiscal 2020

Fiscal 2019

Dollar
Change

Percent
Change

3,125.2 $

2,830.7 $

1,189.0

1,279.5

45.4

(45.4)

(162.3)

11.2

(11.2)

(29.9)

4,151.9 $

4,080.3 $

294.5

(90.5)

34.2

(34.2)

(132.4)

71.6

10%

(7%)

The increase in Beer is primarily due to $183.4 million of volume growth, $118.4 million of
favorable impact from pricing, and $17.5 million of lower cost of product sold for our Mexican
beer business, partially offset by a decline of $14.0 million in our craft beer portfolio. The lower
cost of product sold is largely due to foreign currency transactional benefits of $24.2 million and
decreased operational costs of $3.9 million, partially offset by increased warehousing and
transportation costs of $10.6 million.

The decrease in Wine and Spirits is largely due to (i) $83.1 million of decline in branded wine and
spirits volume, (ii) $27.2 million higher cost of product sold, and (iii) $12.3 million decrease in
gross profit from the Black Velvet Divestiture, partially offset by $27.3 million of favorable
product mix shift. The higher cost of product sold is largely attributable to higher grape raw
material and processing costs as well as increased transportation costs.

Gross profit as a percent of net sales decreased to 49.8% for Fiscal 2020 compared with 50.3% for

Fiscal 2019. This was largely due to an unfavorable change of 155 basis points in Comparable
Adjustments and higher cost of product sold within the Wine and Spirits segment, which resulted in
approximately 30 basis points of rate decline, partially offset by rate growth from (i) the favorable impact
from Beer pricing in select markets, which contributed approximately 70 basis points, (ii) favorable
impact from Wine and Spirits product mix shift, which resulted in 20 basis points, (iii) lower cost of
product sold within the Beer segment, which resulted in 20 basis points of rate growth, and (iv) favorable
volume growth from Beer which resulted in approximately 20 basis points.

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#WORTHREACHINGFOR I 42

PART II

ITEM 7. MD&A

Selling, General, and Administrative Expenses

Fiscal 2020

Fiscal 2019

Dollar
Change

Percent
Change

(in millions)
Beer

Wine and Spirits

Corporate Operations and Other

Canopy

Consolidation and Eliminations

Comparable Adjustments

877.3 $

787.8 $

480.6

223.9

731.2

(731.2)

40.0

508.3

197.9

93.9

(93.9)

174.1

89.5

(27.7)

26.0

637.3

(637.3)

(134.1)

Consolidated selling, general, and administrative
expenses

1,621.8 $

1,668.1 $

(46.3)

11%

(5%)

13%

(77%)

(3%)

The increase in Beer is primarily due to an increase of $76.0 million in marketing spend and
$13.7 million in general and administrative expenses. The increase in marketing spend is due to
planned investment to support the growth of our Mexican beer portfolio, including support of the
new product introductions. The increase in general and administrative expenses is largely driven
by increased headcount supporting the growth of the business, partially offset by favorable
foreign currency transaction gains.

The decrease in Wine and Spirits is largely due to a decrease of $19.4 million in general and
administrative expenses. The decrease in general and administrative expenses is driven by
certain cost saving initiatives including decreased compensation and benefits.

The increase in Corporate Operations and Other is due to an increase of approximately
$17 million in insurance related costs, $13 million in compensation and benefits, and higher
information technology costs supporting the implementation of our new ERP system, partially
offset by a reduction in consulting costs.

Selling, general, and administrative expenses as a percent of net sales decreased to 19.4% for

Fiscal 2020 as compared with 20.6% for Fiscal 2019. The decrease is driven largely by (i) a favorable
change of 170 basis points in Comparable Adjustments. The rate decline was offset by an increase in
Corporate Operations and Other and Beer selling, general, and administrative expenses, which resulted
in approximately 30 basis points and 10 basis points of rate growth, respectively.

Operating Income (Loss)

(in millions)

Beer

Wine and Spirits

Corporate Operations and Other

Canopy

Consolidation and Eliminations

Comparable Adjustments

Consolidated operating income

Fiscal 2020

Fiscal 2019

Dollar
Change

Percent
Change

2,247.9 $

2,042.9 $

708.4

(223.9)

(685.8)

685.8

(577.9)

771.2

(197.9)

(82.7)

82.7

(204.0)

2,154.5 $

2,412.2 $

205.0

(62.8)

(26.0)

(603.1)

603.1

(373.9)

(257.7)

10%

(8%)

(13%)

(11%)

The increase in Beer is primarily attributable to the strong volume growth and favorable pricing
impact, partially offset by the planned increase in marketing spend combined with the decline in
craft beer.

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PART II

ITEM 7. MD&A

The decrease in Wine and Spirits was driven largely by the decline in branded wine and spirits
volume, higher cost of product sold, and the impact from the Black Velvet Divestiture partially
offset by the favorable impact of product mix shift, lower general and administrative expenses,
and the favorable impact from pricing.

As previously discussed, the Corporate Operations and Other increase in operating loss is due to
increased insurance, compensation and benefits, and information technology costs, partially
offset by a reduction in consulting costs.

Income (Loss) From Unconsolidated Investments
General
Income (loss) from unconsolidated investments decreased to $(2,668.6) million for Fiscal 2020

from $2,101.6 million for Fiscal 2019, a decrease of $4,770.2 million. This decrease is driven largely by an
unrealized net loss of $2,126.4 million for Fiscal 2020, which consists of an unrealized net loss from the
changes in fair value of our securities measured at fair value of $3,302.4 million, partially offset by an
unrealized gain of $1,176.0 million from the June 2019 modification of the terms of the November 2018
Canopy Warrants, as compared with an unrealized net gain of $1,971.2 million recognized for Fiscal 2019.
Fiscal 2020 was also negatively impacted by $575.9 million of equity in losses from Canopy’s results of
operations, and related activities, while Fiscal 2019 benefited from a net gain in connection with the sale
of our Accolade Wine Investment of $99.8 million.

Canopy Segment
Canopy’s Fiscal 2020 net sales; gross profit (loss); selling, general, and administrative expenses;
and operating income (loss) are not comparable against Fiscal 2019 due the timing of the
November 2018 Canopy Investment and recognizing equity in earnings (losses) and related
activities on a two-month lag. We have recognized twelve months of activity for Fiscal 2020 as
compared with two months of activity for Fiscal 2019.

Interest Expense
Interest expense increased to $428.7 million for Fiscal 2020 from $367.1 million for Fiscal 2019,

an increase of $61.6 million, or 17%. This increase is predominantly due to higher average borrowings of
approximately $1.7 billion primarily attributable to the November 2018 Canopy Transaction.

(Provision For) Benefit From Income Taxes
Our effective tax rate for Fiscal 2020 was 102.3% of tax benefit as compared with 16.5% of tax
expense for Fiscal 2019. The change in effective tax rate was driven primarily by the recognition of a
$547.4 million net income tax benefit resulting from the remeasurement of our deferred tax assets for
Fiscal 2020 in connection with the September 2019 enactment of tax reform in Switzerland. The Fiscal
2020 rate also benefited from (i) a higher effective rate of tax benefit from our foreign businesses
including the tax benefits recorded on the net unrealized loss from the changes in fair value of our
investments in Canopy and the tax benefits recorded on the Canopy equity in losses and related activities
and (ii) recognition of net income tax benefits from stock-based compensation award activity.

For additional information, refer to Note 14 of the Notes to the Financial Statements.

We expect our reported effective tax rate for the next fiscal year to be in the range of 17% to 19%.

This includes an estimated impact for (i) benefits related to the recognition of the income tax effect of
stock-based compensation awards in the income statement when the awards vest or are settled and
(ii) lower effective tax rates applicable to our foreign businesses. This range does not reflect (i) any
potential impacts from COVID-19, (ii) any future changes in the fair value of our Canopy investments
measured at fair value and any future equity in earnings (losses) and related activities from the Canopy
Equity Method Investment, and (iii) any additional gain (loss) recognized in connection with the New Wine
and Spirits Transactions, Other Wine and Spirits Transactions, and the Ballast Point Transaction since
these estimates are not currently available.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 44

PART II

ITEM 7. MD&A

Net Income (Loss) Attributable to CBI
Net income (loss) attributable to CBI decreased to $(11.8) million for Fiscal 2020 from $3,435.9

million for Fiscal 2019. This decrease of $3,447.7 million is largely attributable to the significant decrease
in income (loss) from unconsolidated investments discussed above, an impairment of long-lived assets
held for sale as well as the decline in operating performance from Wine and Spirits. These decreases
were partially offset by solid operating performance from Beer contributing an additional $205.0 million
of operating income.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

General

Our ability to consistently generate cash flow from operating activities is one of our most
significant financial strengths. Our strong cash flows enable us to invest in our people and our brands,
make appropriate capital investments, provide a quarterly cash dividend program, and from time-to-time,
repurchase shares of our common stock and make strategic investments and acquisitions that we believe
will enhance shareholder value. Our primary source of liquidity has been cash flow from operating
activities. Our principal use of cash in our operating activities is for purchasing and carrying inventories
and carrying seasonal accounts receivable. Historically, we have used cash flow from operating activities
to repay our short-term borrowings and fund capital expenditures. Additionally, we have a commercial
paper program which we use to fund our short-term borrowing requirements and to maintain our access
to the capital markets. We will continue to use our short-term borrowings, including our commercial
paper program, to support our working capital requirements and capital expenditures. COVID-19 has
negatively impacted the global economy and financial markets which could interfere with our ability to
access sources of liquidity at favorable rates and generate operating cash flows. We are currently
evaluating recent COVID-19 related legislation and governmental initiatives and expect to take advantage
of opportunities to temporarily defer some payments including certain excise and payroll taxes.

We have maintained adequate liquidity to meet working capital requirements, fund capital

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

We have plans to sell a portion of our U.S. wine and spirits business. We expect to use the net

cash proceeds from closing these transactions primarily to reduce outstanding borrowings.

The November 2017 Canopy Warrants with an exercise price of C$12.98 per warrant share will

expire on May 1, 2020. We will evaluate exercise of the warrants immediately prior to expiration. If a
decision is made to exercise the November 2017 Canopy Warrants, we expect to fund the C$245 million
transaction with cash from operations.

Cash Flows

(in millions)
Net cash provided by (used in):

Operating activities
Investing activities
Financing activities

Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents

Fiscal 2020

Fiscal 2019

Dollar
Change

2,551.1 $
(531.0)
(2,031.4)
(0.9)
(12.2) $

2,246.3 $
(4,831.8)
2,593.3
(4.5)
3.3 $

304.8
4,300.8
(4,624.7)
3.6
(15.5)

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

Operating Activities
The increase in net cash provided by operating activities for Fiscal 2020 is largely due to strong
cash flow from the Beer segment driven primarily by the segment’s solid operating results, combined
with the timing of collections for recoverable value-added taxes. Net cash provided by operating activities
also benefited from lower income tax payments largely due to a change in estimated taxable income and
the receipt of a higher federal tax refund for Fiscal 2020 as compared with Fiscal 2019. The increase in
net cash provided by operating activities was partially offset by higher cash outflows from accounts
payable primarily attributable to the timing of payments for the Wine and Spirits segment.

Investing Activities
Net cash used in investing activities for Fiscal 2020 decreased primarily due to the $3,869.9

million November 2018 Canopy Transaction, proceeds of $269.7 million from the November 2019 Black
Velvet Divestiture, and lower Fiscal 2020 capital expenditures of $159.8 million. The decrease in net cash
used in investing activities was partially offset by proceeds received in Fiscal 2019 of $110.2 million from
the May 2018 sale of our Accolade Wine Investment.

Business acquisitions, divestitures, and investments consist primarily of the following:

Acquisitions

Divestitures

Investments

Fiscal 2020

Fiscal 2019

Nelson’s Green Brier

Black Velvet Canadian Whisky

Four Corners

Accolade Wine Investment

November 2018 Canopy Investment

Financing Activities
The increase in net cash provided by (used in) financing activities consists of:

Fiscal 2020

Fiscal 2019

Dollar
Change

(in millions)

Net proceeds from (payments of) debt, current and long-term, and
related activities
Dividends paid

Purchases of treasury stock

Net cash provided by stock-based compensation activities

Payment of contingent consideration

(1,464.8) $

3,605.7 $

(5,070.5)

(569.2)

(50.0)

63.9

(11.3)

(557.7)

(504.3)

49.6

—

(11.5)

454.3

14.3

(11.3)

Net cash provided by (used in) financing activities

(2,031.4) $

2,593.3 $

(4,624.7)

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

Debt

Total debt outstanding as of February 29, 2020, amounted to $12,184.6 million, a decrease of

$1,431.9 million from February 28, 2019. The decrease consisted of:

Bank Facilities
In June 2019, we entered into the 2019 Term Credit Agreement which resulted in the creation of a

$491.3 million five-year term loan facility. We utilized the proceeds from the borrowings under the 2019
Term Credit Agreement to repay in full the U.S. Term A-1 Facility under the 2018 Credit Agreement.

In March 2020, we entered into the 2020 Restatement Agreement that amended and restated the

2018 Credit Agreement. The 2020 Restatement Agreement resulted in (i) the removal of the subsidiary
guarantees and termination of the guarantee agreement, (ii) the inclusion of the parent guaranty
provisions in connection with the termination of the guarantee agreement, (iii) the removal of certain
provisions pertaining to term loans since no term loans are outstanding, and (iv) the revision of the LIBOR
successor rate provisions to permit the use of rates based on the SOFR administered by the Federal
Reserve Bank of New York.

In March 2020, we entered into the Term Loan Restatement Agreement and the 2020 Term Loan

Restatement Agreement, that amended and restated the Term Credit Agreement and the 2019 Term
Credit Agreement, respectively. The Term Loan Restatement Agreement and the 2020 Term Loan
Restatement Agreement each resulted in (i) the removal of the subsidiary guarantees and termination of
the respective guarantee agreements and (ii) the revision of the LIBOR successor rate provisions in each
to permit the use of rates based on SOFR.

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

General
The majority of our outstanding borrowings as of February 29, 2020, consisted of fixed-rate senior
unsecured notes, with maturities ranging from calendar 2020 to calendar 2048, and variable-rate senior
unsecured term loan facilities under our Term Credit Agreement and 2019 Term Credit Agreement, with
maturities ranging from calendar 2021 to calendar 2024.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

Additionally, we have a commercial paper program which provides for the issuance of up to an

aggregate principal amount of $2.0 billion of commercial paper. Our commercial paper program is
backed by unused commitments under our revolving credit facility under our 2018 Credit Agreement.
Accordingly, outstanding borrowings under our commercial paper program reduce the amount available
under our revolving credit facility under our 2018 Credit Agreement.

We do not have purchase commitments from buyers for our commercial paper and, therefore, our

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

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

(in millions)

Revolving Credit Facility (1)

Remaining Borrowing Capacity

February 29,
2020

April 15,
2020

1,749.2 $

1,988.2

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

The financial institutions participating in our 2018 Credit Agreement have complied with prior

funding requests and we believe such financial institutions will comply with any future funding requests.
However, there can be no assurances that any particular financial institution will continue to do so.

We and our subsidiaries are subject to covenants that are contained in the 2018 Credit Agreement,

including those restricting the incurrence of additional indebtedness (including guarantees of
indebtedness) by subsidiaries, 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

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PART II

ITEM 7. MD&A

leverage ratio, both as defined in the 2018 Credit Agreement. As of February 29, 2020, under the 2018
Credit Agreement, the minimum interest coverage ratio was 2.5x and the maximum net leverage ratio
was 5.0x.

The representations, warranties, covenants, and events of default set forth in our Term Credit

Agreement and our 2019 Term Credit Agreement are substantially similar to those set forth in our 2018
Credit Agreement.

Our indentures relating to our outstanding senior notes contain certain covenants, including, but

not limited to: (i) a limitation on liens on certain assets, (ii) a limitation on certain sale and leaseback
transactions, and (iii) restrictions on mergers, consolidations, and the transfer of all or substantially all of
our assets to another person. Upon the March 2020 removal of all of the subsidiary guarantors from our
2018 Credit Agreement, the subsidiary guarantors were automatically released from the indentures
relating to our outstanding senior notes.

As of February 29, 2020, we were in compliance with our covenants under the 2018 Credit
Agreement, Term Credit Agreement, 2019 Term Credit Agreement, and our indentures, and have met all
debt payment obligations.

For a complete discussion and presentation of all borrowings and available sources of borrowing,

refer to Note 13 of the Notes to the Financial Statements.

Common Stock Dividends

On April 2, 2020, our Board of Directors declared a quarterly cash dividend of $0.75 per share of
Class A Common Stock, $0.68 per share of Class B Convertible Common Stock, and $0.68 per share of
Class 1 Common Stock payable on May 19, 2020, to stockholders of record of each class on May 5, 2020.
We expect to return approximately $565 million to stockholders in Fiscal 2021 through cash dividends.

We currently expect to continue to pay a regular quarterly cash dividend to stockholders of our

common stock in the future, but such payments are subject to approval of our Board of Directors and are
dependent upon our financial condition, results of operations, capital requirements, and other factors,
including those set forth under Item 1A “Risk Factors” of this Annual Report on Form 10-K.

Share Repurchase Program

Our Board of Directors have authorized the repurchase of up to $3.0 billion of our Class A

Common Stock and Class B Convertible Common Stock under the 2018 Authorization. Shares
repurchased under this authorization have become treasury shares.

As of February 29, 2020, total shares repurchased under this authorization are as follows:

(in millions, except share data)

2018 Authorization

Class A Common Shares

Dollar Value
of Shares
Repurchased

Number of
Shares
Repurchased

Repurchase
Authorization

3,000.0 $

1,045.9

4,897,605

Share repurchases under the 2018 Authorization may be accomplished at management’s
discretion from time to time based on market conditions, our cash and debt position, and other factors as
determined by management. Shares may be repurchased through open market or privately negotiated
transactions. We may fund future share repurchases with cash generated from operations and/or
proceeds from borrowings. Any repurchased shares will become treasury shares.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 7. MD&A

We currently expect to continue to repurchase shares in the future, but such repurchases are

dependent upon our financial condition, results of operations, capital requirements, and other factors,
including those set forth under Item 1A “Risk Factors” of this Annual Report on Form 10-K.

For additional information, refer to Note 18 of the Notes to the Financial Statements.

Contractual Obligations and Commitments

The following table sets forth information about our contractual obligations outstanding at

February 29, 2020. It brings together data for easy reference from our balance sheet and Notes to the
Financial Statements. For a detailed discussion of the items noted in the following table, refer to
Notes 12, 13, 14, 15, and 17 of the Notes to the Financial Statements.

Payments Due By Period

Total

Less than
1 year

1-3 years

3-5 years

After
5 years

(in millions)

Short-term borrowings

238.9 $

— $

—

Long-term debt (excluding
unamortized debt issuance costs and
unamortized discounts)
Interest payments on long-term debt (1)
Operating leases
Other long-term liabilities (2)
Purchase obligations (3)
Total contractual obligations

12,021.8

3,770.6

686.8

302.9

6,024.7

736.2

426.0

94.1

97.7

3,511.1

2,174.5

732.4

150.7

94.0

515.4

112.3

78.6

1,413.7

2,266.4

1,166.7

23,045.7 $

3,006.6 $

6,754.6 $

4,047.5 $

5,600.0

2,096.8

329.7

32.6

1,177.9

9,237.0

(1)

(2)

Interest rates on long-term debt obligations range from 2.3% to 5.3% as of February 29, 2020. Interest
payments on long-term debt do not include interest related to finance lease obligations, which
represent approximately 0.2% of our total long-term debt, as amounts are not material.

Includes $45.8 million associated with expected payments for unrecognized tax benefit liabilities as of
February 29, 2020, $0.5 million of which is expected to be paid in the less than one year period. The
payments are reflected in the period in which we believe they will ultimately be settled based on our
experience in these matters. Other long-term liabilities do not include payments for unrecognized tax
benefit liabilities of $203.6 million due to the uncertainty of the timing of future cash flows associated
with these unrecognized tax benefit liabilities. In addition, other long-term liabilities do not include
expected payments for interest and penalties associated with unrecognized tax benefit liabilities as
amounts are not material. For a detailed discussion of these items, refer to Note 14 of the Notes to the
Financial Statements.

(3) Consists primarily of $4,789.5 million for contracts to purchase certain raw materials and supplies over
the next eighteen fiscal years and approximately $115 million for contracts to purchase equipment and
services related to the construction of the Mexicali Brewery. For further information about these
purchase obligations, and others, refer to “Capital Expenditures” below and Note 17 of the Notes to the
Financial Statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that either have, or are reasonably likely to

have, a current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to
investors.

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PART II

ITEM 7. MD&A

Capital Expenditures

During Fiscal 2020, we incurred $726.5 million
for capital expenditures, including $571.7 million
for the Beer segment primarily for (i) our
Obregon Brewery optimization and expansion,
(ii) our Nava Brewery and glass production plant
expansions, and (iii) our Mexicali Brewery
construction (collectively, the “Mexico Beer
Expansion Projects”). Management reviews the
capital expenditure program periodically and
modifies it as required to meet current business
needs. We do not believe it is prudent at this
time to provide capital expenditure guidance for
Fiscal 2021 as we are not able to estimate the
long-term impact of COVID-19, including the
demand for our products and the impact on the
timeframes for completion of our Mexico Beer
Expansion Projects.

In fiscal 2017, we began construction of the Mexicali Brewery. In March 2020, a public consultation on

the construction of our Mexicali Brewery was held. We have initiated early stage discussions with
government officials in Mexico regarding next steps for our brewery construction project and options
elsewhere in the country following the result of the public consultation. These discussions have been
positive and we will continue working with government officials to mutually agree upon a path forward. In
the medium-term, we have ample capacity, based on current growth forecasts and production capabilities
at the Nava and Obregon breweries, to meet consumer needs. As of February 29, 2020, we recognized
approximately $700 million of capital expenditures for construction in progress related to the Mexicali
Brewery.

Effects of Inflation and Changing Prices

Our results of operations and financial condition have not been significantly affected by inflation

and changing prices. We intend to pass along rising costs through increased selling prices, subject to
normal competitive conditions. There can be no assurances, however, that we will be able to pass along
rising costs through increased selling prices. In addition, we continue to identify on-going cost savings
initiatives.

Critical Accounting Estimates and Policies

Our significant accounting policies are more fully described in Note 1 of the Notes to the Financial
Statements. However, certain of our accounting policies are particularly important to the portrayal of our
financial position and results of operations and require the application of significant judgment by
management; as a result, they are subject to an inherent degree of uncertainty. In applying those policies,
management uses its judgment to determine the appropriate assumptions to be used in the
determination of certain estimates. Those estimates are based on our historical experience, our
observance of trends in the industry, information provided by our customers and information available
from other outside sources, as appropriate. On an ongoing basis, we review our estimates to ensure that
they appropriately reflect changes in our business. Our critical accounting estimates include:

•

Fair value of financial instruments. Certain inputs and assumptions to models used to
determine fair value measurements require judgment, considering factors specific to the
asset or liability. The use of certain inputs may include information derived through
extrapolation or interpolation which involves management assumptions as well as valuation

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PART II

ITEM 7. MD&A

techniques. The fair values of our financial instruments that require the application of
significant judgment by management are as follows:

Canopy investments
Equity securities, Warrants - estimated using the Black-Scholes option-pricing model
(Level 2 fair value measurement) and Monte Carlo simulations (Level 2 fair value
measurement). These valuation models use various market-based inputs, including stock
price, remaining contractual term, expected volatility, risk-free interest rate, and expected
dividend yield, as applicable. Management applies significant judgment in its
determination of expected volatility. We consider both historical and implied volatility
levels of the underlying equity security and apply limited consideration of historical peer
group volatility levels.

Debt securities, Convertible - estimated using a binomial lattice option-pricing model
(Level 2 fair value measurement), which includes an estimate of the credit spread based
on the implied spread as of the issuance date of the notes. This valuation model uses
various market-based inputs, including stock price, remaining term, expected volatility,
risk-free interest rate, and expected dividend yield, as applicable.

Management’s estimate of fair value requires significant management judgment and is subject
to a high degree of variability based upon market conditions, the availability of specific
information and management’s assumptions.

• Goodwill and other intangible assets. We account for goodwill and other intangible assets by
classifying intangible assets into three categories: (i) intangible assets with definite lives
subject to amortization, (ii) intangible assets with indefinite lives not subject to amortization,
and (iii) goodwill. For intangible assets with definite lives, impairment testing is required if
conditions exist that indicate the carrying value may not be recoverable. For intangible assets
with indefinite lives and for goodwill, impairment testing is required at least annually or more
frequently if events or circumstances indicate that these assets might be impaired. We
perform annual impairment tests and re-evaluate the useful lives of other intangible assets
with indefinite lives at the annual impairment test measurement date of January 1 or when
circumstances arise that indicate a possible impairment or change in useful life might exist.

The guidance for goodwill impairment testing allows an entity to assess qualitative factors to
determine whether the existence of events or circumstances leads to a determination that it is
more likely than not that the estimated fair value of a reporting unit is less than its carrying
amount or to proceed directly to performing a quantitative impairment test. Under the
quantitative assessment, the estimated fair value of each reporting unit is compared to its
carrying value, including goodwill. The estimate of fair value of the reporting unit is generally
calculated based on an income approach using the discounted cash flow method. If the
estimated fair value of the reporting unit is less than the carrying value of the reporting unit, a
goodwill impairment will be recognized. The amount of impairment charge for goodwill is
equal to the excess of the carrying value of the goodwill over the implied fair value of the
goodwill. Our reporting units with goodwill include the Beer segment and the Wine and Spirits
segment. In estimating the fair value of the reporting units, management must make
assumptions and projections regarding such items as future cash flows, future revenues,
future earnings, and other factors. The assumptions used in the estimate of fair value are
based on historical trends and the projections and assumptions that are used in current
strategic operating plans. These assumptions reflect management’s estimates of future
economic and competitive conditions and are, therefore, subject to change as a result of
changing market conditions. If these estimates or their related assumptions change in the
future, we may be required to recognize an impairment loss for these assets. The recognition
of any resulting impairment loss could have a material adverse impact on our financial
statements.

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ITEM 7. MD&A

In the fourth quarter of fiscal 2020, we performed our annual goodwill impairment analysis
using the quantitative assessment. No indication of impairment was noted for any of our
reporting units, as the estimated fair value of each of our reporting units with goodwill
exceeded their carrying value. Based on this analysis, the reporting unit with the lowest
amount of estimated fair value in excess of its carrying value was the Wine and Spirits
reporting unit with approximately 107% excess fair value. For Fiscal 2019 and Fiscal 2018, as a
result of our annual goodwill impairment analyses, we concluded that there were no
indications of impairment for either of our reporting units.

The most significant assumptions used in the discounted cash flow calculation to determine
the estimated fair value of our reporting units in connection with the impairment testing are:
(i) the discount rate, (ii) the expected long-term growth rate, and (iii) the annual cash flow
projections. As of January 1, 2020, if we used a discount rate that was 50 basis points higher or
used an expected long-term growth rate that was 50 basis points lower or used annual cash
flow projections that were 100 basis points lower in our impairment testing of goodwill, then
the changes individually would not have resulted in the carrying value of the respective
reporting unit’s net assets, including its goodwill, exceeding its estimated fair value, which
would indicate the potential for impairment and the requirement to measure the amount of
impairment, if any.

Our other intangible assets consist primarily of customer relationships and trademarks
obtained through business acquisitions. Customer relationships are amortized over their
estimated useful lives. The trademarks that were determined to have indefinite useful lives
are not amortized. The guidance for indefinite lived intangible asset impairment testing allows
an entity to assess qualitative factors to determine whether the existence of events or
circumstances indicates that it is more likely than not that the indefinite lived intangible asset
is impaired or to proceed directly to performing the quantitative impairment test. Under the
quantitative assessment, our trademarks are evaluated for impairment by comparing the
carrying value of the trademarks to their estimated fair value. The estimated fair value of
trademarks is calculated based on an income approach using the relief from royalty method.
The estimate of fair value is then compared to the carrying value of each trademark. If the
estimated fair value is less than the carrying value of the trademark, then an impairment
charge is recognized to reduce the carrying value of the trademark to its estimated fair value.
In estimating the fair value of the trademarks, management must make assumptions and
projections regarding future cash flows based upon future revenues and other factors. The
assumptions used in the estimate of fair value are consistent with historical trends and the
projections and assumptions that are used in current strategic operating plans. These
assumptions reflect management’s estimates of future economic and competitive conditions
and are, therefore, subject to change as a result of changing market conditions. If these
estimates or their related assumptions change in the future, we may be required to recognize
an impairment loss for these assets. The recognition of any resulting impairment loss could
have a material adverse impact on our financial statements.

