STZ US Equity☆

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 statements presented. Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Liquidity and Capital Resources” located in our Form 10-K for the fiscal year ended February 29, 2020, filed on April 21, 2020, for reference to discussion of the fiscal year ended February 28, 2019, the earliest of the three fiscal years presented. This MD&A, which should be read in conjunction with our Financial Statements, 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.

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

Critical accounting policies and estimates. This section identifies 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.

Overview

Our internal management financial reporting consists of three business divisions: (i) Beer, (ii) Wine and Spirits, and (iii) Canopy and 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 beer, craft beer, and ABA brands. We have an exclusive perpetual brand license to import, market, and sell our 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 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.

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Strategy

Our business strategy for the Beer segment focuses on leading the high-end segment of the U.S. beer market. This includes continued focus on growing our beer portfolio in the U.S. through expanding distribution for key brands, as well as NPD and innovation within the existing portfolio of brands, and continued expansion and construction 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 havemore than tripled the production capacity of the Nava Brewery since its 2013 acquisition. In early Fiscal 2022, we completed part of a planned expansion of our Obregon Brewery. Expansion efforts continue under our Mexico Beer Projects to align with our anticipated future growth expectations. However, at this time, we have suspended all Mexicali Brewery construction activities, following a negative result from a public consultation held in Mexico. See “Capital expenditures” below.

Our 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, including launching direct-to-consumer and eCommerce platforms; 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 focus our innovation and investment dollars on brands within our portfolio which position us to benefit from the consumer-led trend towards premiumization. Additionally, in connection with the recent divestitures, we expect to optimize the value of our wine and spirits portfolio by driving increased focus on our higher-end 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. Effective April 1, 2021, we have modified our U.S. wine and spirits distribution network to a single distributor which we expect to continue to represent approximately 70% of that volume. 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 allowing us to 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, ABA, 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 complement our strategy with our investment in Canopy, by expanding our portfolio into adjacent categories. Canopy is a leading cannabis company with operations in countries across the world. This investment is consistent with our long-term strategy to identify, address, and stay ahead of evolving consumer trends and market dynamics. We expanded our strategic relationship with Canopy to help position it as a global leader in cannabis production, branding, intellectual property, and retailing.

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 dividends and periodic share repurchases. Our results of operations and financial condition have not been significantly affected by inflation and changing prices. In the event of future rising costs, we intend to pass along such 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.

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Recent Development

Mexicali Brewery

In April 2021, our Board of Directors authorized management to sell or abandon the Mexicali Brewery. Subsequently, management determined that we will be unable to use or repurpose certain assets at the Mexicali Brewery. Accordingly, in the first quarter of fiscal 2022, we expect to recognize a long-lived asset impairment of approximately $650 million to $680 million which will be included within our consolidated results of operations. The fair value will be determined based on the expected salvage value of the abandoned assets as of April 2021. We are continuing to work with government officials in Mexico to (i) determine next steps for our suspended Mexicali Brewery construction project and (ii) pursue various forms of recovery for capitalized costs and additional expenses incurred in establishing the brewery, however, there can be no assurance of any recoveries. In the medium-term, under normal operating conditions, we have ample capacity at the Nava and Obregon breweries to meet consumer needs based on current growth forecasts and current and planned production capabilities. To align with our anticipated future growth expectations we are also working with the Mexican government to explore options to add further capacity at another location in Southeastern Mexico where there is ample water and a skilled workforce to meet our long-term needs.

COVID-19

In the key markets where we sell our products, the beverage alcohol industry has been classified as an essential business. COVID-19 containment measures affected us earlier in the fiscal year primarily in the reduction of (i) depletion volume on our products in the on-premise business due to bar and restaurant closures and (ii) shipment volume related to the reduced production activity at our major breweries in Mexico. The on-premise business has historically been about 10% to 15% of our depletion volume for beer, wine, and spirits. The Fiscal 2021 decrease in the on-premise business has been more than offset by an increase in off-premise. We expect our on-premise depletion volumes to return to more normal levels as Federal Drug Administration approved COVID-19 vaccines are administered across the U.S. and states begin the process of fully reopening their economies, including bars and restaurants.

Currently, our breweries, wineries, and bottling facilities are open and operational. However, certain facilities may experience occasional temporary closures due to applicable local conditions. In June 2020, beer production at our major breweries in Mexico returned to normal levels following a slow down earlier in the fiscal year.Our supply chains and distribution channels were not materially impacted and we worked throughout the fiscal year to rebuild our supply of products to meet forecasted demand. Distributor product inventories returned to normal levels at the end of Fiscal 2021.

In response to COVID-19, we have ensured our ongoing liquidity and financial flexibility through cash preservation initiatives, capital expense reductions, and cost control measures. 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 be able to continue to return value to shareholders through dividends and periodic share repurchases.

Investments, acquisitions, and divestitures

Beer segment

Ballast Point Divestiture

In March 2020, we sold the Ballast Point craft beer business, including a number of its associated production facilities and brewpubs. Accordingly, our consolidated results of operations include the results of operations of our Ballast Point craft beer business through the date of divestiture.

Wine and Spirits segment

Paul Masson Divestiture

In January 2021, we sold the Paul Masson Grande Amber Brandy brand, related inventory, and interests in certain contracts. We received cash proceeds of $267.4 million, subject to certain post-closing adjustments. The

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net cash proceeds were used for general corporate purposes. For the year ended February 28, 2021, we recognized a net gain of $58.9 million on the sale of the business.