During the second quarter of fiscal 2020, certain continuing negative trends within our Beer
segment’s Ballast Point craft beer portfolio, including increased rate of revenue decline and
increased competition, indicated that it was more likely than not that the fair value of our
indefinite-lived intangible asset associated with the Ballast Point craft beer trademarks might
be below its carrying value. Accordingly, we performed a quantitative assessment for
impairment. As a result of this assessment, the Ballast Point craft beer trademark asset
recognized an impairment loss of $11.0 million. For the fourth quarter of fiscal 2019, the Beer
segment’s Ballast Point business recognized a trademark impairment loss of $108.0 million in
connection with certain continuing negative trends within its craft beer portfolio and a change
in strategy for this portfolio focused on improving profitability by rationalizing the number of
product offerings while targeting distribution growth in select strategic markets. In the first

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ITEM 7. MD&A

quarter of fiscal 2018, the Beer segment’s Ballast Point business recognized a trademark
impairment loss of $86.8 million in connection with certain negative trends within its craft
beer portfolio.

The most significant assumptions used in the relief from royalty method to determine the
estimated fair value of intangible assets with indefinite lives in connection with impairment
testing are: (i) the estimated royalty rate, (ii) the discount rate, (iii) the expected long-term
growth rate, and (iv) the annual revenue projections. As of January 1, 2020, if we used a royalty
rate that was 50 basis points lower or used a discount rate that was 50 basis points higher or
used an expected long-term growth rate that was 50 basis points lower or used annual
revenue projections that were 100 basis points lower in our impairment testing of intangible
assets with indefinite lives, then each change individually would not have resulted in any unit
of accounting’s carrying value exceeding its estimated fair value.

The guidance for divestitures requires that when some, but not all of a reporting unit is
disposed of, some of the goodwill of the reporting unit should be allocated to the portion of the
reporting unit being disposed of, if that portion constitutes a business. The allocation of
goodwill shall be based on the relative fair values of the portion of the reporting unit being
disposed of and the portion of the reporting unit remaining. This approach requires a
determination of the fair value of both the business being disposed and the businesses
retained within the reporting unit.

Our estimate of fair value for the New Wine and Spirits Transactions was determined based on
the expected proceeds from the transactions. The components being sold are a part of the
Wine and Spirits segment and were included in our wine and spirits reporting unit.
Accordingly, goodwill was allocated to the New Wine and Spirits Transactions assets held for
sale based on the relative fair value of the businesses being sold compared to the relative fair
value of the reporting unit. Goodwill not allocated to assets held for sale remains in the wine
and spirits reporting unit.

• Accounting for income taxes. We estimate our deferred tax assets and liabilities, income taxes
payable, provision for income taxes, and unrecognized tax benefit liabilities based upon
various factors including, but not limited to, historical pretax operating income, future
estimates of pretax operating income, differences between book and tax treatment of various
items of income and expense, interpretation of tax laws, and tax planning strategies. We are
subject to income taxes in Canada, Mexico, Switzerland, the U.S., and other jurisdictions. We
are regularly audited by federal, state, and foreign tax authorities, but a number of years may
elapse before an uncertain tax position, is audited and finally resolved.

We believe that all tax positions are fully supported. However, we recognize tax assets and
liabilities in accordance with the FASB guidance for income tax accounting. Accordingly, we
recognize a tax benefit from an uncertain tax position when it is more likely than not that the
position will be sustained upon examination. We measure and recognize the tax benefit from
such a position based on the largest benefit that has a greater than 50% likelihood of being
realized upon ultimate settlement. Due to the complexity of some of these uncertainties, the
ultimate resolution may result in a payment that is materially different from our current
estimate of the unrecognized tax benefit liabilities. In addition, changes in existing tax laws or
rates could significantly change our current estimate of our unrecognized tax benefit
liabilities. These differences will be reflected as increases or decreases to income tax expense
in the period in which they are determined. Changes in current estimates, if significant, could
have a material adverse impact on our financial statements.

We recognize our deferred tax assets and liabilities based upon the expected future tax
outcome of amounts recognized in our results of operations. If necessary, we recognize a
valuation allowance on deferred tax assets when it is more likely than not that they will not be

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PART II

ITEM 7. MD&A

realized. We evaluate our ability to realize the tax benefits associated with deferred tax assets
by assessing the adequacy of future expected taxable income, historical, and projected
operating results, and the availability of prudent and feasible tax planning strategies. The
realization of deferred tax assets is evaluated by jurisdiction and the realizability of these
assets can vary based on the character of the tax attribute and the carryforward periods
specific to each jurisdiction. We believe it is more likely than not that the results of future
operations will generate sufficient taxable income to realize our existing deferred tax assets,
net of valuation allowances. Changes in the realizability of our deferred tax assets will be
reflected in our effective tax rate in the period in which they are determined.

ACCOUNTING GUIDANCE

Accounting guidance adopted for Fiscal 2020 did not have a material impact on our consolidated
financial statements. For additional information on recently adopted accounting guidance refer to Note 1
in the Notes to the Financial Statements.

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PART II

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of our global operating, investment, acquisition and financing activities, we are
exposed to market risk associated with changes in foreign currency exchange rates, commodity prices,
interest rates, and equity prices. To manage the volatility relating to these risks, we periodically purchase
and/or sell derivative instruments including foreign currency forward and option contracts, commodity
swap contracts, interest rate swap contracts and treasury lock contracts. We use derivative instruments
to reduce earnings and cash flow volatility resulting from shifts in market rates, as well as to hedge
economic exposures. We do not enter into derivative instruments for trading or speculative purposes.

Foreign Currency and Commodity Price Risk
Foreign currency derivative instruments are or may be used to hedge existing foreign currency
denominated assets and liabilities, forecasted foreign currency denominated sales/purchases to/from
third parties as well as intercompany sales/purchases, intercompany principal and interest payments,
and in connection with investments, acquisitions, or divestitures outside the U.S. As of February 29, 2020,
we had exposures to foreign currency risk primarily related to the Mexican peso, euro, Canadian dollar,
and New Zealand dollar. Approximately 84% of our balance sheet exposures and forecasted transactional
exposures for the year ending February 28, 2021, were hedged as of February 29, 2020.

Commodity derivative instruments are or may be used to hedge forecasted commodity purchases

from third parties as either economic hedges or accounting hedges. As of February 29, 2020, exposures
to commodity price risk which we are currently hedging include aluminum, corn, diesel fuel, natural gas,
and wheat prices. Approximately 83% of our forecasted transactional exposures for the year ending
February 28, 2021, were hedged as of February 29, 2020.

We have performed a sensitivity analysis to estimate our exposure to market risk of foreign
exchange rates and commodity prices reflecting the impact of a hypothetical 10% adverse change in the
applicable market. The volatility of the applicable rates and prices is dependent on many factors which
cannot be forecasted with reliable accuracy. Losses or gains from the revaluation or settlement of the
related underlying positions would substantially offset such losses or gains on the derivative instruments.
The aggregate notional value, estimated fair value, and sensitivity analysis for our open foreign currency
and commodity derivative instruments are summarized as follows:

Aggregate
Notional Value

Fair Value,
Net Asset (Liability)

Increase (Decrease)
in Fair Value –
Hypothetical
10% Adverse Change

February 29,
2020

February 28,
2019

February 29,
2020

February 28,
2019

February 29,
2020

February 28,
2019

(in millions)
Foreign currency
contracts

Commodity derivative
contracts

3,011.2 $

2,039.6 $

61.9 $

22.5 $

(193.3) $

(166.5)

282.8 $

284.7 $

(40.3) $

(2.9) $

21.7 $

24.4

Interest Rate Risk
The estimated fair value of our fixed interest rate debt is subject to interest rate risk, credit risk,

and foreign currency risk. In addition, we also have variable interest rate debt outstanding (primarily
LIBOR-based), certain of which includes a fixed margin subject to the same risks identified for our fixed
interest rate debt.

As of February 29, 2020, we had $375.0 million of outstanding cash flow designated interest rate

swap agreements which fixed LIBOR interest rates (to minimize interest rate volatility) on our floating
LIBOR rate debt. There were no cash flow designated interest rate swap contracts outstanding as of
February 28, 2019. As of February 29, 2020, and February 28, 2019, there were no undesignated interest
rate swap contracts outstanding.

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PART II

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES

As of February 29, 2020, we had $300.0 million of outstanding cash flow designated treasury lock
agreements which fixed 10-year Treasury interest rates (to minimize interest rate volatility) on our future
debt issuances. There were no cash flow designated treasury lock contracts outstanding as of
February 28, 2019. As of February 29, 2020, and February 28, 2019, there were no undesignated treasury
lock contracts outstanding.

We have performed a sensitivity analysis to estimate our exposure to market risk of interest rates

reflecting the impact of a hypothetical 1% increase in the prevailing interest rates. The volatility of the
applicable rates is dependent on many factors which cannot be forecasted with reliable accuracy. The
aggregate notional value, estimated fair value, and sensitivity analysis for our outstanding fixed and
variable interest rate debt, including current maturities and open interest rate derivative instruments, are
summarized as follows:

Aggregate
Notional Value

Fair Value
Net Asset (Liability)

Increase (Decrease)
in Fair Value –
Hypothetical
1% Rate Increase

February 29,
2020

February 28,
2019

February 29,
2020

February 28,
2019

February 29,
2020

February 28,
2019

(in millions)

Fixed interest rate debt

10,075.3 $

10,278.9 $ (10,942.8) $ (10,098.5) $

(708.4) $

Variable interest rate debt $

2,185.4 $

3,422.7 $

(2,232.0) $

(3,461.9) $

(46.6) $

Interest rate swap
contracts

Treasury lock contracts

375.0 $

300.0 $

— $

(0.8) $

(7.6) $

— $

(0.3) $

(9.7) $

(591.0)

(88.0)

—

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

As of February 29, 2020, the fair value of our investments in the Canopy warrants and the Canopy
convertible debt securities was $1,117.1 million, with an unrealized net gain (loss) on these investments
of $(2,126.4) million recognized in our results of operations for the year ended February 29, 2020. We
have performed a sensitivity analysis to estimate our exposure to market risk of the equity price reflecting
the impact of a hypothetical 10% adverse change in the quoted market price of the underlying equity
security. As of February 29, 2020, such a hypothetical 10% adverse change would have resulted in a
decrease in fair value of $172.0 million.

For additional discussion on our market risk, refer to Notes 6 and 7 of the Notes to the Financial

Statements.

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2020

Management’s Annual Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm – KPMG LLP
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

1. Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
2. Acquisitions, Divestitures, and Business Transformation
3. Inventories
4. Prepaid Expenses and Other
5. Property, Plant, and Equipment
6. Derivative Instruments
7. Fair Value of Financial Instruments
8. Goodwill
9. Intangible Assets

10. Equity Method Investments
11. Other Assets
12. Other Accrued Expenses and Liabilities
13. Borrowings
14. Income Taxes
15. Deferred Income Taxes and Other Liabilities
16. Leases
17. Commitments and Contingencies
18. Stockholders' Equity
19. Stock-Based Employee Compensation
20. Net Income (Loss) Per Common Share Attributable to CBI
21. Accumulated Other Comprehensive Income (Loss)
22. Significant Customers and Concentration of Credit Risk
23. Business Segment Information
24. Subsequent Event
25. Selected Quarterly Financial Information (unaudited)

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

Management of Constellation Brands, Inc. and subsidiaries (the “Company”) is responsible for
establishing and maintaining an adequate system of internal control over financial reporting. This system
is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted
accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only
reasonable assurance and may not prevent or detect misstatements. Further, because of changes in
conditions, effectiveness of internal controls over financial reporting may vary over time.

Management conducted an evaluation of the effectiveness of the system of internal control over financial
reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on that evaluation,
management concluded that the Company’s internal control over financial reporting was effective as of
February 29, 2020.

The effectiveness of the Company’s internal control over financial reporting has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their report which is included
herein.

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Constellation Brands, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Constellation Brands, Inc. and subsidiaries’ (the Company) internal control over financial
reporting as of February 29, 2020, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
February 29, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated balance sheets of the Company as of February 29, 2020,
and February 28, 2019, the related consolidated statements of comprehensive income (loss), changes in
stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended
February 29, 2020, and the related notes (collectively, the consolidated financial statements), and our
report dated April 21, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Rochester, New York
April 21, 2020

/s/ KPMG LLP

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Constellation Brands, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Constellation Brands, Inc. and
subsidiaries (the Company) as of February 29, 2020 and February 28, 2019, the related consolidated
statements of comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of
the fiscal years in the three-year period ended February 29, 2020, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of February 29, 2020 and February 28,
2019, and the results of its operations and its cash flows for each of the fiscal years in the three-year
period ended February 29, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 29,
2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 21, 2020
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.

Assessment of the accounting for the modification of Canopy warrants

As discussed in Note 10 to the consolidated financial statements, the Company modified the terms of
the November 2018 Canopy warrants and certain other rights in June 2019 (the “June 2019 Warrant
Modification”). The accounting impacts of the June 2019 Warrant Modification included the

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

recognition of a $1,176.0 million unrealized gain on the increase in fair value of the November 2018
Canopy warrants and a $409.0 million charge against equity in earnings (losses) from the Canopy
equity method investment and related activities, among other impacts described in Note 10.

We identified the assessment of the accounting for the June 2019 Warrant Modification as a critical
audit matter because interpretation and application of the relevant accounting literature requires
significant auditor judgment. In particular, the accounting for the modification involved assessments
of the different types of warrants, their particular features, and the impact of those features on the
classification in the financial information of Canopy.

The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s process to account for the June 2019 Warrant
Modification, including controls related to the Company’s accounting considerations of the warrants
features. We assessed the accounting treatment of the June 2019 Warrant Modification through:

•

evaluating the Company’s accounting memoranda and other documentation, including
application of the relevant accounting guidance;
comparing the underlying terms of the relevant documents and agreements to the Company’s
accounting memoranda; and
independently interpreting and applying the accounting literature to the transaction,
considering alternative accounting treatments and evaluating the relative merits of the
possible alternatives.

Assessment of the measurement of fair value of the New November 2018 Canopy Warrants

As discussed in Note 7 to the consolidated financial statements, the Company established policies for
measuring the fair value of financial instruments, including the Canopy warrants. As of February 29,
2020, the recorded balance of the Company’s investment in the Canopy warrants was $991.5 million,
of which a majority relates to the New November 2018 Canopy Warrants. The Company uses option
pricing models to estimate the fair value of the Canopy warrants using various market-based inputs.

We identified the assessment of the measurement of fair value of New November 2018 Canopy
Warrants as a critical audit matter. Specifically, there was a high degree of subjectivity and judgment
in evaluating the determination of the expected volatility inputs used in the option pricing models for
the New November 2018 Canopy Warrants. Historical, implied, and peer group volatility levels provide
a range of possible expected volatility inputs and the fair value estimates for the New November 2018
Canopy Warrants are sensitive to the expected volatility inputs.

The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s process to measure the fair value of the New
November 2018 Canopy Warrants. This included controls related to the evaluation of observable
market information used in the determination of the expected volatility inputs. We involved valuation
professionals with specialized skills and knowledge, who assisted in:

•

evaluating the expected volatility inputs by comparing them against a volatility range that was
independently developed in consideration of historical, implied, and peer group volatility
information; and
developing an estimate of the New November 2018 Canopy Warrants’ fair value using the
independently developed volatility range and comparing it to the value calculated by the
Company.

Evaluation of gross unrecognized tax benefits

As discussed in Note 14 to the consolidated financial statements, the Company recognizes a tax
benefit from an uncertain tax position when it is more likely than not that the position will be
sustained upon examination. The Company has recorded gross unrecognized tax benefits, excluding
associated interest, of $249.4 million as of February 29, 2020.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 63

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

We identified the evaluation of the Company’s gross unrecognized tax benefits as a critical audit
matter. Complex auditor judgment was required in evaluating the Company’s interpretation of tax law
and its estimate of the ultimate resolution of its tax positions.

The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s unrecognized tax benefit process, including
controls related to the interpretation of tax law, its application in the liability estimation process, and
the review of activity that could result in changes to the Company’s unrecognized tax benefits. Since
tax law is complex and often subject to interpretations, we involved tax and valuation professionals
with specialized skills and knowledge, who assisted in:

•
•
•

evaluating the Company’s interpretation of tax laws and tax authority rulings;
assessing transfer pricing studies for compliance with applicable laws and regulations; and
performing an assessment of the Company’s tax positions, including using sensitivity analysis,
and comparing the results to the Company’s assessment.

We have served as the Company’s auditor since 2002.

/s/ KPMG LLP

Rochester, New York
April 21, 2020

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 64

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ASSETS
Current assets:

Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other
Assets held for sale - current

Total current assets
Property, plant, and equipment
Goodwill
Intangible assets
Equity method investments
Securities measured at fair value
Deferred income taxes
Assets held for sale
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Short-term borrowings
Current maturities of long-term debt
Accounts payable
Other accrued expenses and liabilities

Total current liabilities
Long-term debt, less current maturities
Deferred income taxes and other liabilities
Total liabilities
Commitments and contingencies (Note 17)
CBI stockholders’ equity:

Preferred Stock, $.01 par value – Authorized, 1,000,000 shares; Issued, none
Class A Common Stock, $.01 par value – Authorized, 322,000,000 shares; Issued,
186,090,745 shares and 185,740,178 shares, respectively
Class B Convertible Common Stock, $.01 par value – Authorized, 30,000,000
shares; Issued, 28,300,206 shares and 28,322,419 shares, respectively
Class 1 Common Stock, $.01 par value – Authorized, 25,000,000 shares; Issued,
1,692,227 shares and 1,149,624 shares, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)

Less: Treasury stock –
Class A Common Stock, at cost, 18,256,826 shares and 18,927,966 shares,
respectively
Class B Convertible Common Stock, at cost, 5,005,800 shares

Total CBI stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity

February 29,
2020

February 28,
2019

81.4 $

864.8
1,373.6
535.8
628.5
3,484.1
5,333.0
7,757.1
2,718.9
3,093.9
1,117.1
2,656.3
552.1
610.7
27,323.2 $

238.9 $
734.9
557.6
780.4
2,311.8
11,210.8
1,326.3
14,848.9

—

1.9

0.3

—

1,514.6
13,695.3
(266.3)
14,945.8

(2,811.8)

(2.2)
(2,814.0)
12,131.8
342.5
12,474.3
27,323.2 $

93.6
846.9
2,130.4
613.1
—
3,684.0
5,267.3
8,088.8
3,198.1
3,465.6
3,234.7
2,183.3
—
109.7
29,231.5

791.5
1,065.2
616.7
690.4
3,163.8
11,759.8
1,470.7
16,394.3

—

1.9

0.3

—

1,410.8
14,276.2
(353.9)
15,335.3

(2,782.1)

(2.2)
(2,784.3)
12,551.0
286.2
12,837.2
29,231.5

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 65

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions, except per share data)

February 29,
2020

For the Years Ended
February 28,
2019

February 28,
2018

Sales
Excise taxes
Net sales
Cost of product sold
Gross profit
Selling, general, and administrative expenses
Impairment of assets held for sale
Gain (loss) on sale of business
Operating income (loss)

Income (loss) from unconsolidated investments
Interest expense
Loss on extinguishment of debt
Income (loss) before income taxes
(Provision for) benefit from income taxes
Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to CBI

Net income (loss) per common share attributable to CBI:
Basic – Class A Common Stock
Basic – Class B Convertible Common Stock

Diluted – Class A Common Stock
Diluted – Class B Convertible Common Stock

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

Diluted – Class A Common Stock
Diluted – Class B Convertible Common Stock

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

Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss), net of income tax effect:

Foreign currency translation adjustments
Unrealized gain (loss) on cash flow hedges
Unrealized gain (loss) on available-for-sale debt securities
Pension/postretirement adjustments
Share of other comprehensive income (loss) of equity method
investments

$
$

Other comprehensive income (loss), net of income tax effect
Comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to CBI

9,113.0 $
(769.5)
8,343.5
(4,191.6)
4,151.9
(1,621.8)
(449.7)
74.1
2,154.5

(2,668.6)
(428.7)
(2.4)
(945.2)
966.6
21.4
(33.2)
(11.8) $

8,884.3 $
(768.3)
8,116.0
(4,035.7)
4,080.3
(1,668.1)
—
—
2,412.2

2,101.6
(367.1)
(1.7)
4,145.0
(685.9)
3,459.1
(23.2)
3,435.9 $

(0.07) $
(0.07) $

18.24 $
16.57 $

17.57 $
16.21 $

168.329
23.313

167.249
23.321

195.532
23.321

8,322.1
(741.8)
7,580.3
(3,767.8)
3,812.5
(1,532.7)
—
—
2,279.8

487.2
(332.0)
(97.0)
2,338.0
(22.7)
2,315.3
(11.9)
2,303.4

11.96
10.86

11.47
10.59

171.457
23.336

200.745
23.336

3.00 $
2.72 $

2.96 $
2.68 $

2.08
1.88

21.4 $

3,459.1 $

2,315.3

60.8
40.4
—
(0.6)

(10.1)

90.5
111.9
(36.1)
75.8 $

(196.8)
11.4
2.5
0.5

29.6

(152.8)
3,306.3
(21.4)
3,284.9 $

153.8
55.5
(0.2)
(1.1)

—

208.0
2,523.3
(23.0)
2,500.3

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 66

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in millions)

Common Stock

Class A Class B

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Non-
controlling
Interests

Total

Balance at February 28, 2017

2.6 $

0.3 $ 2,755.8 $ 7,254.5 $

(399.8) $ (2,777.7) $

(6.4) $ 6,829.3

Comprehensive income (loss):

Net income (loss)

Other comprehensive income
(loss), net of income tax effect

Comprehensive income (loss)

Repurchase of shares

Dividends declared

Shares issued under equity
compensation plans

Stock-based compensation

—

8.3

61.2

2,303.4

—

(400.7)

—

196.9

—

(1,038.5)

—

8.8

—

11.9

2,315.3

11.1

—

208.0

2,523.3

(1,038.5)

(400.7)

17.1

61.2

Balance at February 28, 2018

2.6

0.3

2,825.3

9,157.2

(202.9)

(3,807.4)

16.6

7,991.7

Cumulative effect of change in
accounting principle

Comprehensive income (loss):

Net income (loss)

Other comprehensive income
(loss), net of income tax effect

Comprehensive income (loss)

—

Retirement of treasury shares

(0.7)

Repurchase of shares

Dividends declared

Conversion of long-term debt
to noncontrolling equity
interests

Shares issued under equity
compensation plans

Stock-based compensation

—

(1,522.3)

—

45.2

62.6

2,242.0

3,435.9

—

(558.9)

—

(151.0)

—

1,523.0

(504.3)

—

4.4

—

2,242.0

23.2

3,459.1

(1.8)

(152.8)

3,306.3

—

(504.3)

(558.9)

—

248.2

—

49.6

62.6

Balance at February 28, 2019

1.9

0.3

1,410.8

14,276.2

(353.9)

(2,784.3)

286.2

12,837.2

Comprehensive income (loss):

Net income (loss)

Other comprehensive income
(loss), net of income tax effect

Comprehensive income (loss)

Repurchase of shares

Dividends declared

Initial recognition of non-
controlling interest

Shares issued under equity
compensation plans

Stock-based compensation

—

43.8

60.0

(11.8)

—

(569.1)

—

87.6

—

(50.0)

—

20.3

—

33.2

2.9

—

20.2

—

21.4

90.5

111.9

(50.0)

(569.1)

20.2

64.1

60.0

Balance at February 29, 2020

$ 1.9 $

0.3 $ 1,514.6 $13,695.3 $

(266.3) $(2,814.0) $

342.5 $12,474.3

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 67

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

February 29,
2020

For the Years Ended
February 28,
2019

February 28,
2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided
by operating activities:

Unrealized net (gain) loss on securities measured at fair value

Deferred tax provision (benefit)

Depreciation

Stock-based compensation

Equity in (earnings) losses of equity method investees and
related activities, net of distributed earnings

Noncash lease expense

Impairment and amortization of intangible assets

Amortization of debt issuance costs and loss on
extinguishment of debt

Net (gain) loss on sale of unconsolidated investment

Impairment of assets held for sale

(Gain) loss on sale of business

Loss on inventory and related contracts

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

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

Accounts receivable

Inventories

Prepaid expenses and other current assets

Accounts payable

Other accrued expenses and liabilities

Other

Total adjustments

Net cash provided by (used in) operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property, plant, and equipment

Purchases of businesses, net of cash acquired

Investments in equity method investees and securities

Proceeds from sales of assets

Proceeds from sale of unconsolidated investment

Proceeds from sale of business

Other investing activities

Net cash provided by (used in) investing activities

21.4 $

3,459.1 $

2,315.3

2,126.4

(1,153.7)

326.5

60.4

560.8

88.3

16.7

16.1

(0.4)

449.7

(74.1)

123.0

—

(22.0)

(29.5)

8.1

16.8

(58.5)

75.1

2,529.7

2,551.1

(726.5)

(36.2)

(48.2)

8.3

1.5

269.7

0.4

(531.0)

(1,971.2)

426.9

333.1

64.1

13.5

—

114.0

29.4

(99.8)

—

(37.6)

(71.9)

(61.9)

(103.0)

21.4

(22.1)

152.3

(1,212.8)

2,246.3

(886.3)

(45.6)

(4,081.5)

72.3

110.2

—

(0.9)

(464.3)

113.8

293.8

60.9

(3.6)

—

92.7

108.7

—

59.0

(351.2)

(34.1)

(123.8)

(111.5)

12.8

(66.8)

29.7

(383.9)

1,931.4

(1,057.6)

(150.1)

(210.9)

5.9

—

(5.0)

(5.4)

(4,831.8)

(1,423.1)

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 68

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

February 29,
2020

For the Years Ended
February 28,
2019

February 28,
2018

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of long-term debt

Principal payments of long-term debt

Net proceeds from (repayments of) short-term borrowings

Dividends paid

Purchases of treasury stock

Proceeds from shares issued under equity compensation plans

Payments of minimum tax withholdings on stock-based payment
awards

Payments of debt issuance, debt extinguishment, and other
financing costs

Payment of contingent consideration

1,291.3

(2,195.3)

(552.6)

(569.2)

(50.0)

78.2

(14.3)

(8.2)

(11.3)

3,657.6

(62.8)

45.5

(557.7)

(504.3)

63.2

(13.6)

(34.6)

—

Net cash provided by (used in) financing activities

(2,031.4)

2,593.3

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

SUPPLEMENTAL DISCLSOURES OF CASH FLOW INFORMATION

Cash paid during the year

Interest, net of interest capitalized

Income taxes, net of refunds received

Noncash investing and financing activities

Additions to property, plant, and equipment

Conversion of long-term debt to noncontrolling equity interest

(0.9)

(12.2)

93.6

(4.5)

3.3

90.3

81.4 $

93.6 $

448.9 $

85.3 $

324.8 $

186.2 $

70.4 $

— $

141.7 $

248.2 $

7,933.4

(7,128.7)

137.2

(400.1)

(1,038.5)

49.4

(31.7)

(122.2)

—

(601.2)

5.8

(87.1)

177.4

90.3

322.2

238.6

170.0

—

The accompanying notes are an integral part of these statements.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 69

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2020

DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Description of business
Constellation Brands, Inc. and its subsidiaries operate primarily in the beverage alcohol industry.

Unless the context otherwise requires, the terms “Company,” “CBI,” “we,” “our,” or “us” refer to
Constellation Brands, Inc. and its subsidiaries. We are an international beverage alcohol company with a
broad portfolio of consumer-preferred, high-end imported and craft beer brands, and higher-end wine
and spirits brands.

Basis of presentation
Principles of consolidation
Our consolidated financial statements include our accounts and our majority-owned and
controlled domestic and foreign subsidiaries. In addition, we have an equally-owned joint venture with
Owens-Illinois. The joint venture owns and operates a state-of-the-art glass production plant which
provides bottles exclusively for our brewery located in Nava, Coahuila, Mexico (the “Nava Brewery”). We
have determined that we are the primary beneficiary of this variable interest entity and accordingly, the
results of operations of the joint venture are reported in the Beer segment and are included in our
consolidated results of operations. All intercompany accounts and transactions are eliminated in
consolidation.

Equity method investments
If we are not required to consolidate our investment in another entity, we use the equity method
when we (i) can exercise significant influence over the other entity and (ii) hold common stock and/or in-
substance common stock of the other entity. Under the equity method, investments are carried at cost,
plus or minus our equity in the increases and decreases in the investee’s net assets after the date of
acquisition. We monitor our equity method investments for factors indicating other-than-temporary
impairment. Dividends received from the investee reduce the carrying amount of the investment.

Management’s use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting

principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Summary of significant accounting policies
Revenue recognition
Our revenue (referred to in our financial statements as “sales”) consists primarily of the sale of
beer, wine, and spirits domestically in the U.S. Sales of products are for cash or otherwise agreed-upon
credit terms. Our payment terms vary by location and customer, however, the time period between when
revenue is recognized and when payment is due is not significant. Our customers consist primarily of
wholesale distributors. Our revenue generating activities have a single performance obligation and are
recognized at the point in time when control transfers and our obligation has been fulfilled, which is when
the related goods are shipped or delivered to the customer, depending upon the method of distribution,
and shipping terms. We have elected to treat shipping as a fulfillment activity. Revenue is measured as
the amount of consideration we expect to receive in exchange for the sale of our product. Our sales terms
do not allow for a right of return except for matters related to any manufacturing defects on our part.
Amounts billed to customers for shipping and handling are included in sales.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 70

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

As noted, the majority of our revenues are generated from the domestic sale of beer, wine, and

spirits to wholesale distributors in the U.S. Our other revenue generating activities include the export of
certain of our products to select international markets, as well as the sale of our products through state
alcohol beverage control agencies and on-premise, retail locations in certain markets. We have evaluated
these other revenue generating activities under the disaggregation disclosure criteria outlined within the
amended guidance and concluded that these other revenue generating activities are immaterial for
separate disclosure. See Note 23 for disclosure of net sales by product type.

Sales reflect reductions attributable to consideration given to customers in various customer

incentive programs, including pricing discounts on single transactions, volume discounts, promotional
and advertising allowances, coupons, and rebates. This variable consideration is recognized as a
reduction of the transaction price based upon expected amounts at the time revenue for the
corresponding product sale is recognized. For example, customer promotional discount programs are
entered into with certain distributors for certain periods of time. The amount ultimately reimbursed to
distributors is determined based upon agreed-upon promotional discounts which are applied to
distributors’ sales to retailers. Other common forms of variable consideration include volume rebates for
meeting established sales targets, and coupons and mail-in rebates offered to the end consumer. The
determination of the reduction of the transaction price for variable consideration requires that we make
certain estimates and assumptions that affect the timing and amounts of revenue and liabilities
recognized. We estimate this variable consideration by taking into account factors such as the nature of
the promotional activity, historical information, and current trends, availability of actual results and
expectations of customer and consumer behavior.

Excise taxes remitted to tax authorities are government-imposed excise taxes on our beverage

alcohol products. Excise taxes are shown on a separate line item as a reduction of sales and are
recognized in our results of operations when the related product sale is recognized. Excise taxes are
recognized as a current liability in other accrued expenses and liabilities, with the liability subsequently
reduced when the taxes are remitted to the tax authority.

Cost of product sold
The types of costs included in cost of product sold are raw materials, packaging materials,

manufacturing costs, plant administrative support and overheads, and freight and warehouse costs
(including distribution network costs). Distribution network costs include inbound freight charges and
outbound shipping and handling costs, purchasing and receiving costs, inspection costs, warehousing and
internal transfer costs.

Selling, general, and administrative expenses
The types of costs included in selling, general, and administrative expenses consist predominately

of advertising and non-manufacturing administrative and overhead costs. Distribution network costs are
included in cost of product sold. We expense advertising costs as incurred, shown, or distributed.
Advertising expense for the years ended February 29, 2020, February 28, 2019, and February 28, 2018,
was $769.5 million, $700.8 million, and $615.7 million, respectively.

Foreign currency translation
The functional currency of our foreign subsidiaries is generally the respective local currency. The

translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts
using exchange rates in effect at the balance sheet date and for revenue and expense accounts using a
weighted average exchange rate for the period. The resulting translation adjustments are recognized as a
component of Accumulated Other Comprehensive Income (Loss) (“AOCI”). Gains or losses resulting from
foreign currency denominated transactions are included in selling, general, and administrative expenses.

Cash and cash equivalents
Cash equivalents consist of highly liquid investments with an original maturity when purchased of

three months or less and are stated at cost, which approximates fair value.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 71

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Fair value of financial instruments
We calculate the estimated fair value of financial instruments using quoted market prices

whenever available. When quoted market prices are not available, we use standard pricing models for
various types of financial instruments (such as forwards, options, swaps, and convertible debt) which take
into account the present value of estimated future cash flows (see Note 7).

Derivative instruments
We enter into derivative instruments to manage our exposure to fluctuations in foreign currency

exchange rates, commodity prices, and interest rates. We enter into derivatives for risk management
purposes only, including derivatives designated in hedge accounting relationships as well as those
derivatives utilized as economic hedges. We do not enter into derivatives for trading or speculative
purposes. We recognize all derivatives as either assets or liabilities and measure those instruments at
estimated fair value (see Notes 6 and 7). We present our derivative positions gross on our balance sheets.

The change in the fair value of outstanding cash flow hedges is deferred in stockholders’ equity as
a component of AOCI. For all periods presented herein, gains or losses deferred in stockholders’ equity as
a component of AOCI are recognized in our results of operations in the same period in which the hedged
items are recognized and on the same financial statement line item as the hedged items.

Changes in fair values for derivative instruments not designated in a hedge accounting
relationship are recognized directly in our results of operations each period and on the same financial
statement line item as the hedged item. For purposes of measuring segment operating performance, the
net gain (loss) from the changes in fair value of our undesignated commodity derivative contracts, prior to
settlement, is reported outside of segment operating results until such time that the underlying exposure
is recognized in the segment operating results. Upon settlement, the net gain (loss) from the changes in
fair value of the undesignated commodity derivative contracts is reported in the appropriate operating
segment, allowing our operating segment results to reflect the economic effects of the commodity
derivative contracts without the resulting unrealized mark to fair value volatility.

Cash flows from the settlement of derivatives, including both economic hedges and those

designated in hedge accounting relationships, appear on our statements of cash flows in the same
categories as the cash flows of the hedged items.

Inventories
Inventories are stated at the lower of cost (computed in accordance with the first-in, first-out

method) or net realizable value. Elements of cost include materials, labor, and overhead.

Bulk wine inventories are included as in-process inventories within current assets, in accordance

with the general practices of the wine industry, although a portion of such inventories may be aged for
periods greater than one year. A substantial portion of barreled whiskey and brandy will not be sold within
one year because of the duration of the aging process. All barreled whiskey and brandy are classified as
in-process inventories and are included in current assets, in accordance with industry practice.
Warehousing, insurance, value added taxes, and other carrying charges applicable to barreled whiskey
and brandy held for aging are included in inventory costs.

We assess the valuation of our inventories and reduce the carrying value of those inventories that

are obsolete or in excess of our forecasted usage to their estimated net realizable value based on
analyses and assumptions including, but not limited to, historical usage, future demand, and market
requirements.

Property, plant, and equipment
Property, plant, and equipment is stated at cost. Major additions and improvements are
recognized as an increase to the property accounts, while maintenance and repairs are expensed as
incurred. The cost of properties sold or otherwise disposed of and the related accumulated depreciation

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

are eliminated from the balance sheet accounts at the time of disposal and resulting gains and losses are
included as a component of operating income.

Interest incurred relating to expansion, construction, and optimization of facilities is capitalized to

construction in progress. We cease the capitalization of interest when construction activities are
substantially completed and the facility and related assets are available for their intended use. At this
point, construction in progress is transferred to the appropriate asset class.

Depreciation
Depreciation is computed primarily using the straight-line method over the following estimated

useful lives:

Land improvements
Vineyards
Buildings and improvements
Machinery and equipment
Motor vehicles

Years
15 to 32
16 to 26
10 to 50
3 to 35
3 to 8

Goodwill and other intangible assets
Goodwill is allocated to the reporting unit in which the business that created the goodwill resides.

A reporting unit is an operating segment, or a business unit one level below that operating segment, for
which discrete financial information is prepared and regularly reviewed by segment management. We
review our goodwill and indefinite lived intangible assets annually for impairment, or sooner, if events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We use
January 1 as our annual impairment test measurement date. Indefinite lived intangible assets consist
principally of trademarks. Intangible assets determined to have a finite life, primarily customer
relationships, are amortized over their estimated useful lives and are subject to review for impairment
when events or circumstances indicate that the carrying amount of an asset may not be recoverable.
Note 9 provides a summary of intangible assets segregated between amortizable and nonamortizable
amounts.

Indemnification liabilities
We have indemnified respective parties against certain liabilities that may arise in connection with

certain acquisitions and divestitures. Indemnification liabilities are recognized when probable and
estimable and included in deferred income taxes and other liabilities (see Note 17).

Income taxes
We use the asset and liability method of accounting for income taxes. This method accounts for

deferred income taxes by applying statutory rates in effect at the balance sheet date to the difference
between the financial reporting and tax bases of assets and liabilities. Certain income earned by foreign
subsidiaries (“GILTI”) is subject to U.S. tax. We treat the tax effect of GILTI as a current period tax expense
when incurred. We provide deferred income taxes, consisting primarily of foreign withholding and state
taxes, on all applicable unremitted earnings of our foreign subsidiaries. Interest and penalties are
recognized as a component of (provision for) benefit from income taxes.

Net income (loss) per common share attributable to CBI
We have two classes of common stock with a material number of shares outstanding: Class A

Common Stock and Class B Convertible Common Stock (see Note 18). In addition, we have another class
of common stock with an immaterial number of shares outstanding: Class 1 Common Stock (see
Note 18). If we pay a cash dividend on Class B Convertible Common Stock, each share of Class A Common
Stock will receive an amount at least ten percent greater than the amount of the cash dividend per share
paid on Class B Convertible Common Stock. Class B Convertible Common Stock shares are convertible
into shares of Class A Common Stock on a one-to-one basis at any time at the option of the holder.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

We use the two-class method for the computation and presentation of net income (loss) per

common share attributable to CBI (hereafter referred to as “net income (loss) per common share”) (see
Note 20). The two-class method is an earnings allocation formula that calculates basic and diluted net
income (loss) per common share for each class of common stock separately based on dividends declared
and participation rights in undistributed earnings as if all such earnings had been distributed during the
period. Under the two-class method, Class A Common Stock is assumed to receive a ten percent greater
participation in undistributed earnings (losses) than Class B Convertible Common Stock, in accordance
with the respective minimum dividend rights of each class of stock.

Net income (loss) per common share – basic excludes the effect of common stock equivalents and

is computed using the two-class method. Net income (loss) per common share – diluted for Class A
Common Stock reflects the potential dilution that could result if securities or other contracts to issue
common stock were exercised or converted into common stock. Net income (loss) per common share –
diluted for Class A Common Stock is computed using the more dilutive of the if-converted or two-class
method. Net income (loss) per common share – diluted for Class A Common Stock is 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. Net income (loss) per common share – diluted for Class B Convertible Common Stock is
computed using the two-class method and does not assume conversion of Class B Convertible Common
Stock into shares of Class A Common Stock.

Stock-based employee compensation
We have two stock-based employee compensation plans (see Note 19). We apply grant date fair-

value-based measurement methods in accounting for our stock-based payment arrangements and
recognize all costs resulting from stock-based payment transactions, net of expected forfeitures, ratably
over the requisite service period. Stock-based awards are subject to specific vesting conditions, generally
time vesting, or upon retirement, disability, or death of the employee (as defined by the plan), if earlier.
For awards granted to retirement-eligible employees, we recognize compensation expense ratably over
the period from the date of grant to the date of retirement-eligibility.

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

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

We finalized the implementation of changes to our accounting policies, systems and controls,

including a new leasing software to capture the required data for accounting and disclosure. The adoption
of this guidance resulted in the recognition of operating lease right-of-use assets of $585.4 million and
operating lease liabilities of $619.7 million as of March 1, 2019, and did not have a material impact on our
results of operations or liquidity.

For additional information on leases, refer to Note 16.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ACQUISITIONS, DIVESTITURES, AND BUSINESS TRANSFORMATION

Acquisitions
Nelson’s Green Brier
In May 2019, we increased our ownership interest in Nelson’s Green Brier Distillery, LLC

(“Nelson’s Green Brier”) to 75%, resulting in consolidation of the business and recognition of a 25%
noncontrolling interest. This acquisition included a portfolio of award-winning, Tennessee-based craft
bourbon and whiskey products. The preliminary fair value of the business combination was allocated
primarily to goodwill, trademarks, inventory, and property, plant, and equipment. The results of
operations of Nelson’s Green Brier are reported in the Wine and Spirits segment and have been included
in our consolidated results of operations from the date of acquisition.

We recognized a gain of $11.8 million for the year ended February 29, 2020, related to the
remeasurement of our previously held 20% equity interest in Nelson’s Green Brier to the acquisition-date
fair value. This gain is included in selling, general, and administrative expenses within our consolidated
results of operations.

Other acquisitions
During the year ended February 28, 2019, we completed the acquisitions of other businesses,

including the Four Corners Brewing Company LLC business, which included a portfolio of high-quality,
dynamic, and bicultural, Texas-based craft beers (“Four Corners”), and a business in Italy, which provided
additional processing and sourcing capabilities for our Italian wine portfolio. The purchase price for the
Four Corners acquisition was primarily allocated to goodwill, property, plant, and equipment, and
trademarks, plus an earn-out over five years based on the performance of the brands. The purchase price
for the acquired business in Italy was primarily allocated to a production facility, vineyards, and inventory.
The results of operations of these acquired businesses are reported in the respective segment and have
been included in our consolidated results of operations from their respective date of acquisition.

During the year ended February 28, 2018, we completed the acquisitions of other businesses,
including 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. The total combined purchase price for these acquisitions
was $149.8 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 these acquired businesses are reported in
the respective segment and have been included in our consolidated results of operations from their
respective date of acquisition.

Divestitures
Black Velvet Divestiture
On November 1, 2019, we sold the Black Velvet Canadian Whisky business and the brand’s
associated production facility, along with a subset of Canadian whisky brands produced at that facility, and
related inventory at a transaction value of $266.3 million (the “Black Velvet Divestiture”). We received
cash proceeds of $269.7 million, subject to estimated working capital adjustments. The cash proceeds
were utilized to partially repay the 2.00% November 2017 Senior Notes (as defined in Note 13). The
following table summarizes the net gain recognized in connection with this divestiture:

(in millions)
Cash received from buyer

Net assets sold

AOCI reclassification adjustments, primarily foreign currency translation

Direct costs to sell

Gain on sale of business

269.7

(213.3)

20.9

(3.2)

74.1

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Sale of Accolade Wine Investment
In May 2018, we completed the sale of our remaining interest in our previously-owned Australian

and European business (the “Accolade Wine Investment”) for A$149.1 million, or $113.6 million. We
received cash proceeds, net of direct costs to sell, of $111.7 million. This interest consisted of an
investment accounted for under the cost method and available-for-sale (“AFS”) debt securities. We
recognized net gains of $0.4 million and $99.8 million in connection with this transaction for the years
ended February 29, 2020, and February 28,2019, respectively. These net gains are included in income
(loss) from unconsolidated investments.

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

Wine and Spirits Transaction
In April 2019, we entered into a definitive agreement to sell a portion of our wine and spirits

business, including approximately 30 lower-margin, lower-growth wine and spirits brands, wineries,
vineyards, offices, and facilities (the “Wine and Spirits Transaction”).

New Wine and Spirits Transactions
In December 2019, we agreed to revise and supersede the Wine and Spirits Transaction. The

revisions to the transaction address competitive concerns raised by the U.S. Federal Trade Commission
(the “FTC”) specifically related to the sparkling wine, brandy, dessert wine, and concentrate categories.
As a result, the brands Cook’s California Champagne, J. Roget American Champagne, Paul Masson
Grande Amber Brandy, and our concentrate business will be excluded from the transaction resulting in
an adjusted transaction price of approximately $843 million, with the potential to earn an incremental
$250 million of contingent consideration if certain brand performance provisions are met over a two-year
period after closing (the “Revised Wine and Spirits Transaction”). The Revised Wine and Spirits
Transaction is expected to close around the end of first quarter of fiscal 2021, and is subject to required
regulatory clearances and governmental review and approval. Additionally, in a separate, but related,
transaction, we agreed that upon execution and delivery of a definitive agreement for the Revised Wine
and Spirits Transaction, we would enter into an agreement to sell the New Zealand-based Nobilo Wine
brand and certain related assets for $130 million (the “Nobilo Wine Transaction”). The Nobilo Wine
Transaction is expected to close by the end of second quarter of fiscal 2021 and is subject to FTC and New
Zealand regulatory review and approval. Completion of the Nobilo Transaction is also conditioned on
completion of the Revised Wine and Spirits Transaction. We expect to use the net cash proceeds from the
Revised Wine and Spirits Transaction and the Nobilo Wine Transaction (collectively, the “New Wine and
Spirits Transactions”) primarily to reduce outstanding borrowings.

We have communicated our intent to retain the brands Cook’s California Champagne and J. Roget

American Champagne contemplated under the Wine and Spirits Transaction and the FTC is currently
reviewing our business plans to support these brands in the future.

Other Wine and Spirits Transactions
We are pursuing other opportunities to divest the Paul Masson Grande Amber Brandy brand and

concentrate business excluded from the Revised Wine and Spirits Transaction to companies with more
aligned business strategies (the “Other Wine and Spirits Transactions”).

Ballast Point Transaction
In December 2019, we entered into a definitive agreement to sell our Ballast Point craft beer
business, including a number of its associated production facilities and brewpubs, (the “Ballast Point
Transaction”). See “Subsequent Event - Divestiture” below.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Assets held for sale
In contemplation of the transactions noted above, certain net assets have met the held for sale
criteria as of February 29, 2020. For the year ended February 29, 2020, long-lived asset impairments of
$449.7 million were recognized. For additional information refer to Note 7.

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

(in millions)

Assets

Accounts receivable

Inventories

Prepaid expenses and other

Assets held for sale - current

Property, plant, and equipment

Goodwill

Intangible assets

Equity method investments

Other assets

Less: Reserve for assets held for sale

Assets held for sale

Liabilities

Other accrued expenses and liabilities

Deferred income taxes and other liabilities

Liabilities held for sale (1)
Net assets held for sale

February 29, 2020

Beer

Wine and
Spirits

Consolidated

2.4 $

— $

13.7

2.8

18.9

55.9

4.7

28.2

—

24.8

(42.7)

70.9

11.2

33.3

44.5

576.9

32.7

609.6

172.6

304.3

384.0

1.0

26.3

(407.0)

481.2

18.4

—

18.4

2.4

590.6

35.5

628.5

228.5

309.0

412.2

1.0

51.1

(449.7)

552.1

29.6

33.3

62.9

45.3 $

1,072.4 $

1,117.7

(1) Liabilities held for sale are included in the Consolidated Balance Sheet as of February 29, 2020, within

the respective liability line items noted above.

Wine and spirits optimization
We recognized charges in connection with our ongoing efforts to gain efficiencies and reduce our

cost structure within the Wine and Spirits segment as follows:

(in millions)

Loss on inventory write-downs

Contract termination costs

Employee termination costs

Other costs

Results of Operations Location

Cost of product sold

Selling, general, and administrative expenses

Impairment of long-lived assets

Impairment of assets held for sale

For the Year
Ended
February 29,
2020

102.9

20.1

12.5

8.4

407.0

550.9

Subsequent event
Divestiture
In March 2020, we sold the Ballast Point craft beer business. The net cash proceeds from the

Ballast Point Transaction were primarily utilized to reduce outstanding borrowings.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INVENTORIES

The components of inventories are as follows:

(in millions)
Raw materials and supplies
In-process inventories
Finished case goods

February 29,
2020 (1)

February 28,
2019

171.7 $
814.7
387.2
1,373.6 $

182.6
1,480.5
467.3
2,130.4

(1) The inventories balance at February 29, 2020, excludes amounts reclassified to assets held for sale.

PREPAID EXPENSES AND OTHER

The major components of prepaid expenses and other are as follows:

(in millions)
Value added taxes receivable
Derivative assets
Prepaid excise and sales taxes
Income taxes receivable
Other

February 29,
2020 (1)

February 28,
2019

315.2 $

57.3
38.8
35.2
89.3

535.8 $

315.8
22.2
48.1
105.2
121.8
613.1

(1) The prepaid expenses and other balance at February 29, 2020, excludes amounts reclassified to assets

held for sale.

PROPERTY, PLANT, AND EQUIPMENT

The major components of property, plant, and equipment are as follows:

(in millions)

Land and land improvements

Vineyards

Buildings and improvements

Machinery and equipment

Motor vehicles
Construction in progress (2)

Less – Accumulated depreciation

February 29,
2020 (1)

February 28,
2019

440.2 $

215.8

975.1

3,627.9

109.5

1,422.7

6,791.2

456.7

221.3

1,067.3

3,931.1

81.8

1,214.3

6,972.5

(1,458.2)

(1,705.2)

5,333.0 $

5,267.3

(1) The property, plant, and equipment balance at February 29, 2020, excludes amounts reclassified to

assets held for sale.

(2)

Interest costs incurred during the expansion, construction, and optimization of facilities are capitalized
to construction in progress. We capitalized interest costs of $37.2 million, $23.1 million, and
$17.4 million for the years ended February 29, 2020, February 28, 2019, and February 28, 2018,
respectively, primarily due to the Mexico Beer Expansion Projects.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Subsequent event
Mexicali Brewery
In fiscal 2017, we began construction of a new, state-of-the-art brewery located in Mexicali, Baja

California, Mexico (the “Mexicali Brewery”). In March 2020, a public consultation was held on the
construction of the Mexicali Brewery. We have initiated early stage discussions with government officials
in Mexico regarding next steps for our brewery construction project and options elsewhere in the country
following the result of the public consultation. These discussions have been positive and we will continue
working with government officials to mutually agree upon a path forward. In the medium-term, we have
ample capacity, based on current growth forecasts and production capabilities at the Nava and Obregon
breweries, to meet consumer needs. As of February 29, 2020, we recognized approximately $700 million
of capital expenditures for construction in progress and had an additional $275 million of committed
costs, a portion of which are included in purchase commitments as they have a remaining contract term
greater than one year (see Note 17).

DERIVATIVE INSTRUMENTS

Overview
We are exposed to market risk from changes in foreign currency exchange rates, commodity
prices, interest rates, and equity prices that could affect our results of operations and financial condition.
The impact on our results and financial position and the amounts reported in our financial statements
will vary based upon the currency, commodity, interest rate, and equity market movements during the
period, the effectiveness and level of derivative instruments outstanding, and whether they are
designated and qualify for hedge accounting.

The estimated fair values of our derivative instruments change with fluctuations in currency rates,
commodity prices, interest rates, and/or equity prices and are expected to offset changes in the values of
the underlying exposures. Our derivative instruments are held solely to manage our exposures to the
aforementioned market risks as part of our normal business operations. We follow strict policies to
manage these risks and do not enter into derivative instruments for trading or speculative purposes.

We have investments in certain equity securities and other rights which provide us with the option

to purchase an additional ownership interest in the equity securities of Canopy (see Note 10). These
investments are included in securities measured at fair value and are accounted for at fair value, with the
net gain (loss) from the changes in fair value of these investments recognized in income (loss) from
unconsolidated investments (see Note 7).

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

(in millions)

Derivative instruments designated as hedging instruments

Foreign currency contracts

Interest rate swap contracts

Treasury lock contracts

Derivative instruments not designated as hedging instruments

Foreign currency contracts

Commodity derivative contracts

February 29,
2020

February 28,
2019

1,831.0 $

1,579.3

375.0 $

300.0 $

—

1,180.2 $

282.8 $

460.3

284.7

Cash flow hedges
Our derivative instruments designated in hedge accounting relationships are designated as cash
flow hedges. We are exposed to foreign denominated cash flow fluctuations primarily in connection with
third party and intercompany sales and purchases. We primarily use foreign currency forward contracts

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

to hedge certain of these risks. In addition, we utilize interest rate swap and treasury lock contracts
periodically to manage our exposure to changes in interest rates. Derivatives managing our cash flow
exposures generally mature within three years or less, with a maximum maturity of five years.

To qualify for hedge accounting treatment, the details of the hedging relationship must be formally
documented at inception of the arrangement, including the risk management objective, hedging strategy,
hedged item, specific risk that is being hedged, the derivative instrument, how effectiveness is being
assessed, and how ineffectiveness will be measured. The derivative must be highly effective in offsetting
changes in the cash flows of the risk being hedged. Throughout the term of the designated cash flow
hedge relationship on at least a quarterly basis, a retrospective evaluation and prospective assessment of
hedge effectiveness is performed based on quantitative and qualitative measures. All components of our
derivative instruments’ gains or losses are included in the assessment of hedge effectiveness.

When we determine that a derivative instrument which qualified for hedge accounting treatment
has ceased to be highly effective as a hedge, we discontinue hedge accounting prospectively. In the event
the relationship is no longer effective, we recognize the change in the fair value of the hedging derivative
instrument from the date the hedging derivative instrument became no longer effective immediately in
our results of operations. We also discontinue hedge accounting prospectively when (i) a derivative
expires or is sold, terminated, or exercised; (ii) it is no longer probable that the forecasted transaction will
occur; or (iii) we determine that designating the derivative as a hedging instrument is no longer
appropriate. When we discontinue hedge accounting prospectively, but the original forecasted transaction
continues to be probable of occurring, the existing gain or loss of the derivative instrument remains in
AOCI and is reclassified into earnings (losses) when the forecasted transaction occurs. When it becomes
probable that the forecasted transaction will not occur, any remaining gain or loss in AOCI is recognized
immediately in our results of operations.

We expect $39.5 million of net gains, net of income tax effect, to be reclassified from AOCI to our

results of operations within the next 12 months.

Undesignated hedges
Certain of our derivative instruments do not qualify for hedge accounting treatment; for others, we

choose not to maintain the required documentation to apply hedge accounting treatment. These
undesignated instruments are primarily used to economically hedge our exposure to fluctuations in the
value of foreign currency denominated receivables and payables; foreign currency investments, primarily
consisting of loans to subsidiaries and foreign-denominated investments, and cash flows related
primarily to the repatriation of those loans or investments; and commodity prices, including aluminum,
corn, diesel fuel, natural gas, and wheat prices. We primarily use foreign currency forward and option
contracts, generally less than 12 months in duration, and commodity swap contracts, generally less than
36 months in duration, with a maximum maturity of five years, to hedge some of these risks. In addition,
from time to time, we utilize interest rate swap contracts, generally less than six months in duration, to
economically hedge our exposure to changes in interest rates associated with the financing of significant
investments and acquisitions. Our derivative policy permits the use of undesignated derivatives as
approved by senior management.