Wine and Spirits Divestitures

In January 2021, we sold a portion of our wine and spirits business, including lower-margin, lower-growth wine and spirits brands, related inventory, interests in certain contracts, wineries, vineyards, offices, and facilities. We received net cash proceeds of $538.4 million, subject to certain post-closing adjustments. In addition, we have the potential to earn an incremental $250 million of contingent consideration if certain brand performance targets are met over a two-year period after closing.

In January 2021, we also sold the New Zealand-based Nobilo Wine brand and certain related assets. We received cash proceeds of $129.0 million, subject to certain post-closing adjustments.

The cash proceeds from the Wine and Spirits Divestitures were utilized to repay the 3.75% May 2013 Senior Notes and for other general corporate purposes. For the year ended February 28, 2021, we recognized a net loss of $35.7 million on the Wine and Spirits Divestitures.

Concentrate Business Divestiture

In December 2020, we sold certain brands used in our concentrates and high-color concentrate business, and certain intellectual property, inventory, goodwill, interests in certain contracts, and assets of our concentrates and high-color concentrate business.

The following presents selected financial information included in our historical consolidated financial statements that are no longer part of our consolidated results of operations following the Paul Masson Divestiture, Wine and Spirits Divestitures, and Concentrate Business Divestiture:

(in millions)

(1)Included in selling, general, and administrative expenses within our consolidated results of operations.

Copper & Kings acquisition

In September 2020, we acquired the remaining ownership interest in Copper & Kings which primarily included the acquisition of inventories, and property, plant, and equipment. This acquisition included a collection of traditional and craft batch-distilled American brandies and other select spirits. The results of operations of Copper & Kings are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Empathy Wines acquisition

In June 2020, we acquired Empathy Wines, which primarily included the acquisition of goodwill, trademarks, and inventory. This acquisition, which included a digitally-native wine brand, strengthened our position in the direct-to-consumer and eCommerce markets. The results of operations of Empathy Wines are reported in the Wine and Spirits segment and have been included in our consolidated results of operations from the date of acquisition.

Booker Vineyard investment

In April 2020, we invested in Booker Vineyard, a super-luxury, direct-to-consumer focused wine business that is accounted for under the equity method. We recognize our share of their equity in earnings (losses) in our consolidated financial statements in the Wine and Spirits segment.

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Black Velvet Divestiture

In November 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. 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 $266.7 million, net of post-closing adjustments. We recognized a net gain of $70.5 million on the sale of the business, primarily for the year ended February 29, 2020.

Nelson’s Green Brier acquisition

In May 2019, we increased our ownership interest in Tennessee-based 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 craft bourbon and whiskey products. The 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.

Canopy segment

Canopy investment

In May 2020, we exercised the November 2017 Canopy Warrants at an exercise price of C$12.98 per warrant share for C$245.0 million, or $173.9 million.

For additional information on the recent development, and these investments, acquisitions, and divestitures, refer to Notes 2, 7, 10, and 23.

Results of Operations

Financial Highlights

References to organic throughout the following discussion exclude the impact of recent divestitures, as appropriate.

For Fiscal 2021 compared with Fiscal 2020:

•Our results of operations benefited from the unrealized net gain of $802.0 million from the changes in fair value of our investment in Canopy in Fiscal 2021 and improvements within the Beer segment.

•Net sales increased 3% due to (i) an increase in Beer net sales driven predominantly by volume growth, (ii) favorable impacts from pricing and product mix shift within both the Beer and the Wine and Spirits segments, partially offset by (i) recent divestitures within both the Beer and the Wine and Spirits segments and (ii) Wine and Spirits net sales led by branded volume decline largely from brands divested in January 2021.

•Operating income increased 30% largely due to charges recognized for Fiscal 2020 in connection with our business transformation strategy within the Wine and Spirits segment, including an impairment of long-lived assets held for sale primarily in connection with the Wine and Spirits Divestitures and an increase in Beer net sales in Fiscal 2021 driven by volume growth, partially offset by recent divestitures.

•Net income attributable to CBI and diluted net income per common share attributable to CBI increased largely due to (i) the increase in unrealized net gain from the changes in fair value of our investment in Canopy in Fiscal 2021 as compared with the unrealized net loss in Fiscal 2020, (ii) an impairment of long-lived assets held for sale in Fiscal 2020, and (iii) volume growth within the Beer segment, partially offset by Fiscal 2021 provision for income taxes as compared with the benefit from income taxes for Fiscal 2020.

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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 the incentive compensation of segment management are evaluated based on core segment operating income (loss) which do not include the impact of these Comparable Adjustments.

As more fully described herein and in the Notes, the Comparable Adjustments that impacted comparability in our segment results for each period are as follows:

(in millions)

Cost of product sold

Recovery of (loss on) inventory write-down $ (70.4) $ 8.6

Strategic business development costs (29.8) (124.5)

COVID-19 incremental costs (7.6) —

Flow through of inventory step-up (0.4) (1.5)

Accelerated depreciation (0.1) (7.6)

Settlements of undesignated commodity derivative contracts 31.6 11.7

Net gain (loss) on undesignated commodity derivative contracts 25.1 (49.0)

Total cost of product sold (51.6) (162.3)

Selling, general, and administrative expenses

Restructuring and other strategic business development costs (23.9) (25.3)

Net gain (loss) on foreign currency derivative contracts (8.0) (1.8)

Transaction, integration, and other acquisition-related costs (7.6) (9.2)

Impairment of intangible assets (6.0) (11.0)

COVID-19 incremental costs (4.8) —

Other gains (losses) 14.7 7.3

Total selling, general, and administrative expenses (35.6) (40.0)

Impairment of assets held for sale (24.0) (449.7)

Gain (loss) on sale of business 14.2 74.1

Comparable Adjustments, Operating income (loss) $ (97.0) $ (577.9)

Income (loss) from unconsolidated investments $ 265.2 $ (2,480.1)

Cost of product sold

Recovery of (loss on) inventory write-down

We recognized a loss on the write-down of bulk wine inventory and certain grapes as a result of smoke damage sustained during the 2020 U.S. wildfires, partially offset by a related probable recovery from our insurance carriers (Fiscal 2021), and 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). For additional information on the 2020 U.S. wildfires, refer to Note 16.