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 February 29, 2020, the estimated fair value of derivative instruments in a net liability

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

position due to counterparties was $19.4 million. If we were required to settle the net liability position
under these derivative instruments on February 29, 2020, 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 7):

Assets

February 29,
2020

February 28,
2019

Liabilities

February 29,
2020

February 28,
2019

(in millions)

Derivative instruments designated as hedging instruments

Foreign currency contracts:

Prepaid expenses and
other

Other assets

47.8 $

39.5 $

Interest rate swap contracts:

Prepaid expenses and
other

Treasury lock contracts:

Prepaid expenses and
other

— $

14.1

22.1

—

Other accrued
expenses and liabilities $

Deferred income taxes
and other liabilities

Other accrued
expenses and liabilities $

13.0 $

7.1 $

0.8 $

7.6 $

8.8

6.3

—

Derivative instruments not designated as hedging instruments

Foreign currency contracts:

Prepaid expenses and
other

Commodity derivative contracts:

9.0 $

2.0

Other accrued
expenses and liabilities $

14.3 $

0.6

Prepaid expenses and
other

Other assets

0.5 $

0.1 $

6.1

2.6

Other accrued
expenses and liabilities $

Deferred income taxes
and other liabilities

25.4 $

15.5 $

6.1

5.5

The principal effect of our derivative instruments designated in cash flow hedging relationships on
our results of operations, as well as Other Comprehensive Income (Loss) (“OCI”), net of income tax effect,
is as follows:

Derivative Instruments in
Designated Cash Flow
Hedging Relationships

(in millions)

For the Year Ended February 29, 2020

Foreign currency contracts

Interest rate swap contracts

Treasury lock contracts

Net
Gain (Loss)
Recognized
in OCI

Location of Net Gain (Loss)
Reclassified from AOCI to
Income (Loss)

66.8 Sales

Cost of product sold

(0.5)

Interest expense

(5.7)

Interest expense

60.6

Net
Gain (Loss)
Reclassified
from AOCI to
Income
(Loss)

—

20.2

—

20.2

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Derivative Instruments in
Designated Cash Flow
Hedging Relationships

(in millions)

For the Year Ended February 28, 2019

Foreign currency contracts

For the Year Ended February 28, 2018

Foreign currency contracts

Interest rate swap contracts

Net
Gain (Loss)
Recognized
in OCI

Location of Net Gain (Loss)
Reclassified from AOCI to
Income (Loss)

15.9 Sales

Cost of product sold

15.9

61.4 Sales

Cost of product sold

(1.5)

Interest expense

59.9

Net
Gain (Loss)
Reclassified
from AOCI to
Income
(Loss)

0.4

4.1

4.5

(1.4)

1.3

2.2

2.1

The effect of our undesignated derivative instruments on our results of operations is as follows:

Derivative Instruments Not
Designated as Hedging Instruments

(in millions)

For the Year Ended February 29, 2020

Commodity derivative contracts

Foreign currency contracts

Location of Net Gain (Loss)
Recognized in Income (Loss)

Cost of product sold

Selling, general, and administrative expenses

For the Year Ended February 28, 2019

Commodity derivative contracts

Cost of product sold

Foreign currency contracts

Interest rate swap contracts

Selling, general, and administrative expenses

Interest expense

For the Year Ended February 28, 2018

Commodity derivative contracts

Foreign currency contracts

Cost of product sold

Selling, general, and administrative expenses

Net
Gain (Loss)
Recognized
in Income
(Loss)

(49.0)

(7.8)

(56.8)

1.8

(60.8)

35.0

(24.0)

7.5

6.0

13.5

FAIR VALUE OF FINANCIAL INSTRUMENTS

Authoritative guidance establishes a framework for measuring fair value, including a hierarchy for
inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy
includes three levels:

• Level 1 inputs are quoted prices in active markets for identical assets or liabilities;
• Level 2 inputs include data points that are observable such as quoted prices for similar assets
or liabilities in active markets, quoted prices for identical assets or similar assets or liabilities
in markets that are not active, and inputs (other than quoted prices) such as volatility, interest

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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
The following methods and assumptions are used to estimate the fair value for each class of our

financial instruments:

Foreign currency and commodity derivative contracts
The fair value is estimated using market-based inputs, obtained from independent pricing
services, entered into valuation models. These valuation models require various inputs, including
contractual terms, market foreign exchange prices, market commodity prices, interest-rate yield curves,
and currency volatilities, as applicable (Level 2 fair value measurement).

Interest rate swap and treasury lock contracts
The fair value is estimated based on quoted market prices 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 (Level 2 fair value measurement).

Canopy investments
Equity securities, Warrants – The terms of the November 2018 Canopy Warrants were modified in

June 2019 and now consist of three tranches of warrants: New Tranche A Warrants, New Tranche B
Warrants, and New Tranche C Warrants. The exercise price for the New Tranche C Warrants is based on
the volume-weighted average of the closing market price of Canopy’s common shares on the Toronto
Stock Exchange (“TSX”) for the five trading days immediately preceding the exercise date (“VWAP
Exercise Price”), accordingly, no fair value is assigned. For additional information on the November 2018
Canopy Warrants and the related modification, refer to Note 10.

The inputs used to estimate the fair value of the Canopy warrants (all as defined in Note 10) are as

follows:

New
Tranche A
Warrants (2)

February 29, 2020 (1)
New
Tranche B
Warrants (3)

November
2017 Canopy
Warrants (2)

February 28, 2019

November
2018 Canopy
Warrants (2)

November
2017 Canopy
Warrants (2)

Exercise price (4)
Valuation date stock price (5)
Remaining contractual term (6)
Expected volatility (7)
Risk-free interest rate (8)
Expected dividend yield (9)

C$
C$

50.40
25.17
3.7 years
70.0%
1.1%
0.0%

C$
C$

76.68
25.17
6.7 years
70.0%
1.1%
0.0%

C$
C$

12.98
25.17
0.2 years
105.3%
1.5%
0.0%

C$
C$

50.40
62.38
2.7 years
79.3%
1.8%
0.0%

C$
C$

12.98
62.38
1.2 years
87.8%
1.8%
0.0%

(1) New Tranche C Warrants are not included in the table as there is no fair value assigned.

(2) The fair value is estimated using the Black-Scholes option-pricing model (Level 2 fair value

measurement).

(3) The fair value is estimated using Monte Carlo simulations (Level 2 fair value measurement).

(4) Based on the exercise price from the applicable underlying agreements.

(5) Based on the closing market price for Canopy common stock on the TSX as of the applicable date.

(6) Based on the expiration date of the warrants.

(7) Based on consideration of historical and/or implied volatility levels of the underlying equity security and

limited consideration of historical peer group volatility levels.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(8) Based on the implied yield currently available on Canadian Treasury zero coupon issues with a

remaining term equal to the expiration date of the warrants.

(9) Based on historical dividend levels.

Debt securities, Convertible – In June 2018, we acquired convertible debt securities issued by
Canopy for C$200.0 million, or $150.5 million (the “Canopy Debt Securities”). We have elected the fair
value option to account for the Canopy Debt Securities, which, at that time, provided the greatest level of
consistency with the accounting treatment for the November 2017 Canopy Warrants. Interest income on
the Canopy Debt Securities is calculated using the effective interest method and is recognized separately
from the changes in fair value in interest expense. The Canopy Debt Securities have a contractual
maturity of five years from the date of issuance, but may be converted prior to maturity by either party
upon the occurrence of certain events. At settlement, the Canopy Debt Securities can be settled at the
option of the issuer, in cash, equity shares of the issuer, or a combination thereof. The fair value is
estimated using a binomial lattice option-pricing model (Level 2 fair value measurement), which includes
an estimate of the credit spread based on the implied spread as of the issuance date of the notes.

The inputs used to estimate the fair value of the Canopy Debt Securities are as follows:

Conversion price (1)

Valuation date stock price (2)
Remaining term (3)
Expected volatility (4)
Risk-free interest rate (5)
Expected dividend yield (6)

February 29,
2020

February 28,
2019

48.17

25.17

48.17

62.38

3.4 years

4.4 years

58.2%

1.1%

0.0%

45.9%

1.8%

0.0%

(1) Based on the rate which the Canopy Debt Securities may be converted into equity shares, or the

equivalent amount of cash, at the option of the issuer.

(2) Based on the closing market price for Canopy common stock on the TSX as of the applicable date.

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

(4) Based on historical volatility levels of the underlying equity security reduced to account for certain risks

not incorporated into the option-pricing model.

(5) Based on the implied yield currently available on Canadian Treasury zero coupon issues with a term

equal to the remaining contractual term of the debt securities.

(6) Based on historical dividend levels.

Short-term borrowings
The revolving credit facility under our senior credit facility is a variable interest rate bearing note

which includes a fixed margin which is adjustable based upon our debt rating (as defined in our senior
credit facility). Its fair value is estimated by discounting cash flows using LIBOR plus a margin reflecting
current market conditions obtained from participating member financial institutions (Level 2 fair value
measurement). The remaining instruments, including our commercial paper, are variable interest rate
bearing notes for which the carrying value approximates the fair value.

Long-term debt
The term loans under our Term Credit Agreement and 2019 Term Credit Agreement (both as

defined in Note 13) are variable interest rate bearing notes which include a fixed margin which is
adjustable based upon our debt rating. The senior floating rate notes are variable interest rate bearing
notes which include a fixed margin. The fair value of the term loans and the senior floating rate notes are
estimated by discounting cash flows using LIBOR plus a margin reflecting current market conditions
obtained from participating member financial institutions (Level 2 fair value measurement). The fair value
of the remaining long-term debt, which is primarily fixed interest rate, is estimated by discounting cash

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

flows using interest rates currently available for debt with similar terms and maturities (Level 2 fair value
measurement).

The carrying amounts of certain of our financial instruments, including cash and cash equivalents,

accounts receivable, accounts payable, and short-term borrowings, approximate fair value as of
February 29, 2020, and February 28, 2019, due to the relatively short maturity of these instruments. As of
February 29, 2020, the carrying amount of long-term debt, including the current portion, was
$11,945.7 million, compared with an estimated fair value of $12,935.9 million. As of February 28, 2019,
the carrying amount of long-term debt, including the current portion, was $12,825.0 million, compared
with an estimated fair value of $12,768.5 million.

Recurring basis measurements
The following table presents our financial assets and liabilities measured at estimated fair value

on a recurring basis:

(in millions)

February 29, 2020

Assets:

Foreign currency contracts

Commodity derivative contracts
Equity securities (1)
Canopy Debt Securities (1)

Liabilities:

Foreign currency contracts

Commodity derivative contracts

Interest rate swap contracts

Treasury lock contracts

February 28, 2019

Assets:

Foreign currency contracts

Commodity derivative contracts
Equity securities (1)
Canopy Debt Securities (1)

Liabilities:

Foreign currency contracts

Commodity derivative contracts

Fair Value Measurements Using

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

— $

96.3 $

0.6 $

991.5 $

125.6 $

34.4 $

40.9 $

0.8 $

7.6 $

38.2 $

8.7 $

3,023.2 $

211.5 $

15.7 $

11.6 $

— $

96.3

0.6

991.5

125.6

34.4

40.9

0.8

7.6

38.2

8.7

3,023.2

211.5

15.7

11.6

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(1) Unrealized net gain (loss) from the changes in fair value of our securities measured at fair value recognized in

income (loss) from unconsolidated investments, are as follows:

(in millions)
November 2017 Canopy Investment (i)
November 2017 Canopy Warrants
November 2018 Canopy Warrants (ii)
Canopy Debt Securities

February 29,
2020

February 28,
2019

— $

(543.7)

(1,488.1)

(94.6)

292.5

465.5

1,157.7

55.5

(2,126.4) $

1,971.2

(i)

(ii)

Accounted for at fair value from the date of investment in November 2017 through October 31, 2018.
Accounted for under the equity method from November 1, 2018. For additional information on the November
2017 Canopy Investment, refer to Note 10.

The terms of the November 2018 Canopy Warrants were modified in June 2019. For additional information on
the November 2018 Canopy Warrants and the related modification, refer to Note 10. For the year ended
February 29, 2020, amounts are net of a $1,176.0 million unrealized gain resulting from the June 2019
Warrant Modification.

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 periods presented:

Fair Value Measurements Using
Significant
Other
Observable
Inputs
(Level 2)

Quoted
Prices in
Active
Markets
(Level 1)

Significant
Unobservable
Inputs
(Level 3)

Total Losses

(in millions)

For the Year Ended February 29, 2020

Long-lived assets held for sale
Trademarks (1)

For the Year Ended February 28, 2019

Trademarks

For the Year Ended February 28, 2018

Trademarks

— $

—

— $

—

— $

949.3 $

—

949.3 $

449.7

11.0

460.7

— $

28.0 $

108.0

— $

136.0 $

86.8

(1) The balance at February 29, 2020, has been reclassified to assets held for sale (see “Trademarks” below

for further discussion).

Long-lived assets held for sale
For the second quarter of fiscal 2020, in connection with the Wine and Spirits Transaction, long-

lived assets held for sale were written down to their estimated fair value, less costs to sell, resulting in a
loss of $27.0 million. For the third quarter and fourth quarter of fiscal 2020, in connection with the New
Wine and Spirits Transactions, additional losses of $340.0 million and $20.0 million were recognized,
respectively. Additionally, in the fourth quarter of fiscal 2020, in connection with the Other Wine and
Spirits Transactions, long-lived assets held for sale were written down to their estimated fair value, less
costs to sell, resulting in a loss of $20.0 million. Of the total Wine and Spirits segment long-lived assets
held for sale with a carrying value of $1,479.4 million, $1,291.2 million were written down to their current
estimated fair value of $908.2 million, less costs to sell, resulting in a total loss of $407.0 million for the
year ended February 29, 2020. This loss is included in impairment of assets held for sale. These assets
consisted primarily of goodwill, intangible assets, and certain winery and vineyard assets which had
satisfied the conditions necessary to be classified as held for sale. Our estimate of fair value was

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

determined based on the expected proceeds from the New Wine and Spirits Transactions and Other Wine
and Spirits Transactions, excluding the contingent consideration, which we will recognize when it is
determined to be realizable.

For the third quarter of fiscal 2020, in connection with the Ballast Point Transaction, long-lived

assets held for sale were written down to their estimated fair value, less costs to sell, resulting in a loss
of $50.0 million. Subsequently, for the fourth quarter of fiscal 2020, a reduction to the loss on long-lived
assets held for sale of $7.3 million was recognized. The long-lived assets held for sale with a carrying
value of $77.8 million were written down to their estimated fair value of $41.1 million, less costs to sell.
As a result, a loss of $42.7 million, inclusive of costs to sell and other losses is included in impairment of
assets held for sale for the year ended February 29, 2020. These assets consisted primarily of intangible
assets and certain production and warehouse assets which had satisfied the conditions necessary to be
classified as held for sale. Our estimate of fair value was determined based on the expected proceeds
from the Ballast Point Transaction. The Ballast Point craft beer portfolio is a component of the Beer
segment and was included in our beer reporting unit. Accordingly, goodwill was allocated to the Ballast
Point craft beer portfolio assets held for sale based on the relative fair value of the business being sold
compared to the relative fair value of the reporting unit. Goodwill not allocated to assets held for sale
remains in the beer reporting unit.

Trademarks
For the second quarter of fiscal 2020, certain continuing negative trends within our Beer
segment’s Ballast Point craft beer portfolio, including increased rate of revenue decline and increased
competition, indicated that it was more likely than not that the fair value of our indefinite-lived intangible
asset associated with the Ballast Point craft beer trademarks might be below its carrying value.
Accordingly, we performed a quantitative assessment for impairment. As a result of this assessment, the
Ballast Point craft beer trademark asset with a carrying value of $28.0 million was written down to its
estimated fair value of $17.0 million, resulting in an impairment of $11.0 million. This impairment is
included in selling, general, and administrative expenses for the year ended February 29, 2020. The
Ballast Point craft beer trademarks have been reclassified to assets held for sale as of February 29, 2020.

For the fourth quarter of fiscal 2019, in connection with certain continuing negative trends within

our Beer segment’s Ballast Point craft beer portfolio, including slower growth rates and increased
competition, we implemented a change in strategy for our Ballast Point craft beer portfolio. This change
in strategy, when combined with the continuing negative trends, 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. The change in strategy for our Ballast Point craft beer portfolio focuses on
improving profitability by rationalizing the number of product offerings while targeting distribution growth
in select strategic markets. This change in strategy resulted in updated long-term financial forecasts with
lower revenues, and cash flows for the related portfolio. Accordingly, we performed a quantitative
assessment for impairment of the Ballast Point craft beer trademark asset. As a result of this
assessment, the Ballast Point craft beer trademark asset with a carrying value of $136.0 million was
written down to its estimated fair value of $28.0 million, resulting in an impairment of $108.0 million.

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 then-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. 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

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

$222.8 million was written down to its estimated fair value of $136.0 million, resulting in an impairment
of $86.8 million.

When performing a quantitative assessment for impairment of a trademark asset, we measure

the amount of impairment by calculating the amount by which the carrying value of the trademark asset
exceeds its estimated fair value. The estimated fair value is 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 value of our trademark assets involve several assumptions,
including (i) projected revenue 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 trademark assets.

GOODWILL

The changes in the carrying amount of goodwill are as follows:

(in millions)

Balance, February 28, 2018

Purchase accounting allocations (1)
Foreign currency translation adjustments

Balance, February 28, 2019

Purchase accounting allocations (2)
Black Velvet Divestiture

Foreign currency translation adjustments
Reclassified to assets held for sale (3)

Beer

Wine and
Spirits

Consolidated

5,157.6 $

2,925.5 $

8,083.1

22.3

(12.0)

2.7

(7.3)

25.0

(19.3)

5,167.9

2,920.9

8,088.8

—

0.2

(4.7)

58.8

(72.2)

(9.5)

(304.3)

58.8

(72.2)

(9.3)

(309.0)

Balance, February 29, 2020

5,163.4 $

2,593.7 $

7,757.1

(1) Purchase accounting allocations associated primarily with the acquisition of Four Corners (Beer).

(2) Preliminary purchase accounting allocations associated primarily with the acquisition of Nelson’s Green

Brier (Wine and Spirits).

(3) Primarily in connection with the New Wine and Spirits Transactions, goodwill associated with the

businesses being sold was reclassified to assets held for sale based on the relative fair values of the
portion of the business being sold and the remaining wine and spirits and beer portfolios. The relative
fair values were determined using the income approach based on assumptions, including projected
revenue growth rates, terminal growth rate, and discount rate and other projected financial information.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INTANGIBLE ASSETS

The major components of intangible assets are as follows:

(in millions)

Amortizable intangible assets

Customer relationships

Other

Total

Nonamortizable intangible assets

Trademarks

Total intangible assets (1)

February 29, 2020

February 28, 2019

Gross
Carrying
Amount

Net
Carrying
Amount

Gross
Carrying
Amount

Net
Carrying
Amount

87.4 $

31.8 $

89.9 $

20.2

107.6

0.3

32.1 $

20.5

110.4

39.1

0.9

40.0

2,686.8

2,718.9

3,158.1

3,198.1

(1) The balance at February 29, 2020, excludes intangible assets reclassified to assets held for sale, which

consist primarily of trademarks.

We did not incur costs to renew or extend the term of acquired intangible assets for the years
ended February 29, 2020, and February 28, 2019. Net carrying amount represents the gross carrying
value net of accumulated amortization. Amortization expense for intangible assets was $5.7 million, $6.0
million, and $5.9 million for the years ended February 29, 2020, February 28, 2019, and February 28, 2018,
respectively. Estimated amortization expense for each of the five succeeding fiscal years and thereafter is
as follows:

(in millions)

2021

2022

2023

2024

2025

Thereafter

5.3

5.0

3.1

1.5

15.7

10.

EQUITY METHOD INVESTMENTS

Our equity method investments are as follows:

(in millions)

Canopy Equity Method Investment
Other equity method investments (1)

February 29, 2020

February 28, 2019

Carrying
Value

Ownership
Percentage

Carrying
Value

Ownership
Percentage

2,911.7

182.2

3,093.9

35.3% $

3,332.1

36.0%

20%-50%

133.5

20%-50%

3,465.6

(1) The other equity method investments balance at February 29, 2020, excludes investments reclassified

to assets held for sale.

In November 2017, we acquired 18.9 million common shares, which represented a 9.9% ownership
interest in Ontario, Canada-based Canopy Growth Corporation (the “November 2017 Canopy Investment”),
a public company and leading provider of medicinal and recreational cannabis products (“Canopy”), plus
warrants which give us the option to purchase an additional 18.9 million common shares of Canopy (the

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

“November 2017 Canopy Warrants”) for C$245.0 million, or $191.3 million. The November 2017 Canopy
Warrants were issued with an exercise price of C$12.98 per warrant share and are exercisable as of
February 29, 2020. These warrants expire in May 2020.

The November 2017 Canopy Investment was accounted for at fair value from the date of
investment through October 31, 2018. From November 1, 2018, the November 2017 Canopy Investment
has been accounted for under the equity method (see “Canopy Equity Method Investment” below). The
November 2017 Canopy Warrants have been accounted for at fair value from the date of investment.

On November 1, 2018, we increased our ownership interest in Canopy by acquiring an additional

104.5 million common shares (the “November 2018 Canopy Investment”) (see Canopy Equity Method
Investment below), plus warrants which give us the option to purchase an additional 139.7 million
common shares of Canopy (the “November 2018 Canopy Warrants”, and together with the November 2018
Canopy Investment, the “November 2018 Canopy Transaction”) for C$5,078.7 million, or $3,869.9 million.

On November 1, 2018, our ownership interest in Canopy increased to 36.6% which allows us to

exercise significant influence, but not control, over Canopy. Therefore, we account for the November 2017
Canopy Investment and the November 2018 Canopy Investment, each of which represents an investment
in common shares of Canopy, collectively, under the equity method (the “Canopy Equity Method
Investment”). We recognize equity in earnings (losses) and related activities for this investment on a two-
month lag. Accordingly, we recognized equity in earnings (losses) and related activities of $(575.9) million
for the period January 1, 2019, through December 31, 2019, in our consolidated financial statements for
the year ended February 29, 2020, and $(2.6) million for the period November 1, 2018, through
December 31, 2018, in our consolidated financial statements for the year ended February 28, 2019. Equity
in earnings (losses) from the Canopy Equity Method Investment and related activities for the years ended
February 29, 2020, and February 28, 2019, include, among other items, the amortization of the fair value
adjustments associated with the definite-lived intangible assets over their estimated useful lives, the flow
through of inventory step-up, and unrealized gains (losses) associated with changes in our Canopy
ownership percentage resulting from periodic equity issuances made by Canopy. In addition to the items
noted above, the year ended February 29, 2020, includes our share of the additional loss resulting from
the June 2019 Warrant Modification (as defined below) of $(409.0) million (the “June 2019 Warrant
Modification Loss”).

The November 2018 Canopy Warrants originally consisted of 88.5 million warrants (the “Tranche A

Warrants”) and 51.2 million warrants (the “Tranche B Warrants”). The Tranche A Warrants were
immediately exercisable at an exercise price of C$50.40 per warrant share. The Tranche B Warrants were
exercisable upon the exercise, in full, of the Tranche A Warrants and at an exercise price based on the
volume-weighted average of the closing market price of Canopy’s common shares on the TSX for the five
trading days immediately preceding the exercise date. The November 2018 Canopy Warrants originally
expired in November 2021 and have been accounted for at fair value from the date of investment.

In June 2019, the Canopy shareholders approved the modification of the terms of the November

2018 Canopy Warrants and certain other rights (the “June 2019 Warrant Modification”), and the other
required approvals necessary for the modifications to be effective were granted. These changes are the
result of Canopy’s intention to acquire Acreage Holdings, Inc. (“Acreage”) upon U.S. Federal cannabis
legalization, subject to certain conditions (the “Acreage Transaction”). As a result of the modifications, we
continue to have the option to purchase an additional 139.7 million common shares of Canopy upon
exercise of the warrants originally received in November 2018; however, this option now consists of three
tranches of warrants, including 88.5 million warrants (the “New Tranche A Warrants”), 38.4 million
warrants (the “New Tranche B Warrants”), and 12.8 million warrants (the “New Tranche C Warrants”, and
collectively with the New Tranche A Warrants and the New Tranche B Warrants, the “New November 2018
Canopy Warrants”). The New Tranche A Warrants have an exercise price of C$50.40 per warrant share
and are currently exercisable, but now expire November 1, 2023. The New Tranche B Warrants now have
an exercise price of C$76.68 per warrant share and the New Tranche C Warrants have a VWAP Exercise

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Price. The New Tranche B Warrants and the New Tranche C Warrants now have an expiration date of
November 1, 2026.

The other rights obtained in June 2019 in connection with the Acreage Transaction include a share

repurchase credit and the ability to purchase Canopy common shares on the open market or in private
agreement transactions. If for any reason Canopy has not purchased the lesser of 27,378,866 Canopy
common shares or C$1,583.0 million worth of Canopy common shares for cancellation between April 18,
2019 and two-years after the full exercise of the New Tranche A Warrants, we will be credited an amount
that will reduce the aggregate exercise price otherwise payable upon each exercise of the New Tranche B
Warrants and New Tranche C Warrants. The credit will be an amount equal to the difference between the
actual price paid by Canopy in purchasing its common shares for cancellation and C$1,583.0 million. If we
choose to purchase Canopy common shares on the open market or in private agreement with existing
holders, the number of New Tranche B Warrants or New Tranche C Warrants shall be decreased by one
for each Canopy common share acquired, up to an aggregate maximum reduction of 20 million warrants.
The likelihood of receiving the share repurchase credit if we were to fully exercise the New Tranche A
Warrants is remote, therefore, no fair value has been assigned.

The inputs used to estimate the fair value of the New November 2018 Canopy Warrants as of the

June 27, 2019 modification date, are as follows:

Exercise price

Valuation date stock price

Remaining contractual term

Expected volatility

Risk-free interest rate

Expected dividend yield

New
Tranche A
Warrants (1)
50.40
C$

New
Tranche B
Warrants (1)
76.68
C$

53.36

4.3 years

7.3 years

66.7%

1.4%

0.0%

66.7%

1.4%

0.0%

(1) Refer to Note 7 for input descriptions.

Accordingly, we recognized a $1,176.0 million unrealized gain from unconsolidated investments in the
second quarter of fiscal 2020 from the June 2019 Warrant Modification. Approximately $322.5 million of
the unrealized gain was associated with the New Tranche A Warrants and $853.5 million was associated
with the New Tranche B Warrants. No value was associated with the New Tranche C Warrants as they
have a VWAP Exercise Price. As the expiration dates of the New Tranche A Warrants and New Tranche B
Warrants were extended, we now utilize a blend of Canopy’s historical volatility, implied volatility, and
limited consideration of historical peer group volatility in our valuations to supplement the limited trading
history.

Canopy has various convertible equity securities outstanding, including primarily equity awards

granted to its employees and options and warrants issued to various third parties, including our
November 2017 Canopy Warrants, New November 2018 Canopy Warrants, Canopy Debt Securities, and
the Acreage Call Option (as defined below). As of February 29, 2020, the conversion of Canopy equity
securities held by its employees and/or held by other third parties, excluding our November 2017 Canopy
Warrants, New November 2018 Canopy Warrants, Canopy Debt Securities, and the Acreage Call Option,
would not have a significant effect on our share of Canopy’s reported earnings or losses. Additionally,
under an amended and restated investor rights agreement, we have the option to purchase additional
common shares of Canopy at the then-current price of the underlying equity security to allow us to
maintain our relative ownership interest. If we exercised all of our outstanding November 2017 Canopy
Warrants and New November 2018 Canopy Warrants, it could have a significant effect on our share of
Canopy’s reported earnings or losses and our ownership interest in Canopy would be expected to
increase to greater than 50 percent. In connection with the Acreage Transaction, Canopy has a call option
to acquire 100% of the shares of Acreage (the “Acreage Call Option”), which would require the issuance of

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Canopy shares. If Canopy exercised the Acreage Call Option it could have a significant effect on our share
of Canopy’s reported earnings or losses and our ownership interest in Canopy would decrease and no
longer be expected to be greater than 50 percent.