Strategic business development costs

We recognized costs primarily in connection with losses on write-downs of excess inventory 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.

COVID-19 incremental costs

We recognized costs for incremental wages and hazard payments to employees, purchases of personal protective equipment, more frequent and thorough cleaning and sanitization of our facilities, and costs associated with the unused beer keg reimbursement program with distributors.

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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.

Accelerated depreciation

We recognized accelerated depreciation for certain assets primarily in connection with the multi-year implementation of a new global ERP system which is intended to replace our then-existing operating and financial systems.

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.

Selling, general, and administrative expenses

Restructuring and other strategic business development costs

We recognized costs primarily in connection with costs to optimize our portfolio, gain efficiencies, and reduce our cost structure within the Wine and Spirits segment.

Net gain (loss) on foreign currency derivative contracts

We recognized a net loss primarily in connection with the settlement of foreign currency forward contracts entered into to fix the U.S. dollar cost of the May 2020 Canopy Investment.

Transaction, integration, and other acquisition-related costs

We recognized transaction, integration, and other acquisition-related costs in connection with our investments, acquisitions, and divestitures.

Impairment of intangible assets

We recognized trademark impairment losses related to our Beer segment’s Four Corners craft beer trademark asset (Fiscal 2021) and Ballast Point craft beer trademark asset (Fiscal 2020). For additional information, refer to Note 7.

COVID-19 incremental costs

We recognized costs for payments to third-party general contractors to maintain their workforce for expansion activities at the Obregon Brewery and recognized costs for incremental wages and hazard payments to employees.

Other gains (losses)

We recognized other gains (losses) primarily in connection with (i) a gain recognized on the sale of a vineyard (Fiscal 2021), (ii) a gain on the remeasurement of our previously held equity interest in Nelson’s Green Brier to the acquisition-date fair value (Fiscal 2020), (iii) an increase in estimated fair value of a contingent liability associated with a prior period acquisition (Fiscal 2020), and (iv) recognition of previously deferred gain upon release of a related guarantee (Fiscal 2020).

Impairment of assets held for sale

We recognized impairments of long-lived assets held for sale in connection with the (i) Wine and Spirits Divestitures (Fiscal 2021, Fiscal 2020), (ii) the Concentrate Business Divestiture (Fiscal 2021, Fiscal 2020), and (iii) the Ballast Point Divestiture (Fiscal 2020). For additional information, refer to Note 7.

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Gain (loss) on sale of business

We recognized a net gain (loss) primarily on the completion of the Paul Masson Divestiture, the Wine and Spirits Divestitures (Fiscal 2021), and the Black Velvet Divestiture (Fiscal 2020).

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) equity in earnings (losses) from Canopy’s results of operations, (iii) equity losses from Canopy related to costs designed to improve their organizational focus, streamline operations, and align production capability with projected demand (Fiscal 2021), and (iv) the increase in fair value resulting from the June 2019 modification of the terms of the November 2018 Canopy Warrants (Fiscal 2020). For additional information, refer to Notes 7 and 10.

Business segments

Net sales

Fiscal 2021 Fiscal 2020 Dollar Change Percent Change

(in millions)

Wine and Spirits:

Beer segment

Fiscal 2021 Fiscal 2020 Dollar Change Percent Change

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

Shipment volume

Depletion volume (1) (2) 7.1 %

(1)Includes an adjustment to remove volume associated with the Ballast Point Divestiture for the period March 2, 2019, through February 29, 2020.

(2)Depletions represent distributor shipments of our respective branded products to retail customers, based on third-party data.

The increase in Beer net sales is largely due to $451.6 million of volume growth within our Mexican beer portfolio, which benefited from continued consumer demand, new product introductions, and line extensions, $69.7 million favorable impact from pricing in select markets within our Mexican beer portfolio, and $35.0 million increase from favorable product mix shift, partially offset by $92.0 million from the Ballast Point Divestiture. Favorable product mix shift primarily resulted from increased sales of Corona Hard Seltzer and a reduction in on-premise keg sales. Inventory in our distribution channels returned to normal levels by the end of Fiscal 2021 following reduced production levels at our major breweries in Mexico earlier in the year.

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Wine and Spirits segment

Fiscal 2021 Fiscal 2020 Dollar Change Percent Change

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

Shipment volume

U.S. Domestic depletion volume (2) (3) (4) (5) (2.8 %)

(3)Includes an adjustment to remove volume associated with the Black Velvet Divestiture for the period March 1, 2019, through October 31, 2019.

(4)Includes an adjustment to remove volume associated with the Wine and Spirits Divestitures for the period January 5, 2020, through February 29, 2020.

(5)Includes an adjustment to remove volume associated with the Paul Masson Divestiture for the period January 12, 2020, through February 29, 2020.

The decrease in Wine and Spirits net sales is primarily due to $230.9 million from recent divestitures and $96.4 million decline in branded wine and spirits volume, driven by the brands divested in January 2021, partially offset by $102.5 million of favorable product mix shift and $51.1 million from favorable pricing. The Wine and Spirits Fiscal 2021 results have been negatively impacted by (i) recent divestitures, (ii) on-premise and retail tasting room closures as a result of COVID-19 containment measures, and (iii) transition activities with distributors repositioning for ownership of brands, partially offset by an increase in off-premise and a continued focus on NPD and growing our brands.

Gross profit

Fiscal 2021 Fiscal 2020 Dollar Change Percent Change

(in millions)

Consolidation and Eliminations 14.1 (45.4) 59.5 NM

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Gross profit as a percent of net sales increased to 51.8% for Fiscal 2021 compared with 49.8% for Fiscal 2020. This was largely due to (i) a favorable change of approximately 130 basis points in Comparable Adjustments, (ii) favorable impacts from both Beer and Wine and Spirits pricing in select markets, which contributed approximately 40 basis points and 30 basis points of rate growth, respectively, and (iii) 30 basis points of favorable impact from the recent divestitures, partially offset by approximately 80 basis points of rate decline from higher cost of product sold within the Wine and Spirits segment and an unfavorable product mix shift for the Beer segment contributing approximately 30 basis points of rate decline.

Selling, general, and administrative expenses

Fiscal 2021 Fiscal 2020 Dollar Change Percent Change

(in millions)

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Selling, general, and administrative expenses as a percent of net sales decreased to 19.3% for Fiscal 2021 as compared with 19.4% for Fiscal 2020. The decrease is driven largely by approximately 490 basis points of rate decline as the increase in Beer net sales exceeded the increase in selling, general, and administrative expenses, and approximately 40 basis points in Comparable Adjustments rate decline, largely offset by approximately 470 basis points of rate growth from the recent Wine and Spirits divestitures and an increase in Corporate Operations and Other general and administrative expenses, which resulted in 45 basis points of rate growth.

Operating income (loss)

Fiscal 2021 Fiscal 2020 Dollar Change Percent Change

(in millions)

Corporate Operations and Other (228.6) (223.9) (4.7) (2 %)

Income (loss) from unconsolidated investments

General

Fiscal 2021 Fiscal 2020 Dollar Change Percent Change

(in millions)

Net gain (loss) on sale of unconsolidated investment — 0.4 (0.4) NM

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(1)Fiscal 2020 includes 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 $1,176.0 million unrealized gain resulting from the June 2019 Warrant Modification.

(2)Fiscal 2021 includes $359.6 million of costs designed to improve their organizational focus, streamline operations, and align production capability with projected demand and Fiscal 2020 includes our share of Canopy’s additional loss resulting from the June 2019 Warrant Modification of $409.0 million.

Interest expense

Interest expense decreased to $385.7 million for Fiscal 2021 from $428.7 million for Fiscal 2020. This decrease of $43.0 million, or 10% is predominantly due to lower average borrowings of approximately $1.2 billion primarily attributable to the partial repayment of financing entered into in connection with the November 2018 Canopy Transaction.

(Provision for) benefit from income taxes

Our effective tax rate for Fiscal 2021 was 20.1% of tax expense as compared with 102.3% of tax benefit for Fiscal 2020. In comparison to prior year, our taxes were negatively impacted 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,

•lower net income tax benefits recorded for Fiscal 2021 as compared with Fiscal 2020 on the changes in fair value of our investment in Canopy and Canopy equity in earnings (losses); and

•a lower net income tax benefit from stock-based compensation award activity for Fiscal 2021 from changes in option exercise activity.

For additional information, refer to Note 13.

We expect our reported effective tax rate for the next fiscal year to be in the range of 21% to 23%. This range includes the estimated impact of the expected long-lived asset impairment of brewery construction in progress. For additional information, refer to Note 23. Since estimates are not currently available, this range does not reflect any future changes in the fair value of our Canopy investment measured at fair value and any future equity in earnings (losses) and related activities from the Canopy Equity Method Investment.

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Net income (loss) attributable to CBI

Net income (loss) attributable to CBI increased to $1,998.0 million for Fiscal 2021 from $(11.8) million for Fiscal 2020. This increase of $2,009.8 million is largely attributable to (i) the unrealized net gain from the changes in fair value of our investment in Canopy in Fiscal 2021 as compared with an unrealized net loss in Fiscal 2020, (ii) an impairment of long-lived assets held for sale for Fiscal 2020, (iii) and strong volume growth within the Beer segment, partially offset by the Fiscal 2021 provision for income taxes as compared with a benefit from income taxes for Fiscal 2020.

Liquidity and Capital Resources

General

Our primary source of liquidity has been cash flow from operating activities. Our ability to consistently generate robust cash flow from our operations is one of our most significant financial strengths, it enables us to invest in our people and brands, make capital investments and strategic acquisitions, provide a cash dividend program, and from time-to-time, repurchase shares of our common stock. Our largest use of cash in our operations is for purchasing and carrying inventories and carrying seasonal accounts receivable. Historically, we have used this cash flow to repay our short-term borrowings and fund capital expenditures. Additionally, our commercial paper program is used to fund our short-term borrowing requirements and to maintain our access to the capital markets. We 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. A prolonged impact could interfere with our ability to access sources of liquidity or at favorable rates and to generate sufficient operating cash flows. We also have used opportunities to defer some payments including certain payroll taxes under the CARES Act afforded to us during the pandemic.

We seek to maintain 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.

On May 1, 2020, we exercised the November 2017 Canopy Warrants for an aggregate amount of C$245.0 million, or $173.9 million with cash from operations.