As of February 29, 2020, the exercise of all Canopy warrants held by us would have required a

cash outflow of approximately $6.0 billion based on the terms of the November 2017 Canopy Warrants
and the New November 2018 Canopy Warrants. Additionally, as of February 29, 2020, the fair value of the
Canopy Equity Method Investment was $2,316.3 million based on the closing price of the underlying
equity security as of that date. When compared to the carrying value of the Canopy Equity Method
Investment, this fair value indicates that the investment was impaired by $595.4 million. We have
evaluated the Canopy Equity Method Investment as of February 29, 2020, and determined that there was
not an other-than-temporary-impairment. Our conclusion was based on several contributing factors,
including: (i) the period of time for which the fair value has been less than the carrying value, (ii) an
expectation that Canopy’s operating results will improve, (iii) an expectation that the Canopy stock price
will recover in the near term, and (iv) our ability and intent to hold the investment until that recovery. We
will continue to review the Canopy Equity Method Investment for an other-than-temporary-impairment.
There may be a future impairment of our Canopy Equity Method Investment if Canopy’s stock price does
not recover in the near term or our expectations about Canopy’s prospective operating results and cash
flows decline, which could be influenced by a variety of factors including adverse market conditions and
the economic impact of COVID-19.

The following tables present summarized financial information for Canopy presented in
accordance with U.S. GAAP. We recognize our equity in earnings (losses) for Canopy on a two-month lag.
Accordingly, we recognized our share of Canopy’s earnings (losses) for the period January through
December 2019 in our year ended February 29, 2020 results. We recognized our share of Canopy’s
earnings (losses) from November and December 2018, in our year ended February 28, 2019 results. The
amounts shown represent 100% of Canopy’s financial position and results of operations, however, they
exclude the impact of the June 2019 Warrant Modification Loss from the year ended February 29, 2020
results, as it was recorded by Canopy within equity.

(in millions)

Current assets

Noncurrent assets

Current liabilities

Noncurrent liabilities

Noncontrolling interests

(in millions)

Net sales

Gross profit (loss)

Net income (loss)

Net income (loss) attributable to Canopy

(1) For the period November 1, 2018, through December 31, 2018.

February 29,
2020

February 28,
2019

2,232.9 $

3,751.6 $

322.0 $

867.9 $

210.5 $

3,800.7

2,466.0

216.8

668.2

143.3

For the Years Ended

February 29,
2020

February 28,
2019 (1)

290.2 $

45.4 $

(327.0) $

(312.6) $

48.6

11.2

(39.6)

(27.8)

Subsequent event
In March 2020, Canopy announced its plans to close two Canadian greenhouse facilities as part of

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Africa, and reduce Latin America and United States cultivation activities. Canopy expects to record an
estimated pre-tax loss of approximately C$700 million to C$800 million in their fourth quarter of fiscal
2020 results from the facilities closures as well as other changes related to its organizational and
strategic review. We will record our proportional share of Canopy’s estimated pre-tax loss of
approximately C$245 million to C$280 million, in our first quarter of fiscal 2021 results.

11.

OTHER ASSETS

The major components of other assets are as follows:

(in millions)

Operating lease right-of-use asset

Other

February 29,
2020 (1)

February 28,
2019

481.4 $

129.3

610.7 $

—

109.7

(1) The other assets balance at February 29, 2020, excludes amounts reclassified to assets held for sale.

12.

OTHER ACCRUED EXPENSES AND LIABILITIES

The major components of other accrued expenses and liabilities are as follows:

(in millions)

Promotions and advertising

Salaries, commissions, and payroll benefits and withholdings

Accrued interest

Operating lease liability

Derivative liabilities

Income taxes payable

Other

February 29,
2020

February 28,
2019

191.7 $

182.2

94.3

76.6

61.1

24.9

149.6

780.4 $

181.2

163.1

107.3

—

15.5

24.5

198.8

690.4

13.

BORROWINGS

Borrowings consist of the following:

(in millions)

Short-term borrowings

Senior credit facility, Revolving credit loan

Commercial paper

Long-term debt

Senior credit facility, Term loan

Term loan credit facilities

Senior notes
Other

February 29, 2020

February 28,
2019

Current

Long-term

Total

—

238.9

59.0

732.5

791.5

— $

24.5

698.7
11.7

1,271.2

9,926.0
13.6

1,295.7

10,624.7
25.3

492.8

1,486.4

10,816.9
28.9

734.9 $

11,210.8 $

11,945.7 $

12,825.0

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 93

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Bank Facilities
Senior credit facility
In July 2017, the Company, CIH International S.à r.l., a wholly-owned subsidiary of ours (“CIH”), CB

International Finance S.à r.l., a wholly-owned subsidiary of ours (“CB International” and together with
CIH, the “European Borrowers”), CIH Holdings S.à r.l., a wholly-owned subsidiary of ours (“CIHH”), Bank
of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders entered
into a Restatement Agreement (the “2017 Restatement Agreement”) that amended and restated our then-
existing senior credit facility (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 by $261.1 million to
$500.0 million 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.

In November 2017, we repaid the outstanding obligations under the European Term A loan facility

under the 2017 Credit Agreement primarily with proceeds from the November 2017 senior notes.

In August 2018, the Company, CIH, CB International, certain of the Company’s subsidiaries as

guarantors, the Administrative Agent, and certain other lenders entered into a Restatement Agreement
(the “August 2018 Restatement Agreement”) that amended and restated the 2017 Credit Agreement (as
amended and restated by the August 2018 Restatement Agreement, the “August 2018 Credit Agreement”).
The principal changes effected by the August 2018 Restatement Agreement were:

•
•
•

The removal of CIH as a borrower under the August 2018 Credit Agreement;
The termination of a cross-guarantee agreement by the European Borrowers; and
The addition of a mechanism to provide for the replacement of LIBOR with an alternative
benchmark rate in certain circumstances where LIBOR cannot be adequately ascertained or
available.

In September 2018, the Company, CB International, certain of the Company’s subsidiaries as

guarantors, the Administrative Agent, and certain other lenders entered into a Restatement Agreement
(the “2018 Restatement Agreement”) that amended and restated the August 2018 Credit Agreement (as
amended and restated by the 2018 Restatement Agreement, the “2018 Credit Agreement”). The primary
change effected by the 2018 Restatement Agreement was the increase of the revolving credit facility from
$1.5 billion to $2.0 billion and extension of its maturity to September 14, 2023. The 2018 Restatement
Agreement also modified certain financial covenants in connection with the November 2018 Canopy
Transaction and added various representations and warranties, covenants, and an event of default related
to the November 2018 Canopy Transaction.

In June 2019, we repaid the outstanding obligations under the U.S. Term A-1 loan facility under

the 2018 Credit Agreement with proceeds from the 2019 Term Credit Agreement (as defined below).

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Term Credit Agreement
In September 2018, the Company, the Administrative Agent, and certain other lenders entered into

a term loan credit agreement (the “Term Credit Agreement”). The Term Credit Agreement provides for
aggregate credit facilities of $1.5 billion, consisting of a $500.0 million three-year term loan facility (the
“Three-Year Term Facility”) and a $1.0 billion five-year term loan facility (the “Five-Year Term Facility”).

The Three-Year Term Facility is not subject to amortization payments, with the balance due and

payable at maturity. The Five-Year Term Facility will be repaid in quarterly payments of principal equal to
1.25% of the original aggregate principal amount of the Five-Year Term Facility, with the balance due and
payable at maturity.

2019 Term Credit Agreement
In June 2019, the Company and Bank of America, N.A., as Administrative Agent and lender
(the “Lender”) entered into a term loan credit agreement (the “2019 Term Credit Agreement”). The 2019
Term Credit Agreement provides for the creation of a $491.3 million five-year term loan facility (the “2019
Five-Year Term Facility”). The 2019 Five-Year Term Facility will be repaid in quarterly payments of
principal equal to 1.25% of the original aggregate principal amount of the 2019 Five-Year Term Facility,
with the balance due and payable at maturity.

General
The obligations under the 2018 Credit Agreement, the Term Credit Agreement, and the 2019 Term

Credit Agreement were guaranteed by certain of our U.S. subsidiaries. We and our subsidiaries are
subject to covenants that are contained in the 2018 Credit Agreement, the Term Credit Agreement, and
the 2019 Term 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.

Our senior credit facility 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 our senior credit facility, is no greater than 4.00 to 1.00 subject to certain
limitations for the period defined pursuant to our senior credit facility.

The 2018 Credit Agreement, the Term Credit Agreement and the 2019 Term Credit Agreement

were subsequently amended as described below.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 95

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

As of February 29, 2020, aggregate credit facilities under the 2018 Credit Agreement, the Term

Credit Agreement, and the 2019 Term Credit Agreement consist of the following:

(in millions)

2018 Credit Agreement
Revolving Credit Facility (1) (2)

Term Credit Agreement
Three-Year Term Facility (1) (3)
Five-Year Term Facility (1) (3)

2019 Term Credit Agreement
2019 Five-Year Term Facility (1) (3)

Amount

Maturity

2,000.0 Sept 14, 2023

500.0

Nov 1, 2021

1,000.0

1,500.0

Nov 1, 2023

491.3

Jun 28, 2024

(1) Contractual interest rate varies based on our debt rating (as defined in the respective agreement) and is
a function of LIBOR plus a margin, or the base rate plus a margin, or, in certain circumstances where
LIBOR cannot be adequately ascertained or available, an alternative benchmark rate plus a margin.

(2) We and/or CB International are the borrower under the $2,000.0 million Revolving Credit Facility.

Includes a sub-facility for letters of credit of up to $200.0 million.

(3) We are the borrower under the Three-Year Term Facility, the Five-Year Term Facility, and the 2019 Five-

Year Term Facility.

As of February 29, 2020, information with respect to borrowings under the 2018 Credit Agreement,

the Term Credit Agreement, and the 2019 Term Credit Agreement is as follows:

(in millions)

Outstanding borrowings

Interest rate

LIBOR margin

Outstanding letters of credit
Remaining borrowing capacity (3)

2018 Credit
Agreement

Revolving
Credit
Facility

Term Credit Agreement

Three-Year
Term
Facility (1)

Five-Year
Term
Facility (1) (2)

2019 Term
Credit
Agreement

2019 Five-
Year Term
Facility (1)

— $

499.6

317.1

479.0

—%

1.13%

11.8

2.8%

1.13%

2.9%

1.25%

2.5%

0.88%

$ 1,749.2

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

(2) Outstanding borrowings reflect a $645.0 million partial prepayment of the Five-Year Term Facility under

our Term Credit Agreement.

(3) Net of outstanding revolving credit facility borrowings and outstanding letters of credit under the 2018
Credit Agreement and outstanding borrowings under our commercial paper program of $239.0 million
(excluding unamortized discount) (see “Commercial paper program”).

Commercial paper program
We have a commercial paper program which provides for the issuance of up to an aggregate

principal amount of $2.0 billion of commercial paper. Our commercial paper program is backed by
unused commitments under our revolving credit facility under our 2018 Credit Agreement. Accordingly,
outstanding borrowings under our commercial paper program reduce the amount available under our
revolving credit facility under our 2018 Credit Agreement. As of February 29, 2020, we had $238.9 million
of outstanding borrowings, net of unamortized discount, under our commercial paper program with a
weighted average annual interest rate of 1.9% and a weighted average remaining term of 8 days. As of

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

February 28, 2019, we had $732.5 million of outstanding borrowings, net of unamortized discount, under
our commercial paper program with a weighted average annual interest rate of 3.0% and a weighted
average remaining term of 18 days.

Interest rate swap contracts
In June 2019, we entered into interest rate swap agreements, which are designated as cash flow
hedges for $375.0 million of our floating LIBOR rate debt. As a result of these hedges, we have fixed our
interest rates on $375.0 million of our floating LIBOR rate debt at an average rate of 1.9% (exclusive of
borrowing margins) from July 1, 2019, through July 1, 2020.

Treasury lock contracts
In February 2020, we entered into treasury lock agreements, which are designated as cash flow

hedges for $300.0 million of future debt issuances. As a result of these hedges, we have fixed our 10-year
treasury interest rates on $300.0 million of future debt issuances at an average rate of 1.4% (exclusive of
borrowing margins).

Senior notes
Our outstanding senior notes are as follows:

Principal

Issuance

Maturity

Interest
Payments

February 29,
2020

February 28,
2019

Date of

Outstanding Balance (1)

(in millions)

3.75% Senior Notes (2) (3)

4.25% Senior Notes (2) (3)

3.875% Senior Notes (2) (4)

4.75% Senior Notes (2) (3)

3.70% Senior Notes (2) (5)

2.70% Senior Notes (2) (5)

3.50% Senior Notes (2) (5)

4.50% Senior Notes (2) (5)

2.00% Senior Notes (2) (6)

2.25% Senior Notes (2) (6)

2.65% Senior Notes (2) (5)

3.20% Senior Notes (2) (5)

3.60% Senior Notes (2) (5)

4.10% Senior Notes (2) (5)

Senior Floating Rate Notes (2) (7) $
4.40% Senior Notes (2) (5)
4.65% Senior Notes (2) (5)
5.25% Senior Notes (2) (5)
3.15% Senior Notes (2) (5)

500.0 May 2013

May 2021

May/Nov

499.2 $

May/Nov

Jun/Dec

May/Nov

Feb/Aug

1,050.0 May 2013

May 2023

400.0

600.0

Nov 2014

Nov 2019

Nov 2014

Nov 2024

Dec 2015

Dec 2025

Dec 2016

Dec 2026

500.0 May 2017

May 2022

500.0 May 2017

May 2027

500.0 May 2017

May 2047

Nov 2017

Nov 2019

Nov 2017

Nov 2020

Nov 2017

Nov 2022

600.0

700.0

600.0

700.0

600.0

650.0

500.0

800.0

Feb 2018

Oct 2018

Jul 2019

Feb 2023

Feb 2028

Feb 2048

Nov 2021

Quarterly

Nov 2025

Nov 2028

Nov 2048

Aug 2029

May/Nov

Feb/Aug

1,046.4

—

397.0

396.3

595.9

497.8

496.1

493.0

—

698.7

695.5

597.0

694.3

592.1

647.9

496.0

495.2

493.0

793.3

498.6

1,045.4

399.1

396.4

395.8

595.4

496.8

495.6

492.9

598.6

696.8

693.9

596.0

693.8

592.0

646.8

495.4

494.7

492.9

—

10,624.7 $

10,816.9

(1) Amounts are net of unamortized debt issuance costs and unamortized discounts, where applicable.

(2) Senior unsecured obligations which rank equally in right of payment to all of our existing and future
senior unsecured indebtedness. Guaranteed under our 2018 Credit Facility by certain of our U.S.
subsidiaries on a senior unsecured basis.

(3) 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 and a make-whole payment based on
the present value of the future payments at the adjusted Treasury Rate plus 50 basis points.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(4) Redeemed prior to maturity in August 2019 at a redemption price equal to 100% of the outstanding
principal amount, plus accrued and unpaid interest and a make-whole payment of $1.5 million. The
make-whole payment is included in loss on extinguishment of debt.

(5) Redeemable, in whole or in part, at our option at any time prior to the stated redemption date as defined
in the indenture, 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 the stated basis points as defined in the indenture. On or after the
stated redemption date, 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.

3.70% Senior Notes due December 2026

2.70% Senior Notes due May 2022

3.50% Senior Notes due May 2027

4.50% Senior Notes due May 2047

2.65% Senior Notes due November 2022

3.20% Senior Notes due February 2023

3.60% Senior Notes due February 2028

4.10% Senior Notes due February 2048

4.40% Senior Notes due November 2025

4.65% Senior Notes due November 2028

5.25% Senior Notes due November 2048

3.15% Senior Notes due August 2029

Redemption

Stated
Redemption
Date
Sept 2026

Stated
Basis
Points

Apr 2022

Feb 2027

Nov 2046

Oct 2022

Jan 2023

Nov 2027

Aug 2047

Sept 2025

Aug 2028

May 2048

May 2029

(6) Redeemable, in whole or in part, at our option at any time prior to maturity, 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 10 basis
points.

(7)

Interest will accrue for each quarterly interest period at a rate equal to three-month LIBOR plus 0.70%
per year as determined on the applicable interest determination date as defined in the indenture.
Interest is payable quarterly in February, May, August, and November. The notes are redeemable, in
whole or in part, at our option at any time prior to maturity, at a redemption price equal to 100% of the
outstanding principal amount, plus accrued and unpaid interest.

For the year ended February 28, 2018, we recognized a loss on extinguishment of debt of $97.0
million. This amount consisted of a make-whole payment of $73.6 million in connection with the early
redemption of our April 2012 senior notes and the write-off of debt issuance costs of $23.4 million
primarily in connection with the prior-to-maturity repayments of term loan facilities under our applicable
senior credit facility in May and November 2017.

Indentures
Our indentures relating to our outstanding senior notes contain certain covenants, including, but

Subsidiary credit facilities
General
We have additional credit arrangements totaling $71.8 million and $45.1 million as of February 29,

2020, and February 28, 2019, respectively. As of February 29, 2020, and February 28, 2019, amounts
outstanding under these arrangements were $25.3 million and $28.9 million, respectively, the majority of
which is classified as long-term as of the respective date. These arrangements primarily support the
financing needs of our domestic and foreign subsidiary operations (see “Other long-term debt” for

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

additional information). Interest rates and other terms of these borrowings vary from country to country,
depending on local market conditions.

Other long-term debt
During the year ended February 28, 2019, we recorded a conversion of $248.2 million from long-

term debt to noncontrolling equity interests associated with the noncash settlement of a prior contractual
agreement with our glass production plant joint venture partner, Owens-Illinois.

Debt payments
As of February 29, 2020, the required principal repayments under long-term debt obligations

(excluding unamortized debt issuance costs and unamortized discounts of $62.5 million and
$13.6 million, respectively) for each of the five succeeding fiscal years and thereafter are as follows:

(in millions)
2021

2022

2023

2024

2025

Thereafter

736.2

1,682.2

1,828.9

1,393.8

780.7

5,600.0

12,021.8

Subsequent events
2020 Credit Agreement
In March 2020, the Company, CB International, certain of the Company’s subsidiaries as
guarantors, the Administrative Agent, and certain other lenders entered into a Restatement Agreement
(the “2020 Restatement Agreement”) that amended and restated the 2018 Credit Agreement (as amended
and restated by the 2020 Restatement Agreement, the “2020 Credit Agreement”). The principal changes
effected by the 2020 Restatement Agreement were:

•
•

•

The removal of the subsidiary guarantees and termination of the guarantee agreement;
The inclusion of the parent guaranty provisions in connection with the termination of the
guarantee agreement;
The removal of certain provisions pertaining to term loans since no term loans are
outstanding; and
The revision of the LIBOR successor rate provisions to permit the use of rates based on the
secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New
York.

Upon removal of all of the subsidiary guarantors from our 2020 Credit Agreement, the subsidiary

guarantors were automatically released from the indentures relating to our outstanding senior notes.

Term Credit Agreements
In March 2020, the Company, certain of the Company’s subsidiaries as guarantors, the
Administrative Agent, and certain other lenders entered into a term loan restatement agreement (the
“Term Loan Restatement Agreement”) that amended and restated the Term Credit Agreement (as
amended and restated by the Term Loan Restatement Agreement the “2020 Term Credit Agreement”).

In March 2020, the Company, certain of the Company’s subsidiaries as guarantors, the
Administrative Agent, and the Lender entered into a 2020 term loan restatement agreement (the “2020
Term Loan Restatement Agreement”) that amended and restated the 2019 Term Credit Agreement (as
amended and restated by the 2020 Term Loan Restatement Agreement the “March 2020 Term Credit
Agreement”).

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The principal changes effected by the Term Loan Restatement Agreement and 2020 Term Loan

Restatement Agreement were:

•

The removal of the subsidiary guarantees and termination of the respective guarantee
agreements; and
The revision of the LIBOR successor rate provisions to permit the use of rates based on SOFR.

Treasury lock contracts
In March 2020, we entered into additional treasury lock agreements, which are designated as cash

flow hedges for $200.0 million of future debt issuances. As a result of these additional hedges, we have
fixed our 10-year treasury interest rates on $500.0 million of future debt issuances at an average rate of
1.2% (exclusive of borrowing margins).

14.

INCOME TAXES

Income (loss) before income taxes was generated as follows:

(in millions)

Domestic

Foreign

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

(2,230.1) $

1,615.9 $

1,284.9

2,529.1

(945.2) $

4,145.0 $

591.5

1,746.5

2,338.0

The income tax provision (benefit) consisted of the following:

(in millions)

Current

Federal

State

Foreign

Total current

Deferred

Federal

State

Foreign

Total deferred

Income tax provision (benefit)

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

66.5 $

4.1 $

12.1

108.5

187.1

(459.9)

(118.3)

(575.5)

(1,153.7)

15.7

239.2

259.0

223.9

75.0

128.0

426.9

(966.6) $

685.9 $

261.1

20.4

158.4

439.9

(475.9)

0.4

58.3

(417.2)

22.7

For the third quarter of fiscal 2020, we recognized a net income tax benefit of $547.4 million

resulting from the remeasurement of our deferred tax assets in connection with the September 2019
enactment of tax reform in Switzerland.

On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was signed into law. The TCJ Act

significantly changes U.S. corporate income taxes by, among other items, lowering the federal statutory
rate from 35% to 21%, eliminating certain deductions, changing how foreign earnings are subject to U.S.
tax, and imposing a mandatory one-time transition tax on accumulated earnings of foreign subsidiaries.
In December 2017, the SEC issued guidance related to the income tax accounting implications of the
TCJ Act. This guidance provides a measurement period, which extends no longer than one year from the

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

enactment date of the TCJ Act, during which a company may complete its accounting for the income tax
implications of the TCJ Act. In accordance with this guidance, we recognized a provisional net income tax
benefit of $351.2 million for the year ended February 28, 2018. This amount is comprised primarily of (i) a
benefit of $311.2 million from the remeasurement of our deferred tax assets and liabilities to the new,
lower federal statutory rate and (ii) a benefit of $220.0 million from the reversal of deferred tax liabilities
previously provided for unremitted earnings of foreign subsidiaries which were not considered to be
indefinitely reinvested; partially offset by the recording of the mandatory one-time transition tax of $180.0
million on unremitted earnings of our foreign subsidiaries.

For the third quarter of fiscal 2019, we completed our analysis of the income tax implications of

the TCJ Act. We recognized an additional income tax benefit of $37.6 million resulting from a decrease in
the mandatory one-time transition tax on unremitted earnings of our foreign businesses.

A reconciliation of the total tax provision (benefit) to the amount computed by applying the

statutory U.S. Federal income tax rate to income before provision for (benefit from) income taxes is as
follows:

For the Years Ended

February 29, 2020

February 28, 2019

February 28, 2018

% of
Pretax
Income
(Loss)

Amount

% of
Pretax
Income
(Loss)

Amount

% of
Pretax
Income
(Loss)

Amount

(in millions, except % of pretax income (loss) data)

Income tax provision (benefit) at statutory
rate

State and local income taxes, net of federal
income tax benefit (1)
Net income tax provision (benefit) from
legislative changes (2)

Earnings taxed at other than U.S. statutory
rate (3)

Excess tax benefits from stock-based
compensation awards (4)
Net income tax provision (benefit) recognized
for adjustment to valuation allowance

Miscellaneous items, net

$ (198.5)

21.0% $

870.5

21.0% $

765.4

32.7%

(82.3)

8.7%

81.3

2.0%

18.0

0.8%

(547.4)

57.9%

(37.6)

(0.9%)

(351.2)

(15.0%)

(46.5)

5.0%

(81.0)

(1.9%)

(323.9)

(13.9%)

(56.2)

5.9%

(82.9)

(2.0%)

(68.6)

(2.9%)

Income tax provision (benefit) at effective rate $ (966.6)

102.3% $

685.9

16.5% $

(32.8)

(2.9)

3.5%

0.3%

(74.1)

9.7

(1.8%)

0.1%

4.8

(21.8)

22.7

0.2%

(0.9%)

1.0%

(1)

Includes differences resulting from adjustments to the current and deferred state effective tax rates.

(2) The year ended February 29, 2020, represents the recognition of a net income tax benefit resulting from
the remeasurement of our deferred tax assets in connection with the September 2019 enactment of tax
reform in Switzerland. The years ended February 28, 2019, and February 28, 2018, represent net income
tax benefits related to the TCJ Act.

(3) Consists of the following (i) difference between the U.S. statutory rate and local jurisdiction tax rates,

(ii) the provision for incremental U.S. taxes on earnings of certain foreign subsidiaries offset by foreign
tax credits, (iii) the non-U.S. portion of tax provision (benefit) recorded on the net unrealized gain (loss)
from the changes in fair value of our investments in Canopy, and (iv) the non-U.S. portion of tax benefits
recorded on the Canopy equity in earnings (losses) and related activities.

(4) Represents the recognition of the income tax effect of stock-based compensation awards in the income

statement when the awards vest or are settled.

Deferred tax assets and liabilities reflect the future income tax effects of temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and are measured using enacted tax rates that apply to taxable income.

Constellation Brands, Inc. FY 2020 Form 10-K

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Significant components of deferred tax assets (liabilities) consist of the following:

(in millions)

Deferred tax assets

Intangible assets

Loss carryforwards

Stock-based compensation

Lease liabilities

Inventory

Investments in unconsolidated investees

Other accruals

Gross deferred tax assets

Valuation allowances

Deferred tax assets, net

Deferred tax liabilities

Property, plant, and equipment

Investments in unconsolidated investees

Provision for unremitted earnings

Right-of-use assets

Total deferred tax liabilities

Deferred tax assets (liabilities), net

February 29,
2020

February 28,
2019

2,045.8 $

1,616.7

225.9

75.6

89.2

32.4

106.1

35.0

2,610.0

(54.1)

2,555.9

(175.5)

—

(27.5)

(80.5)

(283.5)

147.8

33.4

—

20.3

—

85.5

1,903.7

(86.9)

1,816.8

(191.5)

(448.9)

(22.8)

—

(663.2)

2,272.4 $

1,153.6

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not

that some or all of the deferred tax assets will not be realized. In making this assessment, we consider
the projected reversal of deferred tax liabilities and projected future taxable income as well as tax
planning strategies. Based upon this assessment, we believe it is more likely than not that we will realize
the benefits of these deductible differences, net of any valuation allowances.

As of February 29, 2020, operating loss carryforwards, which are primarily state and foreign,

totaling $1.5 billion are being carried forward in a number of jurisdictions where we are permitted to use
tax operating losses from prior periods to reduce future taxable income. Of these operating loss
carryforwards, $1.4 billion will expire in fiscal 2021 through fiscal 2040 and $87.4 million of operating
losses in certain jurisdictions may be carried forward indefinitely. Additionally, as of February 29, 2020,
federal capital losses totaling $173.2 million are being carried forward and will expire in fiscal 2022.

We have recognized valuation allowances for operating loss carryforwards, capital loss
carryforwards, and other deferred tax assets when we believe it is more likely than not that these items
will not be realized. The decrease in our valuation allowances as of February 29, 2020, primarily relates to
the reversal of valuation allowances for capital loss carryforwards in connection with the Wine and Spirits
Transaction.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The liability for income taxes associated with uncertain tax positions, excluding interest and
penalties, and a reconciliation of the beginning and ending unrecognized tax benefit liabilities is as
follows:

February 29,
2020

For the Years Ended
February 28,
2019

February 28,
2018

(in millions)

Balance as of March 1

224.3 $

89.3 $

Increases as a result of tax positions taken during a prior period

Decreases as a result of tax positions taken during a prior period

Increases as a result of tax positions taken during the current period

Decreases related to settlements with tax authorities

Decreases related to lapse of applicable statute of limitations

11.4

(14.8)

29.0

(0.1)

(0.4)

56.4

(1.4)

88.8

(0.8)

(8.0)

Balance as of last day of February

249.4 $

224.3 $

39.5

7.5

(0.1)

43.8

(0.4)

(1.0)

89.3

As of February 29, 2020, and February 28, 2019, we had $276.2 million and $239.0 million,

respectively, of non-current unrecognized tax benefit liabilities, including interest and penalties,
recognized on our balance sheets. These liabilities are recorded as non-current as payment of cash is not
anticipated within one year of the balance sheet date.