Cash flows

(in millions)

Net cash provided by (used in):

Effect of exchange rate changes on cash and cash equivalents 7.2 (0.9) 8.1

Net increase (decrease) in cash and cash equivalents $ 379.2 $ (12.2) $ 391.4

Operating activities

The increase in net cash provided by operating activities for Fiscal 2021 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 reduced inventories for the Wine and Spirits segment as a result of the 2020 U.S. wildfires. The increase in net

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cash provided by operating activities was partially offset by higher income tax payments in Fiscal 2021 primarily due to a change in estimated taxable income and the receipt of a federal tax refund in Fiscal 2020.

Investing activities

Net cash used in investing activities for Fiscal 2021 decreased primarily due to higher proceeds from sale of business of $729.8 million for Fiscal 2021 as compared with Fiscal 2020. The decrease was partially offset by the May 2020 exercise of the November 2017 Canopy Warrants for $173.9 million and higher Fiscal 2021 capital expenditures of $138.1 million.

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

Investments Acquisitions Divestitures

● May 2020 Canopy Investment ● Copper & Kings ● Paul Masson Grande Amber Brandy

● Booker Vineyard ● Empathy Wines ● Wine and Spirits Divestiture

● Nobilo Wine

● Concentrates and high-color concentrates

● Ballast Point

● Nelson’s Green Brier ● Black Velvet Canadian Whisky

For additional information on these investments, acquisitions, and divestitures, refer to Notes 2, 7, and 10.

Financing activities

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

(in millions)

Purchases of treasury stock — (50.0) 50.0

Net cash provided by stock-based compensation activities 51.2 63.9 (12.7)

Distributions to noncontrolling interests (35.0) — (35.0)

Payment of contingent consideration — (11.3) 11.3

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Debt

Total debt outstanding as of February 28, 2021, amounted to $10,442.3 million, a decrease of $1,742.3 million from February 29, 2020. This decrease consisted of:

Debt repayment Debt issuance

Bank facilities

In March 2020, we entered into the 2020 Restatement Agreement that amended and restated the 2018 Credit Agreement. This 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. These new agreements 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. We prepaid the remaining outstanding Three-Year Term Facility and Five-Year Term Facility borrowings under our 2020 Term Credit Agreement in Fiscal 2021.

Senior notes

In April 2020, we issued the April 2020 Senior Notes. Proceeds from this offering, net of discount and debt issuance costs, of $1,183.3 million were primarily used for the repayment of our 2.25% November 2017 Senior Notes and a portion of the Three-Year Term Facility outstanding obligations under our 2020 Term Credit Agreement.

In November 2020, we repaid the Senior Floating Rate Notes with cash on hand. In February 2021, we repaid the 3.75% May 2013 Senior Notes utilizing cash proceeds from the Wine and Spirits Divestitures.

General

The majority of our outstanding borrowings as of February 28, 2021, consisted of fixed-rate senior unsecured notes, with maturities ranging from calendar 2022 to calendar 2050, and a variable-rate senior

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unsecured term loan facility under our March 2020 Term Credit Agreement, originally entered into in June 2019, with a calendar 2024 maturity date as follows:

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 2020 Credit Agreement. Accordingly, outstanding borrowings under our commercial paper program reduce the amount available under our revolving credit facility under our 2020 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 commercial paper borrowings mature, we will utilize unused commitments under our revolving credit facility under our 2020 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 2020 Credit Agreement.

We had the following borrowing capacity available under our 2020 Credit Agreement:

Remaining Borrowing Capacity

(in millions)

(1) Net of outstanding revolving credit facility borrowings and outstanding letters of credit under our 2020 Credit Agreement and outstanding borrowings under our commercial paper program.

The financial institutions participating in our 2020 Credit Agreement have complied with prior funding requests and we believe they 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 our 2020 Credit Agreement, including those restricting the incurrence of additional indebtedness, 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

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maximum net leverage ratio, both as defined in our 2020 Credit Agreement. As of February 28, 2021, under our 2020 Credit Agreement, the minimum interest coverage ratio was 2.5x and the maximum net leverage ratio was 4.5x.

The representations, warranties, covenants, and events of default set forth in our March 2020 Term Credit Agreement are substantially similar to those set forth in our 2020 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.

As of February 28, 2021, we were in compliance with our covenants under our 2020 Credit Agreement, our March 2020 Term Credit Agreement, and our indentures, and have met all debt payment obligations.

For further discussion and presentation of our borrowings and available sources of borrowing, refer to Note 12.

Common stock dividends

On April 7, 2021, our Board of Directors declared a quarterly cash dividend of $0.76 per share of Class A Common Stock, $0.69 per share of Class B Convertible Common Stock, and $0.69 per share of Class 1 Common Stock payable on May 18, 2021, to stockholders of record of each class on May 4, 2021. We expect to return approximately $580 million to stockholders in Fiscal 2022 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 Form 10-K.

Share Repurchase Program

Our Board of Directors has 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 and the repurchase of up to $2.0 billion of our Class A Common Stock and Class B Convertible Common Stock under the 2021 Authorization. Shares repurchased under the 2018 Authorization have become treasury shares. No shares were repurchased during the fourth quarter of fiscal 2021.

As of February 28, 2021, total shares repurchased under the 2018 Authorization and the 2021 Authorization are as follows:

Class A Common Shares

(in millions, except share data)

Share repurchases under the 2018 Authorization and 2021 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.

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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 Form 10-K.

For additional information, refer to Note 17.

Capital Resources

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. As of February 28, 2021, our $460.6 million cash and cash equivalent balance reflects the recent sale of a portion of our wine and spirits business.

The following sets forth information about our outstanding obligations at February 28, 2021. For a detailed discussion of the items noted in the following table, refer to Notes 11, 12, 13, 14, 15, and 16.

Short-term payments Long-term payments Total

(in millions)

Contractual obligations:

Purchase obligations

Other purchase obligations $ 8.4 $ 18.0 $ 26.4

Other:

(1)Interest payments on long-term debt do not include interest related to finance lease obligations as amounts are not material.

(2)Other long-term liabilities do not include payments for unrecognized tax benefit liabilities of $204.7 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 13.

(3)Contracts to purchase equipment and services primarily related to the Obregon Brewery expansion. For further information about these purchase obligations, refer to “Capital Expenditures” below.

(4)Publicly announced intent to return $5 billion in value to shareholders through dividends and share repurchases to be made from Fiscal 2020 through Fiscal 2023. We have returned $1,194.2 million through Fiscal 2021.

(5)Publicly announced intent to invest (i) $100 million in female-founded or led companies through our Focus on Female Founders program over a ten-year period concluding in fiscal 2029 and (ii) $100 million to support African American/Black and minority-owned startups in the beverage alcohol space and related categories over a ten-year period concluding in fiscal 2031. We have invested $32.7 million through Fiscal 2021 in female-founded or led companies.

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Capital expenditures

During Fiscal 2021, we incurred $864.6 million for capital expenditures, including $693.9 million for the Beer segment primarily for the Mexico Beer Projects.

We plan to spend from $1.0 billion to $1.1 billion for capital expenditures in Fiscal 2022, including approximately $900 million for the Beer segment associated primarily with the Mexico Beer Projects. The remaining planned Fiscal 2022 capital expenditures consist of improvements to existing operating facilities and replacements of existing equipment and/or buildings. The Mexico Beer Projects are expected to be completed by Fiscal 2025. Accordingly, we expect to spend approximately $700 million to $900 million annually in Fiscal 2023 through Fiscal 2025 for the Beer segment. Management reviews the capital expenditure program periodically and modifies it as required to meet current business needs.

In fiscal 2017, we began construction of the Mexicali Brewery. In March 2020, a public consultation was held on the construction of our Mexicali Brewery. Following the negative result of the public consultation, we are in discussions with government officials in Mexico regarding next steps for our brewery construction project and options elsewhere in the country. We intend to continue working with government officials to mutually agree upon a path forward. At this time, we have suspended all Mexicali Brewery construction activities. See Note 23 for further discussion.

Critical accounting policies and estimates

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

•Fair value of financial instruments. Management’s estimate of fair value requires significant judgment and is subject to a high degree of variability based upon market conditions and the availability of specific information. The fair values of our financial instruments that require the application of significant judgment by management are as follows:

Canopy investment

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 market spreads using bond data as of the valuation date. This valuation model uses various market-based inputs,

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including stock price, remaining term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable.

•Goodwill and other intangible assets.Goodwill and other intangible assets are classified into three categories: (i) goodwill, (ii) intangible assets with definite lives subject to amortization, and (iii) intangible assets with indefinite lives not subject to amortization. In estimating the fair value of the reporting units, management must make assumptions and projections regarding items such as future cash flows, revenues, earnings, and other factors. The assumptions used reflect management’s estimates and are based on historical trends, projections and assumptions, including expectations of future economic and competitive conditions that are used in current strategic operating plans, however, are 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.

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.

Goodwill – Our reporting units with goodwill include the Beer segment and the Wine and Spirits segment. In the fourth quarter of fiscal 2021, 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 108% excess fair value. For Fiscal 2020 and Fiscal 2019, 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, 2021, 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. Therefore, we did not have any indication of potential impairment.

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. Using 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.

In the fourth quarter of fiscal 2021, the Beer segment’s Four Corners craft beer business recognized a $6.0 million impairment loss in connection with its trademark asset. Certain negative trends within our Four Corners craft beer portfolio, including slower growth rates and increased competition, resulted in updated long-term financial forecasts indicating lower revenue and cash flow generation for the related portfolio. This change in financial forecasts indicated it was more likely than not the fair value of our indefinite-lived intangible asset associated with the Four Corners craft beer trademark might be below its carrying value. Accordingly, we performed a quantitative assessment for impairment. During the second quarter of fiscal 2020, certain continuing negative trends within our Beer segment’s Ballast Point craft beer portfolio, including

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increased rate of revenue decline and increased competition, indicated that it was more likely than not 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. Refer to Note 7 for further discussion.

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, 2021, 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.

Divestitures – 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 is 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.

For Fiscal 2021, our estimate of fair value for the Paul Masson Divestiture, the Wine and Spirits Divestitures, the Concentrate Business Divestiture, and the Ballast Point Divestiture was determined based on the expected proceeds from the transactions. The components sold were a part of the Wine and Spirits or Beer segment and were included in those reporting units through the date of divestiture. Goodwill was allocated to the 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 associated with the respective divestitures remained in the wine and spirits or beer 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 all tax positions are fully supported. 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 the position will be sustained upon examination 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

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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 they will not be 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 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.

Change in Accounting Guidance

Accounting guidance adopted for Fiscal 2021 did not have a material impact on our consolidated financial statements.

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PART II ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES Table of Contents

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 28, 2021, we had exposures to foreign currency risk primarily related to the Mexican peso, euro, New Zealand dollar, and Canadian dollar. Approximately 100% of our balance sheet exposures and 82% of our forecasted transactional exposures for the year ending February 28, 2022, were hedged as of February 28, 2021.

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 28, 2021, exposures to commodity price risk which we are currently hedging include aluminum, corn, diesel fuel, natural gas, and wheat prices. Approximately 67% of our forecasted transactional exposures for the year ending February 28, 2022, were hedged as of February 28, 2021.