As of February 29, 2020, and February 28, 2019, we had $249.4 million and $224.3 million,

respectively, of unrecognized tax benefit liabilities that, if recognized, would decrease the effective tax
rate in the year of resolution.

We file U.S. Federal income tax returns and various state, local, and foreign income tax returns.
Major tax jurisdictions where we are subject to examination by tax authorities include Canada, Mexico,
Switzerland, and the U.S. Various U.S. Federal, state and foreign income tax examinations are currently in
progress. It is reasonably possible that the liability associated with our unrecognized tax benefit liabilities
will increase or decrease within the next twelve months as a result of these examinations or the
expiration of statutes of limitation. As of February 29, 2020, we estimate that unrecognized tax benefit
liabilities could change by a range of $1 million to $19 million. With few exceptions, we are no longer
subject to U.S. Federal, state, local, or foreign income tax examinations for fiscal years prior to
February 28, 2013.

We provide for additional tax expense based on probable outcomes of ongoing tax examinations

and assessments in various jurisdictions. While it is often difficult to predict the outcome or the timing of
resolution of any tax matter, we believe the reserves reflect the probable outcome of known tax
contingencies. Unfavorable settlement of any particular issue would require the use of cash.

15.

DEFERRED INCOME TAXES AND OTHER LIABILITIES

The major components of deferred income taxes and other liabilities are as follows:

(in millions)

Operating lease liability

Deferred income taxes

Unrecognized tax benefit liabilities

Long-term income tax payable

Other

February 29,
2020

February 28,
2019

483.6 $

384.0

276.2

96.2

86.3
1,326.3 $

—

1,029.7

239.0

95.4

106.6
1,470.7

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 103

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

16.

LEASES

General
We primarily lease certain vineyards, office and production facilities, warehouses, production

equipment, and vehicles. We assess service arrangements to determine if an asset is explicitly or
implicitly specified in the agreement and if we have the right to control the use of the identified asset. We
have concluded that certain grape purchasing arrangements associated with the purchase of grape
production yielded from a specified block of a vineyard and certain third-party logistics arrangements
contain a lease.

The right-of-use asset is initially measured at cost, which is primarily comprised of the initial

amount of the lease liability, plus initial direct costs and lease payments at or before the lease
commencement date, less any lease incentives received, and is amortized on a straight-line basis over
the remaining lease term. All right-of-use assets are reviewed periodically for impairment. The lease
liability is initially measured at the present value of lease payments, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate.
The incremental borrowing rates are determined using a portfolio approach based on publicly available
information in connection with our unsecured borrowing rates adjusted for items including collateral,
currency, and the timing in which lease payments are made. We elected to recognize expenses for leases
with a term of 12 months or less on a straight-line basis over the lease term and not to recognize these
short-term leases on the balance sheet.

Our leases have varying terms with remaining lease terms of up to approximately 30 years.

Certain of our lease arrangements provide us with the option to extend or to terminate the lease early.

The right-of-use asset and lease liability are calculated including options to extend or to

terminate the lease when we determine that it is reasonably certain that we will exercise those options. In
making that determination, we consider various existing economic and market factors, business
strategies as well as the nature, length, and terms of the agreement. Based on our evaluation using
these factors, we concluded that the exercise of renewal options or early termination options would not
be reasonably certain in determining the lease term at commencement for leases we currently have in
place. Assumptions made at the commencement date are re-evaluated upon occurrence of certain events
such as a lease modification.

Certain of our contractual arrangements may contain both lease and non-lease components.

Non-lease components are distinct elements of a contract that are not related to securing the use of the
leased asset, such as raw materials, common area maintenance, and other management costs. We
elected to measure the lease liability by combining the lease and non-lease components as a single lease
component for all asset classes.

Certain of our leases include variable lease payments, including payments that depend on an

index or rate, as well as variable payments for items such as raw materials, labor, property taxes,
insurance, maintenance, and other operating expenses associated with leased assets. Certain grape
purchasing arrangements include variable payments based on actual tonnage and price of grapes that
will vary depending on certain factors, including weather, time of harvest, overall market conditions, and
the agricultural practices and location of the vineyard. In addition, certain third-party logistics
arrangements include variable payments that vary depending on throughput. Such variable lease
payments are excluded from the calculation of the right-of-use asset and are recognized in the period in
which the obligation is incurred.

Constellation Brands, Inc. FY 2020 Form 10-K

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PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Balance sheet location
A summary of lease right-of-use assets and liabilities are as follows:

Balance Sheet Classification

February 29,
2020

(in millions)

Assets

Operating lease

Finance lease

Total right-of-use assets

Liabilities

Current:

Operating lease

Finance lease

Non-current:

Operating lease

Finance lease

Total lease liabilities

Other assets

Property, plant, and equipment

Other accrued expenses and liabilities

Current maturities of long-term debt

Deferred income taxes and other liabilities

Long-term debt, less current maturities

Lease cost
The components of total lease cost are as follows:

(in millions)

Operating lease cost

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Short-term lease cost

Variable lease cost

Total lease cost

481.4

26.6

508.0

76.6

11.7

483.6

13.6

585.5

For the Year
Ended
February 29,
2020

98.9

12.2

0.7

8.6

403.3

523.7

Lease maturities (1)
As of February 29, 2020, minimum payments due for lease liabilities for each of the five

succeeding fiscal years and thereafter are as follows:

(in millions)

2021

2022

2023

2024

2025

Thereafter

Total lease payments

Less: Interest

Total lease liabilities

Operating
Leases

Finance
Leases

94.1 $

12.2

81.8

68.9

61.3

51.0

329.7

686.8
(126.6)

560.2 $

7.9

4.4

1.7

—

26.2
(0.9)

25.3

Constellation Brands, Inc. FY 2020 Form 10-K

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

As of February 28, 2019, future payments were expected to be as follows:

(in millions)

2020

2021

2022

2023

2024

Thereafter

Total lease payments

(1) For leases with terms in excess of 12 months at inception.

Supplemental information

(in millions)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Right-of-use assets obtained in exchange for new lease liabilities:

Operating leases

Finance leases

(in millions)

Weighted-average remaining lease term:

Operating leases

Finance leases

Weighted-average discount rate:

Operating leases

Finance leases

Operating
Leases

59.0

58.2

51.1

47.9

41.2

302.1

559.5

For the Year
Ended
February 29,
2020

100.7

0.7

13.8

34.3

10.7

February 29,
2020

11.7 years

3.2 years

3.5%

2.6%

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 106

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

17.

COMMITMENTS AND CONTINGENCIES

Purchase commitments and contingencies
We have entered into various long-term contracts in the normal course of business for the
purchase of (i) certain inventory components, (ii) property, plant, and equipment and related contractor
and manufacturing services, (iii) processing and warehousing services, (iv) transportation services, and
(v) certain energy requirements. As of February 29, 2020, the estimated aggregate minimum purchase
commitments under these contracts are as follows:

Type

Length of Commitment

Amount

(in millions)

Raw materials and supplies (1)
In-process inventories

Contract services

Capital expenditures (2)
Other

Packaging, grapes, hops, malts, and
other raw materials

through December 2037 $

4,789.5

Bulk wine and spirits

through April 2025

Processing and warehousing services,
transportation services, and energy
contracts

Property, plant, and equipment and
contractor and manufacturing services

Finished wine case goods

through December 2030

through April 2022

through May 2029

85.8

657.2

459.6

32.6

6,024.7

(1) Certain grape purchasing arrangements include the purchase of grape production yielded from

specified blocks of a vineyard. The actual tonnage and price of grapes that we purchase will vary each
year depending on certain factors, including weather, time of harvest, overall market conditions, and the
agricultural practices and location of the vineyard. Amounts included herein for the estimated
aggregate minimum grape purchase commitments consist of estimates for the purchase of the grapes
and the implicit leases of the land. Upon adoption of the new lease guidance on March 1, 2019, certain
grape purchasing arrangements classified as leases have not resulted in the recognition of right-of-use
assets and lease liabilities on our balance sheet due to their variable nature.

(2) Consists of purchase commitments entered into primarily in connection with the construction of the
Mexicali Brewery, and the expansion project for the brewery located in Obregon, Sonora, Mexico (the
“Obregon Brewery”).

Additionally, we have entered into various contractual arrangements with affiliates of Owens-

Illinois primarily for the purchase of glass bottles used largely in our imported and craft beer portfolios.
Amounts purchased under these arrangements for the years ended February 29, 2020, February 28, 2019,
and February 28, 2018, were $166.6 million, $238.8 million, and $316.6 million, respectively.

Indemnification liabilities
In connection with prior divestitures, we have indemnified respective parties against certain

liabilities that may arise subsequent to the divestiture. As of February 29, 2020, and February 28, 2019,
these liabilities consist primarily of indemnifications related to certain income tax matters. During the
year ended February 28, 2019, in connection with the sale of the Accolade Wine Investment, we were
released from certain guarantees and we recognized a gain of $3.7 million as part of the net gain on the
sale of this business. This net gain is included in income (loss) from unconsolidated investments. As of
February 29, 2020, and February 28, 2019, the carrying amount of our indemnification liabilities was
$9.1 million and $9.2 million, respectively, and is included in deferred income taxes and other liabilities.
We do not expect to be required to make material payments under the indemnifications and we believe
that the likelihood is remote that the indemnifications could have a material adverse effect on our
business, liquidity, financial condition, and/or results of operations.

Legal matters
In the course of our business, we are subject to litigation from time to time. Although the amount
of any liability with respect to such litigation cannot be determined, in the opinion of management, such

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 107

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

liability will not have a material adverse effect on our financial condition, results of operations, or cash
flows.

Other
In connection with the write-down of certain bulk wine inventory as a result of smoke damage

sustained during the Fall 2017 California wildfires, we have recognized total losses of $20.6 million, with
$1.5 million recognized for the first quarter of fiscal 2019 and $19.1 million recognized for the fourth
quarter of fiscal 2018. In the second quarter of fiscal 2020 we recovered $8.6 million from our insurance
carriers and do not expect to receive any additional reimbursement.

18.

STOCKHOLDERS’ EQUITY

Common stock
We have two classes of common stock with a material number of shares outstanding: Class A

Common Stock and Class B Convertible Common Stock. Class B Convertible Common Stock shares are
convertible into shares of Class A Common Stock on a one-to-one basis at any time at the option of the
holder. Holders of Class B Convertible Common Stock are entitled to ten votes per share. Holders of
Class A Common Stock are entitled to one vote per share and a cash dividend premium. If we pay a cash
dividend on Class B Convertible Common Stock, each share of Class A Common Stock will receive an
amount at least ten percent greater than the amount of the cash dividend per share paid on Class B
Convertible Common Stock. In addition, the Board of Directors may declare and pay a dividend on Class A
Common Stock without paying any dividend on Class B Convertible Common Stock. However, our senior
credit facility limits the cash dividends that we can pay on our common stock to a fixed amount per
quarter but the fixed amount may be exceeded subject to various conditions set forth in the senior credit
facility.

In addition, we have a class of common stock with an immaterial number of shares

outstanding: Class 1 Common Stock. Shares of Class 1 Common Stock generally have no voting rights.
Class 1 Common Stock shares are convertible into shares of Class A Common Stock on a one-to-one
basis at any time at the option of the holder, provided that the holder immediately sells the Class A
Common Stock acquired upon conversion. Because shares of Class 1 Common Stock are convertible into
shares of Class A Common Stock, for each share of Class 1 Common Stock issued, we must reserve one
share of Class A Common Stock for issuance upon the conversion of the share of Class 1 Common Stock.
Holders of Class 1 Common Stock do not have any preference as to dividends, but may participate in any
dividend if and when declared by the Board of Directors. If we pay a cash dividend on Class 1 Common
Stock, each share of Class A Common Stock will receive an amount at least ten percent greater than the
amount of cash dividend per share paid on Class 1 Common Stock. In addition, the Board of Directors
may declare and pay a dividend on Class A Common Stock without paying a dividend on Class 1 Common
Stock. The cash dividends declared and paid on Class B Convertible Common Stock and Class 1 Common
Stock must always be the same.

The number of shares of common stock issued and treasury stock, and associated share activity,

are as follows:

Common Stock

Treasury Stock

Class A

Class B

Class 1

Class A

Class B

Balance at February 28, 2017
Share repurchases
Conversion of shares
Exercise of stock options
Employee stock purchases
Grant of restricted stock awards
Vesting of restricted stock units (1)
Vesting of performance share units (1)
Balance at February 28, 2018

257,506,184
—
29,640
1,182,532
—
—
—
—
258,718,356

28,358,527
—
(23,140)
—
—
—
—
—
28,335,387

2,080
—
(6,500)
6,390
—
—
—
—
1,970

86,262,971
4,810,061
—
—
(75,023)
(3,848)
(181,994)
(68,928)
90,743,239

5,005,800
—
—
—
—
—
—
—
5,005,800

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 108

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Common Stock

Treasury Stock

Class A

Class B

Class 1

Class A

Class B

Retirement of treasury shares (2)
Share repurchases
Conversion of shares
Exercise of stock options
Employee stock purchases
Grant of restricted stock awards
Vesting of restricted stock units (1)
Vesting of performance share units (1)
Balance at February 28, 2019
Share repurchases
Conversion of shares
Exercise of stock options (3)
Employee stock purchases
Vesting of restricted stock units (1)
Vesting of performance share units (1)
Cancellation of restricted shares
Balance at February 29, 2020

(74,000,000)
—
12,968
1,008,854
—
—
—
—
185,740,178
—
350,567
—
—
—
—
—
186,090,745

—
—
(12,968)
—
—
—
—
—
28,322,419
—
(22,213)
—
—
—
—
—
28,300,206

—
—
—
1,147,654
—
—
—
—
1,149,624
—
(328,354)
870,957
—
—
—
—
1,692,227

(74,000,000)
2,352,145
—
—
(76,844)
(3,914)
(24,308)
(62,352)
18,927,966
265,593
—
(747,527)
(69,324)
(91,311)
(29,015)
444
18,256,826

—
—
—
—
—
—
—
—
5,005,800
—
—
—
—
—
—
—
5,005,800

(1) Net of the following shares withheld to satisfy tax withholding requirements:

Restricted Stock Units

Performance Share Units

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

49,900

17,439

15,409

44,016

117,188

55,584

(2) Shares of our Class A Treasury Stock were retired to authorized and unissued shares of our Class A

Common Stock.

(3)

Includes use of Class A Treasury Stock associated with stock option exercises beginning March 1, 2019.

Stock repurchases
From time to time, our Board of Directors has authorized the repurchase of our Class A Common

Stock and Class B Convertible Common Stock. Shares may be repurchased through open market or
privately negotiated transactions. Shares repurchased under such authorizations have become treasury
shares. A summary of share repurchase activity is as follows:

Repurchase
Authorization

Date

Amount
Authorized

For the Year Ended
February 29, 2020
Dollar
Value

Number of
Shares

Class A Common Shares Repurchased
For the Year Ended
February 28, 2019
Dollar
Value

Number of
Shares

For the Year Ended
February 28, 2018
Dollar
Value

Number of
Shares

(in millions, except share data)
2017 Authorization (1)
2018 Authorization (2)

Nov 2016
Jan 2018

$1,000.0
$3,000.0

—
50.0
50.0

— $

—
265,593
504.3
265,593 $ 504.3

— $

546.9
2,352,145
491.6
2,352,145 $ 1,038.5

2,530,194
2,279,867
4,810,061

(1) The 2017 Authorization was fully utilized during the year ended February 28, 2018.

(2) As of February 29, 2020, $1,954.1 million remains available for future share repurchase under the 2018
Authorization. The Board of Directors did not specify a date upon which this authorization would expire.

Common stock dividends
In April 2020, our Board of Directors declared a quarterly cash dividend of $0.75 per share of

Class A Common Stock, $0.68 per share of Class B Convertible Common Stock, and $0.68 per share of
Class 1 Common Stock payable in the first quarter of fiscal 2021.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 109

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

19.

STOCK-BASED EMPLOYEE COMPENSATION

We have two stock-based employee compensation plans (as further discussed below). Total
compensation cost recognized for our stock-based awards and income tax benefits related thereto are as
follows:

February 29,
2020

For the Years Ended
February 28,
2019

February 28,
2018

(in millions)
Total compensation cost recognized in our results of operations

Income tax benefit related thereto recognized in our results of
operations

60.4 $

64.1 $

9.5 $

11.6 $

60.9

13.5

Long-term stock incentive plan
Under our Long-Term Stock Incentive Plan, nonqualified stock options, restricted stock, restricted

stock units, performance share units, and other stock-based awards may be granted to our employees,
officers, and directors. The aggregate number of shares of our Class A Common Stock and Class 1
Common Stock available for awards under our Long-Term Stock Incentive Plan is 108,000,000 shares.

The exercise price, vesting period, and term of nonqualified stock options granted are established
by the committee administering the plan (the “Committee”). The exercise price of any nonqualified stock
option may not be less than the fair market value of our Class A Common Stock on the date of grant.
Nonqualified stock options generally vest and become exercisable over a four-year period from the date
of grant and expire as established by the Committee, but not later than ten years after the grant date.

Grants of restricted stock, restricted stock units, performance share units, and other stock-based

awards may contain such vesting periods, terms, conditions, and other requirements as the Committee
may establish. Restricted stock and restricted stock unit awards are based on service and generally vest
over one to four years from the date of grant. Performance share unit awards are based on service and
the satisfaction of certain performance conditions, and vest over a required employee service period,
generally from one to three years from the date of grant, which closely matches the performance period.
The performance conditions include the achievement of specified financial or operational performance
metrics, or market conditions which require the achievement of specified levels of shareholder return
relative to other companies as defined in the applicable performance share unit agreement. The actual
number of shares to be awarded upon vesting of a performance share unit award will range between 0%
and 200% of the target award, based upon the measure of performance as certified by the Committee.

A summary of stock option activity under our Long-Term Stock Incentive Plan is as follows:

For the Years Ended

February 29, 2020

February 28, 2019

February 28, 2018

Number
of
Options

Weighted
Average
Exercise
Price

Number
of
Options

Weighted
Average
Exercise
Price

Number
of
Options

Weighted
Average
Exercise
Price

Outstanding as of March 1

5,691,219 $

81.87

7,444,701 $

56.33

8,070,255 $

44.31

Granted

Exercised

Forfeited

Expired

639,957 $

206.76

540,640 $

227.91

624,121 $

172.70

(1,618,484) $

41.77

(2,156,508) $

23.55

(1,188,922) $

31.86

(175,917) $

(11,357) $

201.44

224.07

(133,250) $

(4,364) $

187.84

175.86

(59,725) $

136.08

(1,028) $

36.13

Outstanding as of last day of
February

Exercisable

4,525,418 $

108.87

5,691,219 $

3,330,164 $

75.61

4,456,486 $

81.87

53.18

7,444,701 $

5,983,286 $

56.33

34.12

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 110

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

As of February 29, 2020, the aggregate intrinsic value of our options outstanding and exercisable

was $330.7 million and $329.2 million, respectively. In addition, the weighted average remaining
contractual life for our options outstanding and exercisable was 4.8 years and 3.6 years, respectively.

The fair value of stock options vested, and the intrinsic value of and tax benefit realized from the

exercise of stock options, are as follows:

(in millions)

Fair value of stock options vested

Intrinsic value of stock options exercised

Tax benefit realized from stock options exercised

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

21.1 $

255.0 $

60.4 $

22.8 $

348.5 $

82.6 $

20.3

189.9

59.8

The weighted average grant-date fair value of stock options granted and the weighted average

inputs used to estimate the fair value on the date of grant using the Black-Scholes option-pricing model
are as follows:

Grant-date fair value
Expected life (1)
Expected volatility (2)
Risk-free interest rate (3)
Expected dividend yield (4)

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

44.90

53.06

42.88

6.0 years

5.9 years

22.1%

2.5%

1.5%

22.3%

2.9%

1.3%

26.0%

2.0%

1.2%

(1) Based on historical experience of employees’ exercise behavior for similar type awards.

(2) Based primarily on historical volatility levels of our Class A Common Stock.

(3) Based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining

term equal to the expected life.

(4) Based on the calculated yield on our Class A Common Stock at date of grant using the current fiscal

year projected annualized dividend distribution rate.

A summary of restricted Class A Common Stock activity under our Long-Term Stock Incentive

Plan is as follows:

For the Years Ended

February 29, 2020

February 28, 2019

February 28, 2018

Weighted
Average
Grant-Date
Fair Value

Number

3,914 $

214.29

— $

(3,470) $

(444) $

—

214.34

213.85

3,848 $

3,914 $

(3,848) $

— $

197.18

214.29

197.18

—

4,088 $

3,848 $

(4,088) $

— $

166.34

197.18

166.34

—

— $

—

3,914 $

214.29

3,848 $

197.18

Restricted Stock Awards

Outstanding balance as of
March 1, Nonvested

Granted

Vested

Forfeited

Outstanding balance as of last
day of February, Nonvested

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 111

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

For the Years Ended

February 29, 2020

February 28, 2019

February 28, 2018

Weighted
Average
Grant-Date
Fair Value

Number

314,252 $

138,472 $

(141,211) $

(40,370) $

181.62

203.32

168.68

200.87

286,658 $

108,545 $

(39,717) $

(41,234) $

157.29

226.97

129.57

182.00

455,699 $

157,200 $

(299,182) $

(27,059) $

117.44

178.11

109.09

140.00

271,143 $

196.58

314,252 $

181.62

286,658 $

157.29

259,464 $

60,031 $

(17,035) $

(46,454) $

(34,257) $

213.27

253.72

168.00

156.80

239.48

227,720 $

172,468 $

(281) $

(106,368) $

(34,075) $

177.90

222.92

155.72

147.34

215.63

250,333 $

55,464 $

55,081 $

(124,512) $

(8,646) $

141.91

236.79

99.85

100.73

144.57

221,749 $

231.49

259,464 $

213.27

227,720 $

177.90

Restricted Stock Units

Outstanding balance as of
March 1, Nonvested

Granted

Vested

Forfeited

Outstanding balance as of last
day of February, Nonvested

Performance Share Units

Outstanding balance as of
March 1, Nonvested

Granted
Performance achievement (1)
Vested

Forfeited

Outstanding balance as of last
day of February, Nonvested

(1) Reflects the net number of awards achieved above (below) target levels based on actual performance

measured at the end of the performance period.

The fair value of shares vested for our restricted Class A Common Stock awards is as follows:

(in millions)

Restricted stock awards

Restricted stock units

Performance share units

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

0.7 $

29.9 $

9.9 $

0.8 $

9.0 $

24.4 $

0.8

56.5

21.4

The weighted average grant-date fair value of performance share units granted with a market

condition and the weighted average inputs used to estimate the fair value on the date of grant using the
Monte Carlo Simulation model are as follows:

Grant-date fair value

Grant-date price

Performance period
Expected volatility (1)
Risk-free interest rate (2)
Expected dividend yield (3)

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

319.56

205.46

322.42

228.26

250.30

172.09

2.8 years

2.9 years

23.1%

2.3%

0.0%

20.7%

2.6%

0.0%

21.5%

1.4%

0.0%

(1) Based primarily on historical volatility levels of our Class A Common Stock.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 112

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(2) Based on the implied yield currently available on U.S. Treasury zero coupon issues with a remaining

term equal to the performance period.

(3) No expected dividend yield as units granted earn dividend equivalents.

Employee stock purchase plan
We have a stock purchase plan (the “Employee Stock Purchase Plan”) under which 9,000,000

shares of Class A Common Stock may be issued. Under the terms of the plan, eligible employees may
purchase shares of our Class A Common Stock through payroll deductions. The purchase price is the
lower of 85% of the fair market value of the stock on the first or last day of the purchase period. For the
years ended February 29, 2020, February 28, 2019, and February 28, 2018, employees purchased 69,324
shares, 76,844 shares, and 75,023 shares, respectively, under this plan.

Other
As of February 29, 2020, there was $76.0 million of total unrecognized compensation cost related

to nonvested stock-based compensation arrangements granted under our stock-based employee
compensation plans. This cost is expected to be recognized in our results of operations over a weighted-
average period of 2.2 years. With respect to the issuance of shares under any of our stock-based
compensation plans, we have the option to issue authorized but unissued shares or treasury shares.

20.

NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO CBI

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

For the Years Ended

February 29, 2020

February 28, 2019

February 28, 2018

Common Stock

Class A

Class B

Class A

Class B

Class A

Class B

(in millions, except per share data)

Net income (loss) attributable to CBI
allocated – basic

Conversion of Class B common
shares into Class A common shares

Effect of stock-based awards on
allocated net income (loss)

Net income (loss) attributable to CBI
allocated – diluted

Weighted average common shares
outstanding – basic

Conversion of Class B common
shares into Class A common shares (1)
Stock-based awards, primarily stock
options (1)

Weighted average common shares
outstanding – diluted

(10.2) $

(1.6) $ 3,049.5 $

386.4 $ 2,049.9 $

253.5

—

386.4

—

253.5

—

(8.3)

—

(6.3)

(10.2) $

(1.6) $ 3,435.9 $

378.1 $ 2,303.4 $

247.2

168.329

23.313

167.249

23.321

171.457

23.336

—

23.321

4.962

—

23.336

5.952

—

168.329

23.313

195.532

23.321

200.745

23.336

Net income (loss) per common share
attributable to CBI – basic

Net income (loss) per common share
attributable to CBI – diluted

(0.07) $

18.24 $

16.57 $

11.96 $

10.86

(0.07) $

17.57 $

16.21 $

11.47 $

10.59

(1) We have excluded 23,313,300 of Class B Convertible Common Stock and 3,238,780 of shares issuable
under the assumed exercise of stock options using the treasury stock method from the calculation of
diluted net income (loss) per share for the year ended February 29, 2020, as the effect of including these
would have been anti-dilutive.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 113

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

21.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) attributable to CBI includes the following components:

Before Tax
Amount

Tax (Expense)
Benefit

Net of Tax
Amount

(in millions)

For the Year Ended February 28, 2018

Other comprehensive income (loss) attributable to CBI:

Foreign currency translation adjustments:

Net gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Unrealized gain (loss) on cash flow hedges:

Net derivative gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Unrealized gain (loss) on AFS debt securities:

Net AFS debt securities gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Pension/postretirement adjustments:

Net actuarial gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)

Other comprehensive income (loss) attributable to CBI

For the Year Ended February 28, 2019

Other comprehensive income (loss) attributable to CBI:

Foreign currency translation adjustments:

Net gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Unrealized gain (loss) on cash flow hedges:

Net derivative gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Unrealized gain (loss) on AFS debt securities:

Net AFS debt securities gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Pension/postretirement adjustments:

Net actuarial gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)

147.3 $
—
147.3

(1.6) $
—
(1.6)

76.7
(2.9)
73.8

—
—
—

(21.5)
0.2
(21.3)

(0.2)
—
(0.2)

(1.7)
—
(1.7)
219.4 $

0.6
—
0.6
(22.5) $

145.7
—
145.7

55.2
(2.7)
52.5

(0.2)
—
(0.2)

(1.1)
—
(1.1)
196.9

(194.2) $
—
(194.2)

— $
—
—

(194.2)
—
(194.2)

8.3
(3.6)
4.7

(0.4)
1.9
1.5

0.4
0.3
0.7

5.0
0.9
5.9

0.1
0.9
1.0

(0.1)
(0.1)
(0.2)

13.3
(2.7)
10.6

(0.3)
2.8
2.5

0.3
0.2
0.5

Share of OCI of equity method investments:

Net gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Other comprehensive income (loss) attributable to CBI

38.7
—
38.7
(148.6) $

(9.1)
—
(9.1)
(2.4) $

29.6
—
29.6
(151.0)

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 114

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Before Tax
Amount

Tax (Expense)
Benefit

Net of Tax
Amount

(in millions)

For the Year Ended February 29, 2020

Other comprehensive income (loss) attributable to CBI:

Foreign currency translation adjustments:

Net gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Unrealized gain (loss) on cash flow hedges:

Net derivative gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Pension/postretirement adjustments:

Net actuarial gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)
Share of OCI of equity method investments:

Net gain (loss)
Reclassification adjustments

Net gain (loss) recognized in other comprehensive income (loss)

Other comprehensive income (loss) attributable to CBI

83.4 $
(22.6)
60.8

— $
—
—

48.0
(15.3)
32.7

(3.1)
1.8
(1.3)

(13.3)
—
(13.3)
78.9 $

6.4
(1.7)
4.7

0.9
(0.1)
0.8

3.2
—
3.2
8.7 $

83.4
(22.6)
60.8

54.4
(17.0)
37.4

(2.2)
1.7
(0.5)

(10.1)
—
(10.1)
87.6

Accumulated other comprehensive income (loss), net of income tax effect, includes the following

components:

(in millions)

Foreign
Currency
Translation
Adjustments

Net
Unrealized
Gain (Loss)
on Derivative
Instruments

Pension/
Postretirement
Adjustments

Share of OCI of
Equity Method
Investments

Accumulated
Other
Comprehensive
Income
(Loss)

Balance, February 28, 2019

(406.5) $

25.1 $

(2.1) $

29.6 $

(353.9)

Other comprehensive
income (loss):

Other comprehensive
income (loss) before
reclassification
adjustments

Amounts reclassified from
accumulated other
comprehensive income
(loss)

Other comprehensive
income (loss)

83.4

54.4

(2.2)

(10.1)

125.5

Balance, February 29, 2020

(345.7) $

(22.6)

60.8

(17.0)

1.7

—

37.4

62.5 $

(0.5)

(2.6) $

(10.1)

19.5 $

(37.9)

87.6

(266.3)

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 115

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

22.

SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Net sales to our five largest customers represented 32.5%, 32.7%, and 32.5% of our net sales for
the years ended February 29, 2020, February 28, 2019, and February 28, 2018, respectively. Net sales to
our five largest customers are expected to continue to represent a significant portion of our revenues. Net
sales to an individual customer which amount to 10% or more of our net sales, and the associated
amounts receivable from this customer as a percentage of our accounts receivable, are as follows:

Southern Glazer’s Wine and Spirits

Net sales

Accounts receivable

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

10.5%

27.2%

12.9%

30.8%

13.0%

28.1%

Net sales for the above customer are primarily reported within the Wine and Spirits segment. Our

arrangements with certain of our customers may, generally, be terminated by either party with prior
notice. The majority of our accounts receivable balance is generated from sales to independent
distributors with whom we have a predetermined collection date arranged through electronic funds
transfer. We perform ongoing credit evaluations of our customers’ financial position, and management is
of the opinion that any risk of significant loss is reduced due to the diversity of our customers and
geographic sales area.

23.

BUSINESS SEGMENT INFORMATION

Through February 28, 2019, our internal management financial reporting consisted of two

business divisions: (i) Beer and (ii) Wine and Spirits. Beginning March 1, 2019, as a result of our
November 2018 Canopy Investment and a change in our chief operating decision maker (“CODM”) on
March 1, 2019, we have changed our internal management financial reporting to consist of three business
divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy. Consequently, beginning with the first quarter of
fiscal 2020, we report our operating results in four segments: (i) Beer, (ii) Wine and Spirits, (iii) Corporate
Operations and Other, and (iv) Canopy. The Canopy Equity Method Investment makes up the Canopy
segment.

In the Beer segment, our portfolio consists of high-end imported beer, craft beer, and alternative
beverage alcohol brands. We have an exclusive perpetual brand license to import, market, and sell in the
U.S. our Mexican beer portfolio. In the Wine and Spirits segment, we sell a portfolio that includes higher-
margin, higher-growth wine brands complemented by certain higher-end spirits brands. Amounts
included in the Corporate Operations and Other segment consist of costs of executive management,
corporate development, corporate finance, corporate growth and strategy, human resources, internal
audit, investor relations, legal, public relations, and information technology, as well as our investments
made through our corporate venture capital function. All costs included in the Corporate Operations and
Other segment are general costs that are applicable to the consolidated group and are therefore not
allocated to the other reportable segments. All costs reported within the Corporate Operations and Other
segment are not included in our CODM’s evaluation of the operating income (loss) performance of the
other reportable segments. The business segments reflect how our operations are managed, how
resources are allocated, how operating performance is evaluated by senior management, and the
structure of our internal financial reporting. Long-lived tangible assets and total asset information by
segment is not provided to, or reviewed by, our CODM as it is not used to make strategic decisions,
allocate resources, or assess performance.

In addition, management excludes items that affect comparability (“Comparable Adjustments”)
from its evaluation of the results of each operating segment as these Comparable Adjustments are not
reflective of core operations of the segments. Segment operating performance and segment

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 116

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

management compensation are evaluated based upon core segment operating income (loss). As such,
the performance measures for incentive compensation purposes for segment management do not
include the impact of these Comparable Adjustments.

We evaluate segment operating performance based on operating income (loss) of the respective
business units. Comparable Adjustments that impacted comparability in our segment operating income
(loss) for each period are as follows:

February 29,
2020

For the Years Ended
February 28,
2019

February 28,
2018

(in millions)
Cost of product sold

Strategic business development costs
Net gain (loss) on undesignated commodity derivative contracts
Accelerated depreciation
Flow through of inventory step-up
Settlements of undesignated commodity derivative contracts
Recovery of (loss on) on inventory write-down

Total cost of product sold

Selling, general, and administrative expenses

Restructuring and other strategic business development costs

Impairment of intangible assets

Transaction, integration, and other acquisition-related costs

Net gain (loss) on foreign currency derivative contracts associated
with acquisition of investment

Deferred compensation
Loss on contract termination (1)
Other gains (losses) (2)

Total selling, general, and administrative expenses

Impairment of assets held for sale

Gain (loss) on sale of business
Comparable Adjustments, Operating income (loss)

(124.5) $
(49.0)
(7.6)
(1.5)
11.7
8.6
(162.3)

(25.3)

(11.0)

(9.2)

—

—
—
5.5
(40.0)

(449.7)

74.1
(577.9) $

(6.0) $
1.8
(8.9)
(4.9)
(8.6)
(3.3)
(29.9)

(17.1)

(108.0)

(10.2)

(32.6)

(16.3)
—
10.1
(174.1)

—

—
(204.0) $

—
7.4
—
(18.7)
2.3
(19.1)
(28.1)

(14.0)

(86.8)

(11.3)

—

—
(59.0)
10.5
(160.6)

—

—
(188.7)

(1)

(2)

Represents a loss incurred in connection with the early termination of a beer glass supply contract with an
affiliate of Owens-Illinois.

Includes the following:

Increase in our ownership interest in Nelson’s Green Brier

Recognition of previously deferred gain upon release of a
related guarantee

(Increase) reduction in estimated fair value of a contingent
liability associated with a prior period acquisition

Sale of certain non-core assets

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

11.8

6.2

(11.4)

(0.3)

—

8.5

—

8.1

—

The accounting policies of the segments are the same as those described for the Company in the
Summary of Significant Accounting Policies in Note 1. Amounts included below for the Canopy segment
represent 100% of Canopy’s reported results on a two-month lag, prepared in accordance with U.S. GAAP,
and converted from Canadian dollars to U.S. dollars. Although we own less than 100% of the outstanding
shares of Canopy, 100% of the Canopy results are included in the information below and subsequently
eliminated in order to reconcile to our consolidated financial statements. Segment information is as

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 117

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PART II

follows:

(in millions)

Beer

Net sales

Segment operating income (loss)

Capital expenditures

Depreciation and amortization

Wine and Spirits

Net sales:
Wine
Spirits
Net sales
Segment operating income (loss)
Income (loss) from unconsolidated investments
Equity method investments (1)
Capital expenditures

Depreciation and amortization

Corporate Operations and Other

Segment operating income (loss)

Income (loss) from unconsolidated investments

Equity method investments

Capital expenditures

Depreciation and amortization

Canopy

Net sales

Segment operating income (loss)

Capital expenditures

Depreciation and amortization

Consolidation and Eliminations

Net sales

Operating income (loss)

Income (loss) from unconsolidated investments

Equity method investments

Capital expenditures

Depreciation and amortization

Comparable Adjustments

Operating income (loss)

Income (loss) from unconsolidated investments

Depreciation and amortization

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

$
$
$
$

5,615.9 $

5,202.1 $

2,247.9 $

2,042.9 $

571.7 $

204.3 $

720.0 $

203.5 $

4,660.4

1,840.2

882.6

168.8

2,367.5 $
360.1
2,727.6 $
708.4 $
36.4 $
87.7 $

92.7 $

98.7 $

2,532.5 $
381.4
2,913.9 $
771.2 $
33.4 $
79.7 $

129.5 $

98.4 $

2,556.3
363.6
2,919.9
794.1
34.4
80.7

151.1

94.0

(223.9) $

(197.9) $

(165.8)

(3.2) $

94.5 $

62.1 $

21.6 $

290.2 $

(685.8) $

572.8 $

81.4 $

(290.2) $

685.8 $

(221.7) $

(0.2) $

53.8 $

36.8 $

28.3 $

48.6

(82.7)

449.8

21.9

(48.6) $

82.7 $

(16.5) $

2,911.7 $

3,332.1 $

(572.8) $

(449.8) $

(81.4) $

(21.9) $

0.2

40.8

23.9

36.9

—

(577.9) $

(204.0) $

(2,480.1) $

2,084.9 $

7.6 $

8.9 $

(188.7)

452.6

—

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 118

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(in millions)

Consolidated

Net sales

Operating income (loss)
Income (loss) from unconsolidated investments (2)
Equity method investments (1)
Capital expenditures

Depreciation and amortization

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

8,343.5 $

8,116.0 $

2,154.5 $

2,412.2 $

(2,668.6) $

2,101.6 $

3,093.9 $

3,465.6 $

726.5 $

332.2 $

886.3 $

339.1 $

7,580.3

2,279.8

487.2

121.5

1,057.6

299.7

(1) Equity method investments balance at February 29, 2020, excludes amounts reclassified to assets held for sale.
(2)

Income (loss) from unconsolidated investments consists of:

For the Years Ended

February 29,
2020

February 28,
2019

February 28,
2018

(in millions)

Unrealized net gain (loss) on securities measured at fair value $

(2,126.4) $

1,971.2 $

464.3

Net gain (loss) on sale of unconsolidated investment

Equity in earnings (losses) from Canopy and related activities (i)

Equity in earnings (losses) from other equity method investees
Other (ii)

0.4

(575.9)

33.3

—

99.8

(2.6)

33.2

—

(2,668.6) $

2,101.6 $

—

34.6

(11.7)

487.2

(i)

Includes the June 2019 Modification Loss

(ii) Net loss on foreign currency derivative contracts associated with November 2017 Canopy securities

measured at fair value

Our principal area of operation is in the U.S. Current operations outside the U.S. are in Mexico for
the Beer segment and primarily in New Zealand and Italy for the Wine and Spirits segment. Revenues are
attributed to countries based on the location of the customer.

Geographic data is as follows:

February 29,
2020

For the Years Ended
February 28,
2019

February 28,
2018

(in millions)
Net sales

U.S.

Non-U.S. (primarily Canada)

(in millions)
Long-lived tangible assets (1)

U.S.
Non-U.S. (primarily Mexico)

8,116.2 $

7,894.8 $

7,325.4

227.3

221.2

254.9

8,343.5 $

8,116.0 $

7,580.3

February 29,
2020

February 28,
2019

897.7 $

4,435.3
5,333.0 $

1,127.7
4,139.6
5,267.3

(1) Long-lived tangible assets balance at February 29, 2020, excludes amounts reclassified to assets held

for sale.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 119

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

24.

SUBSEQUENT EVENT

COVID-19
We have an existing Crisis Management Committee that has been closely monitoring the impact of

the novel strain of a virus, COVID-19, on our Company and our workforce since January 2020. In March
2020, the WHO recognized COVID-19 as a pandemic. COVID-19 has severely restricted the level of
economic activity around the world. In most of our locations, the beverage alcohol industry has been
classified as an essential business and as such we are still able to produce and sell our products.
COVID-19 has affected us primarily in the reduction of depletion volume on our products in the on-
premise business due to shelter in place mandates and bar and restaurant closures. The on-premise
business has historically been about 10% to 15% of our depletion volume for beer, wine, and spirits.

Currently, our major breweries, wineries, and bottling facilities are still operating but, in some

We have implemented various measures to reduce the spread of the virus including working from

home, restricting visitors to our production locations, splitting our production workforces, reducing the
on-site production workforce levels, screening workers before they enter facilities, implementing social
distancing, and encouraging employees to adhere to prevention measures recommended by the CDC and
the WHO. Since our non-production workforce is able to work remotely using various technology tools, we
are able to maintain our operations and internal controls over financial reporting and disclosures.

25.

SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

A summary of selected quarterly financial information is as follows:

For the Quarters Ended

May 31,
2019

August 31,
2019

November 30,
2019

February 29,
2020

Full Year

(in millions, except per share data)

Fiscal 2020

$
Net sales
Gross profit
$
Net income (loss) attributable to CBI (1) $

2,097.2 $
1,028.7 $
(245.4) $

2,344.0 $
1,185.9 $
(525.2) $

1,999.4 $
987.5 $
360.4 $

1,902.9 $
949.8 $
398.4 $

8,343.5
4,151.9
(11.8)

Net income (loss) per common share
attributable to CBI (1) (2):

Basic – Class A Common Stock
Basic – Class B Convertible
Common Stock
Diluted – Class A Common Stock
Diluted – Class B Convertible
Common Stock

(1.30) $

(2.77) $

1.90 $

2.10 $

(1.19) $

(1.30) $

(2.52) $

(2.77) $

1.73 $

1.85 $

1.91 $

2.04 $

(1.19) $

(2.52) $

1.71 $

1.89 $

(0.07)

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 120

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

For the Quarters Ended

May 31,
2018

August 31,
2018

November 30,
2018

February 28,
2019

Full Year

(in millions, except per share data)

Fiscal 2019

Net sales

Gross profit

2,047.1 $

2,299.1 $

1,972.6 $

1,797.2 $

1,048.6 $

1,168.2 $

970.0 $

893.5 $

Net income (loss) attributable to CBI (1) $

743.8 $

1,149.5 $

303.1 $

1,239.5 $

8,116.0

4,080.3

3,435.9

Net income (loss) per common share
attributable to CBI (1) (2):

Basic – Class A Common Stock

Basic – Class B Convertible
Common Stock

Diluted – Class A Common Stock

Diluted – Class B Convertible
Common Stock

3.93 $

6.11 $

1.62 $

6.57 $

18.24

3.57 $

3.77 $

5.55 $

5.87 $

1.47 $

1.56 $

5.97 $

6.37 $

16.57

17.57

3.48 $

5.41 $

1.45 $

5.87 $

16.21

(1)

Includes the following:

For the Quarters Ended

(in millions, net of income tax effect)

Unrealized net gain (loss) on securities measured
at fair value
Impairment of asset held for sale

Equity in earnings (losses) from Canopy

Inventory write-downs

Net income tax benefit recognized in connection
with tax reform in Switzerland

Gain (loss) on sale of business

Net income tax (provision) benefit recognized for
adjustments to valuation allowances

(in millions, net of income tax effect)

Unrealized net gain (loss) on securities measured
at fair value

Net gain (loss) on sale of unconsolidated
investment

Impairment of intangible assets

Net income tax (provision) benefit recognized for
adjustments to valuation allowances

May 31,
2019

August 31,
2019

November 30,
2019

February 29,
2020

(633.5) $

(667.6) $

— $

(78.2) $

(20.6) $

— $

54.1 $

(20.4) $

(366.7) $

(10.3) $

— $

(411.3) $

(294.8) $

41.4 $

(46.7) $

547.4 $

59.0 $

56.9

(33.2)

(15.6)

(0.3)

—

5.2

— $

(25.0)

For the Quarters Ended

May 31,
2018

August 31,
2018

November 30,
2018

February 28,
2019

224.1 $

595.1 $

(168.4) $

911.7

99.5 $

— $

(1.6) $

— $

—

(81.0)

— $

50.1

(2)

The sum of the quarterly net income (loss) per common share for Fiscal 2020 and Fiscal 2019 may not equal the
total computed for the respective years as the net income (loss) per common share is computed independently
for each of the quarters presented and for the full year.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 121

PART II

OTHER KEY INFORMATION

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer have concluded, based on their
evaluation as of the end of the period covered by this report, that the Company’s “disclosure controls and
procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) are
effective to ensure that information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated
and communicated to our management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

(a) See page 59 of this Annual Report on Form 10-K for Management’s Annual Report on Internal

Control over Financial Reporting, which is incorporated herein by reference.

(b) See page 60 of this Annual Report on Form 10-K for the attestation report of KPMG LLP, our
independent registered public accounting firm, which is incorporated herein by reference.

business units using a phased approach over the next several years. There will be changes in our
internal controls as this system becomes operational at each business unit. On December 1, 2019,
our Mexico business unit implemented the new enterprise resource planning system. This resulted
in changes in our internal controls for the fiscal quarter ended February 29, 2020. In connection
with management’s quarterly evaluation of “internal control over financial reporting” (as defined in
the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)), no other changes were
identified in our internal control over financial reporting during our fiscal quarter ended
February 29, 2020 (our fourth fiscal quarter) that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this Item (except for the information regarding executive officers
required by Item 401 of Regulation S-K which is included in Part I hereof in accordance with General
Instruction G(3)) is incorporated herein by reference to the Proxy Statement to be issued in connection
with the Annual Meeting of Stockholders of our Company which is expected to be held on July 21, 2020,
under those sections of the Proxy Statement to be titled “Director Nominees” and “The Board of Directors
and Committees of the Board.” That Proxy Statement will be filed within 120 days after the end of our
fiscal year.

We have adopted the Chief Executive Officer and Senior Financial Executive Code of Ethics which

is a code of ethics that applies to our chief executive officer and our senior financial officers. The Chief
Executive Officer and Senior Financial Executive Code of Ethics is located on our Internet website at
https://www.cbrands.com/investors. Amendments to, and waivers granted under, our Chief Executive
Officer and Senior Financial Executive Code of Ethics, if any, will be posted to our website as well. We will
provide to anyone, without charge, upon request, a copy of such Code of Ethics. Such requests should be
directed in writing to Investor Relations Department, Constellation Brands, Inc., 207 High Point Drive,
Building 100, Victor, New York 14564 or by telephoning our Investor Center at 1-888-922-2150.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 122

PART III

OTHER KEY INFORMATION

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the Proxy Statement
to be issued in connection with the Annual Meeting of Stockholders of our Company which is expected to
be held on July 21, 2020, under those sections of the Proxy Statement to be titled “Executive
Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Director
Compensation.” That Proxy Statement will be filed within 120 days after the end of our fiscal year.
Notwithstanding the foregoing, the Compensation Committee Report included within the section of the
Proxy Statement to be titled “Executive Compensation” is only being “furnished” hereunder and shall not
be deemed “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18
of the Securities Exchange Act of 1934.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED

STOCKHOLDER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth information with respect to our compensation plans under which

our equity securities may be issued, as of February 29, 2020. The equity compensation plans approved by
security holders include our Long-Term Stock Incentive Plan and our 1989 Employee Stock Purchase
Plan.

Equity Compensation Plan Information

(a)

(b)

Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants, and
rights

Weighted average
exercise price of
outstanding
options,
warrants, and
rights

(c)

Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))

5,174,417 (1)

—

5,174,417

108.87 (2)

12,750,724 (3)

—

108.87

—

12,750,724

Plan Category

Equity compensation plans
approved by security holders

Equity compensation plans not
approved by security holders

Total

(1)

Includes 377,856 shares of unvested performance share units and 271,143 shares of unvested
restricted stock units under our Long-Term Stock Incentive Plan. The unvested performance share
units represent the maximum number of shares to be awarded, which ranges from 100% to 200% of
the target shares granted. We currently estimate that 170,935 of the target shares granted will be
awarded between 100% and 150% of target and 50,814 of the target shares granted will be awarded
between 25% and 95% of target based upon our expectations as of February 29, 2020, regarding the
achievement of specified performance targets.

(2)

Excludes unvested performance share units and unvested restricted stock units under our Long-Term
Stock Incentive Plan that can be exercised for no consideration.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 123

PART III

OTHER KEY INFORMATION

(3)

Includes 1,353,689 shares of Class A Common Stock under our Employee Stock Purchase Plan
remaining available for purchase, of which approximately 34,000 shares are subject to purchase during
the current offering period.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 124

PART IV

OTHER KEY INFORMATION

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

1. Financial Statements

The following consolidated financial statements of the Company are submitted herewith:

Management’s Annual Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm – KPMG LLP

Consolidated Balance Sheets – February 29, 2020, and February 28, 2019

Consolidated Statements of Comprehensive Income (Loss) for the years ended
February 29, 2020, February 28, 2019, and February 28, 2018

Consolidated Statements of Changes in Stockholders’ Equity for the years ended
February 29, 2020, February 28, 2019, and February 28, 2018

Consolidated Statements of Cash Flows for the years ended February 29, 2020,
February 28, 2019, and February 28, 2018

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

Schedules are not submitted because they are not applicable or not required under
Regulation S-X or because the required information is included in the financial statements
or notes thereto.

3. Exhibits required to be filed by Item 601 of Regulations S-K

The information called for by this Item is incorporated by reference from the Index to
Exhibits included in this Annual Report on Form 10-K.

ITEM 16. FORM 10-K SUMMARY

None.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 125

PART IV

OTHER KEY INFORMATION

INDEX TO EXHIBITS

Exhibit No.
2.1

2.2

2.3

2.4

2.5

3.1

3.2

3.3

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

Subscription Agreement, dated as of August 14, 2018, by and between CBG Holdings LLC and Canopy Growth
Corporation, including, among other things, a form of the Amended and Restated Investor Rights Agreement (filed
as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated August 14, 2018, filed August 16, 2018 and
incorporated herein by reference). †

Foreign Exchange Rate Agreement dated October 26, 2018, between CBG Holdings LLC and Canopy Growth
Corporation (filed as Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2018 and incorporated herein by reference).

Asset Purchase Agreement made and entered into by and between the Company and E. & J. Gallo Winery (filed as
Exhibit 2.1 to the Company’s Current Report on Form 8-K dated April 3, 2019, filed April 8, 2019 and incorporated herein
by reference). †

Binding Letter Agreement dated December 11, 2019 and effective December 11, 2019 between Constellation
Brands, Inc. and E. & J. Gallo Winery regarding the Modified Transaction (including the Form of Amended
Agreement) (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated December 11, 2019, filed
December 17, 2019 and incorporated herein by reference). †‡

Nobilo Binding Letter Agreement dated December 11, 2019 and effective December 11, 2019 between
Constellation Brands, Inc. and E. & J. Gallo Winery regarding the Nobilo Transaction (including the Form of Nobilo
Asset Purchase Agreement) (filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K dated December
11, 2019, filed December 17, 2019 and incorporated herein by reference). †

Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein by reference). #

Certificate of Amendment to the Certificate of Incorporation of the Company (filed as Exhibit 3.2 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2009 and incorporated herein by reference). #

By-Laws of the Company, amended and restated as of October 3, 2018 (filed as Exhibit 3.3 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2018 and incorporated herein by
reference).

Indenture, dated as of April 17, 2012, by and among the Company, as Issuer, certain subsidiaries, as Guarantors,
and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated April 17, 2012, filed April 23, 2012 and incorporated herein by reference). #

Supplemental Indenture No. 1, with respect to 6.0% Senior Notes due May 2022, dated as of April 17, 2012, among the
Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee
(no longer outstanding ) (filed as Exhibit 4.1.1 to the Company’s Current Report on Form 8-K dated April 17, 2012, filed
April 23, 2012 and incorporated herein by reference). #

Supplemental Indenture No. 3, with respect to 3.75% Senior Notes due May 2021, dated as of May 14, 2013,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 14, 2013, filed
May 16, 2013 and incorporated herein by reference). #

Supplemental Indenture No. 4, with respect to 4.25% Senior Notes due May 2023, dated as of May 14, 2013,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 14, 2013, filed
May 16, 2013 and incorporated herein by reference). #

Supplemental Indenture No. 5, dated as of June 7, 2013, among the Company, Constellation Brands Beach
Holdings, Inc., Crown Imports LLC, and Manufacturers and Traders Trust Company, as Trustee (filed as
Exhibit 4.4 to the Company’s Current Report on Form 8-K dated June 7, 2013, filed June 11, 2013 and
incorporated herein by reference). #

Supplemental Indenture No. 6 dated as of May 28, 2014, among the Company, Constellation Marketing Services, Inc.,
and Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.21 to the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended May 31, 2014 and incorporated herein by reference). #

Supplemental Indenture No. 7, with respect to 3.875% Senior Notes due 2019, dated as of November 3, 2014,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (no longer outstanding)(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K
dated November 3, 2014, filed November 7, 2014 and incorporated herein by reference). #

Supplemental Indenture No. 8, with respect to 4.750% Senior Notes due 2024, dated as of November 3, 2014,
among the Company as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on form 8-K dated November 3, 2014,
filed November 7, 2014 and incorporated herein by reference). #

Supplemental Indenture No. 9, with respect to 4.750% Senior Notes due 2025, dated December 4, 2015, among the
Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee
(filed as Exhibit 4.1 to the Company’s Current report on Form 8-K, dated December 4, 2015, filed December 8, 2015
and incorporated herein by reference). #

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 126

PART IV

OTHER KEY INFORMATION

4.10

4.11

4.12

4.13

4.14

4.15

4.16

4.17

4.18

4.19

4.20

4.21

4.22

4.23

4.24

4.25

Supplemental Indenture No. 10, dated as of January 15, 2016, among the Company, Home Brew Mart, Inc., and
Manufacturers and Traders Trust Company, as Trustee (filed as Exhibit 4.26 to the Company’s Annual Report on
Form 10-K for the fiscal year ended February 29, 2016 and incorporated by reference).

Supplemental Indenture No. 11 with respect to 3.700% Senior Notes due 2026, dated as of December 6, 2016,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee, (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 6, 2016,
filed December 6, 2016 and incorporated herein by reference).

Supplemental Indenture No. 12 with respect to 2.700% Senior Notes due 2022, dated as of May 9, 2017, among the
Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee
(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated May 9, 2017, filed May 9, 2017 and
incorporated herein by reference).

Supplemental Indenture No. 13 with respect to 3.500% Senior Notes due 2027, dated as of May 9, 2017, among the
Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee
(filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 9, 2017, filed May 9, 2017 and
incorporated herein by reference).

Supplemental Indenture No. 14 with respect to 4.500% Senior Notes due 2047, dated as of May 9, 2017, among the
Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee
(filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated May 9, 2017, filed May 9, 2017 and
incorporated herein by reference).

Supplemental Indenture No. 15 with respect to 2.000% Senior Notes due 2019, dated as of November 7, 2017,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (no longer outstanding)(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K
dated November 7, 2017, filed November 7, 2017 and incorporated herein by reference).

Supplemental Indenture No. 16 with respect to 2.250% Senior Notes due 2020 dated as of November 7, 2017,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated November 7, 2017,
filed November 7, 2017 and incorporated herein by reference).

Supplemental Indenture No. 17 with respect to 2.650% Senior Notes due 2022, dated as of November 7, 2017,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated November 7, 2017,
filed November 7, 2017 and incorporated herein by reference).

Supplemental Indenture No. 18 with respect to 3.200% Senior Notes due 2023, dated as of February 7, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated February 7, 2018,
filed February 7, 2018 and incorporated herein by reference).

Supplemental Indenture No. 19 with respect to 3.600% Senior Notes due 2028, dated as of February 7, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated February 7, 2018,
filed February 7, 2018 and incorporated herein by reference).

Supplemental Indenture No. 20 with respect to 4.100% Senior Notes due 2048, dated as of February 7, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated February 7, 2018,
filed February 7, 2018 and incorporated herein by reference).

Supplemental Indenture No. 21 with respect to Senior Floating Rate Notes due 2021, dated as of October 29, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company,
as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated October 29, 2018, filed October 29,
2018 and incorporated herein by reference).

Supplemental Indenture No. 22 with respect to 4.400% Senior Notes due 2025, dated as of October 29, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated October 29, 2018,
filed October 29, 2018 and incorporated herein by reference).

Supplemental Indenture No. 23 with respect to 4.650% Senior Notes due 2028, dated as of October 29, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated October 29, 2018,
filed October 29, 2018 and incorporated herein by reference).

Supplemental Indenture No. 24 with respect to 5.250% Senior Notes due 2048, dated as of October 29, 2018,
among the Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust
Company, as Trustee (filed as Exhibit 4.4 to the Company’s Current Report on Form 8-K dated October 29, 2018,
filed October 29, 2018 and incorporated herein by reference).

Supplemental Indenture No. 25 with respect to 3.150% Senior Notes due 2029, dated as of July 29, 2019, among the
Company, as Issuer, certain subsidiaries, as Guarantors, and Manufacturers and Traders Trust Company, as Trustee
(filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated July 29, 2019, filed July 29, 2019 and
incorporated herein by reference).

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 127

PART IV

4.26

4.27

4.28

4.29

4.30

4.31

4.32

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

OTHER KEY INFORMATION

Restatement Agreement, dated as of September 14, 2018, by and among the Company, CB International Finance S.à r.l.,
certain of the Company’s subsidiaries as guarantors, Bank of America, N.A., as Administrative Agent, and the Lenders
party thereto, including the Eighth Amended and Restated Credit Agreement dated as of September 14, 2018, by and
among the Company, CB International Financing S.à r.l., Bank of America, N.A., as Administrative Agent, and the
Lenders party thereto (no longer outstanding) (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated
September 14, 2018, filed September 19, 2018 and incorporated herein by reference).

Restatement Agreement, dated as of March 26, 2020 by and among the Company, CB International Finance S.à r.l.,
certain of the Company’s subsidiaries as guarantors, Bank of America, N.A., as Administrative Agent, and the
Lenders party thereto, including the Ninth Amended and Restated Credit Agreement dated as of March 26, 2020, by
and among the Company, CB International Financing S.à r.l., Bank of America, N.A., as Administrative Agent, and the
Lenders party thereto (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated March 26, 2020, filed
March 31, 2020 and incorporated herein by reference). †

Term Loan Credit Agreement, dated as of September 14, 2018, by and among the Company, Bank of America, N.A.,
as Administrative Agent, and the Lenders party thereto (no longer outstanding) (filed as Exhibit 4.2 to the Company’s
Current Report on Form 8-K dated September 14, 2018, filed September 19, 2018 and incorporated herein by
reference).

Term Loan Restatement Agreement, dated as of March 26, 2020, by and among the Company, certain of the Company’s
subsidiaries as guarantors, Bank of America, N.A., as administrative agent, and the Lenders party thereto, including
the Amended and Restated Term Loan Credit Agreement, dated March 26, 2020, by and among the Company, Bank of
America, N.A., as administrative agent and the Lenders party thereto (filed as Exhibit 4.2 to the Company’s Current
Report on Form 8-K dated March 26, 2020, filed March 31, 2020 and incorporated herein by reference). †

2019 Term Loan Credit Agreement, dated as of June 28, 2019, by and among the Company and Bank of America, N.A.,
as Administrative Agent and Lender (no longer outstanding) (filed as Exhibit 4.1 to the Company Current Report on
Form 8-K dated June 28, 2019, filed July 3, 2019 and incorporated herein by reference). †

2020 Term Loan Restatement Agreement, dated as of March 26, 2020, by and among the Company, certain of the
Company’s subsidiaries as guarantors, Bank of America, N.A., as administrative agent and lender, including the
Amended and Restated Term Loan Credit Agreement, dated March 26, 2020, by and between the Company, Bank of
America, N.A., as administrative agent and lender (filed as Exhibit 4.3 to the Company Current Report on Form 8-K
dated March 26, 2020 filed March 31, 2020 and incorporated herein by reference). †

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
(filed herewith).

Constellation Brands, Inc. Long-Term Stock Incentive Plan, amended and restated as of July 18, 2017 (filed as
Exhibit 10.4 to the Company’s Current Report on Form 8-K dated July 18, 2017, filed July 20, 2017 and incorporated
herein by reference). *

Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 6, 2009 and before April 5,
2010) (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated April 6, 2009, filed April 9, 2009 and
incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 5, 2010 and before April 3, 2012)
(filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K, dated April 5, 2010, filed April 9, 2010 and
incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 3, 2012 and before April 28,
2014) (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated April 3, 2012, filed April 5, 2012 and
incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 28, 2014 and before April 25,
2016) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 28, 2014, filed May 1, 2014 and
incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 25, 2016 and before April 21,
2017) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 25, 2016, filed April 28, 2016 and
incorporated herein by reference). *

Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class 1
Stock pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 21, 2017 and before April 23,
2018) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 21, 2017, filed April 25, 2017 and
incorporated herein by reference). *

Form of Terms and Conditions Memorandum for Employees with respect to grants of options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after April 23, 2018 and before April 23, 2019)
( filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 23, 2018, filed April 26, 2018 and
incorporated herein by reference). *

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 128

PART IV

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

OTHER KEY INFORMATION

Form of Restricted Stock Unit Agreement with respect to Company’s Long-Term Stock Incentive Plan (awards on or
after April 28, 2015 and before April 25, 2016) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
April 28, 2015, filed May 1, 2015 and incorporated herein by reference). * #

Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan (awards on
or after April 25, 2016 and before April 21, 2017) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K
dated April 25, 2016, filed April 28, 2016 and incorporated herein by reference). *

Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 21, 2017 and before April 23, 2018) (filed as Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated April 21, 2017, filed April 25, 2017 and incorporated herein by reference). *

Form of Restricted Stock Unit Agreement for Employees with respect to the Company’s Long-Term Stock Incentive
Plan (awards on or after April 23, 2018 and before April 23, 2019) ( filed as Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated April 23, 2018, filed April 26, 2018 and incorporated herein by reference). *

Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan (relating to
cliff vested awards) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 24, 2013, filed July
26, 2013 and incorporated herein by reference). *#

Form of Restricted Stock Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(providing for ratable vesting over three years) (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for
the fiscal year ended February 28, 2015 and incorporated herein by reference). *

Form of Performance Share Unit Agreement for Non-Executive Employees with respect to the Company’s Long-Term
Stock Incentive Plan (awards on or after April 28, 2014 and before April 28, 2015) (filed as Exhibit 10.26 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 and incorporated herein by
reference). *

Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 25, 2016 and before April 21, 2017) (filed as Exhibit 10.3 to the Company’s Current Report on
Form 8-K dated April 25, 2016, filed April 28, 2016 and incorporated herein by reference). *

Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 21, 2017 and before April 23, 2018) (filed as Exhibit 10.3 to the Company’s Current Report on
Form 8-K dated April 21, 2017, filed April 25, 2017 and incorporated herein by reference). *

Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(awards on or after April 23, 2018 and before April 23, 2019) ( filed as Exhibit 10.3 to the Company’s Current
Report on Form 8-K dated April 23, 2018, filed April 26, 2018 and incorporated herein by reference). *

Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan awards on
and after April 23, 2019) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated April 23, 2019, filed
April 26, 2019 and incorporated herein by reference). *

Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(relating to specified performance criteria) (filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K for
the fiscal year ended February 28, 2015 and incorporated herein by reference). *

Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan
(relating to contingent grants) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 19,
2018, filed October 22, 2018 and incorporated herein by reference). *

Form of Performance Share Unit Agreement with respect to the Company’s Long-Term Incentive Plan (relating to
margin and market performance)(filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for fiscal
quarter ended August 31, 2019 and incorporated herein by reference). *

Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 17, 2008 and before July 22, 2010)
(filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2008 and
incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Directors with respect to a pro rata grant of options to purchase
Class 1 Stock pursuant to the Company’s Long-Term Stock Incentive Plan (filed as Exhibit 99.1 to the Company’s
Current Report on Form 8-K dated April 20, 2010, filed April 22, 2010 and incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 22, 2010 and before July 27, 2012)
(filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2010 and
incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 27, 2012 and before July 23, 2014)
(filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated July 27, 2012, filed July 31, 2012 and
incorporated herein by reference). *#

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 129

PART IV

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

OTHER KEY INFORMATION

Form of Terms and Conditions Memorandum for Directors with respect to grants of options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 23, 2014 and before July 20, 2016)
(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 23, 2014, filed July 25, 2014 and
incorporated herein by reference). *#

Form of Terms and Conditions Memorandum for Directors with respect to options to purchase Class 1 Stock
pursuant to the Company’s Long-Term Stock Incentive Plan (grants on or after July 20, 2016 and before July 18, 2017)
(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 20, 2016, filed July 22, 2016 and
incorporated herein by reference). *

Form of Terms and Conditions Memorandum for Directors with respect to options to purchase Class 1 Stock pursuant
to the Company’s Long-Term Stock Incentive Plan (grants on or after July 18, 2017) (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated July 18, 2017, filed July 20, 2017 and incorporated herein by reference).
*

Form of Stock Option Agreement for Directors with respect to grants of options to purchase Class 1 Stock pursuant
to the Company’s Long-Term Stock Incentive Plan (grands on and after July 16, 2019)(filed as Exhibit 10.6 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2019 and incorporated herein by
reference). *

Form of Restricted Stock Unit Agreement for Directors with respect to awards of restricted stock units pursuant to
the Company’s Long-Term Stock Incentive Plan (awards on or after July 18, 2017) (filed as Exhibit 10.3 to the
Company’s Current Report on Form 8-K dated July18, 2017, filed July 20, 2017 and incorporated herein by reference).
*

Form of Restricted Stock Unit Award for Directors with Respect to awards of restricted stock units pursuant to the
Company’s Long-Term Stock Incentive Plan (awards on or after July 16, 2019)(filed as Exhibit 10.7 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2019 and incorporated herein by reference). *

Rules for Cash Incentive Awards under the Company’s Long-Term Stock Incentive Plan (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated March 27, 2018, filed March 29, 2018 and incorporated herein by
reference). *

Constellation Brands, Inc. Annual Management Incentive Plan, amended and restated as of July 27, 2012 (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 27, 2012, filed July 31, 2012 and incorporated
herein by reference). *#

Constellation Brands, Inc. Non-Qualified Savings Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form
8-K dated October 2, 2018, filed October 4, 2018 and incorporated herein by reference). *

Supplemental Executive Retirement Plan of the Company (filed as Exhibit 10.14 to the Company’s Annual Report on
Form 10-K for the fiscal year ended February 28, 1999 and incorporated herein by reference). *#

First Amendment to the Company’s Supplemental Executive Retirement Plan (filed as Exhibit 10 to the Company’s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1999 and incorporated herein by
reference). *#

Second Amendment to the Company’s Supplemental Executive Retirement Plan (filed as Exhibit 10.20 to the
Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2001 and incorporated herein by
reference). *#

Third Amendment to the Company’s Supplemental Executive Retirement Plan (filed as Exhibit 99.2 to the
Company’s Current Report on Form 8-K dated April 7, 2005, filed April 13, 2005 and incorporated herein by
reference). *#

2005 Supplemental Executive Retirement Plan of the Company (filed as Exhibit 99.3 to the Company’s Current
Report on Form 8-K dated April 7, 2005, filed April 13, 2005 and incorporated herein by reference). *#

First Amendment to the Company’s 2005 Supplemental Executive Retirement Plan (filed as Exhibit 10.7 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2007 and incorporated herein by
reference). *#

Second Amendment to the Company’s 2005 Supplemental Executive Retirement Plan (filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2013 and incorporated herein
by reference). *#

Third Amendment to the Company’s 2005 Supplemental Executive Retirement Plan (filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated October 2, 2018, filed October 4, 2018 and incorporated herein by
reference). *

Amended and Restated Guarantee Agreement, dated as of July 14, 2017, made by the subsidiaries of Constellation
Brands, Inc. from time to time party thereto and Constellation Brands, Inc., in favor of Bank of America, N.A., as
Administrative Agent, for the ratable benefit of the Lenders party to the Credit Agreement (no longer outstanding)
(filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 14, 2017, filed July 19, 2017 and
incorporated herein by reference).

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 130

PART IV

10.45

10.46

10.47

10.48

10.49

10.50

10.51

10.52

10.53

10.54

10.55

10.56

10.57

10.58

21.1

23.1

31.1

31.2

32.1

32.2

99.1

OTHER KEY INFORMATION

Guarantee Agreement (2018 Term Loan Credit Agreement), dated as of September 14, 2018, made by the
subsidiaries of Constellation Brands, Inc. from time to time party thereto in favor of Bank of America, N.A., as
Administrative Agent, for the ratable benefit of the Lenders party to the 2018 Term Loan Credit Agreement (no
longer outstanding) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 14, 2018,
filed September 19, 2018 and incorporated herein by reference).

Guarantee Agreement (2019 Term Loan Credit Agreement), dated as of June 28, 2019, made by the subsidiaries of
Constellation Brands, Inc. from time to time party thereto in favor of Bank of America, N.A., as Administrative Agent, for
the ratable benefit of the Lenders party to the 2019 Term Loan Credit Agreement (no longer outstanding) (filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 28, 2019, filed July 3, 2019 and incorporated
herein by reference).

Form of Executive Employment Agreement between Constellation Brands, Inc. and its Chairman of the Board and its
Vice Chairman of the Board (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K dated May 21, 2008,
filed May 21, 2008 and incorporated herein by reference). *#

Form of Executive Employment Agreement between Constellation Brands, Inc. and certain Other Executive Officers
(including F. Paul Hetterich) (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated May 21, 2008,
filed May 21, 2008 and incorporated herein by reference). *#

Executive Employment Agreement made as of June 17, 2013, between Constellation Brands, Inc. and Thomas M. Kane
(filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended August 31, 2013 and
incorporated herein by reference). *#

Executive Employment Agreement made as of January 26, 2015, between Constellation Brands, Inc. and William A.
Newlands (filed as Exhibit 10.57 to the Company’s Annual Report on Form 10-K for the fiscal year ended February 28,
2015 and incorporated herein by reference). *

Executive Employment Agreement made as of June 29, 2015, between Constellation Brands, Inc. and David Klein (filed
as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 29, 2015, filed July 2, 2015 and incorporated
herein by reference). *

Executive Employment Agreement made as of June 3, 2019, between Constellation Brands, Inc. and Robert L. Hanson
(filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2019 and
incorporated herein by reference). *

Form of Executive Employment Agreement between Constellation Brands, Inc. and certain of its Other Executive
Officers (including James O. Bourdeau, Garth Hankinson, Michael McGrew, Mallika Monteiro, and James A. Sabia, Jr.)
(filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2017 and
incorporated herein by reference). *

Description of Compensation Arrangements, as of July 16, 2019, for Non-Management Directors (filed as Exhibit 10.1
to the Company’s Current Report on Form 8-K dated September 24, 2019, filed September 25, 2019 and incorporated
herein by reference). *

Description of Compensation Arrangements, as of January 1, 2020, for Non-Management Directors (filed as Exhibit
10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2019 and incorporated
herein by reference). *

Amended and Restated Sub-license Agreement, dated as of June 7, 2013, between Marcas Modelo, S. de R.L. de C.V.
and Constellation Beers Ltd. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 7, 2013,
filed June 11, 2013 and incorporated herein by reference). +#

Form of Stock Option Agreement with respect to the Company’s Long-Term Stock Incentive Plan awards on and after
April 23, 2019) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 23, 2019, filed April 26,
2019 and incorporated herein by reference). *

Form of Restricted Share Unit Agreement with respect to the Company’s Long-Term Stock Incentive Plan awards on and after
April 23, 2019) (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 23, 2019, filed April 26, 2019 and
incorporated herein by reference). *

Subsidiaries of the Company (filed herewith).

Consent of KPMG LLP (filed herewith).

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act
of 1934, as amended (filed herewith).

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of
1934, as amended (filed herewith).

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).

Constellation Brands, Inc. 1989 Employee Stock Purchase Plan (amended and restated as of July 24, 2013) (filed as
Exhibit 99.1 to the Company’s Current Report on Form 8-K dated July 24, 2013, filed July 26, 2013 and incorporated
herein by reference). *#

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 131

PART IV

OTHER KEY INFORMATION

99.2

99.3

99.4

99.5

First Amendment, dated and effective April 25, 2016, to the Company’s 1989 Employee Stock Purchase Plan (filed as
Exhibit 99.1 to the Company’s Current Report on Form 8-K dated April 25, 2016, filed April 28, 2016 and incorporated
herein by reference). *

Final Judgment filed with the United States District Court for the District of Columbia on October 24, 2013, together with
Exhibits B and C (filed as Exhibit 99.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 2013 and incorporated herein by reference).

Consent Agreement, dated April 18, 2019, by and between CBG Holdings LLC and Canopy Growth Corporation
(incorporated herein by reference to Exhibit 99.4 of Canopy Growth Corporation’s Form 6-K filed April 30, 2019).

Second Amended and Restated Investor Rights Agreement, dated April 18, 2019, by and among Greenstar Canada
Investment Limited Partnership, CBG Holdings LLC and Canopy Growth Corporation (incorporated herein by reference
to Exhibit 99.3 of Canopy Growth Corporation’s Form 6-K filed April 30, 2019).

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document (filed herewith).

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

XBRL Taxonomy Extension Schema Document (filed herewith).

XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

XBRL Taxonomy Extension Labels Linkbase Document (filed herewith).

XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Designates management contract or compensatory plan or arrangement.

# Company’s Commission File No. 001-08495. For filings prior to October 4, 1999, use

Commission File No. 000-07570.

† The exhibits, disclosure schedules, and other schedules, as applicable, have been omitted
pursuant to Item 601(a)(5) of Regulation S-K. Constellation Brands, Inc. agrees to furnish
supplementally a copy of such exhibits, disclosure schedules, and other schedules, as
applicable, or any section thereof, to the SEC upon request.

‡ Portions of this exhibit are redacted pursuant to Item 601(b)(2)(ii) of Regulation S-K.

+ Portions of this exhibit were redacted pursuant to a confidential treatment request filed with
and approved by the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.

We agree, upon request of the Securities and Exchange Commission, to furnish copies of each

instrument that defines the rights of holders of long-term debt of the Company or its subsidiaries that is
not filed herewith pursuant to Item 601(b)(4)(iii)(A) because the total amount of long-term debt authorized
under such instrument does not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 132

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

April 21, 2020

CONSTELLATION BRANDS, INC.

By:

/s/ William A. Newlands
William A. Newlands
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed

below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.

/s/ William A. Newlands
William A. Newlands, Director, President
and Chief Executive Officer (principal
executive officer)

April 21, 2020

/s/ Robert Sands
Robert Sands, Director and
Executive Chairman of the Board
April 21, 2020

/s/ Christy Clark
Christy Clark, Director
April 21, 2020

/s/ Jerry Fowden
Jerry Fowden, Director
April 21, 2020

/s/ Susan Somersille Johnson
Susan Somersille Johnson, Director
April 21, 2020

/s/ Jose Manuel Madero Garza
Jose Manuel Madero Garza, Director
April 21, 2020

/s/ Judy A. Schmeling
Judy A. Schmeling, Director
April 21, 2020

/s/ Garth Hankinson
Garth Hankinson, Executive Vice
President and Chief Financial Officer
(principal financial officer and
principal accounting officer)
April 21, 2020

/s/ Richard Sands
Richard Sands, Director and
Executive Vice Chairman of the Board
April 21, 2020

/s/ Jennifer M. Daniels
Jennifer M. Daniels, Director
April 21, 2020

/s/ Ernesto M. Hernández
Ernesto M. Hernández, Director
April 21, 2020

/s/ James A. Locke III
James A. Locke III, Director
April 21, 2020

/s/ Daniel J. McCarthy
Daniel J. McCarthy, Director
April 21, 2020

Constellation Brands, Inc. FY 2020 Form 10-K

#WORTHREACHINGFOR I 133

PERFORMANCE GR APH

Set forth below is a line graph comparing, for the ﬁscal years ended the last day of February 2016, 2017, 2018, 2019, and 2020, the cumulative total
stockholder return of the Company’s Class A Common Stock and Class B Common Stock with the cumulative total return of the S&P 500 Index, and
the S&P 500 Food & Beverages Index. The graph assumes the investment of $100.00 on February 28, 2015 in the Company’s Class A Common Stock,
the Company’s Class B Common Stock, the S&P 500 Index, and the S&P 500 Food & Beverages Index, and also assumes the reinvestment of all dividends.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*

Among Constellation Brands, Inc., the S&P 500 Index, and S&P 500 Food & Beverages Index

$200

$150

$100

$50

2 /15

2 /16

2 / 17

2 / 18

2 / 19

2 /20

Constellation Brands, Inc. Class A
Constellation Brands, Inc. Class B
S&P 500
S&P 500 Food & Beverages Index

*$100 invested on 2/28/15 in stock or index, including reinvestment of dividends.
Fiscal year ending the last day of February.

2/15

2/16

2/17

2/18

2/19

2/20

100.00
100.00
100.00
100.00

124.49
124.63
93.81
107.21

141.21
139.10
117.24
117.75

193.61
194.68
137.29
117.69

154.25
154.25
143.71
115.80

159.60
153.31
155.49
130.01

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Constellation Brands, Inc. FY 2020 Summary Annual Report

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RECONCILIATION OF GA AP TO
NONGA AP FINANCIAL MEASURE

DIRECTORS AND
EXECUTIVE OFFICERS

For the Years Ended

(As of April 30, 2020)

EPS, reported basis $(0.07) $17.57 (100%)

DIRECTORS

2/29/20 2/28/19 Change

Acquisitions,
divestitures, and
related costs

Restructuring and
other strategic business
development costs

Other

EPS, comparable
basis (1)

(0.39)

(0.44)

2.40

0.10

7.17

(7.95)

William A. Newlands

President and Chief Executive Ofﬁ cer,
Constellation Brands, Inc.

Robert Sands

Executive Chairman,
Constellation Brands, Inc.

Richard Sands

Executive Vice Chairman,
Constellation Brands, Inc.

$9.12 $9.28

(2%)

Christy Clark (1)

(1) May not sum due to rounding as each item is computed independently

Diluted earnings per share (EPS) growth on
a comparable basis is provided because
management uses this information in evaluating
the results of our core operations and internal goal
setting. In addition, we believe this information
provides investors valuable insight on underlying
business trends and results in order to evaluate
year-over-year ﬁ nancial performance. For further
information on items excluded from comparable
basis EPS, refer to “Comparable Adjustments” and
“(Provision for) Beneﬁ t From Income Taxes” under
“Results of Operations” under Management’s
Discussion and Analysis of Financial Condition and
Results of Operations under Item 7. of this Annual
Report on Form 10-K.

Senior Advisor, Bennett Jones LLP

Jennifer M. Daniels (2)

Chief Legal Ofﬁ cer and Secretary,
Colgate-Palmolive Company

Jerry Fowden (1) (3)

Chairman of the Board,
Primo Water Corporation

Ernesto M. Hernández (1)

Former President and Managing Director,
General Motors de Mexico, S. de R.L. de C.V.

Susan Somersille Johnson (1)

Executive Vice President and Chief
Marketing Ofﬁ cer, Truist Financial
Corporation

James A. Locke III (3)

Senior Counsel to the law ﬁ rm
of Nixon Peabody LLP

Jose Manuel Madero Garza (2)

Independent Business Consultant and
Former Chief Executive Ofﬁ cer, Grupo Bepensa

Daniel J. McCarthy (2)

Former President and Chief Executive
Ofﬁ cer, Frontier Communications
Corporation

Judy A. Schmeling (2) (3)

Former Chief Operating Ofﬁ cer
of HSN, Inc. and Former President
of HSN’s Cornerstone Brands

EXECUTIVE OFFICERS

William A. Newlands

President and Chief Executive Ofﬁ cer,
Constellation Brands, Inc.

Robert Sands

Executive Chairman,
Constellation Brands, Inc.

Richard Sands

Executive Vice Chairman,
Constellation Brands, Inc.

James O. Bourdeau

Executive Vice President and General
Counsel, Constellation Brands, Inc.

Garth Hankinson

Executive Vice President and Chief
Financial Ofﬁ cer, Constellation Brands, Inc.

Robert Hanson

Executive Vice President and President,
Wine & Spirits Division, Constellation
Brands, Inc.

F. Paul Hetterich

Executive Vice President and President,
Beer Division, Constellation Brands, Inc.

Thomas M. Kane

Executive Vice President and
Chief Human Resources Ofﬁ cer,
Constellation Brands, Inc.

Michael McGrew

Executive Vice President and
Chief Communications and
Corporate Social Responsibility Ofﬁ cer,
Constellation Brands, Inc.

Mallika Monteiro

Executive Vice President and
Chief Growth and Strategy Ofﬁ cer,
Constellation Brands, Inc.

James A. Sabia, Jr.

Executive Vice President and
Chief Marketing Ofﬁ cer,
Constellation Brands, Inc.

(1) Member of Human Resources Committee
(2) Member of Audit Committee
(3) Member of Corporate Governance Committee

Additional biographical information about the Directors is included in the Proxy Statement relating to the Company’s 2020 annual meeting
distributed with this Annual Report on Form 10-K and posted on www.cbrands.com/annual-meeting.

Constellation Brands, Inc. FY 2020 Summary Annual Report

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INVESTOR INFORMATION

HEADQUARTERS

COMMON STOCK TRADING

COPIES OF FORM 10K

Constellation Brands, Inc.
207 High Point Drive, Building 100
Victor, NY 14564

585.678.7100
888.724.2169

www.cbrands.com

Investor Center
888.922.2150

The Company’s Class A and Class B
Common Stock trade on the New York
Stock Exchange (NYSE) under the ticker
symbols STZ and STZ.B, respectively.
There is no public market for the Company’s
Class 1 Common Stock. As of April 30, 2020,
there were 516 and 96 holders of record
of Class A and Class B Common Stock,
respectively, and 13 holders of record of
Class 1 Common Stock.

A copy of our Annual Report on Form 10-K for the
ﬁscal year ended February 29, 2020, ﬁled with
the U.S. Securities and Exchange Commission,
will be furnished without charge to any
stockholder upon written request to Constellation
Brands, Inc.’s Investor Relations department at
our corporate headquarters address provided on
this page. Alternatively, a copy is available on
our Constellation Brands website at
www.cbrands.com, as well as on the Securities
and Exchange Commission’s internet site at
www.sec.gov.

INFORMATION REGARDING

VIRTUAL ANNUAL STOCKHOLDERS’

FORWARDLOOKING STATEMENTS

MEETING

The statements set forth in this report, which are
not historical facts, are forward-
looking statements that involve risks and
uncertainties that could cause actual results
to differ materially from those set forth in, or
implied by, the forward-looking statements. For
risk factors associated with the Company and its
business, please refer to the Company’s Annual
Report on Form 10-K for the ﬁscal year ended
February 29, 2020.

The virtual annual meeting is scheduled to be
held at 11:00 a.m., Eastern Daylight Time, on
Tuesday, July 21, 2020, and is expected to be
conducted exclusively via online broadcast.
Stockholders will be able to attend the 2020
Virtual Annual Meeting, vote shares, and submit
questions during the meeting via the Internet by
visiting
www.virtualshareholdermeeting.com/STZ2020.

STOCK TRANSFER AGENT
AND REGISTRAR

Stockholder Inquiries
1-877-810-2237

Stockholder Portal
http://shareholder.broadridge.com/stz

Broadridge Corporate Issuer Solutions
1-877-830-4936 - Phone
1-303-974-3789 - International
1-215-553-5402 - Fax
M-F, 9 a.m. to 6 p.m. ET

Regular Delivery
Broadridge Corporate Issuer Solutions
P.O. Box 1342
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Overnight Delivery
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Constellation Brands, Inc. FY 2020 Summary Annual Report

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Website references in this annual report are provided as a convenience and do not constitute, and should not be
viewed as, incorporation by reference of the information contained on, or available through, the websites. Therefore,
such information should not be considered part of this annual report.