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. Gains or losses from the revaluation or settlement of the related underlying positions would substantially offset such gains or losses 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:

(in millions)

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, 2021. As of February 28, 2021, and February 29, 2020, there were no undesignated interest rate swap contracts outstanding.

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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 debtissuances. There were no cash flow designated treasury lock contracts outstanding as of February 28, 2021. As of February 28, 2021, and February 29, 2020, 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-rate debt, including current maturities and open interest rate derivative instruments, are summarized as follows:

(in millions)

Interest rate swap contracts $ — $ 375.0 $ — $ (0.8) $ — $ (0.3)

Treasury lock contracts $ — $ 300.0 $ — $ (7.6) $ — $ (9.7)

A 1% hypothetical change in the prevailing interest rates would have increased interest expense on our variable interest rate debt by $12.4 million and $26.7 million for the for the years ending February 28, 2021, and February 29, 2020, respectively.

Equity price risk

The estimated fair value of our investment 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. This investment is recognized at fair value utilizing various option-pricing models and has 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.

As of February 28, 2021, the fair value of our investment in the Canopy warrants and the Canopy convertible debt securities was $1,816.0 million, with an unrealized net gain (loss) on this investment of $802.0 million recognized in our results of operations for the year ended February 28, 2021. 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 28, 2021, such a hypothetical 10% adverse change would have resulted in a decrease in fair value of $282.7 million.

For additional discussion on our market risk, refer to Notes 6 and 7.

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PART II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Table of Contents

Item 8. Financial Statements and Supplementary Data

CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 28, 2021

Page

Management’s Annual Report on Internal Control Over Financial Reporting 55

Reports of Independent Registered Public Accounting Firm – KPMG LLP 56

Consolidated Balance Sheets 60

Consolidated Statements of Comprehensive Income (Loss) 61

Consolidated Statements of Changes in Stockholders’ Equity 62

Consolidated Statements of Cash Flows 63

Notes to Consolidated Financial Statements

2. Acquisitions, Divestitures, and Business Transformation 70

3. Inventories 73

4. Prepaid Expenses and Other 74

5. Property, Plant, and Equipment 74

6. Derivative Instruments 75

7. Fair Value of Financial Instruments 78

9. Intangible Assets 84

10. Equity Method Investments 85

11. Other Accrued Expenses and Liabilities 88

14. Deferred Income Taxes and Other Liabilities 97

16. Commitments and Contingencies 100

17. Stockholders' Equity 101

18. Stock-Based Employee Compensation 103

19. Net Income (Loss) Per Common Share Attributable to CBI 107

20. Accumulated Other Comprehensive Income (Loss) 108

21. Significant Customers and Concentration of Credit Risk 109

22. Business Segment Information 110

24. Selected Quarterly Financial Information (unaudited) 114

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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 28, 2021.

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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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 28, 2021, 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 28, 2021, 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 28, 2021 and February 29, 2020, 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 28, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated April 20, 2021 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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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.

/s/ KPMG LLP

Rochester, New York

April 20, 2021

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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 28, 2021 and February 29, 2020, 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 28, 2021, 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 28, 2021 and February 29, 2020, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended February 28, 2021, 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 28, 2021, 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 20, 2021 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.

Fair value measurement of the Canopy warrants

As discussed in Notes 1 and 7 to the consolidated financial statements, the Company established policies for measuring the fair value of financial instruments, including the November 2018 Canopy Warrants. As of February 28, 2021, the recorded balance of the Company’s investment in the November 2018 Canopy Warrants was $1,639.7 million. The Company uses option pricing models to estimate the fair value of the November 2018 Canopy Warrants using various market-based inputs.

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We identified the evaluation of the fair value measurement of the November 2018 Canopy Warrants as a critical audit matter. Specifically, a high degree of subjective auditor judgment, including the involvement of valuation professionals with specialized skills and knowledge, was required in evaluating the determination of the expected volatility inputs used in the option pricing models for the 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 November 2018 Canopy Warrants were sensitive to the expected volatility inputs.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the fair value measurement of the 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 in developing an estimate of the November 2018 Canopy Warrants’ fair value using the independently-developed volatility range and comparing it to the value determined by the Company.

Unrecognized tax benefits

As discussed in Notes 1 and 13 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 unrecognized tax benefits of $236.1 million as of February 28, 2021.

We identified the evaluation of certain of the Company’s unrecognized tax benefits as a critical audit matter. Specifically, complex auditor judgment, including the involvement of tax and valuation professionals with specialized skills and knowledge, was required in evaluating the Company’s interpretation of tax law and its estimate of the ultimate resolution of its tax positions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process to evaluate uncertain tax positions. This included 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. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating the Company’s interpretation of tax law and tax authority rulings and in performing an independent assessment of certain of the Company’s tax positions and the amount of unrecognized tax benefit, if any, and comparing the results to the Company’s assessment. We also involved valuation professionals with specialized skills and knowledge, who assisted in assessing certain transfer pricing studies for compliance with applicable laws and regulations.

/s/ KPMG LLP

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

Rochester, New York

April 20, 2021

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share data)

ASSETS

Current assets:

Cash and cash equivalents $ 460.6 $ 81.4

Assets held for sale - current — 628.5

Assets held for sale — 552.1

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Short-term borrowings $ — $ 238.9

Current maturities of long-term debt 29.2 734.9

Other accrued expenses and liabilities 779.9 780.4

Deferred income taxes and other liabilities 1,493.5 1,326.3

Commitments and contingencies (Note 17)

CBI stockholders’ equity:

Accumulated other comprehensive income (loss) (335.5) (266.3)

Less: Treasury stock –

Class B Convertible Common Stock, at cost, 5,005,800 shares (2.2) (2.2)

Total liabilities and stockholders’ equity $ 27,104.8 $ 27,323.2

The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions, except per share data)

For the Years Ended

Impairment of assets held for sale (24.0) (449.7) —

Gain (loss) on sale of business 14.2 74.1 —

Loss on extinguishment of debt (12.8) (2.4) (1.7)

(Provision for) benefit from income taxes (511.1) 966.6 (685.9)

Net income (loss) attributable to noncontrolling interests (33.8) (33.2) (23.2)

Net income (loss) attributable to CBI $ 1,998.0 $ (11.8) $ 3,435.9

Net income (loss) per common share attributable to CBI:

Basic – Class B Convertible Common Stock $ 9.48 $ (0.07) $ 16.57

Diluted – Class B Convertible Common Stock $ 9.42 $ (0.07) $ 16.21

Weighted average common shares outstanding:

Cash dividends declared per common share:

Class B Convertible Common Stock $ 2.72 $ 2.72 $ 2.68

Comprehensive income (loss):

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

Foreign currency translation adjustments (56.0) 60.8 (196.8)

Unrealized gain (loss) on cash flow hedges (20.9) 40.4 11.4

Unrealized gain (loss) on available-for-sale debt securities — — 2.5

Pension/postretirement adjustments (1.6) (0.6) 0.5

Other comprehensive income (loss), net of income tax effect (80.3) 90.5 (152.8)

Comprehensive income (loss) attributable to CBI $ 1,928.8 $ 75.8 $ 3,284.9

The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in millions)

Class A Class B

Cumulative effect of change in accounting principle — — — 2,242.0 — — — 2,242.0

Comprehensive income (loss):

Comprehensive income (loss) 3,306.3

Retirement of treasury shares (0.7) — (1,522.3) — — 1,523.0 — —

Repurchase of shares — — — — — (504.3) — (504.3)

Dividends declared — — — (558.9) — — — (558.9)

Shares issued under equity compensation plans — — 45.2 — — 4.4 — 49.6

Stock-based compensation — — 62.6 — — — — 62.6

Comprehensive income (loss):

Comprehensive income (loss) 111.9

Repurchase of shares — — — — — (50.0) — (50.0)

Dividends declared — — — (569.1) — — — (569.1)

Initial recognition of non-controlling interest — — — — — — 20.2 20.2

Shares issued under equity compensation plans — — 43.8 — — 20.3 — 64.1

Stock-based compensation — — 60.0 — — — — 60.0

Comprehensive income (loss):

Comprehensive income (loss) 1,951.5

Dividends declared — — — (575.5) — — — (575.5)

Noncontrolling interest distributions — — — — — — (35.0) (35.0)

Shares issued under equity compensation plans — — 27.0 — — 24.2 — 51.2

Stock-based compensation — — 62.6 — — — — 62.6

The accompanying notes are an integral part of these statements.

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For the Years Ended

CASH FLOWS FROM OPERATING ACTIVITIES

Noncash lease expense 83.3 88.3 —

Impairment and amortization of intangible assets 11.3 16.7 114.0

Net (gain) loss on sale of unconsolidated investment — (0.4) (99.8)

Impairment of assets held for sale 24.0 449.7 —

(Gain) loss on sale of business (14.2) (74.1) —

Loss on settlement of treasury lock contracts (29.3) — —

Net income tax benefit related to the Tax Cuts and Jobs Act — — (37.6)

Prepaid expenses and other current assets 65.7 8.1 (103.0)

Other accrued expenses and liabilities (75.0) (58.5) (22.1)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant, and equipment (864.6) (726.5) (886.3)

Purchase of business, net of cash acquired (19.9) (36.2) (45.6)

Investments in equity method investees and securities (222.4) (48.2) (4,081.5)

Proceeds from sale of assets 18.9 8.3 72.3

Proceeds from sale of unconsolidated investment — 1.5 110.2

Proceeds from sale of business 999.5 269.7 —

Other investing activities 0.6 0.4 (0.9)

Net cash provided by (used in) investing activities (87.9) (531.0) (4,831.8)

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For the Years Ended

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from (repayments of) short-term borrowings (238.9) (552.6) 45.5

Purchase of treasury stock — (50.0) (504.3)

Proceeds from shares issued under equity compensation plans 58.9 78.2 63.2

Distributions to noncontrolling interests (35.0) — —

Payment of contingent consideration — (11.3) —

Net cash provided by (used in) financing activities (2,346.6) (2,031.4) 2,593.3

Effect of exchange rate changes on cash and cash equivalents 7.2 (0.9) (4.5)

Net increase (decrease) in cash and cash equivalents 379.2 (12.2) 3.3

Cash and cash equivalents, beginning of year 81.4 93.6 90.3

Cash and cash equivalents, end of year $ 460.6 $ 81.4 $ 93.6

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year

Interest, net of interest capitalized $ 418.5 $ 448.9 $ 324.8

Income taxes, net of refunds received $ 189.7 $ 85.3 $ 186.2

Noncash investing and financing activities

Additions to property, plant, and equipment $ 101.1 $ 70.4 $ 141.7

Conversion of long-term debt to noncontrolling equity interest $ — $ — $ 248.2

The accompanying notes are an integral part of these statements.

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CONSTELLATION BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 28, 2021

1. 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. We are an international beverage alcohol company with a powerful portfolio of consumer-connected, high-end imported 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 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.

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

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these other revenue generating activities are immaterial for separate disclosure. See Note 22 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 28, 2021, February 29, 2020, and February 28, 2019, was $805.0 million, $769.5 million, and $700.8 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 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.

Inventories

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

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

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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 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: